2015 Budget highlights
The key tax proposals outlined in the 2015 Budget are:
- strengthen the tax rules for property
- address child support penalties debt
- increase the in-work tax credit and abatement rate
- repeal the $1,000 KiwiSaver incentive payment
- extra funding allocated to IRD to pursue aggressive tax planning; and
- extra funding allocated to IRD to pursue property compliance and hidden economy initiatives.
The proposals are outlined briefly below:
Strengthen the tax rules for property
As was announced by the Government over the weekend, a New Zealand IRD number will be required as part of the land transfer process and non-resident buyers and sellers will also need to provide their tax identification number from their home country together with identification details such as a passport. Before a non-resident can obtain an IRD number they will need to have a New Zealand bank account number.
The IRD will also tax the profits on the sale of residential property which is sold within two years of purchase, unless it is the seller's main home, an inherited property or part of a relationship property settlement. This new two-year rule is being referred to as a "bright-line" test.
This is not a 'capital gains tax', rather a measure to strengthen the existing tax rule that taxes gains on the sale of property where that property was purchased with the intention of selling. The tax will be levied at the seller's marginal tax rate and will be captured in the seller's income tax return. Primarily the change is focused on overseas investors as they can be difficult for the IRD to track down and the overseas property investors should be subject to the same tax rules as resident property investors.
The Government is also considering introducing a withholding tax mechanism in mid-2016 for non-residents selling residential property.
These proposals will go through a consultation process and are expected to take effect from 1 October 2015, which means the new bright-line test will apply to properties brought on or after 1 October 2015.
It should be noted that these changes do not apply to the family home, however, existing land taxing rules should still be considered in respect of the family home. The intention behind the proposals is to help IRD to track and identify transactions likely to be taxable and will allow IRD to share information about non-residents with overseas tax authorities.
An Issues Paper on the bright-line test is expected to be released in July, with draft legislation available late August.
Repeal the $1,000 KiwiSaver incentive payment
Due to the considerable cost to taxpayers, the Government has announced that as of 2pm today people enrolling in KiwiSaver will no longer receive the $1,000 kick-start payment.
The change does not affect existing KiwiSaver members. Contributing KiwiSaver members aged 18 or over or under 65 will continue to receive the annual Member Tax Credit from the Government of up to $521. Employers in general are still required to contribute at least 3 per cent of an employee's gross wage or salary and employees will continue to make their own contributions.
The Government expects to save $500m over the next four years from this measure and will redirect that saving into priority public services.
Address child support penalties debt
The following measures have been proposed to encourage parents to pay what they owe:
- from 1 April 2016, extending the write-off of monthly incremental penalties to parents who are paying by compulsory deduction and meeting their payment requirements; and
- an amendment to the penalty write-off tests to adopt a more pragmatic "fair and reasonable" test to apply on a discretionary, case-by-case basis from 1 April 2016.
These measures have been introduced due to liable parents facing paralysing debt from penalties added to their child support bill and hence many are not attempting to pay their outstanding amount, nor their current obligation and in a growing number of cases the parents are leaving the country.
Increase the in-work tax credit and abatement rate
To give more financial support to lower-income working families not on a benefit the Government has proposed to increase the rate of the in-work tax credit and increase the Working for Families tax credits abatement from 1 April 2016. Specifically:
- low-income working families earning $36,350 or less a year, before tax, will get $12.50 extra a week from Working for Families, and some very low-income families will get $24.50 extra
- working families earning more than $36,350 will get extra from Working for Families, but it will be less than $12.50 a week, with the exact amount dependent on their family income
- families earning more than $88,000 a year will get slightly lower Working for Families payments, with the average reduction being around $3 a week.
Income Tax Rates
While no proposal has been announced to reduce income tax rates, the Minister's speech does acknowledge that one of the Government's five fiscal priorities is to begin reducing income taxes from 2017. This is predicated on fiscal and economic conditions being favourable come 2017.
ACC levies
The Minister's speech mentioned that the Budget allows for ACC levy cuts of $375m in 2016 and an additional $120m in 2017.
Final decisions on levy reductions will be made after public consultation, but it is anticipated that cuts will be across all levied accounts thereby reducing costs for businesses, workers and motor vehicle owners.
As an example the Minister indicated that the average motor vehicle levy, including the annual licence fee and petrol levy, could fall to around $120 in 2016, around a third of what it is now.