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Presented by: Michael Turner and Stephen Higgs Dunedin – May 2010

Budget 2010 – The Tax Changes. Presented by: Michael Turner and Stephen Higgs Dunedin – May 2010. Polson Higgs, 2005. C. Contents. Economic Predictions Government Finances Tax Rates GST Increase Property Issues Planning/Avoidance Other Business Issues. Budget 2010 - Key Platforms.

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Presented by: Michael Turner and Stephen Higgs Dunedin – May 2010

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  1. Budget 2010 – The Tax Changes Presented by: Michael Turner and Stephen Higgs Dunedin – May 2010 Polson Higgs, 2005 C

  2. Contents • Economic Predictions • Government Finances • Tax Rates • GST Increase • Property Issues • Planning/Avoidance • Other Business Issues

  3. Budget 2010 - Key Platforms • Economic Performance • Tax Reform • Public Services • Government Finances

  4. Economic Predictions

  5. Government Finances • Govt surplus 2016 • Net Debt peak 27.4% GDP 2015 • 2009 Budget had peak 35% GDP • Total NZ debt as % GDP high (90%) • Low Govt debt crucial • Credit rating • Interest rates

  6. Income Tax Rates PersonalCurrent 2010/11 2011/12 0-14,000 12.50% 11.50% 10.50% 14,001-48,000 21.00% 19.25% 17.50% 48,001-70,000 33.00% 31.50% 30.00% 70,001 + 38.00% 35.50% 33.00% Trust Rate 33% 33% 33% Company Rate 30% 30% 28% PIE 30% 28% 28% (from 1/10)

  7. Income Tax Rates

  8. Income Tax Rates

  9. Income Tax Rates Other changes • RWT on interest • RWT on dividends • Provisional tax • Use of imputation credits • FBT • Secondary tax

  10. Income Tax Rates Other changes • Removal of redundancy & fund withdrawal tax • New superannuation contribution rates • Working for Families • Benefits

  11. GST Rate Increase • Rate increase 12.5% 15.0% • 20% increase in GST 1 October 2010 • 2% increase in CPI • 1.59 billion revenue 2010/2011 2.46 billion revenue by 2013/2014 • History: • 1 October 1986 10.0% • 1 July 1989 12.5% • 1 October 2010 15.0%

  12. Calculation of GST content • GST inclusive 12.5% = ÷ 9 15% = ÷ 23 x 3 • GST exclusive 12.5% = ÷ 9 x 8 or 8/9 15.0% = ÷ 23 x 20 or 20/23

  13. Issues to Consider Pricing and demand • Spike / dip in demand for goods • Prepay costs • Only for consumer – not registered businesses Updating prices overnight • Deemed supplies (change of use) • Adjustments (12.5% vs 15%) • Price points $9.95 – increase price to $10.17 (or more!) • Signage, brochures, websites and price tags

  14. Issues to Consider Contractual issues • Ordinary timing rules • Hire purchase “lock in rate” • New contracts • Ongoing contracts

  15. Issues to Consider • Unless agreement expressly contemplates it • Section 78 • Agreement deemed modified – supplier recover • Contract three months after change • Recover from recipient • “Plus GST”, “Inclusive of GST” or Silent

  16. Issues to consider • Recurring invoices • Increase in funding cost (e.g. exports) • Higher costs for those who can’t recover – consumer or unregistered • Compliance more significant as GST $ gets larger (20% increase) • Issuing correct tax invoices / credit/debit notes

  17. Issues to Consider Accounting systems • Accounts payable – two rates • Accounting system • Will it handle a change? • Change part way through a year? • Rates assigned to individual customers • Updating prices overnight

  18. Transitional rules • Anti-avoidance • If GST return spans 1 October – two parts • Will need a list of Debtors/Creditors on 1 October • Payments basis will need to complete adjustment

  19. Sectors • Property developers (settlement) • Ongoing contracts (e.g. gym) • Residential landlords • Periodic costs (e.g. insurance)

  20. Property Issues Currently • 2% SL / 3% DV • Negative return of $500m • Depreciation deductible • Recoverable on sale

  21. Property Issues Proposed • Depreciation for buildings estimated life <50yrs • No depreciation ≥50yrs • Begins 2012 income year • R&M still deductible • Commercial property fit-outs depreciable, but under review

  22. Property Issues • <50 years generally specialist buildings • E.g. portable buildings, dairy sheds, concrete bunkers, chemical works, hot/shade houses, tanneries • Can apply for estimated useful life ruling • No deductible loss on sale • Potential recovery of “old” depreciation

  23. Planning/Avoidance • Funding of IRD • + $119.3m over 4 years • Increased audit/compliance activity • Debt collection • Hidden economy • Property transactions • Tax rate / income splitting? • “Phoenix” / Land – zero rating

  24. Planning/Avoidance • Tax Rate • Was 38% vs 33% = 5% • Proposed 33% vs 28% = 5% • Company vs Trust • Attribution rules • Planning?

  25. Planning/Avoidance • Working for Families • From 1 April 2011 • Investment (rental) loss not available • Issues Paper – Trust distributions, WFF, student allowances, community services card

  26. Planning/Avoidance • LAQC • 1 April 2011 • Taxed like Limited Partnerships • Partnership tax return • Losses limited to investment • Profits taxed at S/H rate • Thin Capitalisation • Debt to equity – 75% reducing to 60%

  27. Other Business Friendly Measures • R&D – $321m over 4 years • Aquaculture – Legislation to support growth – Lift regulatory barriers • Mining – Gain in economic performance – Funded in budget • Water – Improve regulatory regime – Storage/irrigation – Sustainable mngt programme

  28. Other Business Friendly Measures • Exporters – Improve via free trade agreements E.g. HK, Malaysia & others – Transpacific partnership • Productivity Commission – April 2011 – Independent body – Productivity related matters – Yeah right!

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