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Tax Talk | Budget 2018

Don’t Scare The Horses!!

Budget 2018 has seen the government keep its promise of no new taxes, but with plenty of extra revenue to spend on government provided services.

The key tax initiatives have been previously announced and previously discussed in Tax Talks including:

The Research and Development (R&D) Tax Credit – 12.5% tax credit for eligible research and development spending

Residential Rental Loss Ring Fencing – Limiting the ability to offset losses from residential rentals to other sources of income

GST on Low-Value Imported Goods – Requiring the suppliers of low-value (<NZ$400) imported goods to account for New Zealand GST on sales to New Zealand consumers

However, the government has provided more details around the dollars and cents of these initiatives.  The R&D tax credit is expected to provide $1 billion over four years, while the ring fencing on residential rental losses is expected to generate $325 million over four years and GST on low-value imported goods is expected to generate $218 million.

Some new, smaller scale, tax initiatives have been announced in today’s budget.  These include:

Inland Revenue Additional Funding

Today’s budget announced additional funding to Inland Revenue, targeted around making sure taxpayers are meeting their tax filing obligations:

  • $23.5 million over the next four years to ensure that outstanding company tax returns are filed.
  • $3 million over the next four years to improve tax compliance in specific industries through the use of third party reporting and withholding taxes.
  • $4.3 million over the next four years to implement and administer the recently announced R&D tax credit.

This complements the additional funding announced to target taxpayers dodging tax which in the past has provided high returns on investment, but we can’t help but feel that Inland Revenue will be feeling a little left out by today’s budget.

Changes to Bloodstock Rules

Of particular interest is the change to the bloodstock tax rules.  This will allow tax deductions for the costs of high-quality horses acquired with the intention to breed.  While the devil will be in the detail, we expect that this will be a return to 1980s era tax rules around bloodstock which came under fire in the 1990s.

Tax Working Group

As we sit back and relax in a post-budgetary glow, our attention turns to the Tax Working Group.  With the release of the group’s first paper in March, an interim report due in September 2018, and final recommendations in February 2019, there is much work to be done.  That work is expected to lead to a proposal for a wide-ranging capital gains tax broadly in line with Australia’s rules.  Legislation is expected to be in place (but not in force) prior to the next election in 2020 to allow the nation to endorse or reject the new tax.   The reality is that the specifics of the regime will need to be decided on by the end of this year, meaning tax policy being made at a lightning pace.

Overall, we concur with the assessment by some in the media that this is a National-lite budget.  The horses have definitely not been scared, but instead will get a tax break…unlike hard working Kiwis.

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