Hon Dr Michael Cullen
Minister of Finance
Hon Peter Dunne
Minister of Revenue
Tax bills to transform saving and investing
Two bills tabled in Parliament today introduce the Business Tax Reform package and the enhancements to KiwiSaver and associated savings reforms announced in Budget 2007.
"The focus of the bills is on transformation – transforming New Zealand's savings culture and transforming the economy through tax reforms to encourage investing," Finance Minister Michael Cullen and Revenue Minister Peter Dunne said today.
"Saving and investing are the centrepieces of Budget 2007. The two are closely associated. Expanding savings will strengthen the economy and deepen New Zealand's capital markets, which will provide additional funds for the investment that New Zealand firms need to undertake to lift our sustainable rate of growth.
"The $3.4 billion Business Tax Reform package features a cut in the company tax rate to 30 per cent, which will promote investment, add to productivity and help our businesses to compete globally.
"The new 15 per cent R&D tax credit will encourage businesses to invest more in R&D, which will also help to boost productivity and competitiveness.
"Enhancements made to the KiwiSaver scheme include a member tax credit of up to $20 a week, compulsory matching contributions by employers of up to 4 per cent of employees' gross salary or wages – phased in over four years, and a tax credit for employers of up to $20 a week per employee to reimburse them for their contributions.
"The KiwiSaver changes are designed to boost incentives for people to join the savings scheme and to continue to make contributions throughout their working lives, ensuring that all New Zealanders have a decent standard of living in retirement.
"The bills make associated changes to the way many savings vehicles are taxed, to help people accumulate their savings faster. People who save through entities such as unit trusts and widely held superannuation and group investment funds will benefit from the new 30 per cent tax rate applying to those funds. Similarly, many people who invest in managed funds that elect into the new portfolio investment entity tax rules will benefit from the reduction in the top tax rate from 33 per cent to 30 per cent.
"Other savings measures include technical tax changes to ensure the smooth introduction of KiwiSaver in July and the application of the associated portfolio investment entity rules in October.
"As announced in today's Budget, the proposed legislation provides major tax incentives for charitable giving, which in turn will greatly benefit charitable organisations and the communities they serve. Individuals, companies and Maori authorities will be able to claim rebates and deductions for charitable donations up to the level of their annual net income. Individuals will no longer be restricted by the $1,890 limit for tax rebates, which will encourage extra giving by those who are already donating substantial amounts. For the same reason, the 5 per cent limit for tax deductions for companies and Maori authorities is also being removed.
"A further, major reform in the proposed legislation is the liberalisation of tax penalties, such as the penalty for taking an unacceptable tax position, changes that have been welcomed by all sectors. The result is the relaxation of a whole range of tax penalties, to encourage voluntary compliance. Other changes involve removing certain penalties when voluntary disclosures are made, not penalising taxpayers who occasionally pay late, and updating the definition of 'tax agent'," the Ministers said.
Other major matters in the proposed legislation include:
- Other changes resulting from the company tax rate cut: transitional changes relating to the imputation credit ratio so that the old 33/67 tax credits-to-cash ratio can be used for another two years in the case of profits that have been taxed at 33 per cent, as well as a number of other transitional and consequential amendments.
- Adoption of IFRS: changes to the financial arrangement tax rules so that the timing of income and expenditure from financial arrangements follows their accounting treatment when taxpayers use GAAP, as well as consequential changes to the trading stock and R&D expenditure tax rules.
- Child support data matching: introduction of an information matching system between Inland Revenue and the New Zealand Customs Service, to allow Inland Revenue to identify when people with outstanding child support debt above a certain threshold enter or leave New Zealand.
- Annual income tax rates: sets the annual income tax rates for the 2007/08 tax year.
Details on these and other changes in the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill 2007 and the Taxation (KiwiSaver and Company Tax Rate Amendments) Bill 2007 are available at http://www.taxpolicy.ird.govt.nz.
Contacts:
Mike Jaspers (Dr Cullen), 04 471 9412 or 021 270 9013
Ted Sheehan (Peter Dunne), 04 470 6985 or 021 638 920