5 February 2009

SMALL BUSINESS TAX RELIEF .

Yesterday John Key announced a business tax relief package that is aimed at making life easier for small and medium businesses. Virtually every business will gain something from these measures that are tinkering rather than fundamental change. Changes relevant to our clients include the following:

• Reducing the size of provisional tax payments for business taxpayers for the 2008/09 and 2009/10 income years to eliminate the automatic 5% uplift. (We will automatically action this when sending tax notices after the legislation applies (from 1 April 2009). Taxpayers can make downward estimates if the removal of the 5% uplift is still not enough adjustment )
• From 1 March 2009 reducing the use of money interest (UOMI) rate for underpayments of tax from 14.24% to 9.73%. The rate for overpayments will reduce from 6.66% to 4.23%. (This is what IRD should be doing anyway given that interest rates have dropped)
• Raising the GST payments basis threshold from $1.3 million to $2 million. (We wait the fine print on this one…may free up one-off cash payment for some businesses)
• Enabling businesses with $10,000 or less of business-related legal expenditure to fully deduct the expense, regardless of whether it is capital in nature or not. (This is a surprise and is good news for all, especially when buying and selling assets)
• Raising the PAYE once-a-month filing and payment threshold from $100,000 to $500,000 to allow more employers to file PAYE returns and pay PAYE once a month instead of twice a month. (Good news for larger businesses)
• Changes to FBT include:

• raising the fringe benefit tax (FBT) annual filing threshold from $100,000 to $500,000 to allow more employers to file FBT returns and pay FBT annually rather than quarterly
• raising the value of minor fringe benefits that can be provided to employees without attracting FBT to $300 per quarter per employee and $22,500 per year per employer
• Lowering the FBT prescribed interest rate applying to low-interest, employment-related loans from 10.90% to 8.05%.

(Why not just wipe FBT out for small business altogether? It will still be a compliance nightmare for very little revenue gain!)

• Raising some of the other thresholds relating to accrual expenditure adjustments (such as for certain prepaid advertising/travel/lease costs). (Will have very little effect for most)
• Fast-tracking certain SME tax simplification measures that are currently in the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill. (Wait and see on this one)

Overall it is positive to see some appreciation by Government of the need to cut tax compliance costs. Hopefully there are more to come.

Emailing Options

Subscribe | Send to a Friend | Unsubscribe

Important: This is not advice. Readers should not act solely on the basis of the material contained in this report. Items herein are general comments only and do not constitute or convey advice perse. Changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas.