Budget 2021 keeps the unpleasant tax surprises to a minimum
How does tax feature in the 2021 Budget?
Tax always features within the budget process in one way or another. At a minimum, it is of course tax which will ultimately directly or indirectly fund all the Budget initiatives. In Budget 2021, like Budget 2020, tax has kept out of the headlines, however in a very different way.
Budget 2020 followed on from a number of months of significant business-friendly tax announcements which had been made due to the COVID-19 crisis. These measures had included, but were not limited to, depreciation on buildings, expensing assets costing less than $5,000, loss carry backs, loss carry forwards, refunding R&D tax credits, waiving use of money interest, increasing provisional tax thresholds, and introducing a small business cash flow loan scheme.
From the carrot approach of early 2020, late 2020 and 2021 stand in stark contrast and is more akin to a stick.
Budget 2021 follows on from a number of significant tax measures announced or implemented since the Labour Government got their electoral mandate to govern in October 2020. Since then we have seen the introduction of the 39% tax rate, the increase of the top fringe benefit tax rate to 63.93%, the new trust disclosure regime, Inland Revenue being provided with extensive powers to collect information from taxpayers, the extension of the bright-line test from 5 to 10 years, and the proposal to deny interest deductions for many residential rental property owners.
So perhaps it is of much relief to many taxpayers that tax announcements in Budget 2021 were missing (as history shows, it’s not often that taxpayers are on the receiving end of a tax lolly scramble). We did get a glimpse of what may be to come; however, with the detailed Budget documents providing the following mentions of tax:
- Inland Revenue has been allocated $5m over two years to “collect information on the level of tax paid by high-wealth individuals and their related entities.”
- A Digital Services Tax is not yet off the table and remains in the wings, in the event that the Organisation for Economic Co-operation and Development (OECD) does not make sufficient progress on finding a multilateral solution to international tax.
- The Government books do not yet include an estimate of any revenue gain from removing interest deductions from residential rental property. The documents note: “the fiscal impact of this policy has not yet been quantified as this depends on final policy decisions."
- On a related note, the budget documents note: “Tax settings will continue to be broadly stable and predictable. …The Generic Tax Policy Process shall be used to develop and consult on tax policy where practicable.”