Tax changes will increase fairness
Hon Bill English
Minister of Finance
Hon Peter Dunne
Minister of Revenue
7 December 2010
Tax changes will increase fairness
Proposed new tax rules, released today, will increase the integrity of the tax system and help ensure everyone pays their fair share, Finance Minister Bill English and Revenue Minister Peter Dunne say.
Mr Dunne today released a Supplementary Order Paper (SOP) that will introduce several Budget 2010 tax measures to the Taxation (GST and Remedial Matters) Bill, which is nearing its final stages in Parliament. MPs are expected to debate the amendments on Thursday.
The proposed changes, which have been finalised after public consultation over the past few months, will:
Broaden the definition of income for Working for Families,
Student Allowance and the Community Services Card to help
prevent people structuring their income to inflate their
• Close loopholes in the tax treatment of loss attributing qualifying companies (LAQCs) so shareholders can no longer claim losses against their personal income.
• Ensure people can still claim accelerated depreciation on the fit-out of commercial and industrial buildings. They will also be able to claim the depreciation loading on assets where investment decisions were made before 20 May 2010, but not completed until sometime after.
Mr English says the changes increase fairness and consistency.
"These changes will reduce the opportunities for well-off people to structure their affairs for tax purposes," Mr English says.
"Sheltering income to inflate Working for Families or Student Allowance payments is unfair to people in genuine need and to the taxpaying public which foots the bill for these assistance programmes. This change is expected to reduce spending on Working for Families tax credits by $32 million a year.
Mr Dunne says the changes will apply to Working for Families and the Community Services Card from 1 April, 2011. The Student Allowance changes will apply once an Order in Council is made.
"The broader definition of income for social assistance will include income from family trusts, some fringe benefits in certain circumstances, income from a cash PIE that is not locked in and income from a spouse living overseas," Mr Dunne says.
"Changes to the treatment of QCs and LAQCs will ensure that owners cannot claim a tax deduction on losses at a higher rate than they pay on profits.
"Since Budget night there has been considerable consultation on the implementation details of the tax measures announced and I believe the changes outlined today are a fair and pragmatic response," Mr Dunne says.
Other changes in the SOP lower the tax rates for Maori Authorities and the personal income tax rates for non-resident seasonal workers in line with the lower personal tax rates announced in the Budget.
Fact sheets on the SOP changes are available at: www.taxpolicy.ird.govt.nz
The changes are part of the second stage of the Government's Budget 2010 tax package and follow the 1 October tax cuts and GST increase. Once the Taxation (GST and Remedial Matters) Bill is passed the tax measures that will take effect from 1 April 2011 (or the 2011/12 income year) include:
A cut in the company tax rate from 30 per cent to 28 per
• A cut in the tax rate faced by unit trusts, life insurance policyholders and some other savings vehicles from 30 per cent to 28 per cent.
• Ending landlords' and businesses' ability to claim depreciation on buildings with an estimated useful life of 50 years or more.
• Tightening the rules for LAQCs and QCs so shareholders cannot deduct losses at their marginal tax rate and pay tax on profits at the lower company rate.
• Changes to the thin capitalisation tax rules to limit the scope for foreign multinationals to reduce their New Zealand tax liability.
• Tightening the definition of income for Working for Families, Student Allowance and the Community Services Card.
• Ending the automatic CPI indexation of the Working for Families abatement threshold to stop higher-income recipients getting bigger increases than those on lower incomes.
• An increase in IRD audit and compliance activity to improve the integrity of the tax system.