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PricewaterhouseCoopers on The 2007 Budget

PricewaterhouseCoopers on The 2007 Budget

As expected, Dr Cullen's eighth Budget delivers a welcome reduction in the corporate tax rate (from 33% to 30%) and a tax credit for employees' contributions to KiwiSaver (of up to $20 per week from 1 July 2007 paid directly into their KiwiSaver accounts).

In a surprise move Dr Cullen has also announced compulsory employer contributions to KiwiSaver that will be phased in over four years from 1 April 2008 (to help manage the cost to employers) and a tax credit to reimburse employers for the cost of matching employee contributions, which is capped at $20 a week.

With the two tax credits, the Government's kickstart of $1,000 and the SSCWT exemption previously announced KiwiSaver is a significantly tax enhanced saving opportunity for employees.

The reduction in the corporate tax rate will apply from the 2008-2009 income year (for most companies from 1 April 2008) and will also apply to unit trusts and certain widely held savings vehicles. In welcome news the current 33 percent imputation ratio will be available until March 2010.

The Budget also confirms that the Government will introduce:

- a refundable tax credit for research and development expenditure which at 15% is at the top end of the range foreshadowed;

- tax incentives to boost charitable giving: removal of the current $1890 rebate threshold on donations made by individuals and of the 5% deduction limit on donations made by companies; and

- a welcome exemption from income tax for the active income of controlled foreign companies, as foreshadowed in last year's Discussion Document, however one with a sting in the tail being the repeal of the conduit regime and the introduction of outbound thin capitalisation rules. Further consultation is to be undertaken with legislation likely to be introduced in early 2008.

There will be increased funding for the IRD to strengthen its auditing of property transactions.

The Budget speech is available on the Treasury website:

Further detail will follow in our publication, Budget 2007 Tax Analysis.


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