Most of you have had the opportunity to read about the budget measures. The measures announced in the budget confirmed that the government’s priorities have not changed. The Governments’ desire to return to surplus is through cutting back government spending and collecting more revenue.  The IRD and Treasury have clearly signalled the need to get more blood out of the stone so to speak, and why a full capital gains tax is apparently not on the list, the budget was interesting in that it announced no other similar measures and was more of a tinkering nature than featuring radical new taxes.

The Government will allocate an additional $6.65M in annual funding, beginning in the 2014/2015 tax year for audit activity in relation to property investment tax compliance. In the past such endeavours have proved very successful for the IRD hence why they are high on the priority list.  In addition to tax measures, which are detailed below the Budget also focuses on helping low income families and the areas of health, education, social welfare and houses.

ACC Levies

There are no real surprises from a tax perspective other than the reduction in ACC levies of about $300M in 2014 increased to $1B in subsequent years. Details in relation to these changes will be released later on in the year, so watch this space. None the less this measure will be welcomed by businesses

R&D Expenditure & Tax Losses

Small start-up companies that invest in R&D will be allowed a tax refund if they generate tax losses as a result of their R&D expenditure. This is welcome news for small start-up businesses who are more often than not strapped for cash.

A public consultation will be issued in June 2013 which will provide details in relation to qualifying expenditure, the ceiling for refunds and how the system will operate.

Tax relief for “Black Hole Expenditure”

Certain business expenditure is not deductible or depreciable. This is often referred to as “Blackhole expenditure”. The budget proposes that these be made deductible as follows from 2014/2015 tax year:

  Depreciable Immediately deductible
Patents or plant variety rights Legal & administrative fees
Resource consents under Resource Management Act Expenditure incurred on certain fixed life resource consents Expenditure incurred on consents that are abandoned
Company administration costs All costs associated with payment of dividends to shareholders
Annual Fees Annual fees for listing on stock exchange
Shareholder meetings Annual shareholder meeting costs

These measures will provide additional savings to the tax payers. Whether you will be able to benefit from these savings will depend on the nature of your business activities; a large proportion of taxpayers will however not benefit from these measures at all.

Thin Capitalisation Rules – Non-residents

The rationale of these measures is to ensure that non-residents investing in NZ pay their fair share of tax; the proposed rules eliminate the ability of non-residents to introduce an excessive amount of debt into NZ and claim a deduction.  Legislation is planned to be introduced later on during the 2013 year with the proposed date of application starting at the beginning of the 2015/2016 tax year. Currently the rules apply where a single non-resident controls a company in NZ. What is proposed is that these rules will be extended to where 2 or more businesses control a NZ company in certain circumstances.

Whilst the legislation has not been finalised, the residents will not be affected by these measures.

If you would like to discuss the above points and their possible impact on your business or personal situation please contact Nigel Smith.