Friday, May 21, 2010
Budget - May 2010 - Working for Families Adjustment
From the 1 April 2011, the value of assets held in Trusts will be countered as part of the household’s income when calculating the Working for Families. Investment losses and PIE income may also be included. In terms of what the Working for Families is about, this adjustment is fair as it places a more accurate entitlement to the assistance.
Budget - May 2010 - Loss Attributing Qualifying Companies (LAQCs)
The comment made in the budget was “Many investors hold property through LAQCs. After a short period of consultation, legislation will be proposed so that from 1 April 2011 all LAQCs will be taxed as limited partnerships”
Prior to the Budget there was some speculation, that LAQCs would be dropped and that property losses would be ring – fenced in the vehicle making the investment.
Although the proposed loss ring fencing rules are not comprehensive, the new rules do limit the amount of losses that can be passed from and LAQC to the shareholder. These losses will be limited to the amount the shareholder has invested in the LAQC – very similar to Ltd Partnerships. The new rules mean that where investors want to be able to access the losses at their own personal tax rates by passing through the losses, they must also pay tax on the income in the good years at their personal rates.
Investors in properties, may need to look at whether an LAQC is the best investment for the future.
Prior to the Budget there was some speculation, that LAQCs would be dropped and that property losses would be ring – fenced in the vehicle making the investment.
Although the proposed loss ring fencing rules are not comprehensive, the new rules do limit the amount of losses that can be passed from and LAQC to the shareholder. These losses will be limited to the amount the shareholder has invested in the LAQC – very similar to Ltd Partnerships. The new rules mean that where investors want to be able to access the losses at their own personal tax rates by passing through the losses, they must also pay tax on the income in the good years at their personal rates.
Investors in properties, may need to look at whether an LAQC is the best investment for the future.
Budget - May 2010 - Depreciation - on Buildings goes / New Plant & Equipment Reduced
Depreciation deductions will no longer be allowed for buildings with an estimated useful life of over 50 years or more. This applies directly to rental houses and the commercial sector. From a conceptual view, this is one scenario that is hard to agree with, as we all know that properties that are tenanted do depreciate, while the land they sit on appreciates.
What we may see coming out of this, is commercial property managers fronting up to the IRD and attempting to prove that their buildings have depreciated in terms of having a short life option of less than 50 years. For example cool store operators and meat operating plants.
However, on the positive side landlords will not face the feared ringfencing option, which would have meant they could not use losses on their rental to reduce their overall tax bill.
One item that has crept into the equation but has not been given too much media comment is the effect on QCs / LAQCs (residential property investors are still the greatest users of these sorts of entities) on the actual taxation of these companies. We will discuss those next.
One other item of concern is the commercial building fit out policy. At this stage is still exists but MAY yet be tightened as the Government has hinted that it intends to review the deductions if it deems fit. With respect to residential properties, any rethink is likely to be a continuation from previous years, where the focus goes on what constitutes part of a building and what does not.
Businesses will also not be allowed to claim the 20% accelerated depreciation on new plant and equipment. This change is effective immediately. So assets purchased up to and including the 19 May will still get the deduction while assets purchased from the 20 May will not. We consider this a bit harsh as the justification for the reduction is that some businesses may buy a car or a computer and get the 20% loading but not invest in a second hand piece of machinery, because they cannot load the depreciation claim.
What we may see coming out of this, is commercial property managers fronting up to the IRD and attempting to prove that their buildings have depreciated in terms of having a short life option of less than 50 years. For example cool store operators and meat operating plants.
However, on the positive side landlords will not face the feared ringfencing option, which would have meant they could not use losses on their rental to reduce their overall tax bill.
One item that has crept into the equation but has not been given too much media comment is the effect on QCs / LAQCs (residential property investors are still the greatest users of these sorts of entities) on the actual taxation of these companies. We will discuss those next.
One other item of concern is the commercial building fit out policy. At this stage is still exists but MAY yet be tightened as the Government has hinted that it intends to review the deductions if it deems fit. With respect to residential properties, any rethink is likely to be a continuation from previous years, where the focus goes on what constitutes part of a building and what does not.
Businesses will also not be allowed to claim the 20% accelerated depreciation on new plant and equipment. This change is effective immediately. So assets purchased up to and including the 19 May will still get the deduction while assets purchased from the 20 May will not. We consider this a bit harsh as the justification for the reduction is that some businesses may buy a car or a computer and get the 20% loading but not invest in a second hand piece of machinery, because they cannot load the depreciation claim.
Budget - May 2010 - Company Tax Rate Change
From the 1 April 2011, the Company tax rate will reduce from 30 cents down to 28 cents. For once, this puts us ahead of Australia, who plan to reduce their Company tax rate to 28 cents but phased in over 3 years commencing from 2012 / 2013. So what does this do for us? A lower company tax rate will encourage productive investment in NZ, thereby increasing productivity, raising wages and creating jobs (that political speak, as it comes from Treasury).
Budget - May 2010 - GST to Increase
Tempering the tax reductions will be the fact that GST increases from 12.5% to 15.00%. This increase will take effect also on the 1 October 2010. So with the GST increase and the tax deductions, what does that mean for us, the following table gives a brief overview.
Budget - May 2010 - Income Tax Changes for Individuals
As expected, the Budget cut the top and bottom income tax rates for individuals, but delivered larger than expected benefits for middle income earners. Previously, personal tax rates were hinted at falling from 38cents, 33 cents, 21cents and 12.5cents to 33 cents, 19cents and 10 cents. In reality they fell as follows:
ncome above $70,000 pre budget 38 cents - 1 October 2010 33 cents
Income from $48,001 to $70,000 pre budget 33 cents - 1 October 2010 30 cents
Income from $14,001 to $48,000 pre budget 21 cents - 1 October 2010 17.5 cents
Income from $0 to $14,000 pre budget 12.5 cents - 1 October 2010 10.5 cents
ncome above $70,000 pre budget 38 cents - 1 October 2010 33 cents
Income from $48,001 to $70,000 pre budget 33 cents - 1 October 2010 30 cents
Income from $14,001 to $48,000 pre budget 21 cents - 1 October 2010 17.5 cents
Income from $0 to $14,000 pre budget 12.5 cents - 1 October 2010 10.5 cents
Subscribe to:
Posts (Atom)