2008 BUDGET – TAX ANNOUNCEMENTS.
The tax package announced in the budget has imbedded high marginal tax rates and retained a steeply progressive income tax scale. In our view this reduces the incentive for people to increase their incomes through work and investment and, ultimately affects the growth in the economy. Motivated people, especially our educated youth will continue to look offshore for a fairer system.
The Government continues to waste the opportunity to promote real growth and prosperity by making structural changes to the tax system. Tax policy is clearly being used to maximize electoral success for a ruling minority government under MMP.
TAX RATE CHANGES
The change in personal tax rates for individuals is achieved by increasing the thresholds progressively over the next 3 years rather than any general lowering of tax rates. These changes go some way towards compensating for the effects of inflation which over the last 9 years that have pushed people into higher tax brackets (known as fiscal drag).
The new tax rate thresholds are:
|
Effective Current Rates
|
|
New rates from 1 October 2008 to 31 March 2010
|
|
|
Income to $9,500
|
15%
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Income to $14,000
|
12.5%
|
|
$9,501 - $38,000
|
21%
|
$14,001 - $40,000
|
21%
|
|
$38,001 - $60,000
|
33%
|
$40,001 - $70,000
|
33%
|
|
$60,001 and over
|
39%
|
$70,001 and over
|
39%
|
The reduction of the 1st level rate from 15% to 12.5% replaces the earner rebate generally only available to salary and wage earners. This gives an advantage to lower income individuals who earn investment income.
|
Income Range
|
Composite Rate
2008/09
|
|
$0 - $9,500
|
13.75%
|
|
$9,501 - $14,000
|
16.75%
|
|
$14,001 - $38,000
|
21%
|
|
$38,001 - $40,000
|
27%
|
|
$40,001 - $60,000
|
33%
|
|
$60,001 - $70,000
|
36%
|
|
$70,001 and higher
|
39%
|
The introduction of new income tax rates part-way through this income year means an average of the new and old rates need to be applied to calculate the amount of income tax for the full year.
There is no proposal to change RWT rates on interest income or the tax rates that apply to investment income from Portfolio Investment Entities.
So, who are paying the taxes? The Treasury predictions for the 2009 income year based on the new composite tax rates are as follows:
|
Annual individual
taxable income
|
% of all individual
taxpayers
|
% tax paid
|
|
Up to $40,000
|
68%
|
23%
|
|
$40,000 to $70,000
|
21%
|
31%
|
|
$70,000 and over
|
11%
|
46%
|
Treasury estimates that 2% of taxpayers earn over $150,000, and these people pay 17% of total tax! Go to http://www.treasury.govt.nz/budget/2008/taxpayers/b08taxpayers.pdf to see Treasury’s summary of the tax announcements.
NB: Click on the PDF file on the right-hand-side of your screen to view the information.
TAX SIMPLIFICATION
A number of thresholds are to be changed to reduce compliance costs for business. Subject to legislation being passed, these changes will also take effect from 1
October 2008.
|
Thresholds
|
From
|
To
|
|
PAYE once a month filing and payment
|
$100,000
|
$250,000
|
|
FBT annual return filing
|
$100,000
|
$250,000
|
|
Provisional tax use of money interest safe harbour for individuals
|
$35,000
|
$50,000
|
|
Low value trading stock
|
$5,000
|
$10,000
|
|
GST registration threshold
|
$40,000
|
$50,000
|
|
GST six monthly return filing
|
$250,000
|
$500,000
|
If you are able to move into the six monthly GST filing position this will reduce your provisional tax payment dates to 2 instalments rather than 3.
The new rules will also simplify the calculation of income received from financial arrangements by allowing non individuals (subject to certain thresholds) to return income on a cash basis. Also, the threshold for allowing financial arrangements to be accounted for on a straight line basis is to be increased to $1.85m from $1.5m
The Government is still working on other simplification initiatives.
TAX TIP #1
If you are planning to carry out renovations to business premises make sure you ask contractors invoices to accurately describe the work that has been done so that Revenue Expenditure (e.g. R & M) can be separated from Capital Expenditure (e.g. improvements). This will assist with ensuring full and accurate tax deductions are achieved and will save time and cost when preparing your financial statements.
TAX TIP #2
When you sell land and buildings ensure you accurately apportion the sale price between the land value and the building value in the Purchase and Sale contract. We often see the value of buildings being overstated (increasing the taxable depreciation recovery to the vendor) when in fact most of the property value is in the land. To optimise your tax position, speak to us first whenever you are buying or selling land.
