The second stage of the Government’s Budget 2010 tax package will come into effect on April 1 2011.
It will be useful for businesses and individuals to be aware of the main changes.
Working for Families Tax Credits
If you receive Working for Families Tax Credits, you will not be able to use investment losses from rental properties to reduce your income, with effect from April 1. You will also need to inform us if you have received any of the following types of income:
- Attributable trustee income
- Attributable fringe benefits
- Unlocked portfolio investor entities (PIEs superannuation)
- Passive income of children
- Income of non-resident spouse
- Tax exempt salary or wages
- Pensions and annuities
- Other regular payments
- Income equalisation scheme deposits (excludes ‘adverse events’ deposits)
Please contact us before April 1, so that we can make sure that you get your correct entitlement over the coming year.
Other Tax Credits
This year, we would be implementing some changes to minimise delay in processing tax credit claims for businesses.
Total donation and housekeeper payments being claimed cannot be more than your taxable income for the year. That means, if you file an IR3 Tax Return, we may need to check your return before we can process your claim for a tax credit.
You can avoid delays by filing your tax credit claim and your IR3 at the same time.
We would mail 2011 Tax Credit Claim Forms in May.
Companies Tax
The Company Tax rate would drop from 30% to 28% with effect from the 2011-2012 Income Year.
There will also be important changes to the rules for Loss Attributing Qualifying Companies (LAQCs) and Qualifying Companies (QCs).
These will affect all existing LAQCs and QCs as well as Closed Companies that may have wished to elect to use the qualifying company rules.
Under the changes:
1. LAQCs will no longer be able to attribute losses to shareholders for income years starting on or after April 1, 2011. For an LAQC with a standard balance date (March 31), this means that the 2010-2011 income year will be the last year it can attribute losses to shareholders in its Income Tax Return.
2. A new tax entity, known as a Look-Through Company (LTC), will be created.
3. The profits or losses of LTCs will flow through to the shareholder’s tax returns.
4. Profits will be taxed at the shareholder’s marginal tax rate and losses will be deductible from the shareholder’s other income.
5. Existing LAQCs and QCs will be allowed to transit to the new LTC tax rules or change to another business entity, such as a Partnership, Limited Partnership or Sole Trader, without a tax cost during either of the first two income years starting on or after April 1, 2011. For a company with a standard (March 31) balance date, this will be either the 2011-12 or 2012-13 income year.
GST Requirement
If you are registered for GST and you sell land to another registered person, you would be required to charge GST at a rate of 0% provided (a) the recipient intends to use the land for making taxable supplies and (b) the recipient will not be using the land as their principal place of residence.
The new rules will apply to land sold on or after April 1, 2011. For transactions entered into before April 1, 2011, but for which the time of supply is on or after that date, the supplier has the option of treating the transaction as being governed by either the current GST rules or the new rules.
Depreciation
The rate of depreciation for buildings with an estimated useful life of 50 years or more, such as rental housing and office buildings, will reduce to 0%. This change comes into effect from the 2011-12 income year. For most businesses, this will be from April 1, 2011.
Abdul Rafik is Inland Revenue’s Community Relationships Advisor based in Auckland. He is happy to answer readers’ queries, which should be sent to
venkat@indiannewslink.co.nz
Free Seminars and Workshops
If you are in business, you may like to attend one of our free tax seminars or workshops held throughout the country. For information, visit www.ird.govt.nz
