On 20th May 2010, there will be some tax changes released, include:
- GST rate may go up from 12.5% to 15%;
- Properties - no depreciation allowed for non-depreciable buildings;
- Personal Income tax rate reduction; (high income earners will benefit more, obviously);
- Possible tax rate alignment among, individual, trust, company and PIE (Portfolio Investment Entities);
- Possible LAQC abolishment.
Some of my comments in relation to the reforms are:
Increase of the GST rate will directly reflected by the increased goods and service price, it looks like the rate only increased by 2.5%, however, when you take into account of manufacturing cost, those will put up the price higher than expected, for instance, when the dairy manufacturer produces bottled milk, the price of raw milk from the farmers increases due to the GST rate increases, the transportation cost will increase, the labour(contractors) cost increases etc, those factors during the process of manufacturing milk all increases due to the GST rate increase. Therefore, no double the product price will be higher than what we expected 2.5%.
Although the government promised to reduce individual income tax and pay higher work for family assistance and unemployment benefit to compensate the increase of GST rate, the benefits are lower income earners and high income earners, the middle range salary earners could benefit very little. Government may think this will attract more high technical and managerial level New Zealanders return from overseas and keep the highly skilled New Zealanders not going overseas for work, they may ignore the salary gap between NZ and our Aussie, moreover, Aussie’s GST rate is only 10%. The cost of living is cheaper than NZ, the average salary is higher than NZ, NZ’s attractions may not be that great, even after the tax reform. I am sure there are more middle ranged salary earners in New Zealand, they may consider leaving for overseas now since the cost of living and unemployment rate is rising. New Zealand has very small populations comparing with other countries in the world, if the consumers have all gone overseas for live and work, who is going to spend in New Zealand and how NZ economy is going to boost under such economic condition.
Good news from the government is there will be no Capital Gain Tax in New Zealand. Therefore, property investors will not be so disappointed. Though they may disallow depreciation on buildings (for non depreciable properties), it may affect the investors in the short term, however, in the long run, since the capital gain tax is ruled out, when the property is sold, you don’t pay any tax on the gains. This makes New Zealand more competitive comparing with other countries in the world, such as Australia, China, Canada, etc. Rental property owners may get less income tax refunds, when they sell their rental properties in the future, they will get less deprecation recovered as well. So in the long run it will benefit the owners.
If there is any comments, please leave me a message or email me on: jerry@.bnlconsulting.co.nz
Or call: 09 – 374 3979
Location: Level 1, 4 Kingston St, CBD, Auckland, New Zealand
Our professionals will be able to help you with those matters.