The New Zealand Budget 2010! For most of us this is something that we have been looking to for a while now. There has been plenty of hype running around this years budget and the cat has now been let out of the bag.Property tax has been hit hard with quite an increase and other things:
Here is an example from the govt website – A professional landlord and property investor over the last 20 years, he has built up a portfolio of 25 properties. His net annual profit from his rental activity, after costs of interest, repairs and maintenance and rates, but before depreciation is $112,000. After claiming depreciation of $52,000 ($1000 a week) on the buildings he owns his net annual profit is reduced to $60,000, which he pays tax on. Under the current rules, he can claim depreciation despite the fact that both his houses and the land they are on have substantially increased in value over time.
Under Budget 2010 tax changes, he can no longer claim depreciation on buildings. As a result he must now pay tax on $112,000 of annual profit rather than $60,000. Despite personal income tax cuts this increases his weekly income tax by $289.03. As he has less to spend his GST reduces by 85c a week. Overall he is $288.18 a week or $14,985.36 a year worse off.
Here is an overview. For more info go to http://www.taxguide.govt.nz
Budget 2010 tax changes – at a glance
Rewards effort and helps families get ahead
Attracts and retains skilled people in New Zealand
Encourages savings and productive investment
Makes the tax system fairer
At all taxable income levels, tax cuts more than offset the GST rise
The tax package comprises:
All personal income tax rates will be cut from 1 October 2010.
Income Current Rates
New rates
$0 – $14,000 12.5% to 10.5%
$14,001 – $48,000 21.0% to 17.5%
$48,001 – $70,000 33.0% to 30.0%
Over $70,000 38.0% to 33.0%
After-tax earned incomes at all levels of taxable income will rise by more than the increase in GST.
Secondary tax and resident withholding tax rates will be reduced from 1 October 2010, to align with the new personal tax rates.
To find out how much you will save visit www.taxguide.govt.nz
An increase in GST to encourage savings over consumption
GST will be increased from 12.5 per cent to 15 per cent from 1 October 2010.
Income support and other payments will be increased by 2.02 per cent from 1 October 2010, to compensate for this increase. These payments include:
All main benefits, Student Allowances and a number of supplementary benefits.
NZ Superannuation, Veterans Pension and CPI-adjusted Government Superannuation Fund and National Provident Fund payments.
Working for Families (Family Tax Credit and Minimum Family Tax Credit).
Reductions in tax for companies and savings vehicles to encourage investment and savings
The company tax rate will fall from 30 per cent to 28 per cent from the 2011/12 income year.
The top tax rate for most portfolio investment entities (PIEs) will fall from 30 per cent to 28 per cent, while the other PIE rates drop to align with the new personal tax rates, from 1 October 2010.
The tax rate for life insurance policy holders and widely-held savings vehicles like unit trusts and superannuation funds will fall from 30 per cent to 28 per cent from the 2011/12 income year.
Changes to depreciation rules to better reflect asset value reality
No depreciation deductions will be allowed for buildings with an estimated useful life of 50 years or more (such as rental housing and office buildings) from the 2011/12 income year.
The current 20 per cent depreciation loading on new plant and equipment will be removed, for assets purchased after Budget day.
Stricter tax rules for foreign multinationals to reduce their ability to minimise tax payments in New Zealand.
Tax rules will change from the 2011/12 income year to reduce the interest deductions foreign multinationals can take by having high levels of debt allocated to their New Zealand subsidiaries.
Changes to loss attributing qualifying company (LAQC) and qualifying company (QC) rules to ensure investors are taxed at the correct rate
LAQC and QC rules will be tightened from income years starting on or after 1 April 2011 to prevent people choosing to have losses deducted at their marginal personal tax rate but profits taxed at the lower company tax rate.
Making Working for Families fairer
People will no longer be able to use investment losses, including from rental properties, to reduce their income and become eligible for Working for Families, from 1 April 2011.
One part of the formula that adjusts Working for Families payments for inflation will be amended because it currently gives higher-income families a greater proportional increase than lower-income families.
Tackling tax avoidance and improving the integrity of the tax system
IRD will get a significant funding boost to increase its audit and compliance activity around debt collection, the hidden economy and property transactions.
GST rules will be changed to stop the use of “phoenix” GST fraud schemes.
The Key Points Are:
Today’s Budget includes these key points:
– GST increases from 12.5pc to 15pc
– Company tax rates fall from 30pc to 28pc
– All income tax brackets fall, with the top rate levied on income over $70,000 per year coming down from 38pc to 33pc.
– Landlords and businesses will no longer be able to claim depreciation on buildings that are expected to increase in value.
– Rules around ‘loss attributing qualifying companies’ often used by property investors to reduce their tax payments are being tightened.
– All benefits including NZ Super and working for families will increase by 2.02pc to compensate for the increase in GST
– An extra $2.1bn is being spent on health over the next four years, which includes $1.7bn of new operating funding.
– Funding for schools is going up by $1.4bn over the next four years, which includes $350m in new operating and capital funding for school property.
All in all I honestly think with albeit my limited knowledge a fair budget considering. I do think it allows room for the country to move forward in the next few years and will open up options later down the track.