The 2010 Budget Announcement – Making Cents of it All
The 2010 Budget has been delivered by the Government and there are some major changes that will affect people in business and those with rental properties. There are also major changes proposed to the way Qualifying Companies including LAQC companies are treated for tax purposes.
Hopefully the points below will help clarify things a little for you and alleviate some of the worry. We will have more detailed information on some of the budget changes in our next newsletter in June in the meantime these points are things you need to understand:
GST Increase to 15%
The increase in GST from 12.5% to 15% takes effect from 1 October 2010. For those registered for GST you will need to upgrade your software or replace your software. Those on BankLink will have an upgrade that will make the process simple. For those of you carrying stock you must make some decisions around your pricing schedules and strategies.
Income Tax Rates
The top personal tax rate has been reduced from 38% to 33% for the year beginning 1 October 2010. All other personal income tax rates have been cut and the new tax rates are as follows:
Income less than $14,000 10.5% (down from 12.5%)
Income $14,001 to $48,000 17.5% (down from 21%)
Income $48,001 to $70,000 30% (down from 33%)
Income $70,001 plus 33% (down from 38%)
It is estimated that a person with a taxable income of $50,000 will receive $29 a week in tax cuts and half of that will be taken up by the increase in GST, depending on everyone’s personal circumstances such as the amount of their rent or mortgage payments and how much of their income they save.
The company tax rate has been reduced from 30% to 28% from 1 April 2011.
Working For Families Tax Credits & Trusts
The major change here is that any assets you hold in a family trust will be taken into account when calculating your entitlement to Working For Families Tax Credits.
Depreciation on Rental Properties
The removal of the ability to claim depreciation on buildings of rental properties from the year commencing 1 April 2011, will affect many of our residential rental property clients.
If you are claiming say $4,000 depreciation on the buildings then it may mean a decrease in your total tax refunds of between $800 and $1,500 depending on what your personal maximum tax rate is. E.g. if you are earning up to $48,000 then you will lose $800 of your refund and if you are earning $100,000 then you will lose $1,500 of your refund.
These lower refunds are per property and not per person so for most the change may mean a lower refund of between $15 and $30 a week so the change is minimal when taken into account with the tax refunds above.
Please note that this change takes affect for the year ended 31 March 2012.
If you have shares in a Qualifying Company or an LAQC company now then the only immediate effect will be the depreciation claim on any rental properties owned by the company which will affect your personal tax refunds as above. The major change proposed to the Qualifying Company which includes LAQC’s is to make them similar to a limited liability partnership. The changes to the Qualifying Company rules are intended to be implemented from 1 April 2011 but are open for submissions now and so some of the detail may change over the next few months as submissions are considered and the rules and legislation around these entities is passed by Parliament.
The main thing here is if you have shares in a LAQC particularly one that owns rental properties is to not make any rash decisions but talk to us first. It may not be all as bad as it sounds and the proposed changes may not even affect your tax position. We are here to help you with your tax within the law by using appropriate structures.
What is Benchmarking?
Benchmarking is the process of comparing one’s business performance metrics to industry bests and/or best practices from other similar industries. Dimensions typically measured are sales/turnover, gross profit, occupancy costs, wages and other associated business expenses. As well as net profit, owner remuneration and staffing levels.
Benchmarking is the submission of your financial data anonymously and then it is measured against the median, the average, and the top and bottom 25% of firms in your industry who have also submitted their financial data. It helps to clearly identify where your business differs from the norm.
If you would like Makes Cents to do Benchmarking for your particular business, please contact the office for further information and pricing. Remember, Benchmarking is completely anonymous so your business details do not get published for general viewing.