Business tax changes from 1 April
Important changes to the fringe benefit tax rules will apply from 1 April, as will the new exemption on overseas income for new migrants and returning New Zealanders. For information on these and other changes ushered in by the passage of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill, see the media statement from the Minister of Finance.
1 April tax changes positive for business
From 1 April thousands of businesses will enjoy significant reductions in compliance costs and find it easier to recruit skilled labour from overseas, Finance Minister Dr Michael Cullen said today.
"This government wants to make sure tax policy is not a barrier to economic growth and these measures continue the progress we are making."
Many businesses see fringe benefit tax as complex and time-consuming especially in relation to motor vehicles.
To reflect the decline in real motoring costs over the past 20 years, the valuation rate on motor vehicle fringe benefits reduces from 24% to 20% of the vehicle's cost price.
For example; a small company employing a couple of staff that provides its chief executive with a car for his unlimited private use in addition to his salary of $60,000. The car costs $40,000. Under the proposed change, the fringe benefit tax payable on the vehicle will be reduced from $6144 to $5120, a saving of over $1000 for the business.
Day-to-day work tools such as cell phones and laptops will be exempt from fringe benefit tax, provided they cost less than $5000 each and are to be primarily used for business.
"Overall, these and related changes will mean that fewer small businesses will need to file fringe benefit tax returns on minor benefits that are part of their day-to-day business activities. That means lower compliance costs and more time to spend on the business," said Dr Cullen.
The government is also improving access to highly skilled people by reducing the tax costs associated with international recruitment.
Tax on offshore income is an important issue for those in demand internationally. It is also an important issue for the New Zealand businesses that recruit them, which often end up bearing the tax costs themselves in the form of higher pay.
After 1 April new migrants and returning New Zealanders who have not been tax-resident for at least ten years will be exempted from tax for four years on foreign income such as dividends, interest, royalties and rental income.
The ten year requirement is designed to ensure that New Zealand residents do not leave the country just to become eligible for the exemption.
The changes are part of the Taxation (Depreciation, Payment Dates Alignment, FBT and Miscellaneous Provisions) Bill whose provisions usher in the most comprehensive business tax cuts since the late 1980s.
Together with significant changes to depreciation rules, the measures have a four year fiscal cost of $1.1 billion.
Depreciation rules have been changed so they better reflect how assets decline in value. There has also been an increase in the threshold for which assets must be accounted for. These measures will encourage a more productive use of capital and reduce compliance costs for businesses.
New rules to align GST payments with provisional tax payments have been delayed a year to allow more time for IRD and taxpayers to adjust their systems.
"These measures first signalled in Budget 2005 will help soften the burden of the tax system so businesses can spend more time improving their productivity and so help lift the performance of the economy," Dr Cullen concluded.
Contact: Mike Jaspers, press secretary, 04 471 9412 or 021 270 9013