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Budget Highlights

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.


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.


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