TaxBlog

Prime Minister John Key announced yesterday a raft of changes to tax and business regulations designed to cut red tape.

The initiatives, part of a wider package for small and medium enterprises announced today by Prime Minister John Key, will make it easier for smaller businesses to manage their cash flows and meet their tax obligations.

These two key initiatives are:

• Removing the 5% “uplift” rate that businesses pay in advance on provisional tax instalments throughout the year. To calculate the provisional tax they must pay in any given year, most businesses use the previous year’s income and add 5% to cover likely growth in the new income year – this 5% uplift will be removed for the rest of this year and next year.
• Reducing the “use of money” interest rates on underpaid and overpaid tax. The rate for underpayments will reduce from 14.24% to 9.73% and the rate for overpayments will fall from 6.66% to 4.23%. These changes will apply from March 1 2009.

Other tax initiatives announced today are:

• The GST payments threshold will increase to $2 million in annual revenue from $1.3 million.
• The GST registration threshold will increase to $60,000 in annual revenue from $40,000.
• Businesses with $10,000 or less of annual business-related legal expenditure can fully deduct the expense in the year it is incurred, regardless of whether or not it is a capital expense.
• The PAYE once-a-month filing and payment threshold will be raised to $500,000 in employer PAYE deductions from $100,000.
• The Fringe Benefit Tax annual filing threshold will be raised to $500,000 in employer PAYE deductions from $100,000.
• The value of minor fringe benefits (such as chocolates and flowers) that can be provided to employees without attracting FBT will increase to $300 a quarter per employee $200, and $22,500 a year per employer from $15,000.
• The FBT prescribed interest rate for low-interest, employment-related loans will fall from 10.90% to 8.05%.
• Some other thresholds for accrual expenditure adjustments will also be increased.
• Certain small and medium enterprise tax simplification measures that are part of a bill now before Parliament will be fast-tracked.

Mr Dunne said:

Taken together, the tax measures – which include a number of measures to reduce compliance costs – are worth an estimated $484 million over the next four years.

“The Government will move swiftly to introduce legislation next week supporting these announcements, so the changes are in place by April 1,” Mr English and Mr Dunne said.

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Farmers are facing higher tax bills this year according to this article from TVNZ.

The government’s “national standard cost values” (NSC), used by many farmers’ accountants to calculate taxable income, have increased by about 30% for dairy cattle and 13-14% for beef cattle and sheep.

The new livestock production costs reflected what had happened on farms during the first three quarters of 2008.

The falls in costs, which started to show up in the fourth quarter, would be taken into account in the 2010 NSC values.

I beleive the article is misleading because not all farmers use the NSC method of valuing livestock. The herd scheme which is available to most farmers ensures that yearly fluctuations won’t cause huge spikes in tax liabilites.

Anyone who has ever dealt with livestock taxation would know that it is a very confusing and complicatied area of the tax law.
 

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Following our post the other day about Michael Hill moving to Australia to dodge tax comes this article in the Herald where the IRD are saying that the Tax system is under pressure from rich avoiding tax.

There are some interesting lines from the article:

“There is ample evidence that people are using different entities to structure their affairs in ways which reduce their tax liabilities.”

This to me is common sense. If you can minimise your tax by legal means then you would be a fool not to. We’ve had that discussion many times before on this blog. It’s also interesting to note that the IRD were not saying in the above quote that they were concerned that taxpayers were using illegal means to minimise their tax, simply that they were minimising their tax.

The report goes on to say:

“It can create a mentality that rather than tax being something which is paid for by all, tax is something for the smart, the able and the well advised to avoid. Over time, this can erode confidence that the tax system is fair.”

This has long been a view held by all salary and wage earners (that self employed people get a better deal). However many a salaried person chases their dream of owning their own business only to have it shattered upon the rocks of IRD compliance and red tape.

You could sum up the IRD’s view by saying that he who has the best advisors wins. Well put I say.

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Bono, the rock star and campaigner against Third World debt, is asking the Irish government to contribute more to Africa. At the same time, he’s reducing tax payments that could help fund that aid.

After Ireland said it would scrap a break that lets musicians and artists avoid paying taxes on royalties, Bono and his U2 bandmates earlier this year moved their music publishing company to the Netherlands. The Dublin group, which Forbes estimates earned $110 million in 2005, will pay about 5 percent tax on their royalties, less than half the Irish rate….

