English Unveils New Zealand's 2013 Budget
17 May 2013
Posted by: Author: Mary Swire
Source: Mary Swire (Tax-News.com, Hong Kong)
New Zealand Finance Minister Bill English's latest Budget has largely confirmed pre-announced tax measures designed to provide clarity in the tax system and ensure that multinationals pay their "fair share."
Commending the Budget to parliament, English said that his proposals are about "building momentum" on the Government's achievements and addressing a number of remaining challenges. The economy grew 3 percent last year, and annual growth of between 2 and 3 percent is projected down to 2016/17. Low interest rates, the rebuilding of earthquake-hit city Christchurch and strong commodity export prices all expected to contribute. The Government is also on track to post a surplus, before gains and losses, of NZD75m in 2014/15.
Among the policies English claimed had failed in the past are: "high and wasteful government spending, more costs and more taxes on households and businesses, and more state control of the economy that chills private sector investment and destroys jobs and growth." By way of contrast, he outlined the Government's four priorities: "responsibly managing its finances; building a more productive and competitive economy; delivering better public services; and supporting the rebuilding of Christchurch."
On the tax front, the Budget confirms a number of recent revenue announcements. These include permitting loss-making start-up businesses to claim tax losses on research and development (R&D) expenditure, up to a certain limit. The Government will consult on the proposals in June. Revenue Minister Peter Dunne welcomed the announcement, stating: "Small, innovative businesses that invest heavily in research and development are doing the right thing and we want more of them. However, that expenditure can be crippling for small ventures, given their capital constraints. With this proposal, we are effectively recognizing that and looking to make sure these small companies are not disadvantaged."
Relief will be provided for six areas of so-called "black hole" business expenditure, through the introduction of tax deductibility on items not previously considered eligible. Immediate deductibility will be offered for capitalized expenditure on legal and administrative fees incurred in applying for a patent or plant variety rights, but where no depreciable asset is recognized for tax purposes. Expenditure will straight away become deductible if incurred on abandoned resource consent applications, as will all direct costs associated with the payment of dividends to shareholders or with the annual fees incurred for listing on a stock exchange. The initial costs for listing on an exchange and the costs of additional share issues will remain non-deductible. Certain fixed-life resource consents granted under the Resource Management Act 1991 will be considered depreciable for tax purposes, and annual shareholder meeting costs will be regarded as tax deductible.
The changes will be included in a tax bill to be introduced later this year and will apply from the 2014/15 income year. According to Dunne, "These changes will make the tax system more efficient, provide greater certainty, and reduce compliance costs for businesses."
In an effort to "ensure that multinational companies investing in New Zealand contribute their fair share of tax," English unveiled reforms to the thin capitalization rules that build on recommendations made in an issues paper released earlier this year. At present, the rules only apply where one non-resident owns 50 percent or more of a New Zealand investment. The Government's concern is that while the rules thereby impact on traditional multinational entities, other types of non-resident investors remain outside their scope. The rules will be extended to apply to non-residents acting together and holding a controlling interest in a New Zealand investment. This is expected to generate an additional NZD20m (USD16.4m) in revenue over a three year period from 2014/15. Shareholder debt will also be affected. Currently companies operating in New Zealand can hold high levels of debt, without the thin capitalization provisions operating. For Dunne, this "defeats the intent of the rules." Shareholder debt will in future be excluded from the worldwide group safe harbor debt calculations.
The Government will introduce legislation later this year, with the aim that the changes will enter into force from the start of the 2015/16 income year. It will continue to work with interested parties to resolve "technical issues," such as the definition of "acting together."
Two new tax-related measures were included in the Budget. English said that there is now "scope for significant and sustainable reductions" in Accident Compensation Corporation (ACC) levies. He has made allowance for levy reductions of around NZD300m in 2014/15, although the final figures will be determined after a consultation later this year. In addition, levy rates will have dropped to the tune of NZD630m over the course of 2012/13. English explained that when combined, these changes will result in households and businesses paying approximately 40 percent less in ACC levies.
English's other initiative is the provision of an extra NZD6.65m in funding per year for the Inland Revenue Department (IRD) to "better pursue tax compliance in the area of property investments." Since 2010, NZD110m has been raised from additional property audit funding, representing a return of NZD6.60 for every dollar invested. English expects this latest investment to return roughly NZD45m a year in revenue. An officials' issues paper, released alongside the Budget, aims to clarify issues regarding the acquisition of land. A consultation on the paper will close on June 28.
In his closing remarks, English declared that "New Zealand is on the right track." Providing that the Government's plan is stuck to, he is confident that the country can "grasp these opportunities and keep building the brighter future New Zealanders deserve."