By Mike Worsnop - 28 May 2010
The New Zealand Government presented its budget for 2010 on
Thursday 20 May. We have set out in this newsletter a brief summary
of the main highlights that may affect you and/or your clients and
business partners. If you would like any further information please
contact us.
The main items from the 2010 New Zealand budget are:
- The company tax rate will be reduced from its current rate of
30% to 28% from the beginning of the 2011/2012 tax year.
- An increase in GST (goods and services tax - similar to VAT and
other point of sale taxes) increases from 12.5% to 15% from 1
October 2010.
- The acceptable percentage for thin capitalisation of foreign
owned New Zealand businesses reduces from 75% to 60%. This
means that where the level of interest bearing debt in proportion
to the total value of assets exceeds 60% then the interest expense
attributable to that part of the debt which is in excess of that
60% threshold is non-deductible as an expense against the New
Zealand entity's income. This may require recapitalisation of
some overseas owned companies.
- Personal tax rates reduce across the board as follows:
| Income |
Current Rate |
New Rate |
| $0-$14,000 |
12.5% |
10.5% |
| $14,001-$48,000 |
21% |
17.5% |
| $48,000-$70,000 |
33% |
30% |
| Over $70,000 |
38% |
33% |
- From 1 April 2011 depreciation will no longer be claimable on
buildings which have an estimated useful life of 50 years or
more. At the same time the tax treatment of loss attributing
qualifying companies through which many investors in residential
rental properties own their investment properties, will see the tax
treatment changed to ensure that treatment of both losses and
profits are consistent and are taxed at the marginal rate of the
shareholders.
- It is proposed that LAQCs will be treated as partnerships for
tax purposes. Income and losses would flow through to the
shareholders. Profits would be taxed at the shareholder's
marginal rate. Losses would only be offset against the
shareholder's income to the extent to the shareholder's investment
in the LAQC. As the "investment" includes personal guarantees
of the LAQC's borrowings given by the shareholder, the limitation
on the ability to offset is unlikely to have great effect.
Submissions on the proposal close on 5 July.
Conclusion
The New Zealand Government's expectation is that the tax cuts
are expected to be fiscally neutral with those bearing the burden
of the tax base broadening measures being mainly property investors
and non-residents. The budget appears to be specifically
targeted to prevent property investors from claiming depreciation
on buildings, to close off some tax loopholes for New Zealand
residents and to catch those foreign investors who largely debt
fund their New Zealand business interests.