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

Budget 2010 – The Tax Changes C Contents Economic Predictions Government Finances Tax Rates GST Increase Property Issues Planning/Avoidance Other Business Issues

Budget 2010 – The Tax Changes C Budget Key Platforms Economic Performance Tax Reform Public Services Government Finances

Budget 2010 – The Tax Changes C Economic Predictions Real GDP growth (annual average % change) Inflation (annual % change March quarter) day interest rate (March quarter) Unemployment rate (March quarter) Core Crown expenses ($b) Core Crown revenue ($b) Operating balance ($b) Operating balance (% of GDP) Net debt ($b) Net debt (% of GDP)

Budget 2010 – The Tax Changes C Government Finances Govt surplus 2016 Net Debt peak 27.4% GDP Budget had peak 35% GDP Total NZ debt as % GDP high (90%) Low Govt debt crucial – Credit rating – Interest rates

Budget 2010 – The Tax Changes C Income Tax Rates PersonalCurrent2010/112011/ , %11.50%10.50% 14,001-48, %19.25%17.50% 48,001-70, %31.50%30.00% 70, %35.50%33.00% Trust Rate33%33%33% Company Rate30%30%28% PIE30%28% 28% (from 1/10)

Budget 2010 – The Tax Changes C Income Tax Rates Personal Current$ Proposed$ 0-14, %1, %1, ,001-48, %7, %5,950-1,190 48,001-70, %7, %6, , %33.0% _____ 16,150 ===== _____ 14,020 ===== _____ -2,130 =====

Budget 2010 – The Tax Changes C Income Tax Rates Income Tax Current Tax ProposedDifference 70, ,000 16,150 27,550 14,020 23, , , , ,000 46,550 65,550 40,420 56, , ,630

Budget 2010 – The Tax Changes C Income Tax Rates Other changes RWT on interest RWT on dividends Provisional tax Use of imputation credits FBT Secondary tax

Budget 2010 – The Tax Changes C Income Tax Rates Other changes Removal of redundancy & fund withdrawal tax New superannuation contribution rates Working for Families Benefits

Budget 2010 – The Tax Changes C GST Rate Increase Rate increase 12.5% 15.0% 20% increase in GST 1 October % increase in CPI 1.59 billion revenue 2010/ billion revenue by 2013/2014 History: – 1 October % – 1 July % – 1 October %

Budget 2010 – The Tax Changes C 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

Budget 2010 – The Tax Changes C 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

Budget 2010 – The Tax Changes C Issues to Consider Contractual issues Ordinary timing rules Hire purchase “lock in rate” New contracts Ongoing contracts

Budget 2010 – The Tax Changes C 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

Budget 2010 – The Tax Changes C 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

Budget 2010 – The Tax Changes C 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

Budget 2010 – The Tax Changes C 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

Budget 2010 – The Tax Changes C Sectors Property developers (settlement) Ongoing contracts (e.g. gym) Residential landlords Periodic costs (e.g. insurance)

Budget 2010 – The Tax Changes C Property Issues Currently 2% SL / 3% DV Negative return of $500m Depreciation deductible Recoverable on sale

Budget 2010 – The Tax Changes C 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

Budget 2010 – The Tax Changes C 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

Budget 2010 – The Tax Changes C 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

Budget 2010 – The Tax Changes C Planning/Avoidance Tax Rate – Was38% vs 33% = 5% – Proposed 33% vs 28% = 5% – Company vs Trust – Attribution rules – Planning?

Budget 2010 – The Tax Changes C Planning/Avoidance Working for Families – From 1 April 2011 – Investment (rental) loss not available – Issues Paper – Trust distributions, WFF, student allowances, community services card

Budget 2010 – The Tax Changes C 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%

Budget 2010 – The Tax Changes C 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

Budget 2010 – The Tax Changes C 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!

Budget 2010 – The Tax Changes C