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SMEs in particular stand to benefit from tax proposals

13 April 2016

SMEs in particular stand to benefit from the latest tax proposals

Chartered Accountants Australia and New Zealand (CA ANZ) has welcomed latest proposals to simplify tax for businesses.

CA ANZ’s New Zealand Tax Leader Peter Vial said the package of proposals released today will generally benefit businesses and employers, particularly small and medium-sized businesses (SMEs), by reducing compliance and real costs.

“Many of the proposals are aimed at making tax law and administration fairer and more certain for taxpayers. Others are aimed at simplifying the current rules.

“As the Government acknowledges, SMEs bear relatively higher tax compliance costs and the proposals will remove some of that burden.”

‘Use-of-money’ interest rules relaxed

This included reducing ‘use-of-money’ interest costs.

Vial particularly welcomed the proposal to impose ‘use-of-money’ interest only from the third provisional tax date (and not from the first and second dates) for provisional taxpayers who use the standard provisional tax calculation method (the so-called uplift method).

“This change is projected to take 67,000 taxpayers out of having to pay ‘use-of-money’ interest.”

New provisional tax method

Vial said one of the more ambitious proposals was to introduce from 2018 a new method for calculating provisional tax – the ‘accounting income’ method – which will effectively allow business taxpayers to pay tax as they earn income.

“Taxpayers who have volatile or lumpy income are likely to elect to use this method. It is good to see that, like many of the proposals, it will be optional for businesses.”

Improvement to penalty rules

Vial said CA ANZ, which represents 29,000 members in New Zealand, was pleased to see recognition that some of the penalty rules were not achieving their objectives and were, in some circumstances, unduly penalising taxpayers who were generally compliant.

“The proposal to remove the 1 percent incremental monthly late payment penalty is sensible.”

The Issues Paper says the removal of this penalty will reduce the combined effective rate of interest and penalties in the first year of a taxpayer’s debt from 27 percent to 15 percent.

Vial said this was “much more in line with commercial rates”. The initial late payment penalty and interest will continue to apply.

Review of withholding tax rules

“It is timely that government is looking at the withholding tax rules, which are in some respects too narrow and out of date. Again optionality is a feature of the proposals.”

He said detail of the new rules will be the key.

Sharing tax debt information

The proposal to allow Inland Revenue to share tax debt detail with credit reporting agencies was quite a fundamental shift, Vial said. “The new rules will need to be robust and administered fairly.

“Creditors and suppliers are likely to welcome the proposal, but the balancing of their interests with the privacy interests of taxpayers in debt will need to be managed very carefully.

“The package is a strong step in the right direction. That said, there is significant scope for further tax simplification in conjunction with Inland Revenue’s Business Transformation programme.”

Vial said CA ANZ was looking forward to continuing to contribute its ideas as the Government and Inland Revenue make further progress on making tax simpler.


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