The five key measures annouced are:

1. Tax changes,
2. Expanding the jurisdiction of the disputes tribunal
3. Expanding the role of the Export Credit Office,
4. Expanding business advice services, and
5. Creating a fast-payment requirement for government agencies.

See our coverage of numbers 2 -5 below:

Key has directed Government departments to pay bills promptly

State Services Minister Tony Ryall has announced that government departments have been directed to make sure they pay their bills on time, or earlier, especially invoices from small and medium-sized business suppliers.

The Government has told the State Services Commissioner Iain Rennie it expects all departments to urgently review their process for approving and paying invoices to their suppliers, and to bring forward payment dates where possible.

Government agencies are to, at a minimum, pay their invoices in accordance with their posted terms and conditions, and in any event, no later than the 20th of the month following the receipt of the invoice.

“Government agencies are substantial customers for many small to medium sized businesses. By ensuring these agencies pay their bills on time or earlier, we can help with business cashflow.

Changes to the disputes tribunal:

“Currently, the maximum claim level of the Disputes Tribunal is $7,500, or $12,000 with the consent of both parties. To make life easier and cheaper for small businesses, the Government will lift those levels to $15,000 and $20,000.

“This change will reduce costs in up to 3,600 cases a year which will now be able to be held in the Disputes Tribunal. Previously these cases would have been held in the district court and many would not have been pursued due to the costs involved.

“This is designed simply to lighten the load on small and medium-size business so they can get on with the business of producing goods and services.”

Free Advice service for businesses has been expanded:

The assistance includes a rejuvenated Biz 0800 hotline, free business health checks, and a free mentoring service.

The advice can extend from dealing with cash flow, to management strategies, the best ways of trading through an economic downturn, and how to maximise the advantages from the range of other government initiatives announced today.

“Many of these services have been available previously in some form, but they will be of greater value now if a small business operator comes under stress,” Mr Brownlee says.

The last change relates to trade credits:

“The global financial and economic downturn has affected the availability of short-term trade credit in New Zealand, making it very difficult for some exporters – particularly small-to-medium exporters – to continue trading in some countries,” says Mr Groser.

“These new measures will help to ensure trade opportunities won’t be missed – which is crucial in the current economic environment.”

NZECO has previously provided trade credit insurance only for contracts with payment terms of more than 360 days. This will be extended to include periods of fewer than 360 days.

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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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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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We reported last week about recently confirmed Treasury Secretary Timothy Geithner who failed to pay taxes he owed, even though he surely must have known he owed them. Now he runs the IRS.

This week Tom Daschle was seeking nomination to head the Department of Health and Human Services. This despite failing to pay more than $120,000 in back taxes for perks he received. Yahoo news reports”

Daschle filed amended tax returns for 2005, 2006 and 2007 to reflect additional income for consulting work, the use of a car service and reduced deductions for charitable contributions. He filed the returns after Obama announced he intended to nominate Daschle to head the Health and Human Services Department.

Most of the additional taxes resulted from unreported income from the use of a car service provided him by a close friend and business associate, Leo Hindery Jr. The unreported income for that service totaled more than $250,000 over three years.

Daschle also had unreported consulting income of $88,333, in 2007. He also had reductions to charitable contributions totaling about $15,000 over the three years covered, according to the Senate Finance Committee document. The document, marked “Confidential Draft,” is a committee statement concerning Daschle’s nomination.

News then came out that President Obama’s nominee to be chief performance officer, Nancy Killefer will withdraw her nomination following the revelation that she had a $946.69 lien on her property in 2005 for failure to pay taxes.

This makes me wonder: how did Tom Daschle get away with filing such misleading and false returns? If that happened here he would be in the IRD’s crosshairs.

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Man convicted after representing himself on tax charges.

Treasury has recommended cutting the top tax bracket.

Nelson Man jailed for tax Fraud

Pauanui Developer in fight with IRD

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This has been mentioned quite a bit lately in the attempt to make housing more affordable. In the first link below the The New Zealand Manufacturers and Exporters Association (NZMEA) say:

The almost unique absence of a Capital Gains Tax in New Zealand is one of the factors that drive this outcome. It is clear that the tax rules favour assets over activity.

