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North Shore Mayor Adds To Confusion On Rates

Mayor Adds To Confusion On Rates

"The mayor of North Shore City, Mr George Wood, sought to clarify confusion over business rates but has instead added to it", the executive director of the New Zealand Business Roundtable, Roger Kerr, said today.

"Mr Wood stated that businesses are advantaged by being able to claim a credit for GST paid on their rates and to deduct rates for income tax purposes. His claims are based on a faulty analysis, as the Auditor-General has confirmed", Mr Kerr said.

In a press release of 28 July 2003, Mr Wood sought to "set the record straight on how much businesses pay relative to homeowners."

Mr Wood said that "after GST [on rates] is claimed back and taxation is taken into account, the net cost to a business owner with a land value of $100,000 reduces from a gross amount of $2,775 to $1,652 a year."

Mr Kerr pointed out that "Businesses pay GST on their outputs and their gross income is taxable, and that Mr Wood omitted this from his analysis.

"Taxability and deductibility are twins and both must be taken into account to make valid comparisons.

"Businesses are required to pay GST on their outputs, they deduct GST paid on their inputs and they pay the net amount to the government. No tax advantage arises.

"Local authorities are in the same position as businesses in relation to GST.

"The provision of a credit for GST paid on inputs, including rates, enables GST to be collected at each stage of production and distribution with the final consumer paying the appropriate amount of GST. It stops GST from cascading (that is, it prevents GST being applied on top of GST) as goods and services are traded among businesses.

"Businesses can claim a tax deduction for rates because the related gross income is taxable. Homeowners are not taxed on imputed rental income and are therefore not permitted to claim a tax deduction for their expenses.

"No one seriously argues that it is an advantage to be subject to income tax. That is why many homeowners objected to the initial suggestion of the Tax Review 2001 that owner-occupied houses be brought within the income tax system.

"Because of his error, Mr Wood underestimated the true rate burden on a $100,000 business property by a massive 68 percent. North Shore City should eliminate the business differential because it rests on unsound foundations.

"The treatment of rates for GST and income tax purposes has been examined extensively over recent years. A 2000 Wellington City working party, for instance, took advice from a chartered accountant, Audit New Zealand and its legal advisers. The working party and the advisers dismissed suggestions similar to those made by Mr Wood.

"It is deeply disturbing that some people in local government still believe that businesses are advantaged by GST and income tax arrangements long after such views have been shown to be wrong", Mr Kerr concluded.

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