Retro Budget: a return to lower rates and a simpler tax system
The Government Budget was a welcome return to a simpler tax system, removing some of the incentives to structure economic activity for tax purposes rather than for commercial purposes, says the New Zealand Institute of Chartered Accountants (NZICA).
Tax director of the Institute Craig Macalister says this is a 'back to the past' budget.
Thirty-three percent was the highest marginal personal tax rate in 2001, and 28% was the company rate in 1989.
He says the move from 33% to 39% in 2001 (for those earning over $60,000) caused considerable restructuring by taxpayers to avoid this rate.
Macalister says ever since then the tax system has fallen into disarray, as governments have tried to apply a band-aid to arrangements to avoid the 39% rate.
"However, some anomalies remain," he says.
"The differential of 5% between the new company rate and the top personal tax rate of 33% leaves a strong incentive for people to form companies in order to avoid the top personal tax rate.
"Incentives also still remain for people to earn investment income through PIEs and pay only 28%."
He says property owners will not welcome the change to deny depreciation on properties that have an expected economic life of 50 years or more.
"However, this is a more principled approach than ring-fencing rental property losses and introducing bright line tests to tax property purchased and sold within a specified time."
The NZICA supports the signalled removal of depreciation on buildings where there is no evidence of depreciation.
Macalister says the under-taxation of capital assets in New Zealand remains and will continue to create distortions.
"Businesses will not welcome the removal of the 20% uplift factor on new depreciable plant and equipment, as that will lift their effective tax rate, but that will be offset to an extent by the reduction in the corporate tax rate."
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