In late January 2010, the Tax Working Group released its final report to Government. There has been much publicity about the proposed changes and we can be sure that in the May 2010 Budget significant tax reform measures will be introduced.
So what can we expect or anticipate? It appears almost certain that the GST rate will increase to 15%, with a likely implementation date of 1 October 2010. We discuss the business issues that may arise later in this newsletter.
To "lessen" the impact this will have on consumers' wallets, changes to personal and corporate tax rates have already been foreshadowed.
For individuals, the marginal income tax rates for low to medium income earners should reduce the impact of the GST increase and the highest personal tax rate may be aligned with the trustee tax rate of 33%.
For companies, any changes to the tax rate from 30% will most likely follow whatever our Trans-Tasman cousins decide following the release of the Henry Review. Certainly, if NZ is to encourage corporate investment, the rate will need to be in line with our major trading partners, with the international trend being to reduce corporate tax rates.
The most significant changes will impact on NZ'ers love affair with real estate ownership. It is suggested that any reforms will be around limiting depreciation of residential rental buildings, removing the 20% step-up on other depreciable property and possibly quarantining losses incurred on residential rental properties. Are we going back to the mid 1980's?
Any such proposals to the tax treatment of residential rental properties would need to be tempered by the economic flow-on effect that such changes may bring. One can foresee many investors facing mortgagee proceedings should the depreciation allowance be removed.
However, perhaps such reforms will also address the imbalance of the residential property market and reflect the true economic value in that sector.
We will continue to provide updates on any tax reform proposals as they are announced.