Budget Day Tax Announcements Disappoint
It was great to represent The Advisory Group in the Budget lockup this morning as Hon Grant Robertson delivered Wellbeing Budget 2022 – a secure future.
In terms of announcements to promote positive tax changes to assist businesses getting back in the saddle or lightening the increased personal tax burden on individuals due to wage inflation, it was like opening that Christmas present that wasn’t meant for you – disappointing.
Key tax announcements in the budget:
Core tax revenue is set to grow $40.5b from now to 2025/26. The largest movements in this are employment-based taxes at $18b, GST $9.1b, Corporate tax $7.7b.
Extension of the Fuel Excise Duty and Road User Charge reductions for a further 2 months.
$3.4m in new funding to the Inland Revenue to assess Research and Development Tax Credit claims for the next fiscal year (and an increase of $14.95m to the 2026 period).
$21.7m in new funding to Inland Revenue to maintain capability, integrity and to respond to demand in the next fiscal year (and an increase of $154.5m to the 2026 period). Interestingly the funding primarily focuses on the 2023/24 and 2024/25 fiscal years where the lions’ share of the funding is provided at $53.1m per year – this likely coincides with the special reports that have been commissioned to review certain areas of tax law such as base erosion concerns on individuals not paying tax at the top personal tax rate.
So, with the exception of continuing the reduction in Fuel Excise Duty and Road User Charges, all other announcements are increases to the Tax Department’s resources to either:
(a) Review whether your Research and Development Tax Credit claim should be accepted
(b) Understand why you haven’t filed tax returns
(c) Ask why you haven’t paid your tax
(d) Consider risks to the tax base.
Some announcements that were lost, but hopefully not forgotten, include:
Recognising fiscal drag on personal marginal tax rates – personal marginal tax rate bands needed to be lifted so that they consider wage inflation.
Temporary reductions to the corporate tax rate for New Zealand owned businesses as they seek to climb out of the past two years. This only affects the timing of tax collection and encourages business owners to reinvest into their recovering businesses.
Consideration of permanent reductions in corporate tax rates in some regions to encourage businesses to relocate – given the Government is banking on skilled labour delivering a further $18b in employment taxes to the 2026 period, we need skilled people to stay in New Zealand, which in a lot of cases means businesses moving to regions outside the main centres.
Rising interest rates put the focus on interest deductibility.
For residential property investors the rules are clear and no change to these have been proposed. Property investors are starting to hurt as interest deductibility for grandfathered loans progressively reduces in the immediate future. Relief could have been provided or even the timing of these reductions deferred as the housing market slows.
For New Zealand resident companies expanding offshore with foreign owned companies this could put the brakes on expansion as companies may need to access greater finance to enable this expansion. This finance, however, may result in non-deductible interest where interest deductions are limited to financing 60% of the total assets.
So, what does Wellbeing Budget 2022 mean for your tax position?
If you are filing a research and development tax credit claim you want to ensure the application is prepared, filed and managed by specialists who live and breathe the rules. Having managed and filed claims The Advisory Group is well placed to advise on your application.
If you’re a director of a company, we would suggest considering your tax strategy and reporting including:
What is the current company tax strategy and what areas have not been reviewed?
How is the company managing its tax risks given the increased Inland Revenue funding which will largely focus on corporate tax?
Are you filing your returns and paying your tax on time? Failure to do this puts you squarely in the review bucket with Inland Revenue.
This reporting provides directors with the information required in order to assess whether tax is being managed appropriately. If you’re interested in some dashboard reporting on your tax reporting please feel free to contact The Advisory Group.