Finance Minister Grant Robertson delivered the Coalition Government’s first budget yesterday. The focus of Budget 2018 is on public spending and infrastructure investment and there is very little in the way of tax announcements. Given the appointment of the Tax Working Group (TWG) in late 2017, it is unsurprising that there are few tax changes announced as part of Budget 2018. Any significant tax changes are instead likely to be driven by the TWG, which is expected to deliver its final recommendations in early 2019.
The two tax related announcements in the budget are:
- Changes to the bloodstock tax rules for horse breeders in the racing industry to allow new investors buying high-value yearlings to claim a tax deduction at the time of purchase. This is a timing change as these businesses currently are allowed a tax deduction at the time of sale under current tax rules this is intended to encourage new investment.
- Inland Revenue is to receive an extra $31.3 million in funding over the next 4 years to focus on revenue collection, including ensuring outstanding company tax returns are filed, identifying legislative opportunities to improve compliance in certain industries with third party reporting and withholding taxes and implement and administer the recently announced R & D tax credit regime. IRD have previously focused on the “cash economy” and industries susceptible cash transactions such as hospitality and the trades. We should expect to see changes in these industries as a result of the increase in funding, so consider this a warning that compliance may be about to increase if you are operating in these industries.
Reference was made in Budget 2018 to previously announced tax initiatives:
- The reintroduction of a R & D tax credit for NZ businesses. Advisors and commentators have been quick to make the point that this scheme should be given sufficient time to take effect in order for New Zealand to see the benefit from this investment, as many will recall the prior regime was scrapped after one year (read about our article on the proposed R & D tax incentives here ;
- Introduction of ring-fencing to rental losses (so that an immediate tax benefit is not gained from a rental loss) and extension of the residential bright-line test from 2 years to 5 years (read about our articles on these announcements here ;
- Imposing GST on low-value goods imported by introducing a requirement for offshore suppliers to register for GST;
- Reversing the previous Government’s changes to the income tax thresholds. People may find themselves with a proportionately higher tax cost as any pay rises to keep pace with inflation will push them into a higher tax bracket – this will have a follow on impact on their spending power;
- Funding increases for Working for Families tax packages.
Tax initiatives that are subject to future review or that appear on the Government’s Tax Policy Work Programme for 2018-19 include:
- As mentioned above, the TWG recommendations are due to be reported back in February 2019 which, amongst other things, will consider the merits of a Capital Gains Tax;
Black Hole and Feasibility Expenditure (mainly a capital or revenue distinction affecting deductions of preliminary investment expenses);
- A review of the treatment of carried forward losses when businesses change hands;
- A review of tax exemptions for significant businesses operated by charities;
- A review of the allocation of a purchase price for new business acquisitions;
- A review of FBT on employee loans for bank employees.
On the whole, it is fair to say Budget 2018 proposes very little in the way of tax changes. However, we will be keenly awaiting the recommendations of the TWG early next year as this is likely to be the basis of tax policy going forward.
Please contact one of our tax specialists should you have any questions regarding the 2018 Budget announcements.