Listening to the Minister of Finance Grant Robertson in the budget lock-up this morning highlighted to me the importance tax plays.
Most people want to pay their fair share of tax, but the complexity of tax continues to evolve where even the simplest of mistakes can cost you dearly in penalties and interest – given the increased funding the Inland Revenue Department will receive you need to ensure you have your tax affairs in order.
The budget in brief
The budget released today forecasts crown tax revenue to increase by $23.4b over the next four years, or put simply, an increase of 31 per cent. This growth is partly explained by:
- Property investors paying more personal tax to the tune of $325m. This is the forecasted result of property investors no longer being able to offset rental losses against their employment income;
- Increased GST of $218m as a result of offshore suppliers having to register for GST and return GST on low value imports;
- Increased withholding tax on interest deposits – this signals the forecasted increase in interest rates and therefore more people leaving money on deposit with the bank;
- An increase of $3.5b in company tax;
- Increased tax revenue of $183m from compliance reviews (each budget allocates more funding).
On top of this there is new spending in the tax system over the next four years, specifically around:
- New tax deductions equal to $4.8m for bloodstock which supports the New Zealand Racing Industry;
- $1b allocated to research and development incentives. This broadly means businesses who spend more than $100,000 on research and development activities will receive a tax credit equal to 12.5 per cent for every dollar spent. So, for every $100,000 you are entitled to a tax credit of $12,500;
- Inland Revenue Department funding of $26.5m - this is expected to yield $183.3m over the next four years, or a net return of $156.8m.
What does this all mean for you?
Property investors need to review cashflow to ensure they will be able to fund the interest payments to the bank – likewise banks will need to recalibrate their lending as the credit model that worked before will no longer work. It’s not all doom and gloom for property investors, there may be different ways to restructure your debt so that similar outcomes can be meet.
If you are spending on research and development and want to secure your research and development tax credit you need to get to grips with the rules immediately. Having managed and filed claims under the previous research and development tax incentive rules, Bellingham Wallace is well placed to advise you on the impact to you.
If you are a director of a company, you need to ensure your next board papers have a tax report setting out:
- The impacts from the budget and any strategies that need to be considered (most notably the research and development tax incentives);
- What the current company tax strategy is and whether it needs to be changed;
- How the company is managing its tax risks (ie what independent reviews have been undertaken);
- Whether tax returns have been filed and tax payments have been made on time.
The above reporting will give directors the information required in order to assess whether tax is being managed appropriately. This reporting is not just for the top end of town anymore, its best practice and can be integrated into your dashboard reporting. The Inland Revenue Department now ask how a board reviews tax in their Risk Reviews, if a board is not monitoring its tax then this can have an impact on whether shortfall penalties are imposed on any tax shortfall identified by the Inland Revenue Department.
At Bellingham Wallace we implement tax board reporting which acts as a dashboard alert. If you want to know if you have a tax issue before the Inland Revenue Department does, this dashboard supplemented with regular tax reviews will provide this.
Please feel free to contact me if you want to discuss managing your tax.