New Zealand's Finance Minister, Michael Cullen and Revenue Minister, Peter Dunne have welcomed
the passage of legislation giving effect to a range of major tax reforms, including
the new research and development tax credit and employer-related KiwiSaver enhancements
announced in Budget 2007.
The legislation was introduced in May in the Taxation (Annual Rates, Business
Taxation, KiwiSaver, and Remedial Matters) Bill, which was split into three
bills at the Committee stage of proceedings.
“The 15% R&D tax credit has been introduced to encourage New Zealand
businesses to invest more in research and development, which will generate wider
benefits for all businesses, ” Cullen and Dunne explained.
The R&D credit is part of the NZ$3.4 billion investment and innovation
package announced in Budget 2007, which also included the recently enacted reduction
in the company tax rate from 33% to 30% from the 2008-09 income year. The legislation
introduces a number of transitional and consequential amendments resulting from
the new company tax rate, most of which concern imputation credit handling in
the two-year transitional period.
Another major focus of the new legislation is to strengthen incentives to save
for retirement via a KiwiSaver or a complying superannuation scheme.
It requires employers to match their employees’ contributions up to 4%
of their gross salary or wages, phased in over four years. That measure is accompanied
by a new employer tax credit of up to NZ$20 a week to help offset the costs
to employers.
“These changes complement KiwiSaver incentives enacted in May in the
form of a new tax credit to match member contributions of up to $20 a week,
which means that members who save $20 a week will receive an extra $1,040 in
their accounts," the ministers explained.
They continued:
“The new legislation relaxes a whole range of tax penalties, such as
the penalty for taking an unacceptable tax position, to promote voluntary compliance.
The aim of the changes is for penalties to better reflect the seriousness of
the offence to which they pertain – so they distinguish between people
who try to do the right thing and fail, and those who have no intention of doing
the right thing."
They continued: “The new legislation also increases tax incentives for making donations
to charitable organisations, as announced in Budget 2007. The changes include
removing the rebate threshold on donations made by individuals, and removing
the deduction limit on charitable donations made by companies and Maori authorities."
The ministers concluded:
“These are the main changes in the wide-ranging legislation that results
from the three bills that passed through their final stages in Parliament today
(December 12). We welcome the passage of this very important legislation."
Other reforms in the new legislation include:
Child support information matching
The new legislation introduces information matching between Inland Revenue and
the New Zealand Customs Service. That will enable Inland Revenue to identify
when people with outstanding child support debt enter and leave New Zealand,
so that it can take steps to recover that debt before they leave the country.
Redundancy payments
A new redundancy payment rebate will make the taxation of redundancy payments
fairer to people who find themselves in a higher tax bracket as a result of
receiving a lump sum redundancy payout. Calculation of the rebate will be based
on the flat rate of six cents per dollar of redundancy payment, up to a maximum
payout of $60,000 per redundancy.
Finance lease amendments
Changes to the finance lease tax rules are intended to prevent people entering
tax schemes involving depreciation deductions for leases on overseas assets
that result in a loss to the New Zealand Revenue.
Further savings measures
Several technical improvements have been made to the new portfolio investment
entity (PIE) rules, which alleviate a number of long-standing problems associated
with the taxation of managed funds. Other changes allow policyholders in unit-linked
life insurance products to access some of the benefits of the new PIE rules.
Certain contributions to retirement schemes will be subject to withholding tax
rather than income tax, meaning that contributions will not be taken into account
for social assistance measures.
Adoption of IFRS
Changes have been made to the financial arrangement tax rules so that the timing
of income and expenditure from financial arrangements follows their accounting
treatment under IFRS. Consequential changes have been made to incorporate the
adoption of IFRS into the trading stock and R&D expenditure tax rules.
Annual income tax rates
The annual income tax rates for the 2007-08 year have been set.
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