Let us have a quick look at the tax implications on the 2018 budget news, even though honestly there is not much to announce…. what did somehow jumps out to us, from a business tax point of view, in the budget of 2018 can be summarized into three points:
New Zealand Budget 2018: highlights from a tax accountant, business and property accountant in Auckland
- The introduction of the R & D tax incentive – at an estimated cost of $ 1.0 billion over four years
- Inland Revenue will receive additional resources, with the end goal to ensure outstanding corporate income tax returns are filed and to analyze the potential for improving tax compliance. The allocated amount should earn itself back through a better compliance.
- Finally: The blood stock tax rules will change and have tax implications based on the 2018 budget announcement for the New Zealand horse racing industry
So, let us elaborate a bit for the avid reader:
The government has decided to outsource deliberations on structural changes to the tax system to the Tax Working Group (TWG). These tax budget announcements for 2018 will be scrutinized, tested and verified by the TWG and who are not expected to come up with any suggestions or recommendations until 2019.
The TWG has been instructed by the government to consider “the future of taxation”. With international direct trade, overseas orders through the internet direct from China and Asia, US or Europe, that is not a small task….
The many and varied complex tax rules and future taxation challenges that need to be addressed ultimately will need to be summarized in a list of recommendations with the aim: “that would improve the fairness, balance and structure of the tax system over the next ten years”.
Need help maximising your profits and reducing Tax on property or business: call Gerard now 09 266 8379
New Zealand Budget 2018 Capital Gains Tax
The introduction of a global capital gains tax has been discussed and on the board for years. There is almost no doubt it will happen at some stage and at some level, and is a big challenge to be advised on by the TWG. Those in favour of capital gain tax in New Zealand will say that an elaboration and reconsideration of the current New Zealand taxes and more taxes on capital ticks all three boxes above. It may be clear that Labour members of the New Zealand Labour Government are pro these taxes and in particular that a capital gains tax is, in its heart, entirely focused on equality and sharing the burden.
Opponents of new capital gain taxes impress upon the added complexity that capital gains taxes would bring to the New Zealand tax system and the wording and design issues that will need to be examined very carefully to create an equal playing field and also point at the negatives mainly with regards to investment and growth of the economy.
If we look at the entire picture, the TWG need to confirm that a capital gains tax in New Zealand is a solution to the problem. Yes, capital might be under-taxed compared to other countries around us, and in particular property seems to be favoured in the New Zealand tax system. Be assured however that the government is already taking steps to limit tax preferences for real estate investment, including:
- Extending the existing bright-line test for residential real estate investment, so that if a property is acquired and sold within five years and is not the residence of taxpayers, any realized gain is subject to tax. This is intended to bring real estate speculators into the focus of the New Zealand tax system.
- Isolate rental property tax losses so that they cannot be offset against other taxable income (E.g. Reduce net tax paid).
New Zealand budget 2018, Capital Gain tax and the Auckland Property market
Other things that will be brought into consideration is that the Auckland property market has slowed. It was the overheating and unaffordability of the Auckland properties that sparked the attention to property taxation income.
From a “design” point of view, there are also exemptions from any capital gains tax regime that would limit its application and undoubtedly weaken the problem that is being addressed – that is, to say, the tax preference for capital investment. The government has already excluded the application of any capital gains taxation regime for owner-occupied dwellings.
New Zealand Capital Gain Tax: Fairness….
Any capital gains tax system will bring a high level of complexity into the New Zealand tax system and will create many interesting discussions in the New Zealand accounting circles.
Of course, if you subscribe to the idea that a capital gains tax is simply about ensuring the fairness, the balance and the structure of the New Zealand tax system, it is unlikely that above points will change your underlying view for a New Zealand capital gains tax.
In September 2018, the TWG plans to bring out an interim report on the direction the New Zealand tax structure should go.. The general direction of our tax system should be clearer with its publication, as we move towards a final set of recommendations in early 2019.
As your Auckland based property and tax accountant we will be following this with high interest.