2013 - 14 Budget Brief
There are no changes made, or signalled, to the corporate income tax rate or GST rate. The main business tax measures announced are:
Relief for “black hole” expenditure
Legislation to provide explicit deductibility for the following types of business expenditure will be introduced later in 2013 and will apply from the 2014/15 income year:
- Expenditure on legal and administrative fees incurred on applications for patents or plant variety rights which do not result in any tax depreciable asset. Currently such expenditure is typically capitalised as non-deductible but will become deductible immediately under the proposals.Certain fixed-life resource consents granted under the Resource Management Act 1991 will become depreciable for income tax purposes.
- There will be immediate deductions for expenditure incurred on resource consent applications which are abandoned. At present deductibility depends on such applications being lodged.
- Company administration costs - There will be immediate deductibility for:
- All direct costs associated with companies paying dividends to their shareholders
- Annual stock exchange listing fees
- Annual shareholder-meeting costs
- There will also, however, be express provision that the following costs are not deductible for income tax purposes:
- Initial stock exchange listing costs
- Costs of additional share issues
- Costs of special shareholder meetings.
Start-up research and development (R&D) costs
It is proposed to allow R&D-intensive start-up firms to obtain refunds (up to a certain limit) for tax losses resulting from R&D expenditure. The proposal is targeted at encouraging R&D in small, innovative start-up businesses.
No other details are available at this stage. A consultation paper will be released in June 2013, which we expect will contain details of the proposed eligibility criteria, loss and refund limits and application date.
Thin capitalisation changes for inbound investors
The government intends pursuing changes to New Zealand’s thin capitalisation rules for inbound investment which were first proposed in an issues paper released for consultation in January 2013. The changes are aimed at protecting the New Zealand tax base. They are expected to generate additional tax revenue of $20 million from more limited interest deductibility over three years from 2014/15.
Legislation to effect the changes is expected to be introduced later in 2013, with the changes applying from the start of taxpayers’ 2015/16 income years (ie from 1 April 2015 for 31 March balance date taxpayers, from 1 January 2015 for those with 31 December balance dates).
The Government has decided to extend the cases where the inbound thin capitalisation rules may apply to situations where a number of non-residents are acting together and collectively have controlling interests of New Zealand investments. At present the inbound rules apply only where a single non-resident (and their associates) holds at least 50%.
Another change will be to exclude shareholder debt from worldwide group debt calculations when determining if taxpayers fall within the “safe harbour” debt percentage category. The aim is that groups with high levels of unrelated party, external debt should not be affected.
The devil will be in the detail and the Budget papers admit critical technical details are still being worked through and other issues raised in the January paper are still being considered.
Property tax compliance
Budget 2013 includes a permanent increase of $6.65 million annual funding for Inland Revenue from the 2014/15 year to pursue compliance with income tax rules on property transactions. The additional funding is expected to return additional tax collections of approximately $45 million a year.
Proposals to clarify land acquisition dates for those who buy land specifically for resale are to be released in an officials’ issues paper which is also being released today for consultation, at www.taxpolicy.ird.govt.nz.
ACC levy reductions signalled
The Government considers decreases in ACC levies should be sustainable and is signalling reductions of some $300 million for 2014/15, with further likely reductions up to some $1 billion in 2015/16. The proposed changes are expected to amount to approximately 40% lower ACC levy rated for households and businesses when combined with the $630 million levy reduction in 2012/13. Final levy decisions for 2014/15 will be made later in 2013, following the usual levy consultation process.