Budget 2010 – The Tax Changes C Presented by:Michael Turner and Stephen Higgs Dunedin – May 2010...

Budget 2010 – The Tax ChangesC

Presented by: Michael Turner and Stephen Higgs

Dunedin – May 2010

Budget 2010 – The Tax Changes

C Polson Higgs, 2005


Contents Economic Predictions

Government Finances

Tax Rates

GST Increase

Property Issues

Planning/Avoidance

Other Business Issues


Budget 2010 - Key Platforms

Economic Performance

Tax Reform

Public Services

Government Finances


Economic Predictions

2010 2011 2012 2013 2014

Real GDP growth (annual average % change) -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


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


Income Tax Rates

Personal Current 2010/11 2011/120-14,000 12.50% 11.50% 10.50%14,001-48,000 21.00% 19.25% 17.50%48,001-70,000 33.00% 31.50% 30.00%70,001 + 38.00% 35.50% 33.00%

Trust Rate 33% 33% 33%

Company Rate 30% 30% 28%

PIE 30% 28% 28%(from 1/10)


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% 33.0%

_____16,150=====

_____14,020=====

_____-2,130=====


Income Tax Rates

IncomeTax

Current

Tax Proposed Difference

70,000

100,000

16,150

27,550

14,020

23,920

- 2,130

- 3,630

150,000

200,000

46,550

65,550

40,420

56,920

- 6,130

- 8,630


Income Tax Rates

Other changes

RWT on interest

RWT on dividends

Provisional tax

Use of imputation credits

FBT

Secondary tax


Income Tax Rates

Other changes

Removal of redundancy & fund withdrawal tax

New superannuation contribution rates

Working for Families

Benefits


GST Rate Increase

Rate increase 12.5% 15.0%

20% increase in GST 1 October 2010

2% increase in CPI

1.59 billion revenue 2010/2011

2.46 billion revenue by 2013/2014

History:

– 1 October 1986 10.0%

– 1 July 1989 12.5%

– 1 October 2010 15.0%


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


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


Issues to Consider

Contractual issues

Ordinary timing rules

Hire purchase “lock in rate”

New contracts

Ongoing contracts


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


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


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


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


Sectors

Property developers (settlement)

Ongoing contracts (e.g. gym)

Residential landlords

Periodic costs (e.g. insurance)


Property Issues

Currently

2% SL / 3% DV

Negative return of $500m

Depreciation deductible

Recoverable on sale


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


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


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


Planning/Avoidance

Tax Rate

– Was 38% vs 33% = 5%

– Proposed 33% vs 28% = 5%

– Company vs Trust

– Attribution rules

– Planning?


Planning/Avoidance

Working for Families

– From 1 April 2011

– Investment (rental) loss not available

– Issues Paper – Trust distributions, WFF, student allowances, community services card


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%


Other Business Friendly Measures

R&D – $321m over 4 years

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


Other Business Friendly Measures

Exporters – Improve via free trade agreements

E.g. HK, Malaysia & others– Transpacific partnership

Productivity Commission– April 2011– Independent body– Productivity related matters– Yeah right!

Budget 2010 – The Tax Changes C Presented by:Michael Turner and Stephen Higgs Dunedin – May 2010...

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Transcript of Budget 2010 – The Tax Changes C Presented by:Michael Turner and Stephen Higgs Dunedin – May 2010...