New Zealand Government Proposes Company Tax Cut

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

26 July 2006

The government of New Zealand has proposed a cut in the rate of company tax as one of a number of options designed to make the country's business tax regime more internationally competitive.

"The government's goal, in line with its confidence and supply agreements with United Future and New Zealand First, is to help transform the New Zealand economy through internationally competitive business tax rules," announced Finance Minister Michael Cullen and Revenue Minister Peter Dunne in a statement.

"If we are to build a high wage, high skill, knowledge-based economy we need business tax rules that encourage innovation, support business investment, encourage exporters to break in to new markets and help to build a more skilled workforce," they added.

Potential initiatives that have been published in a discussion document include:

• Dropping the company tax rate from 33% to 30%
• Targeted tax credits for R&D; Export market development; Skills improvement
• Deferring losses from significant upfront expenditure
• Deduction for 'blackhole' expenditure, such as losses on buildings
• Increased depreciation loading on new assets
• Decreased depreciation loading on new assets
• Aligning depreciation loading at 20% on new and secondhand assets
• Increasing low value asset write-off thresholds (e.g. from $500 to $1000)
• Reducing compliance costs for assets with low depreciated values
• Increasing the threshold for taxpayers allowed to submit an annual FBT return.

"As it will not be possible to go ahead with all of the options, we need businesses to tell us what they see as their priorities in relation to the options identified," the ministers stated.

Businesses have been given until September 8 to contribute to the discussion.

"We realise that the submission time is tight, but would point out that there is an extensive consultative and legislative process to be gone through," the ministers added, noting that tax law changes can take up to one year to pass.

"Best practice also suggests changes should apply from the start of a tax year, in this case, from 1 April 2008," the ministers concluded.

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