Business taxation becomes a whole lot less taxing
It’s no secret that in recent years the New Zealand economy has been sluggish with unbalanced growth driven by debt and consumption rather than by savings and exports. We are spending more than we earn and net Crown debt is expected to rise to $68 billion by 2015.
On a positive note Budget 2010 can be seen as light at the end of the tunnel due to its strong focus on building an economic recovery and including some strong incentives for business. Lowering the company tax rate from 30 per cent to 28 per cent in 2011 will provide a strong incentive for people to do business in New Zealand. It also says to our brightest and smartest that we want them to stay and work here.
Let’s take a look at the main changes to business tax in Budget 2010; changes that make the system fairer and more equitable.
The company rate falls to 28 per cent and the tax rate for most savings vehicles also reduces to 28 per cent.
We’re removing the 20 per cent depreciation loading and depreciation deductions on buildings with a useful life of more than 50 years.
This tax package also reduces the thin cap threshold to 60 percent; this means that any foreign company-owning entity in New Zealand can only claim 60 per cent of interest on debt incurred – this figure used to be 75 per cent.
Closing loopholes makes a taxation system fairer so a number of measures have been implemented to improve its integrity. LAQC (loss acquiring qualifying companies) and QC (qualifying company) rules have been tightened up considerably.
Income definitions have been tightened and there has been an alignment of trust and top personal tax rates.
New systems are also in place to prevent GST ‘Phoenix’ schemes (a transaction between associated parties where one party claims a GST refund and the other is wound up before it has to pay GST).
Obviously improving IRD enforcement rules goes hand in hand with closing loopholes but this doesn’t necessarily mean more bureaucracy – rather, simpler rules to adhere to.
I believe we’ve suddenly come a very long way in a very short time as a result of these changes to the way business tax is structured. A fair system encourages people to live within the law because they feel they are being treated equitably, a fair system encourages hard work, investment and prosperity.
Marlborough is still feeling the effects of the recession but I sincerely hope that recent moves by this Government will ensure we remain in good heart and are soon back in very good shape.
