Tax Working Group releases final report
On 20 January 2010, the Tax Working Group released its highly-anticipated final report to the Government on suggested options for system-wide reform of the tax system. The full report can be accessed here: www.victoria.ac.nz/sacl/cagtr/pdf/tax-report-website.
The recommendations are significant and wide-ranging, and have the potential to transform the tax system completely. The key recommendations include:
- Aligning (or more closely aligning) the company, personal and trust tax rates;
- Increasing the rate of GST to 15%; and
- Introducing a land tax and/or scrapping depreciation on property.
Of most direct significance to our clients is the recommendation to increase GST, which will impact on all areas of the economy. Although an efficient method of tax collection, it is interesting to note that the proposed increase is out of step with Australia, which has a comparatively low GST rate of 10%, and the United Kingdom, which recently reduced VAT by 2.5%.
Any comprehensive tax reform is extremely difficult, and involves balancing numerous and, often, competing factors. It is clearly a case of 'watch this space' as the Government works through the report to decide which, if any, recommendations to accept.
If you would like to discuss the proposed changes, please contact us.
Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill
The Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill was passed by the New Zealand Government, and received Royal Assent on 6 October 2009. Therefore, it is now law. The new legislation gives effect to a number of important tax reforms, including tax-free relocation payments and the introduction of the payroll-giving scheme.
The new legislation amends the Income Tax Act 2007 to ensure that certain types of relocation expenditure incurred by employers are exempt from both PAYE and Fringe Benefit Tax (“FBT”).
Importantly, this reform will apply retrospectively from the 2002/2003 income tax year. However, no guidance has been provided as to how a refund application can be made. Our recent discussions with the Inland Revenue Department ("IRD") indicate that, in due course, the Determination setting out the list of eligible relocation expenditure will be published in a Tax Information Bulletin. As a result of our submissions to the IRD, the list of eligible relocation expenditure will be expanded. Accordingly, we recommend that you begin collating records of any PAYE or FBT relocation expenditure that you have incurred. We are happy to assist with claiming the tax paid back from the IRD.
In addition, the new legislation introduces the much awaited payroll-giving scheme for charitable donations. The scheme will operate through the PAYE system, and will come into effect three months from the date of Royal Assent. Under the scheme, people whose employers have signed up to the scheme will be able to receive the tax benefits of their donations each payday, rather than waiting until the end of the tax year.
IRD mileage rates
The Inland Revenue Department has increased the mileage rate at which employees can be reimbursed tax-free for the business use of a private motor vehicle, to 70c per kilometre. In addition, the new 70c rate will apply irrespective of the distance travelled by employees on business in a year. This new rate replaces the previous 62c rate for travel up to 3,000km a year, and 19c thereafter, and so removes the added compliance cost of monitoring the distance travelled each year.
Taxation (Business Tax Measures) Bill
In December 2007, the Government released a discussion document entitled "Reducing Tax Compliance Costs for Small- and Medium-Sized Enterprises". Subsequently, the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill, introduced on 2 July 2008, proposed legislative amendments that would raise certain tax thresholds outlined in the discussion document. Although the proposals were aimed at reducing tax compliance costs of small- and medium-sized enterprises, some provisions would also apply to individuals and businesses in general. This Bill has yet to be enacted.
In response to the current economic climate, on 10 February 2009, the Government introduced the Taxation (Business Tax Measures) Bill. This Bill incorporates a package of business tax measures, particularly aimed at improving the business environment for small- and medium-sized enterprises, making it easier and less expensive, both in terms of time and money, for these businesses to pay tax. Once the proposed changes are enacted, they will generally apply from 1 April 2009.
Taxation (Urgent Measures and Annual Rates) Bill
The Taxation (Urgent Measures and Annual Rates) Bill, introduced under urgency on 9 December 2008, passed its final stages in Parliament on 11 December 2008. The new legislation received Royal Assent on 15 December 2008, and brings several of the new Government's key initial tax policies into effect, including changes to KiwiSaver, the lowering of personal income tax rates from 1 April 2009, and the repeal of the Research & Development tax credit regime.
In addition, the new Government has reinstated the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill, introduced in July 2008. This comprehensive Bill includes exemption from tax of eligible relocation expenses, and tax rules surrounding payroll donations.
For further information on any of these items, please contact us.