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The Labour Party is taxing its own MPs a low, flat rate of 5% to repay election spending, but is pursuing a less fair policy for working New Zealanders, says ACT Leader Rodney Hide.

“Helen Clark’s support for flat tax is surprising, and somewhat encouraging, even though it’s limited to her own caucus”, Mr Hide said.

“At the same time as effectively imposing a flat rate of tax on their own MPs, Labour is talking about shifting the income tax thresholds for working Kiwis.

“If a flat rate is good enough for their MPs and Ministers, the Labour Government should be working towards flat taxes to fund legitimate government spending too”, Mr Hide said.

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What were they thinking at EY?

http://video.google.com/videoplay?docid=4793699324787578407&hl=en 

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The Government should work to ease small and medium-sized businesses’ tax-compliance burden, says the accounting firm KPMG.

KPMG and Business New Zealand’s Compliance Cost Survey shows tax remains the biggest headache for businesses.

Over 41 per cent of total compliance costs were for tax-related issues, said KPMG tax partner Paul Dunne.

“Respondents are telling us that tax is too complicated for the average person to deal with. This is not helpful for starting or growing small businesses.”

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While the ANZ has had some recent tax issues in NZ, in Australia The Australia New Zealand Bank (ANZ) and the Australian Tax Office announced last week that they have reached a Forward Compliance Arrangement, a new compliance process designed to promote best tax practice and reduce tax compliance costs for both business and the ATO.

ANZ is the first Australian company to undertake such an initiative, which is designed primarily for large corporates.

The Forward Compliance Arrangement covers ANZ’s Goods and Service Tax (GST) compliance. It follows an $8 million investment by ANZ over the past three years to ensure the effectiveness of its tax compliance processes and systems, and to establish a strong GST governance compliance framework within the Group’s Corporate Governance framework.

The Forward Compliance Arrangement provides an alternative to traditional Tax Office audit activities, and is viewed as an open and transparent forward looking approach to tax compliance. It requires a high standard of taxation self-examination and a commitment to continuous disclosure to the Tax Office of actual and potential GST and governance risks.

Commenting on the landmark agreement, ANZ Chief Financial Officer Peter Marriott observed that: “In addition to reducing compliance costs, the Forward Compliance Arrangement would lower ANZ’s tax risk profile and institutionalise best practice tax compliance.”

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In further news supporting my hypothesis that EU tax competition is heating up: The Dutch government has pledged to share the fruits of its anticipated budget surplus next year through further cuts in tax for individuals and businesses.

Presenting the last budget prior to the election on November 22, Holland’s long-serving Finance Minister Gerrit Zalm stated that the government will continue to cut the rate of corporate income tax, which will fall to 25.5% in 2007 from 29.1%, putting it below the European Union average. This represents a 5% cut in corporate tax since 2005.

In addition, small and mid-sized companies whose profits are liable to income tax will receive an exemption of 10%.

There will also be a small income tax cut for individuals, with the lowest tax bracket reduced by 0.50% and the second bracket by 0.05%. Unemployment insurance contributions, which are paid by all working persons, will also be cut by 1.35%.

The government is also taking steps to reduce unnecessary business regulation, and in 2007 it will take further measures to root out “superfluous or unnecessarily complicated legislation”.

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What if the largest property owner in your county suddenly decided he wasn’t going to pay property taxes anymore? And, worse, there wasn’t a damn thing you could do about it.

Some 700 counties scattered across rural America now find themselves in precisely this position. And the deadbeat property owner is none other than the U.S. government, the owner of some 90 million acres of timberland–holdings that account for more than half the entire land base in many counties.

The history here is straightforward. Since 1906, counties holding federal forestlands have received a share of the revenue generated by various management-related activities, including timber harvesting. While technically not a property tax, revenue sharing placated the Western solons who feared nationalizing public domain lands would make community formation impossible.

But the program has slowly ground to a halt over the last 20 years as one administration after another lost its enthusiasm for harvesting federally owned timber. West of the Cascades in Oregon and Washington, folks blame the Endangered Species Act, lawyers and the northern spotted owl, in that order. Down South, it’s red-cockaded woodpeckers. In the Midwest, it’s Indiana bats.

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