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Budget 2014 - Tax Implications

by Geoff Hurst CA

The National Government released its sixth budget on 15 May2014, with much of the pre-release hype relating to the expectation the country’sbooks would finally be returning to a surplus. The Government indeed announced abudgeted surplus of $372 million for the 2014/2015 year, which they considerwill be achieved thanks to improved economic conditions (cheers Farmers!), andtight fiscal management with Government expenditure forecast to be 30.3% of GDPin 2014, dropping from 34.3% of GDP in 2008 (cheers poor old Public Servants!).

National’s stated aim is a long period of steady growth andthe 2014 budget is certainly very steady-as-she-goes with fairly minoradditional spending planned and minimal tax changes.  Rising interest rates were clearly a concernfor National, with Mr English stating the Government has to be very carefulincreasing spending due to the likely impact this will have on inflation andinterest rates. $1.5 billion additional spending each year is considered by theGovernment to be a safe amount that won’t materially impact interest rates.

So from a tax perspective there is not too much to go over,but in brief the main changes to be aware of are as follows:
1.      Research and Development:  The Government is looking to do more to fosterinnovation and the initiatives here include:·  
  •       Loss-making start-up companies will be able tocash out all or part of their tax losses from R&D expenditure. Lots ofrules on this one, so make sure you seek advice if you are starting up inbusiness and looking at undertaking R&D. There are substantial cash-flowbenefits to this for businesses that do qualify.·  
  •  Currently there is certain R&D expenditure thatcannot be expensed or depreciated which the Government has rightly decided is abit harsh. This R&D “black-hole” expenditure will now become deductibleexpenditure.  
2.      Support for Families:  Extra support for families is certainly oneof the main focuses of the 2014 Budget, with an extra $500 million allocated toareas including:·  
  •    Increased Paid Parental Leave (“PPL”).  From 1 April 2015 new parents will have accessto an additional two weeks PPL (16 weeks total), increasing to four additionalweeks from 1 April 2016 (18 weeks total). Eligibility for PPL has also beenextended, so make sure you check out the changes if you are planning a familyaddition any time soon. ·     
  •     Increased Parental Tax Credits. This willincrease from $150 a week to $220 a week, and the time period the payment isreceived increases from eight to ten weeks. This is a tax credit available toparents who do not receive Paid Parental Leave and do not receive a benefit. ·        
 There will be free doctor’s visits for kids upto 13 years old from 1 April 2015.Advice on when to conceive children isn’t usually somethingyour accountant assists with, but I have done the numbers (and consulted with mywife who is a Midwife) and I recommend waiting until August this year so allgoing well your new baby arrives after 1 April 2015 and you can take advantageof increased Paid Parental Leave or Parental Tax Credits.

3.      Cheque Duty will be removed from 1 July 2014.Cheques are dying out as a payment method and the Government now considers thatit is no longer worthwhile to collect this tax.

4.      Beware! IRD is getting an extra $132 million to aidwith tax compliance activities and to chase up unfiled tax returns. $48.6million of this is cash for IRD to use, and the remaining $84 million is tocover tax write-offs where payment is just not going to happen. This newfunding for IRD is expected to achieve an increase in Crown revenue of $297.5million over the next five years.  

5.      The Student Loan repayment threshold is beingfrozen at its current level of $19,084. Therefore if average wages increase asthe Government predicts the level of money being paid towards student loanswill increase.

 6.      The Government is considering ACC reductions ofup to $480 million.  An early electionsweetener as this is a potential tax change for the 2015/2016 year and is“subject to consultation”. The reduction in ACC would mainly happen throughlower motor vehicle levies meaning vehicle registration costs could potentiallybe $130 lower per motor vehicle –yay!

Other interesting titbits from the Budget documents releasedinclude:·   
  •      The NZ economy grew 3.1%in 2013, the fifthhighest rate in the OECD;·    
  •     Total Crown revenue budgeted for 2014/2015 is$72.5 billion. Of this $29.8 billion is paid by individuals, $17.8 billion isGST, and $10.4 billion is corporate tax.·   
  •      The total cost of the Christchurch rebuild isestimated at $40 billion and the Government contribution to this is expected tobe $15.4 billion ($7.3 billion from EQC). 
  • The Government is paying $9 million aday for rebuild invoices;· 
  •        The Government raised $4.7 billion from theirasset sale programme. $3 billion of this has been allocated so far, with $1.7billion left for future budgets ·     
  •    Building materials for a house in NZ are 30%higher than in Australia. The Government is temporarily removing duties andtariffs from building materials to assist with housing affordability. Thismeasure is expected to reduce building costs by about $3,500. 
You can find all the Budget 2014 information at http://www.treasury.govt.nz/budget/2014.  Also a good source of information for tax relatedstuff is IRD’s website at http://taxpolicy.ird.govt.nz/news/2014-05-15-budge....


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