April 1 Tax Changes Will Boost New Zealand Business, Says Cullen

by Mary Swire, Tax-News.com, Hong Kong

04 April 2006

Thousands of businesses will find it easier to recruit skilled labour from overseas and enjoy significant reductions in compliance costs as a result of changes in tax law that went into effect on April 1, according to Finance Minister Dr Michael Cullen.

After 1 April, new migrants and returning New Zealanders who have not been tax-resident for at least ten years will be exempted from tax for four years on foreign income such as dividends, interest, royalties and rental income.

The ten year requirement is designed to ensure that New Zealand residents do not leave the country just to become eligible for the exemption.

The changes are part of the Taxation (Depreciation, Payment Dates Alignment, FBT and Miscellaneous Provisions) Bill which the government believes represents the most comprehensive package of business tax cuts since the late 1980s. The measures have a four year fiscal cost of $1.1 billion.

In other changes, the Bill has cut the valuation rate on motor vehicle fringe benefits from 24% to 20% of the vehicle’s cost price, to reflect the decline in real motoring costs over the past 20 years.

Day-to-day work tools such as cell phones and laptops will be exempt from fringe benefit tax, provided they cost less than $5,000 each and are to be primarily used for business.

"Overall, these and related changes will mean that fewer small businesses will need to file fringe benefit tax returns on minor benefits that are part of their day-to-day business activities. That means lower compliance costs and more time to spend on the business," stated Dr Cullen.

Depreciation rules have also been changed so they better reflect how assets decline in value. There has also been an increase in the threshold for which assets must be accounted for. Dr Cullen says that these measures will encourage a more productive use of capital and reduce compliance costs for businesses.

"These measures first signalled in Budget 2005 will help soften the burden of the tax system so businesses can spend more time improving their productivity and so help lift the performance of the economy," Dr Cullen concluded.

However, new rules to align GST payments with provisional tax payments have been delayed a year to allow more time for IRD and taxpayers to adjust their systems.

Recommended