Transcript www.ph.co.nz

Budget 2010 – The Tax Changes
Presented by:
Michael Turner and Stephen Higgs
Dunedin – May 2010
Budget 2010 – The Tax Changes
C Polson Higgs, 2005C
Contents

Economic Predictions

Government Finances

Tax Rates

GST Increase

Property Issues

Planning/Avoidance

Other Business Issues
Budget 2010 – The Tax Changes
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Budget 2010 - Key Platforms

Economic Performance

Tax Reform

Public Services

Government Finances
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Economic Predictions
2010
2011
2012
2013
2014
-0.3
3.2
3.1
2.9
3.0
Inflation (annual % change March quarter)
2.2
5.9
2.4
2.4
2.4
90-day interest rate (March quarter)
2.7
4.3
5.2
5.4
5.7
Unemployment rate (March quarter)
7.1
6.2
5.5
5.1
4.6
Core Crown expenses ($b)
64.8
70.7
71.5
74.2
77.0
Core Crown revenue ($b)
56.4
60.3
64.5
68.5
72.9
Operating balance ($b)
-6.9
-8.6
-5.4
-4.4
-3.0
Operating balance (% of GDP)
-3.7
-4.2
-2.5
-1.9
-1.3
Net debt ($b)
26.6
40.0
49.6
57.1
63.0
Net debt (% of GDP)
14.1
19.6
23.0
25.3
26.5
Real GDP growth (annual average % change)
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Government Finances

Govt surplus 2016

Net Debt peak 27.4% GDP 2015

2009 Budget had peak 35% GDP

Total NZ debt as % GDP high (90%)

Low Govt debt crucial
– Credit rating
– Interest rates
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Income Tax Rates
Personal
0-14,000
14,001-48,000
48,001-70,000
70,001 +
Current
12.50%
21.00%
33.00%
38.00%
2010/11
11.50%
19.25%
31.50%
35.50%
2011/12
10.50%
17.50%
30.00%
33.00%
Trust Rate
33%
33%
33%
Company Rate
30%
30%
28%
PIE
30%
28%
28%
(from 1/10)
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Income Tax Rates
Personal
Current
$
Proposed
$
0-14,000
12.5%
1,750
10.5%
1,470
-280
14,001-48,000
21.0%
7,140
17.5%
5,950
-1,190
48,001-70,000
33.0%
7,260
30.0%
6,600
-660
70,001+
38.0%
_____
14,020
=====
_____
-2,130
=====
33.0%
_____
16,150
=====
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Income Tax Rates
Income
Tax
Current
Tax
Proposed
Difference
70,000
16,150
14,020
- 2,130
100,000
27,550
23,920
- 3,630
150,000
46,550
40,420
- 6,130
200,000
65,550
56,920
- 8,630
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Income Tax Rates
Other changes

RWT on interest

RWT on dividends

Provisional tax

Use of imputation credits

FBT

Secondary tax
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Income Tax Rates
Other changes

Removal of redundancy & fund withdrawal tax

New superannuation contribution rates

Working for Families

Benefits
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GST Rate Increase

Rate increase 12.5%

20% increase in GST 1 October 2010

2% increase in CPI

1.59 billion revenue 2010/2011
15.0%
2.46 billion revenue by 2013/2014

History:
–
1 October 1986
10.0%
–
1 July 1989
12.5%
–
1 October 2010
15.0%
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Calculation of GST content

GST inclusive
12.5% = ÷ 9
15% = ÷ 23 x 3

GST exclusive
12.5% = ÷ 9 x 8 or 8/9
15.0% = ÷ 23 x 20 or 20/23
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Issues to Consider
Pricing and demand

Spike / dip in demand for goods

Prepay costs

Only for consumer – not registered businesses
Updating prices overnight

Deemed supplies (change of use)

Adjustments (12.5% vs 15%)

Price points $9.95 – increase price to $10.17 (or more!)

Signage, brochures, websites and price tags
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Issues to Consider
Contractual issues

Ordinary timing rules

Hire purchase “lock in rate”

New contracts

Ongoing contracts
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Issues to Consider

Unless agreement expressly contemplates it

Section 78

Agreement deemed modified – supplier recover

Contract three months after change

Recover from recipient

“Plus GST”, “Inclusive of GST” or Silent
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Issues to consider

Recurring invoices

Increase in funding cost (e.g. exports)

Higher costs for those who can’t recover –
consumer or unregistered

Compliance more significant as GST $ gets larger
(20% increase)

Issuing correct tax invoices / credit/debit notes
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Issues to Consider
Accounting systems

Accounts payable – two rates

Accounting system
– Will it handle a change?
– Change part way through a year?
– Rates assigned to individual customers

Updating prices overnight
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Transitional rules

Anti-avoidance

If GST return spans 1 October – two parts

Will need a list of Debtors/Creditors on 1 October

Payments basis will need to complete adjustment
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Sectors

Property developers (settlement)

Ongoing contracts (e.g. gym)

Residential landlords

Periodic costs (e.g. insurance)
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Property Issues
Currently

2% SL / 3% DV

Negative return of $500m

Depreciation deductible

Recoverable on sale
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Property Issues
Proposed

Depreciation for buildings estimated life <50yrs

No depreciation ≥50yrs

Begins 2012 income year

R&M still deductible

Commercial property fit-outs depreciable, but
under review
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Property Issues

<50 years generally specialist buildings
– E.g. portable buildings, dairy sheds, concrete
bunkers, chemical works, hot/shade houses,
tanneries

Can apply for estimated useful life ruling

No deductible loss on sale

Potential recovery of “old” depreciation
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Planning/Avoidance

Funding of IRD
– + $119.3m over 4 years
– Increased audit/compliance activity

Debt collection

Hidden economy

Property transactions

Tax rate / income splitting?
– “Phoenix” / Land – zero rating
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Planning/Avoidance

Tax Rate
– Was
38% vs 33% = 5%
– Proposed
33% vs 28% = 5%
– Company vs Trust
– Attribution rules
– Planning?
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Planning/Avoidance

Working for Families
– From 1 April 2011
– Investment (rental) loss not available
– Issues Paper – Trust distributions, WFF, student
allowances, community services card
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Planning/Avoidance

LAQC
– 1 April 2011
– Taxed like Limited Partnerships
– Partnership tax return
– Losses limited to investment
– Profits taxed at S/H rate

Thin Capitalisation
– Debt to equity – 75% reducing to 60%
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Other Business Friendly Measures
– $321m over 4 years

R&D

Aquaculture – Legislation to support growth
– Lift regulatory barriers

Mining
– Gain in economic performance
– Funded in budget

Water
– Improve regulatory regime
– Storage/irrigation
– Sustainable mngt programme
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Other Business Friendly Measures
– Improve via free trade agreements
E.g. HK, Malaysia & others
– Transpacific partnership

Exporters

Productivity Commission
– April 2011
– Independent body
– Productivity related matters
– Yeah right!
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Budget 2010 – The Tax Changes
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