Their arguments are:

“What is there to fear from a Capital Gains Tax that does not affect the family home or increase the overall tax load? We need to balance the tax treatment of all gains and income to encourage more investors into the productive sector of the economy where jobs and wealth are really created.”

“A Capital Gains Tax has long been framed as politically untenable in New Zealand, but it is difficult to see why, when it will both make housing more affordable, and help create jobs and real wealth. If the Government is serious about improving productivity and creating jobs then this would be a good place to start.”

The NBR article follows a similar path quoting the EMA, but interestingly also has an article about how other factors incuding the Resource Management Act (RMA) are to blame for the low housing affordability.

In response to the calls from the EMA Revenue Minister Peter Dunne has two press releases. He states:

“It’s a hoary old chestnut and it’s time it was put to rest once and for all – no government is going to bring it in,” Mr Dunne said.

“The idea of a general capital gains tax has been around since the 1980s but has never gained any real support.

“As I’ve consistently said, it is simply not going anywhere and the time has surely come to bury it because no government will ever implement it, so these periodic discussions on it are a waste of time,” he said.

Mr Dunne said it would be political suicide for any government to implement, and it was time that “the theorists and ideologues understood that”.

I agree with Mr Dunne that it would be political suicide for a government to introduce a CGT. This is uniquely so because of New Zealanders love of bricks and mortar investments. Part of this may be due to the lack of quality capital markets here (stocks and bonds).

However in theory a CGT would remove some of the distortions in the market that currently incentivises people to purchase property. Mr Dunne offers no reasons to refute this. Perhaps such a move would also increase investment in private equity and small business.

Links:
2nd most unaffordable housing – balance tax system
Capital gains tax would help housing affordability
People don’t like tax reveals Peter Dunne
Dunne: Mothball capital gains tax idea

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“That’s a tremendous take-up rate for the scheme by any measure, and it’s particularly pleasing to note the very even spread across all age groups and both genders,” Mr Dunne said.

“With 46 per cent of KiwiSaver members under 35, it’s good for the country’s future to see younger people saving.”

Kiwisaver works for some people, and not for others. However one of the things that joiners are unaware of is that they can not unenrol from kiwisaver whilst still in that job. You can however take a “contribution holiday”.

It will be interesting to see how many poeple opt for this option in light of the tough economic conditions or how many people starting a new job will opt out.

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How it would work is that $50 would be levied on every person convicted of a crime, where they are required to go to court. These offences would range from traffic violations to murder and would be collected by the current Ministry of Justice system.

The proceeds would then be used to help victims with funeral costs, travel costs and things like counselling.

My question is: Shouldn’t this rightly be called a fine, not a tax?

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The interesting part from a tax point of view is on page 3:

Hamilton accountant Ross Barnett says his client is facing a test case over how the Inland Revenue will treat GST liability when a rent-to-own scheme is signed. Usually a trader buys a property with the intention of reselling it, so claims GST on the purchase, and pays GST on the resale profit.

If the trader finds a buyer who wants to rent-to-own the property, they account for GST on any amount paid toward the purchase price. When the tenant opts to buy, GST is returned on the sale price less the amounts already paid.

An Inland Revenue spokesperson confirmed to the Herald on Sunday that if the arrangement provided that part of the rental payments would be put toward the purchase price of the property, then it is likely that the property trader would need to account for GST “on the entire price of the property as soon as they receive any payment toward the cost of the property. This will be the case even if the amount of rent paid is not sufficient to cover the cost of the GST.”

Barnett says the hard thing for developers or traders is that they’re dealing with an option. “Fifty per cent of them would probably fall over… so they end up paying GST when no actual sale occurs.”

I would agree with Mr. Barnett. I don’t see how the IRD can class an option as anything other than a right for the tennant to purchase the property.

Watch this space, Tax Blog will keep you up to date on breaking developments on this story.

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Geitnerger failed to pay self-employment taxes when he was working for the International Monetary Fund totalling $25,970, which was found during Obama’s vetting process.

Time reports:

The confusion over the self-employment tax arose from an unusual system used by the IMF. Though its U.S. employees receive W-2s, they have been treated for tax purposes as though they are self-employed.

Can you imagine what would happen here if the head of the IRD had a record of not paying thier taxes?

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