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Budget 2018: what does it mean for tax

Tax Alert - June 2018

By Alex Mitchell

On 17 May 2018, the New Zealand Minister of Finance, Hon Grant Robertson, delivered Budget 2018. This budget won’t be remembered as a memorable one from a tax perspective as tax initiatives were few and far between. This isn’t a surprise, given the Government’s decision to effectively outsource deliberations on any structural changes to the tax system to the Tax Working Group (TWG), who won’t be reporting back until early 2019. The tax-related announcements made in Budget 2018 are as follows:

  • More funding ($31.3m) is being given to Inland Revenue to crack down on tax dodgers over the next four years. Of this $23.5m has been allocated to Inland Revenue to improve Inland Revenue’s ability to ensure outstanding company tax returns are filed. This is expected to recover more than $183 million over the next four years.
  • $3m has been allocated to Inland Revenue opportunities over the next four years to improve tax compliance in specific industries through the use of third party reporting and withholding taxes.
  • The Government will invest over $1 billion over four years in the R&D tax incentive to encourage businesses to innovate, including Inland Revenue receiving $4.3m to implement and administer the recently announced R&D tax credit.
  • The Government is banking on recently announced proposals to provide the following additional revenue over the next four years:
    • The proposals to ring-fencing rental losses ($325 million over four years)
    • New Zealanders paying GST on purchases of low-value goods ($218 million which is expected to increase each year as online shopping continues to grow).
  • The Government also announced that changes are proposed to the bloodstock tax rules for the New Zealand racing industry, allowing $4.8m over the next four years for tax deductions that can be claimed for the costs of high-quality horses acquired with the intention to breed.

Revenue Strategy

As part of the Budget release, the Government released its new revenue strategy (available here). This includes the Government’s objectives for the tax system and mentions the role of the TWG to consider whether improvements can be made to the structure, fairness and balance of the tax system. The fairness and the wellbeing of New Zealand were emphasised in the revenue strategy (and wider Budget 2018 release).

Tax Policy Work Programme

As part of the Budget / revenue strategy release, the Government has also released the updated Tax Policy Work Programme for 2018-19. The Work Programme takes into consideration recent developments and progress on projects from the previous Work Programme. The new and notable issues included are:

  • Penalties: Developing an optimal regime to maximise compliance including addressing corporate fraud and evasion. [This is part of the agreement with New Zealand First]
  • GST: A discussion document containing proposals on various GST policy issues is proposed for release mid-year.
  • Feasibility and black hole expenditure: Reviewing the rules on deductions for the costs related to undertaking feasibility studies and other possible black hole expenditures
  • Treatment of losses: To consider the tax treatment of carrying forward losses when business ownership changes.
  • Purchase price allocation: Vendors and purchasers are adopting different valuations for the same assets in a sale. This inconsistency means that the intended tax outcome may not be achieved.
  • Cross-border employment: This is to reduce the compliance costs generated from the rules/requirements for employees going across borders.
  • Business taxation: Improving the tax system for business, including the calculation of provisional tax, the collection of information and reviewing the penalties and interest rules. Includes researching additional measures that have potential to deliver further benefits to businesses, reduce compliance costs and make the tax system simpler
  • Digital economy: Consideration of measures NZ may look at in response to concerns with the expansion of the digital economy.
  • DTA program: New Zealand is seeking to establish new and updated double tax agreements with a number of countries, including China, Hong Kong, Korea, and Fiji.

The full work programme can be found here.

 

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