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2017 Budget Report

2017 Budget Report - Family income and tax rates

The Package will make changes to tax thresholds, Working for Families and the Accommodation Supplement to help Kiwi families get ahead.  It is a first step towards simplifying the income tax system.

The Family Incomes Package is carefully designed to assist low and middle income earners with young families and higher housing costs.

It will benefit 1.3 million working-age families in New Zealand by, on average, $26 per week.

There have been no changes in tax rates, but the thresholds where the progressive tax rates kick in will increase from 1 April 2018. The changes are intended to correct, or at least mitigate, the effects of "fiscal drag". Fiscal drag is the effect of rising wages pushing people into a higher tax bracket.

The tax rate changes are combined with a simplification to, and increased funding of, Working for Families. The Independent Earner Tax Credit, which less than a third of eligible people actually claim during the year, is being scrapped. The Family Tax Credit is being aligned so that it is the same no matter how old a taxpayer's children are (up to 18 years of age).

The final component of the Family Incomes Package sees an increase to the Accommodation Supplement.

The following elements make up the Package:

  • Increasing the bottom two income tax thresholds:
    • From $14,000 to $22,000; and
    • From $48,000 to $52,000.
  • Discontinuing the Independent Earner Tax Credit (IETC).
  • Family Tax Credit (FTC):
    • Increasing payment rates for children aged under 16, so that they align with the rates for children aged 16 to 18 years; and
    • Increasing the abatement rate from 22.5 cents to 25 cents in the dollar and decreasing the abatement threshold from $36,350 a year to $35,000 a year.
  • Housing costs:
    • Increasing the maximum Accommodation Supplement (AS) payments and updating locations of Accommodation Supplement areas to reflect increases in housing costs; and
    • Increasing the weekly payments of Accommodation Benefit for eligible Student Allowance recipients by up to $20.

Superannuitants will gain from the tax threshold increases and some will also gain from the Accommodation Supplement increases.

For further information and analysis of the budget go to the 2017 CCH Budget Report

http://www.wolterskluwer.co.nz/category/budget-report/

Mileage Rates for 2017

2017 review of Commissioner's mileage rates

Mileage rate for motor vehicles increased

For the 2017 tax year (1 April 2016 to 31 March 2017), the mileage rate for both petrol and diesel fuel vehicles has increased to 73 cents per km.

This year we are also able to set mileage rates for hybrid and electric cars. The mileage rates for these vehicles are:

  • hybrid - 73 cents per km
  • electric - 81 cents per km.

For both Hybrid and Electric vehicles, our data shows that although these types of vehicle have lower running costs, these are offset by higher fixed costs.

If you're an employer you can use the above rates when reimbursing employees for the use of their private vehicle for work-travel for the current tax year (1 April 2017 to 31 March 2018).

The mileage rate is reviewed after a tax year ends so the rate reflects the average motor vehicle operating costs for that year. If you've filed your 2017 income tax return using the 2016 rate of 72 cents per km, you can request an amendment.

If the mileage rate doesn't reflect your actual costs, or your work-travel is more than 5,000km per year, you must keep a record of your actual vehicle expenses.

For more information about mileage rates go to http://www.ird.govt.nz/technical-tax/op-statements/os-review-mileage-rate-2017.html

Kreston - Doing Business in New Zealand

DOING BUSINESS IN NEW ZEALAND

 

New Zealand (NZ) has a relatively deregulated and open economy and is consistently ranked as one of the easiest countries in which to do business.   The World Bank and International Finance Corporation (IFC) ranks NZ first in the world for protecting investors and starting a business.

 

As well as simplicity the tax system has the major attractions of predictability, fairness and a minimum of loop holes.

 

Of course one of the major attractions of NZ is the more relaxed living philosophy and lifestyle which seems to be more obtainable than in many other countries.

 

However local knowledge of the legal, accounting and taxation framework is essential when looking to set up or do business in NZ.   This document provides a brief summary of the practical issues you will need to consider.

 

WHAT TYPE OF BUSINESS STRUCTURE SHOULD WE USE

 

Foreign investors can operate in NZ through whatever entity they choose and the most common ones used are locally incorporated companies or a branch of a foreign entity.

