Tax in 2012: The Year So Far 

 
Grange Associates Ltd - 3 August 2012

Now that we are over halfway through the year, it’s a convenient time to briefly recap the tax changes we’ve seen in 2012 so far.

2012 has been a fairly static year in terms of tax changes thus far, and that looks set to continue into the future, with the Minister of Finance signaling in a pre-Budget press conference that there would be no new taxes in the short term.

April 1 Payroll Changes

• Introduction of Employer Superannuation Contribution Tax (ESCT) on compulsory KiwiSaver Employer Contributions
• ACC Levy rate reduction
• Compulsory Student Loan tax code for all student loan borrowers

Use of Money Interest Rates

Applicable from 8 May 2012, the new rates are:

• 8.40% on debit balances (down from 8.89%)
• 1.75% on credit balanes (down from 2.18%)

Budget 2012

From a tax perspective, the Budget was fairly uneventful.

• Repeal of tax credits
• Mixed use asset proposals confirmed – for more on that see our new article
• Livestock amendments
• Inland Revenue provided with $78 million in funding for more compliance and audit work

There will be comparatively small revenue gains from projected Budget tax changes.  Expected revenue from livestock, tax credit and mixed use assets changes totals $410 million over four years.  In comparison, increases in tobacco excise will net $532 million, while petrol excise & RUC increases will net $421 million over the same period.

KiwiSaver Turns Five

It has been five years since KiwiSaver began on 1 July 2007, which means some KiwiSaver members are now eligible to access their funds.

From 1 July 2012, KiwiSaver members who qualify for NZ Super, or who joined KiwiSaver between the ages of 60 and 65 and have been a member for five years are eligible to withdraw their savings.
If you meet the above criteria and wish to access your KiwiSaver funds, contact your KiwiSaver scheme provider for further information.

If you are an employer, be aware that if you have employees that are eligible to withdraw their savings, you are no longer liable to pay compulsory employer contributions for those employees.  You can continue to pay voluntary contributions if you wish.

Incoming Legislation

Salary Trade-Offs Issues Paper

April 2012 saw the introduction of an issues paper on recognising salary trade-offs as income.

The aim of the proposed legislation is to ensure non-cash employee benefits currently outside FBT & PAYE rules will become taxable, with the main focus being on-premises car parks and childcare available to employees and also benefits given to employees of charities. 

It has not yet been decided whether the benefits will fall under the umbrella of the FBT or PAYE rules, but legislation is expected to pass later this year, and will come into effect from the start of the 2015 income year (starting 1 April 2014).

Four Year Filing Requirement for Individual Taxpayers

This would require taxpayers who chose to file a tax return to also file returns for the previous four years.  This is to avoid the current practice of “cherry picking” where taxpayers file returns only for years where they are due a tax refund.

Any credits and debits arising from the four years would be offset against each other in calculating any refund due or tax payable.  Any late payment penalties & interest due on tax payable would only be incurred from a new due date, not backdated to the applicable income year.

The legislation has not yet been passed, and is likely to be deferred until the start of the 2017 income year (starting 1 April 2016).

Increase in KiwiSaver Contribution Rates

Under proposed legislation, employer and employee compulsory KiwiSaver contributions will increase from 2% to 3%.  This is likely to come into effect from 1 April 2013.

Profit Distribution Plans

Currently bonus shares issued under profit distribution plans are non-taxable.  However, there is legislation in progress which aims to tax bonus shares issued under profit distribution plans in the same way as taxable bonus issues are currently treated. 

For example, if you currently hold shares with Contact Energy & receive tax free bonus shares under their profit distribution plan, note that future shares issues are likely to be taxed.

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