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Brightline test to be extended

Bright-line test to be extended, 15 February 2018

On 15 February 2018, the Minister of Revenue, the Hon Stuart Nash, confirmed that the bright-line test on residential property sales will be extended from two years to five years.

Supplementary Order Paper No 13 is to be introduced to the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Bill currently making its way through Parliament.

The objective in extending the current bright-line test from two years to five years is to ensure that speculators pay tax on the gains from property speculation and also to improve housing affordability for owner-occupiers by reducing demand from speculators.

The proposed five-year bright-line test has the same structure and design features as the two-year bright-line test. These design features includes the following:

• The five-year period for the bright-line test runs from the date of settlement to the date a person enters into an agreement to sell the property. An additional rule applies for sales "off the plan".

• The extended bright-line test only applies to properties for which an agreement to purchase the property was entered into from the date of enactment of the Bill.

• The bright-line test only applies to residential land. Residential land includes empty land planned to be used for residential purposes but excludes business premises and farmland.

• The bright-line test does not apply to a person's main home. A person can only have one main home. The main home exception is available to properties held in trust.

• There are exceptions for relationship property and inherited property.

• Taxpayers are allowed deductions for property subject to the bright-line test according to ordinary tax rules.

• Losses arising from the bright-line test are ring-fenced so they may only be used to offset taxable gains from other land sales.

Extending the bright-line test from two years to five years has a consequential effect on the current residential land withholding tax rules. These rules generally require a conveyancer to withhold tax from the proceeds of the sale of residential land by an offshore person when the disposal would be subject to the bright-line test. Consequential amendments have been made to these rules to align them with the extended bright-line test.

The Minister noted that the extension to the bright-line test will apply to residential investment properties purchased from the date on which the Bill receives the Royal assent, which is expected in March. The Minister said that the passage of the Bill will also enable the Tax Working Group to factor the change into any consideration of a capital gain tax.

Source: taxpolicy.ird.govt.nz

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

2016 Xmas Closing Dates

Wishing you a safe and happy Christmas and a wonderful new year ahead!

Our office will close at noon on the 22nd of December and reopen in the New Year at 8:30am on the 9th of January. Thank you for all your support this year. From the team at McGregor Bailey

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/

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