TAX AND CORPORATE NEWS Latest news and information about tax and corporate legislations in New Zealand

Tax Changes in New Zealand 2011

In 2011 the New Zealand government implemented several changes to the national tax legislation, easing

the cost of compliance for New Zealand companies and modernizing several aspects of the country’s tax

rules. The series of changes brought in throughout the year were specifically aimed at improving New

Zealand economic performance while raising greater tax revenues and boosting business performance

around the country.

Investment Protocol with Australia

On February 16th the Prime Minister of Australia Julia Gillard and the Prime Minister of New Zealand John Key

signed a new Investment Protocol (IP) under the two countries’ Closer Economic Relationship (CER) trade

agreement.

Following the passing of the IP the screening thresholds for Australians investing in New Zealand were raised

from AUD 231 million to AUD 1.005 billion. New Zealanders making an investment into Australia saw a new

threshold of NZD 477 million, compared to the previous threshold of NZD 100 million.

Corporate Rate Cut

The corporate income tax applied to the profits of a businesses in New Zealand is reduced to 28 percent from

30 percent. The lowered rate also applies to unit trusts, life insurance policyholders, and other savings

vehicles.

Working for Families Eligibility

Eligibility for Working for Families tax credits and Community Services cards is tightened, as the definition of

“income” in means tests is shifted to include sources such as family trusts and to exclude rental and

investment losses.

LAQC and LTCs

The government abolishes Loss Attributing Qualifying Companies (LAQC), and replaces them with Look-

Through Companies (LTC). The new Look-Through Companies are “tax transparent entities” which allows the

profits and expenses of the company to be “passed through” to the shareholders.

The new entity offer 0% tax benefits to foreign entrepreneurs who raise their profits outside of New Zealand.

Depreciation

Businesses and landlords are not longer able to claim depreciation on buildings with life spans exceeding 50

years.

Portfolio Investment Entities

A Bill is released, containing new rules for the tax treatment of non-resident investors in Portfolio Investment

Entities. The new legislation is aimed at boosting the country’s appeal as a destination for investment funds,

by granting 0% tax benefits to non-resident investors in a PIE which only has foreign sourced incomes.

KIRILL KRUGER

Development Manager at

Abaconda Management

Group , Director of AMG

Business Development.

Kirill Kruger is a young but

experienced financial

consultant, with a

specialization in

international and New

Zealand taxation research,

management and planning.

Being a successful

entrepreneur he has also

authored advanced studies

in the field of financial

academics, and regularly

writes reports on current

affairs and developments in

international and New

Zealand finance, taxation

and management.

www.abaconda.info

info@abaconda.info

+64 7 8080 444

© Abaconda Management Group

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Excise Tax Threshold

The thresholds on the national excise tax system are adjusted for the first time in 14 years, greatly easing

compliance costs for small wineries around the country. Prior to the new rules, wineries with excise tax

liabilities in excess of NZD 10 000 were required to pay their tax obligations on a monthly basis. Following the

changes, only wineries with tax liabilities exceeding NZD 100 000 are required to pay every month. Small

wineries with obligations below NZD 50 000 only have to pay their tax liabilities once a year. Producers with tax

liabilities between NZD 100 000 and NZD 50 000 will pay excise tax once every six months.

Deductions on Software Development

The Revenue Minster of New Zealand Peter Dunne confirms that the Inland Revenue Department will treat

failed software development projects as deductible. Prior to the new rules, expenditures on software

development projects which failed were not deemed to be deductible. The change was aimed at removing

any barriers to businesses choosing to pursue new and innovative development projects.

Tax Compliance Improvements

Following a series of public consultations a new Bill is passed, containing measures aimed at improving tax

compliance procedures and making it easier for New Zealand taxpayers to meet their obligations. As per the

suggestions given in the consultations, the IRD will implement greater use of online and electronic filing, and

reduce the number of paper forms that must be submitted. The new electronic filing systems and

infrastructures allow the government to implement greater information sharing between different

departments and agencies.

GST Fraud

The government clarifies Goods and Service Tax regulations, to eliminate the occurrence of “phoenix fraud

schemes”. The fraudulent practice involved two cooperating parties, which would claim that one party made a

large purchase from the other, and would receive a corresponding GST refund from the IRD. However, the one

of the parties would then wind down their company in order to avoid the GST obligation. New regulations were

introduced which made it impossible to exploit this loophole.

Gift Duties Abolished

Gift Duty is abolished for the disposition of any property in New Zealand after October 1st 2011. The levy was

removed as it was deemed to be inapplicable to the modern taxation and business environment, and set back

New Zealand taxpayers more in compliance costs than it raised as tax revenues.

Use of Money Interest Deductibility

The Inland Revenue Department clarified the rules regarding Use-of-money interest, saying that UOMI is now

an expense and is deductible. Prior to the clarification, UOMI was only counted as an expense under a very

limited set of conditions. UOMI can be claimed as an expense in the year it was paid.