Dunne acclaims business tax cuts of $1.1 billion
Tax cuts for New Zealand business of $1.1 billion over four years.
That's Revenue Minister Peter Dunne's analysis of the Taxation (Depreciation, Payment Dates Alignment, FBT and Miscellaneous Provisions) Bill, which was passed without opposition by Parliament last night.
"The bill brings into effect the most comprehensive business tax cuts for nearly two decades, and proves that those who claim the Government is not serious about significant tax reform are simply not paying attention
"The main feature of this major, wide-ranging legislation is a package of business-friendly tax measures designed to promote economic growth," Mr Dunne said.
Depreciation, R&D, venture capital
"The tax depreciation rules have been changed to encourage more productive use of capital by reducing biases in the rules that distort investment decisions. Most of the changes to the depreciation rules will apply from the 2005-06 income year.
"To reduce biases, depreciation rates for buildings have been lowered and the rates for short-life plant and equipment have been raised.
"The cost threshold that determines which assets must be accounted for on fixed asset registers has been raised from $200 to $500, which will reduce both the number of assets that must be accounted for and the number of tax adjustments required when a business disposes of an asset. The new threshold is effective from 19 May 2005, the date of the bill's introduction.
"From the 2005-06 year, companies that bring in new equity investors will have better access to tax deductions for research and development expenditure, a change that will suit technology companies in particular.
"In a similar vein, non-resident investors will be exempt from tax on gains on the sale of shares in companies they have invested in alongside the New Zealand Venture Investment Fund. The change will apply from the date of enactment.
Small business changes
"A number of the changes are designed to make tax easier for the many small businesses that operate in New Zealand. Some of the most important of these changes reduce the number of different tax payment dates that businesses must cope with.
"From 1 April 2007, the GST due date will become the 28th of the month, in preparation for the later alignment of GST and provisional tax payments, which will take effect from the 2008-09 income year. From that date businesses will also be able to choose to base their provisional tax payments on a percentage of their annual GST turnover.
"The new subsidy to encourage small businesses to take advantage of the help that payroll agents can give them will come into effect on 1 October 2006.
Fringe benefit tax
"The fringe benefit tax rules have been amended to reduce compliance costs and remove anomalies in the rules that had built up over a number of years. The changes apply from 1 April 2006 or, for employers who pay FBT on an income year basis, from the income year beginning on or after that date.
"Many of the FBT changes relate to motor vehicles. To reflect the decline in real motoring costs over the past 20 years, the valuation rate on motor vehicle fringe benefits will drop from 24% to 20%. This has real benefits – for example, companies can save over $1000 in fringe benefit tax on a $40,000 vehicle.
"There are several new exemptions from FBT. For example, employees' private use of day-to-day work tools such as cell phones and laptops will be exempt from FBT if the tool costs less than $5000 and is used primarily for business.
"The thresholds in relation to unclassified fringe benefits are being raised significantly. Overall, there should be a lot fewer minor benefits that are subject to FBT.
New migrants and returning New Zealanders
"To reduce tax barriers to the recruitment of highly skilled people to New Zealand, a four-year tax exemption on foreign income will be available to new migrants or returning New Zealanders who have been non-resident for tax purposes for at least 10 years. It will apply to people who arrive from 1 April 2006.
"A complementary change will improve the New Zealand tax treatment of new migrants and returning residents who hold interests in foreign, employment-related superannuation schemes. It will apply to people arriving in New Zealand from 1 April 2006.
"The rules on share-lending have been updated to bring them into line with the rules on other commercial transactions and with those of countries such as Australia. The changes also include a measure designed to prevent the use of share-lending for tax avoidance. The changes apply from 1 July 2006.
"Amongst the other changes introduced are new information and record-keeping requirements for New Zealand-resident trustees of foreign trusts. They come into effect on 1 October 2006.
"The tax deductibility of the re-grassing and fertilising costs associated with farm conversions has been clarified, and the changes will apply to expenditure incurred from 1 July 2004.
"Certain types of payouts from co-operatives to their members can be excluded from treatment as dividends, allowing a deduction to the co-operative. The changes remove uncertainty in the tax treatment of these payouts and apply to payments made after enactment.
"The new legislation also includes several changes designed to protect the revenue base. Changes ensuring that companies that migrate from New Zealand pay tax on worldwide income earned while resident in New Zealand will generally apply from 21 March 2005.
"Further base maintenance changes are designed to prevent avoidance of GST by using third parties to import goods, such as luxury cars, that were offshore at the time of supply. They will apply from 19 May 2005.
"Changes giving Inland Revenue greater flexibility in the application of shortfall penalties for taking an unacceptable tax position will apply from 1 April 2003.
"Finally, 1 August 2006 will be the application of racing industry tax changes that include a reduction in gaming duty for racing and accelerated write-down for bloodstock.
"These are only some of the tax changes to emerge from this massive taxation bill. They will become law once the new legislation has received Royal assent, which is expected to occur within a few days' time," Mr Dunne said.
Contact: Ainslie Fenwick, Tax Advisor, Tel: 04-471 9728