 

1.  Limited Company

  •  Provides limited liability.
  • Can be foreign owned or a subsidiary company.
  • Must have at least one local director.
  • The Register of Companies maintains a file for each Company and details must be updated annually.
  • Corporation tax to be paid on Company profits.
  • A "Large" company with more than 25% foreign ownership must file audited financial statements with the Register of Companies.   There is no requirement to file the overseas Parent Company's Statements.
  • Large as above is defined for the NZ Company as greater than $10 million turnover or $20 million assets for the two preceding years.

 

2.  Branch (of an overseas business)

  •  Not a separate legal entity but an extension of the overseas parent company.
  • No limited liability or ring fencing of the NZ operations.
  • Must register with the Registrar of Companies.
  • Corporation tax is payable on NZ profits.
  • Must file separate audited financial statements for both the Parent and the NZ Branch operations.

 

3.  Look Through Companies

  •  Incorporated as a company but treated like a Partnership for income tax purposes.
  • All profits or losses flow through each year to shareholders in proportion to shareholdings.
  • Subject to loss limitation rules.
  • Can have non resident shareholders.

 

4.  Other trading Entities

  •  Individual (sole trader)
  • Trust
  • Partnership
  • Limited Partnership

 

CORPORATION TAX

  •  Currently a flat rate of 28%.
  • NZ operates a dividend imputation system whereby tax paid at the company level can effectively be credited against shareholder tax liabilities on dividends received.   These credits may be restricted when paid offshore.
  • NZ resident companies are subject to tax in respect of worldwide income.   Non resident companies are liable for tax only on income earned in NZ.

 

CROSS BORDER TRANSACTIONS

  •  Generally NZ rules follow the OECD guidelines to ensure an arm's length basis to protect the NZ tax base.
  • Thin capitalisation rules apply to ensure that NZ taxpayers do not deduct a disproportionately high amount of worldwide group interest expense. 

 

EMPLOYMENT TAXES

NZ operates a PAYE system (Pay as you earn) and employers are required to deduct this tax from wages and salaries paid to employees.

 

NZ has Compulsory Accident Insurance (ACC) and employees are subject to this tax (approx. 2%) which is included with the PAYE.   The levy is capped at a fixed level of earnings.   This levy provides for loss of earnings and medical expenses as a result of workplace or recreational injury or disability.

 

 

NZ has a voluntary work based superannuation scheme (Kiwisaver) and employers are required to make a compulsory contribution of 3% of gross salaries for those employees who choose to join the scheme.

  • There is no payroll tax.
  • There is no social security tax.
  • There is no health care tax apart from ACC as above.
  • There is a fringe benefit tax system (FBT) which can impose a tax on benefits supplied to employees.

 

 

PERSONAL TAXATION

 

There are rules to determine tax residency in NZ which can be quite complex and professional advice is advised.

 

Current personal income tax rates are:-

 

Income   to   $14,000                                  10.5%

$14,000   -    $48,000                                  17.5%

$48,000   -    $70,000                                  30.0%

$70,000   and    over                                   33.0%

  •  Tax returns are filed on an individual basis and there is no provision for amalgamation of household income.
  • There are transitional resident rules which generally exempts such persons from NZ tax on foreign income for the first 4 years of residency, which can be of great benefit.
  • NZ tax residents are taxed on their world wide income.

 

 

OTHER TAXES

NZ has a simplified tax system where taxes that apply in many other countries do not apply in NZ.

  •  There is no capital gains tax except in some special cases.
  • There is no inheritance, estate or wealth tax.
  • There is no stamp duty.
  • There is no gift duty.
  • There is no local or state taxes apart from property rates levied by local councils.

 

GOODS AND SERVICES TAX

 

NZ operates a Goods & Services Tax (GST) similar to VAT which is a consumption tax borne by the final private consumer.   It is imposed throughout the chain of production and therefore applies in respect of business to business transactions.   The current rate of GST is 15%.

  •  Registration is mandatory for the supply of goods or services exceeding $60,000 over a 12 month period.
  • GST returns are required to be filed on either a one month, two month or six month basis according to taxpayer requirements and annual turnover.
  • There are very few exemptions from GST.

 

 

OTHER MATTERS

  •  A wide range of free trade agreements and pro competitive regulations make NZ an ideal base for expansion in the Asia Pacific region.
  • More than 80% of the value of imported goods into NZ are tariff – free.
  • GST is payable to NZ Customs on goods imported into NZ and is generally recoverable by GST registered persons or entities.
  • NZ has double tax treaties (DTA) with 39 countries which generally provides relief from double taxation.
  • Non resident withholding tax (NRWT) is applied to dividends, interest and royalties paid to non residents.   NRWT is generally a final tax and the rates will often depend upon the DTA applicable.

