Budget 2010 announced a comprehensive package of tax reforms based around the Tax Review released earlier this year.

Key points were:

• Across the board personal tax cuts from 1 October 2010
• An increase in GST from 12.5% to 15% from 1 October 2010
• A reduction in the company tax rate to 28% effective from 1 April 2011
• RWT on interest and PIE tax rates to decrease
• Removal of depreciation claims on buildings and the 20% loading for new goods
• Property investment rules tightened, including changes to the QC/LAQC regime

This is just a brief summary of the changes. We will release further details on how these changes are likely to affect you over the coming weeks including details on how to manage these changes in your business and what it means for your tax planning.

Personal Tax Cuts 

All personal tax rates have been reduced from 1 October 2010 as follows:
 

Income	Current rates	New Rates
$0 - $14,000	12.5%	10.5%
$14,001 - $48,000	21.0%	17.5%
$48,001 - $70,000	33.0%	30.0%
Over $70,000	38.0%	33.0%

For a facts sheet on personal tax cuts, please click here.

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Increase in GST 

GST is set to increase from 12.5% to 15% from 1 October 2010. This increase may have serious implications for contracts entered into prior to 1 October 2010 where the actual time of supply occurs after 30 September 2010 – for example construction contracts.

Compensation for certain groups such as those on NZ Super, beneficiaries and others receiving government assistance will also be in place from 1 October 2010 to financially assist taxpayers in those categories.

For more information on the impact to NZ Super and Veterans, please click here.  

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Reduction in Company Tax Rate 

The company tax rate is set to decrease to 28% from 1 April 2011. This is in line with the recently announced decrease in the Australian company tax rate.

As with the decrease to 30% two years ago, there will be a transitional period for paying out company dividends imputed at the 30% rate.

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 Decrease in RWT rates 

The upper PIE rate, which will include KiwiSaver accounts, falls to 28% from 30% effective from 1 October 2010. RWT rates on interest are to be cut to match personal tax rates, also from 1 October 2010.

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Removal of Depreciation on Buildings and the 20% Loading

Owners of commercial or residential rental properties will no longer be able to claim depreciation on them where the estimated useful life is 50 years or more. This is effective as of the 2011/12 tax year.

Building owners will still be able to claim a deduction for repairs and maintenance to maintain the condition and value of their properties. Depreciation will also still be able to be claimed for “fit out” not considered to be part of the building.

Effectively immediately, businesses will no longer be able to claim the 20% loading on depreciation rates for new assets.

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Property Investment Rules 

Qualifying Companies (QC’s) and Loss Attributing Qualifying companies are subject to some substantial changes. These companies will become flow-through entities for tax purposes – similar to limited partnerships. There will some loss limitation rules that apply that restrict the amount of loss that a taxpayer can offset each year. These changes will come into effect from 1 April 2011 and we will over the next few weeks, contact clients that are likely to be affected by these changes to discuss the likely impact of the changes to their tax situation.

A further change in regard to property investment is that property investors will no longer be able to deduct investment losses from income to increase their eligibility for Working for Families.

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As with any situation where such extensive changes are announced, there is already a lot of discussion and commentary being forwarded around on yesterday’s budget announcements. We have already seen a number of such commentaries that contradict each other as to the tax implications. We suggest that over the next few days, more information will be forthcoming that will have been researched more fully and therefore be more accurate.

As we work through the individual sections of the Budget announcements, we will post updates via the website or newsletters. In the meantime, should you have any concerns on what the budget means to you, please don’t hesitate to contact us.