Tax Changes Give New Zealand Businesses NZD480m Helping Hand

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

05 February 2009

Small and medium sized businesses in New Zealand will benefit immediately from a series of new government tax assistance measures worth more than NZD480m (USD241m) over the next four years, the country's Finance Minister Bill English and Revenue Minister Peter Dunne have announced.

The initiatives, part of a wider package for small and medium enterprises announced on February 4 by Prime Minister John Key, will make it easier for smaller businesses to manage their cash flows and meet their tax obligations.

"The significant package announced today will allow companies to hold tax money for longer and make it easier – and less expensive – for them to pay their taxes," English and Dunne explained, adding:

"The government is open to introducing more initiatives to help businesses – but we will strike a balance between helping companies in the short term and building up debt on behalf of taxpayers which we will have to repay with interest."

The two largest business tax measures will leave about NZD270m of extra cashflow within businesses over the remaining five months of the financial year ending June 30, 2009.

These two initiatives within the wider package are:

• Removing the 5% "uplift" rate that businesses pay in advance on provisional tax installments throughout the year. To calculate the provisional tax they must pay in any given year, most businesses use the previous year's income and add 5% to cover likely growth in the new income year – this 5% uplift will be removed for the rest of this year and next year.

"This change will reduce the tax payments businesses have to make in what is clearly a time of negative economic growth nationally and when there are significant pressures on businesses," English and Mr Dunne commented.

• Reducing the "use of money" interest rates on underpaid and overpaid tax. The rate for underpayments will reduce from 14.24% to 9.73% and the rate for overpayments will fall from 6.66% to 4.23%. These changes will apply from March 1, 2009.

"Some of the other steps we have announced today deal with compliance issues and are quite technical, but they address concerns shared by the many thousands of small and medium-sized businesses across New Zealand," the Ministers' continued, further stating:

"They are one plank in a raft of responses from the government to ensure that New Zealand emerges from the recession in the best possible shape."

Taken together, the tax measures – which include a number of measures to reduce compliance costs – are worth an estimated NZD484m over the next four years.

"The government will move swiftly to introduce legislation next week supporting these announcements, so the changes are in place by April 1", Dunne and English confirmed

Aside from this, other tax initiatives announced by the government on Wednesday include:

• The GST payments threshold will increase to NZD2m in annual revenue from NZD1.3m;
• The GST registration threshold will increase to NZD60,000 in annual revenue from NZD40,000;
• Businesses with NZD10,000 or less of annual business-related legal expenditure can fully deduct the expense in the year it is incurred, regardless of whether or not it is a capital expense;
• The PAYE once-a-month filing and payment threshold will be raised to NZD500,000 in employer PAYE deductions from NZD100,000;
• The Fringe Benefit Tax annual filing threshold will be raised to NZD500,000 in employer PAYE deductions from NZD100,000;
• The value of minor fringe benefits (such as chocolates and flowers) that can be provided to employees without attracting FBT will increase to NZD300 a quarter per employee from NZD200, and NZD22,500 a year per employer from NZD15,000;
• The FBT prescribed interest rate for low-interest, employment-related loans will fall from 10.90% to 8.05%.
• Some other thresholds for accrual expenditure adjustments will also be increased; and
• Certain small and medium enterprise tax simplification measures that are part of a bill now before parliament will be fast-tracked.

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