Expert Commentary:

Tax Alert: New Business Tax Proposals

04 April 2016

The Government has today announced a package of proposals to simplify business tax and reduce compliance costs especially for small businesses which make up approximately 97% of all businesses in New Zealand. 

BDO welcomes the proposals.

The changes are expected to be fast-tracked with legislation expected to be introduced in August this year.

Some of the proposals are taxpayer friendly while others are not.

While the proposals will not suit all taxpayers, some of the taxpayer friendly proposals include:

  • Increasing the current safe harbour threshold from use of money interest from $50,000 to $60,000 of residual income tax and extend the safe harbour to non-individual taxpayers such as Companies and Trusts
  • Removing use of money interest for the first two provisional tax instalments for all taxpayers who use the standard uplift option, as long as the payments required under that option are made
  • Introducing the accounting income method of calculating provisional tax – i.e., using the taxpayer’s accounting results generated by its accounting system for a period to determine a provisional tax liability
  • Allowing contractors to elect their own withholding tax rate to more accurately reflect the tax payable on income earned and reduce the impact of provisional tax
  • Removal of the incremental late payment penalty for certain tax debt (i.e., GST, income tax and working for families tax credits) incurred after the rules come into effect
  • Various measures designed to make tax easier to comply with and reduce compliance costs such as: 
    • allowing small companies providing motor vehicles to shareholder-employees to make private use adjustments instead of paying fringe benefit tax
    • increasing the threshold for taxpayers to correct errors in returns from $500 to $1,000;
    • removing the requirement to renew resident withholding tax exemption certificates annually
    • increasing the threshold for annual fringe benefit tax returns from $500,000 to $1m of PAYE/ESCT

Some of the other proposals include:

  • Extending withholding tax to cover contractors working for labour-hire firms
  • Allow the credit reporting of significant tax debts to credit reporting agencies to provide greater transparency for other businesses
  • Information sharing with the Registrar of Companies to assist with compliance with company laws to protect other businesses

Submissions on the proposals can be made to Inland Revenue by 30 May 2016.

Speak to your BDO adviser or refer here for more information: