Changes to the Tax System

Posted: 9th March 2010

The Tax Working Group ("TWG") commissioned by the National Government recently reported on options for changing the tax system.

The report presented options that the Government will consider. John Keys has made statements ruling out a number of these options but it remains to be seen what the final landscape will look like. Amendments to this effect will be made in the May budget. Options presented by the TWG include:-

Income Tax Reductions

The TWG recognised that company, trust and top personal tax rates would best be aligned at 30%. If you pay tax at 33% or 38% your tax bill would go down. John Key has indicated the Government's priority is to align the trust and personal tax rates at 33%.

GST

The TWG recommended GST be increased to 15%. The Government has come out in favour of this also, stating they would make necessary compensation to low earners through income tax cuts and benefit increases.

Capital Gains Tax

The TWG were not in support of a capital gains tax and John Key has also ruled this out.

Land Tax

A land tax was suggested. The report discussed 0.5% of land values, however, this has also been ruled out by the Government.

Building Depreciation on Rental and Business Properties

The TWG recommended that depreciation on most buildings should be removed because evidence suggested that buildings did not actually depreciate over time. Although the tax saved on building depreciation is often repaid on sale it currently provides a cash flow benefit while the building is owned.

Ring-Fencing Tax Losses

The TWG recommended not allowing rental losses to be offset against other income, e.g. salaries. This has not been ruled out by the Government.

What should you do now?

Most important is not to panic, no decisions have been made yet. However you should consider how you might be affected if one or more of the recommendations were adopted. If you have any questions or concerns, feel free to contact us.