BUDGET 2012: Tax changes at the margins
The Government’s changes to the income tax system are at the margins.
Two of the changes (to mixed use assets and the livestock rules) were foreshadowed last year. The third (repeal of three ‘minor’ tax credits) came as a tiny surprise. Together the changes are expected to save the Government $410 million over the next four years. They will have less fiscal impact
than the tobacco excise rate increases ($532 million over the same four year period) and the $421 million to be collected from increases in petrol excise duty and road user charges. Inland
Revenue is expected to collect $377 million more in tax with the additional audit and debt recovery resources it receives.
Holiday homes, boats and aircraft used for both private and business purposes
The Government is concerned that some taxpayers have been able to use the current rules to obtain inflated deductions for assets that are used for both private and income earning purposes. In the gun is expenditure on holiday homes, pleasure boats and aircraft that relates to periods when the assets are not being used. The changes are expected to save about $109 million over the next four years.
The Government believes it is unfair and economically inefficient that an owner who uses an asset for both private and income earning purposes is currently entitled to deduct the majority of their costs because the asset is available for rent or hire most of the time. In effect, the owner of the bach, boat or helicopter is receiving a taxpayer subsidy for their private use of the asset.
The new rules will require mixed-use asset owners to apportion their deductions based on the actual income earned and private use of the asset. The Government gives the example of a bach owner, who rents the bach for 30 days in a year and uses it themselves for 30 days in that year. Under the new rules, the owner will be able to claim a deduction for 50 per cent of their general costs, rather than the 90 per cent they can claim now.
The new approach remains relatively generous. A tougher approach would have netted the Government more than the $109 million it is expecting to raise from the changes.
Livestock
The next omnibus tax bill will include changes to the livestock valuation rules aimed at preventing farmers who change valuation schemes receiving an unintended tax break. The changes will reverse what would otherwise have been an estimated $184 million fall in operating revenue over the next
four years.
Under the current rules some farmers were able to switch between the two main livestock valuation methods and thereby obtain a tax advantage. In March, the Government announced it would not allow farmers to move from the ‘herd scheme’ to the ‘national standard cost scheme’, except in narrow circumstances, effective from 18 August 2011.
Removal of tax credits
Three ‘outdated’ tax credits (for income under $9,880; childcare and housekeeper expenditure; and the active income of children) will be removed with effect from the 2012/13 tax year.
The Government believes its spending on these tax credits could be better directed to areas of higher need. According to the Government the three tax credits have become poorly targeted with their use, in most cases, now quite different from what was originally intended. For example, the childcare and housekeeper tax credit, which is limited to $310, has been superceded by Working for Families and 20 hours free early childhood education.
The tax credit for children will be replaced by a limited tax exemption to ensure that children will not need to file a tax return if they earn small amounts of income that would not usually be taxed at source e.g. from babysitting or mowing lawns. However, children will no longer be able to claim a refund
of tax that has already been correctly deducted by an employer.
Courtesy: PWC NZ
The Government’s changes to the income tax system are at the margins.
Two of the changes (to mixed use assets and the livestock rules) were foreshadowed last year. The third (repeal of three ‘minor’ tax credits) came as a tiny surprise. Together the changes are expected to save the Government...
The Government’s changes to the income tax system are at the margins.
Two of the changes (to mixed use assets and the livestock rules) were foreshadowed last year. The third (repeal of three ‘minor’ tax credits) came as a tiny surprise. Together the changes are expected to save the Government $410 million over the next four years. They will have less fiscal impact
than the tobacco excise rate increases ($532 million over the same four year period) and the $421 million to be collected from increases in petrol excise duty and road user charges. Inland
Revenue is expected to collect $377 million more in tax with the additional audit and debt recovery resources it receives.
Holiday homes, boats and aircraft used for both private and business purposes
The Government is concerned that some taxpayers have been able to use the current rules to obtain inflated deductions for assets that are used for both private and income earning purposes. In the gun is expenditure on holiday homes, pleasure boats and aircraft that relates to periods when the assets are not being used. The changes are expected to save about $109 million over the next four years.
The Government believes it is unfair and economically inefficient that an owner who uses an asset for both private and income earning purposes is currently entitled to deduct the majority of their costs because the asset is available for rent or hire most of the time. In effect, the owner of the bach, boat or helicopter is receiving a taxpayer subsidy for their private use of the asset.
The new rules will require mixed-use asset owners to apportion their deductions based on the actual income earned and private use of the asset. The Government gives the example of a bach owner, who rents the bach for 30 days in a year and uses it themselves for 30 days in that year. Under the new rules, the owner will be able to claim a deduction for 50 per cent of their general costs, rather than the 90 per cent they can claim now.
The new approach remains relatively generous. A tougher approach would have netted the Government more than the $109 million it is expecting to raise from the changes.
Livestock
The next omnibus tax bill will include changes to the livestock valuation rules aimed at preventing farmers who change valuation schemes receiving an unintended tax break. The changes will reverse what would otherwise have been an estimated $184 million fall in operating revenue over the next
four years.
Under the current rules some farmers were able to switch between the two main livestock valuation methods and thereby obtain a tax advantage. In March, the Government announced it would not allow farmers to move from the ‘herd scheme’ to the ‘national standard cost scheme’, except in narrow circumstances, effective from 18 August 2011.
Removal of tax credits
Three ‘outdated’ tax credits (for income under $9,880; childcare and housekeeper expenditure; and the active income of children) will be removed with effect from the 2012/13 tax year.
The Government believes its spending on these tax credits could be better directed to areas of higher need. According to the Government the three tax credits have become poorly targeted with their use, in most cases, now quite different from what was originally intended. For example, the childcare and housekeeper tax credit, which is limited to $310, has been superceded by Working for Families and 20 hours free early childhood education.
The tax credit for children will be replaced by a limited tax exemption to ensure that children will not need to file a tax return if they earn small amounts of income that would not usually be taxed at source e.g. from babysitting or mowing lawns. However, children will no longer be able to claim a refund
of tax that has already been correctly deducted by an employer.
Courtesy: PWC NZ
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