Tax Changes: For richer or for poorer?

Tax Changes: For richer or for poorer?

Author: Michael Levertoff
 
 While we hear loud and clear from most senior politicians with regular frequency, it is Revenue Minister Peter Dunne who has been quietly squirreling away in the background rewriting the tax system faster than you can say “it’s our job to be fair”.
 
 It’s a financial revolution, a coup of unprecedented changes that will alter our landscape forever. Depreciation, property, companies and GST will never be the same again.
 
 Mr Dunne agrees there have been quite substantial changes over the last six years that have reshaped the face of personal and company taxes, and tidied up various anomalies within the tax system.
 
 He says this sets New Zealand’s tax system up to be one of the sharpest tax administrations in the world – and he’s not finished yet.
 
 “The big focus from here is reorganising the way we collect taxes, in line with today’s electronic age, and the ultimate is to get something akin to electronic banking, online.
 
 In terms of efficiency and competitiveness it is the way forward,” Mr Dunne says.
 
 But are these changes going to be good or bad for the backbone of our nation – will farmers become richer, or poorer?
 
 The depreciation rate for buildings, which reduces the current 2% straight line expense allowance to 0%, will reduce non-cash expense claims by the average farmer by at least $7,000 per annum if your buildings are valued at $350,000.
 
 With the removal of depreciation on buildings, many companies that own properties will now make the transition from loss to profit.
 
 This will increase tax to pay and directly affects farmers who invested in property for the benefit of the losses.
 
 And assets purchased after 20 May 2010 are affected by a 20% change in loading, which means an average cost increase of $11,000 on the purchase of $250,000 worth of new farm equipment.
 
 Also some of these changes will apply retrospectively – property financing often relied on the previous tax structure to work, so it might be wise to do some cash flow forecasting now, with a focus on provisional tax to pay in 2011/2012.
 
 Speaking of tax, watch out if your partner forgets to pay the PAYE tax bill if you are a shareholder in one of the thousands of LAQC companies owned by farmers being converted to an LTC – as shareholders become jointly and severally liable for LTC PAYE tax debt, just like a partnership. GST on property is now zero rated – which may cause a drop in farm values, where purchasers are looking to finance properties for up to 15% less than purchasing a farm pre-March 2011.
 
 So far, not so good.
 
 But at least there’s reduced tax and the abolishment of gifting – right?
 
 The changes to personal tax rates to a top rate of 33% and company tax rates to 28% means companies pay less tax and individuals pay less tax – plain and simple.
 
 This is the lowest company tax rate since 1989 and is 2% less than Australia.
 
 Great news.
 
 And on October 1 2011, gift duty will be abolished, which will save farmers who have to deal with gifting an average of $294 per annum in administrative costs and make it easier to comply with new trust law changes.
 
 There’s a lot more to know – even Mr Dunne acknowledges there is still a measure of confusion and uncertainty about what Inland Revenue are doing, but he says this is part of a slow and carefully organised transition.
 
 “If people are not too sure, the best thing they can do is talk to their tax advisor or Inland Revenue.” Mr Dunne said.
 
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