Finance Minister Bill English delivered his fifth budget to Parliament on May 16.
As expected, there were a few tax announcements in Budget 2013 compared to Budget 2010, which made major tax changes.
Following are the important features of this year’s Budget.
The prominent tax news was the announcement of reduction in ACC levies, which will come into effect on April 1, 2014. The Government is now satisfied that there is scope for significant and sustainable reductions in the ACC levies. This reduction is expected to help employers as well as employees.
Non-residents have also been targeted in this Budget. The Government proposes to tighten and extend ‘Thin Capitalisation’ rules to holdings in New Zealand businesses by non-residents.
Global debate
This measure is a part of the international debate on how overseas residents should be taxed. But unfortunately, it is a piecemeal approach to the problem.
Small companies undertaking Research & Development activities and generating tax losses during their startup period would be granted refunds, up to a certain limit. This will boost their working capital.
An Issues Paper is expected to be released by the end of this month.
Certain business costs are not always tax deductible and sometimes even if capitalised, they are not depreciable. These expenses are called ‘Black-hole Expenditures.’
Deductible expenses
It is proposed that such targeted expenses would be made deductible. These include (a) Legal and administrative costs incurred in respect of applying for patents (b) Allowing certain fixed life resource consents to be treated as depreciable (c) Deductibility of costs of abandoned resource consents (d) Deductibility of costs incurred with regard to payment of dividend to shareholders and (e) Deductibility of cost of annual general meetings.
Property Compliance
The Budget has assured full commitment to the property compliance programme of Inland Revenue Department (IRD). Mr English has said that IRD will receive an additional funding of $6.65 million every year to pursue the programme. This funding will help the Department to target property speculators who have not been complying with the law.
It is therefore the right time to remind property investors and traders in this rising property market that if they acquire a property with the intention of selling it in near future either in the same condition or through improvement, they must pay tax on the profit made. This is in spite of the fact that there is no Capital Gain Tax in New Zealand.
On the day of the Budget, IRD released an Issues Paper clarifying the determination of acquisition date of land for the purpose of Income Tax Act 2007.
This document mentions two alternative dates for determination of the date of acquisition. These are (1) When an agreement for the sale and purchase of land is entered into or (2) When an agreement for the sale and purchase of land becomes unconditional and the equitable remedy of specific performance of the land transfer is available to the purchaser.
Chasing student borrowers
The Government has noticed that student loan borrowers were skipping the border to avoid their student loan obligations.
Proposed changes provide for chasing the defaulting borrowers who are overseas by speeding up the loan repayments and following the defaulters.
Vijay Talekar is Director of Tax Experts Limited, Chartered Accountants with offices at Level 1, 208 Great South Road, Papatoetoe, Auckland, Telephone (09) 2792987. Website: (www.taxeperts.co.nz)
The above article should be considered only as a guideline and not a specific advice. Mr Talekar absolves himself, along with the management and staff of Tax Experts Ltd and Indian Newslink of any responsibility or liability that may arise from the above article. Readers should seek professional advice before acting upon any information contained above.
