Key offers tax tweaks to soften downturn’s impact
Key offers tax tweaks to soften downturn’s impact on small firms
By Jonathan Underhill
Feb. 4 - Prime Minister John Key announced changes to tax requirements for small businesses that will save the firms some NZ$480 million over the next four years and ease compliance costs.
The changes, effective from April 1, include a temporary reduction to provisional tax payments, a reduction in the penalty rates for under-payments, raising the threshold for monthly PAYE and FBT returns, and increasing the amount a business can turnover before it has to register for GST.
“In these tough times, I want small businesses to be focusing on the road to jobs and growth, not on the taxman’s forms,” Key said in a speech to the Waitakere Enterprise Business Club.
The International Monetary Fund is forecasting the weakest global economic growth since WWII, with biggest economies – the U.S., Japan and the European Union, lining up for the first synchronized recession since that war. The global slump has already spurred the central bank to slash the official cash rate to the lowest since the OCR was introduced a decade ago as the Treasury predicts New Zealand has entered its fifth quarter of contraction.
Among the changes, the government will:
• Lower the formula for calculation provisional tax payments to 100% of last year’s income tax from 105% for the 2008 and 2009 years, or down to 105% from 110% for the year before that. The changes will provide a cash flow boost estimated at NZ$245 million between April 1 and June 30, Key said.
• Reduce the under-payment penalty rate to 9.73% from 14.24%.
• Change the threshold for PAYE payments to allow 15,000 businesses to pay once a month instead of twice.
• Allow those same businesses to change to annual Fringe benefit Tax payments from quarterly payments.
• Increase to NZ$60,000 from NZ$40,000 the amount of turnover a small business can have before having to register for GST and allowing more firms to account for GST when they receive payment rather than when issuing an invoice.
• Allow all business-related legal expensive to be deducted up to NZ$10,000 and lift the threshold to deduct spending in the course of one tax year rather than over several years.
For exporters, the government is expanding the powers of the Export Credit Office, allowing it to provide short-term credit insurance on export contracts with payment terms of less than 360 days. The guarantee will be available for a period up to 2 ½ years. Difficulty obtaining short-term credit had forced some companies to turn down export orders in recent weeks, Key said.
The jurisdiction of the Disputes Tribunal will be increased to claims of NZ$15,000, or NZ$20,000 where both parties agree, from NZ$7,500 and NZ$12,000 currently, helping reduce the number of small claims that escalate to the District Court.
Key also said business advice services for small and medium-sized firms will be beefed up and government departments ordered to pay their own bills promptly to ensure companies are starved of cash flow.