 

 

CONTACT

 

TO DISCUSS YOUR REQUIREMENTS PLEASE CONTACT THE INTERNATIONAL OFFICE +44 (0) 1245 449266 OR EMAIL US DIRECTLY AT McGREGOR BAILEY CHARTERED ACCOUNTANTS – SEE OUR WEBSITE

 

 

KRESTON INTERNATIONAL

 

Kreston International Limited is a global network of independent accounting firms with the reputation for providing trusted compliance and advisory services to entrepreneurial business in the SME and mid-market sectors.

 

Currently ranked as the 13th largest accounting network in the world, Kreston has a presence in over 100 countries, providing a resource of over 20,000 professional and support staff.

 

 

Our members are accustomed to working together to deliver cohesive international solutions to ensure clients receive the highest quality of expertise available in their respective countries.   Beyond assurance, quality and experience, clients will enjoy the unique synergy that stems from the trusted relationships that Kreston members have created globally and which support the consistent delivery of exceptional international service.

 

This information is provided for guidance only and is not a substitute for professional advice.   Neither Kreston International Limited nor its member firms accept any liability for any loss arising as a result of actions taken or not taken based on the information contained in this document.

 

The information in this document was prepared as at 25th July, 2016. 

 

 

 

 

2016 Budget Report - Tax

2016 Budget Report – Tax

 

Finance Minister Hon Bill English revealed no tax surprises in the 2016 Budget Speech. The key tax measures in Budget 2016 were revealed by the Prime Minister John Key last month in a pre-Budget announcement. Presented as a "business-friendly tax package", the announcement included the following:

 

  • Reform of the provisional tax regime - removal of use of money interest (UOMI) for the first two provisional tax instalments, extending the safe harbour threshold from $50,000 to $60,000 and the introduction of a new "accounting income method" (AIM) that will allow taxpayers with a turnover of less than $5m to use their accounts to calculate and pay provisional tax monthly or two-monthly.
  •  Overhaul of the rules for schedular withholding payments - giving contractors the option of choosing their own withholding rate (while having a minimum 10% rate for resident contractors and 15% for non-resident contractors), bringing labour-hire firms within the net for withholding payments, and bringing in a voluntary option for contractors not currently covered by the schedular withholding rules.
  •  Removal of late payment penalty - the current 1% monthly incremental late payment penalty will be phased out in a staggered approach.
  •  Greater transparency - tax debt in serious cases will be disclosed to credit reporting agencies, and Inland Revenue will share information with the Registrar of Companies in cases where a serious offence has been (or will be) committed.

 

The Finance Minister also referred to:

 

  • New Zealand's recent signing of an international agreement that increases information sharing between the revenue authorities of 39 countries
  • the current "John Shewan" review of New Zealand's foreign trust regime, and
  •  the continuing work to address tax avoidance issues that New Zealand is carrying out as an OECD member. In terms of capital spending, the Budget allocates $857m for Inland Revenue's new tax administration system. Back to Top Overview

 

Limited tax changes

Tax cuts may be a while away

 

Ministerial statement "When it is affordable, and when economic conditions permit, the Government would like to lower income taxes with a focus on lower and middle income earners who have faced fiscal drag as their incomes continue to rise. However, reducing debt is currently a higher priority than reducing revenue. The Government is also cautious given the wide band of uncertainty around economic and fiscal forecasts. The new operating allowances mean there isn't an explicit provision for tax cuts in the forecasts, but the Government will continue to consider options around lowering tax rates and thresholds – either in Budget 2017 or after - if the fiscal situation improves further."

SMEs tax simplification

 

Ministerial statement "Further support for businesses - particularly small enterprises - comes through a $187 million SME- friendly tax package, which the Prime Minister announced last month. This provides a better balance of incentives to encourage taxpayers to pay the right amount of tax. Provisional tax will be reformed, with a new pay-as-you-go option allowing small businesses to pay tax as they earn income. Use-of-money interest will be eliminated or reduced for the vast majority of taxpayers. Contractors will be able to choose a withholding tax rate that suits their own circumstances. And the ongoing 1 per cent monthly late-payment penalty will be scrapped from 1 April 2017 for new debt - although immediate penalties and interest charges will continue."

