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Budget 2010 Home Page Budget Economic and Fiscal Update 2010

Economic and Fiscal Impacts of the Tax Package

Budget 2010 introduces a number of changes to New Zealand's tax system. The details of these changes and the expected economic and fiscal implications are presented below. A statement of tax policy changes that materially affect the tax revenue forecasts is a requirement of the Public Finance Act.

Features of the Tax Package

  • The rates of personal income tax will reduce (effective from 1 October 2010) from 12.5% to 10.5% for income up to $14,000; from 21% to 17.5% for income between $14,001 and $48,000; from 33% to 30% for income between $48,001 and $70,000; and a reduction from 38% to 33% for income over $70,000.
  • The rate of GST will increase from 12.5% to 15% from 1 October 2010. Recipients of the main working-age benefits, student allowances, New Zealand Superannuation and Veterans Pensions will be compensated by a 2.02% increase in their payments from 1 October 2010. Annual indexation of these benefits will resume on 1 April 2011.
  • Working for Families (Family Tax Credit and Minimum Family Tax Credit), the main important forms of supplementary assistance (except Accommodation Support and Student Loan Living Costs), and the Government Superannuation Fund (GSF) and National Provident Fund (NPF) annuities that are subject to CPI adjustments, will be increased by 2.02% from 1 October 2010.
  • The company tax rate will be reduced to 28% from the 2011/12 income year.
  • The top Portfolio Investment Entity (PIE) tax rate and the tax rate for savings vehicles such as superannuation funds will be reduced to 28% from 1 October 2010 for PIEs that pay tax at investors' marginal tax rates and from the 2011/12 income year for other savings vehicles.
  • From the 2011/12 income year, tax depreciation will be set to 0% for all buildings with an estimated useful life of 50 years or more.
  • The 20% depreciation loading will be removed for assets purchased after 20 May 2010 (Budget day).
  • The 75% safe harbour in the inbound thin capitalisation rules applying to the New Zealand operations of foreign multinationals will be reduced to 60% from the 2011/12 income year.
  • Pre-existing imputation credits will be able to be attached to dividends at the current maximum 30:70 imputation ratio for a two-year transitional period.
  • Provisional tax will be reduced for taxpayers who pay provisional tax on the earlier year basis to reflect cuts in personal income tax rates and the company tax rate.
  • The current qualifying company and loss attributing qualifying companies (LAQCs) rules will be replaced with full flow-through treatment for income tax purposes (similar to the rules currently applying to limited partnerships) for income years starting on or after 1 April 2011.
  • Tax benefits relating to capital contributions made to fund the acquisition of capital assets will end. A capital contribution is a payment made to a supplier for the construction of an asset, for example, a payment to an electricity lines company to construct a line to a building. Either the tax cost of a depreciable asset will exclude capital contributions, or the capital contribution must be amortised as income over 10 years. This change is to apply for contributions made after 20 May 2010.
  • GST rule changes, including measures to address risks such as phoenix scheme fraud (where input tax credits are paid to a buyer of an asset but no GST output tax is collected due to insolvency or liquidation of the seller), will be introduced from 1 April 2011.
  • Indexation of the Working for Families tax credits abatement threshold will be removed.
  • Investment losses (such as losses from rental properties) will be excluded from the definition of income for the purposes of calculating Working for Families entitlements from 1 April 2011.
  • Changes will be introduced with effect from 1 April 2011 to address integrity concerns in relation to eligibility or abatement of certain social assistance programmes, including the treatment of trust distributions, income from non-locked in PIEs, income from non-resident spouses and certain fringe benefits.
  • The redundancy tax credit will be removed from 1 October 2010.
  • An additional $119.3 million over four years will be provided to Inland Revenue for compliance and enforcement.
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