 

Changes to provisional tax

 

  • Increasing the current $50,000 residual income tax "safe harbour" limit for use of money interest (UOMI) to $60,000 and extending this safe harbour to all taxpayers.
  • Removing UOMI interest for the first two provisional tax payments for all taxpayers who use the uplift method.
  • Allowing businesses with turnover under $5m to use an accounting income basis (AIM) to pay provisional tax on a pay-as-you-go basis through their accounting software with monthly or two-monthly payments linked to the GST return periods (effective from 1 April 2018). 
  • Allowing companies to pay tax on behalf of shareholders (effective from 1 April 2018).

 

Changes to withholding tax

 

  • Allowing contractors to elect their own withholding rate without applying to Inland Revenue (subject to eligibility limits and a minimum rate of 10% for resident contractors and 15% for non-resident contractors).
  • Extending withholding tax to labour-hire firms.
  • Permitting voluntary withholding agreements.

 

Changes to late payment penalties

 

  • No longer imposing incremental late payment penalties (LPP) on future GST, provisional tax, income tax and Working for Families Tax Credits debt.

 

The reduction of taxpayers' exposure to UOMI and LPP, representing a valuable step towards a better designed payment system, has been well received, but the view is that the Government could have gone further. The extent of business demand for changes to withholding tax and other previously announced measures is uncertain.

 

The Making Tax Simpler: Better Business Tax issues paper notes that provisional tax is a source of stress because of the uncertainty and unpredictability of income, with the UOMI and penalty rules imposing further stress. Businesses following provisional tax rules as set out in statute have been hit unfairly with high UOMI charges. Proposals for extension of the safe harbour amount and its use by non- individuals, together with imposing UOMI charges only from the third instalment where the provisional tax uplift method is used, are welcome, particularly for small businesses with seasonal or volatile income-earning patterns.

 

AIM is technologically revolutionary, with payments generated by accounting software and authorised by the user. The technology does not yet exist and Inland Revenue will need to work with software providers, hence the longer lead time. Some small businesses may appreciate AIM, but it will put pressure on the accuracy of information within accounting systems. Cashflow implications of monthly/two-monthly tax payments may be challenging. The Government clearly favours greater use of withholding taxes as part of Inland Revenue's business transformation, with the proposed reforms being only the start.

 

The above changes will apply from 1 April 2017 (unless otherwise stated) with feedback on the April 2016 issues paper required by 30 May 2016. This package is expected to cost $187m over the next four years.

 

For further information and analysis of the budget go to the 2016 CCH Budget Report

http://www.wolterskluwer.co.nz/category/budget-report/

2016 Review of Commissioner's Mileage Rates

2016 review of Commissioner's mileage rates

On 4 May 2016, Inland Revenue stated that a recent review of the Commissioner's mileage rate has resulted in a reduction to the rate to 72 cents (from 74 cents for 2015) per kilometre for both petrol and diesel fuel vehicles for the 2016 income year. The reduction is largely due to lower average fuel costs during the 2016 income year compared to the 2015 income year and to some extent more efficient motor vehicles. The 2016 income year for business taxpayers with a standard 31 March balance date runs from 1 April 2015 to 31 March 2016.

Points to note are as follows:

• The Commissioner is required by statute to set a mileage rate for persons whose business travel is 5,000 or less in an income year.

• The mileage rate is set retrospectively for persons required to file a return for business income, so that the rate reflects the average motor vehicle operating costs for an income year.

• Persons who meet the criteria have a choice of using the Commissioner's mileage rate or using actual costs if they consider that the Commissioner's mileage rate does not reflect their true costs. Taxpayers that choose to use actual costs are required to keep records to support any expenditure claimed.

• The Commissioner does not propose to amend the returns for taxpayers who have already filed their 2016 returns using the 2015 mileage rate.

• The Commissioner accepts that employers may use the 2016 vehicle mileage rate as a reasonable estimate of costs when they reimburse employees for the use of their private vehicle for business related travel for a current income year (post-1 April 2016).

• Employers may use an alternative estimate other than the Commissioner's vehicle mileage rate when reimbursing employees for use of their private vehicle for employment related use.

• The mileage rate does not apply to motor cycles, hybrid and/or electric motor vehicles as these modes of transport are not commonly used for business purposes. Any self-employed persons who use these forms of transport for business purposes will need to calculate their actual expenditure or in the situation of an employer reimbursement, they may make a reasonable estimate of the employee's costs.