2013 budget update & highlights

Predictable, boring… just a few words that have been used to describe this year’s Budget.
How it affects you? Unsurprisingly, the 2013 Budget focussed more on social policy changes and trying to deal with the issues of affordable accommodation and child poverty than making any significant changes to the tax legislation. In fact the tax changes announced in the Budget are largely positive for the business community.
While some expected the possible hinting of the introduction of a capital gains tax in an attempt to cool the overheated Auckland property market, the Government has instead put their focus on increasing the supply of land to bring down prices and make housing an affordable option for first home buyers.
Property investors should be warned however as the Government did make additional funding available to the IRD to increase its activity in the property sector so expect to see a lot more risk review type letters being issued to taxpayers who dabble with this type of investment.
On the economy itself, the Government reported that it grew by 3% last year, forecasts growth of between 2% and 3% over the next four years and that the Government still expects to be able to post a surplus in 2014/15, albeit a meagre $75m.
The positives alluded to above for the business community are as follows:
ACC Levies – Changes have been proposed to implement a reduction in ACC levies.
Black Hole expenditure – Legislative changes will be made to clarify that certain “black hole expenditure” will be deductible, including the following:

  • The costs associated with an AGM and preparation of dividend documentation (we suspect most practitioners already apply this treatment anyway).
  • Fixed-life resource consents.
  • Expenses on resource consent applications that are abandoned, even if no application is lodged.

R&D – Another significant announcement is a change to the treatment of research and development (R&D) expenditure. Loss-making start-up businesses incurring significant R&D expenditure are to obtain tax relief. The proposals are looking to provide grants for R&D and to allow refunds of losses incurred in relation to R&D up to a threshold.
At first glance the proposals look promising however yet to be confirmed are the following conceptual issues:

  • Adequately defining R&D;
  • Appropriately defining start-up businesses; and
  • Ensuring that changes in shareholding do not result in extinguishing of losses arising from R&D that do not qualify for a refund.

A public consultation paper will be released in June containing the proposed regime.
Finally the Budget contained a couple of changes, one to assist in the clamp down on student loan defaulters and the second to review the effectiveness of the thin capitalisation rules. A summary of these proposals follow:
Student Loans Scheme – the proposed changes are:
To put in place an information-sharing agreement between IRD and the Depart of Internal Affairs. The proposal will allow the collection of contact details from passport renewal applications.
To adjust the overseas-based borrower repayment thresholds so that borrowers with higher loan balances have a higher repayment obligation.
To make it an offence for a borrower to knowingly default on an overseas-based borrower repayment obligation so that an arrest warrant can be requested to prevent the most non-compliant borrowers from leaving the country.
International Tax – There will be changes to the Thin Capitalisation rules that restrict interest deductibility by multinational businesses. Shareholder Debt is to be excluded from the Worldwide group safe harbour debt calculations in an effort to discourage re-characterisation of dividends into interest. Groups with high levels of external debt should not be affected. This is expected to generate $20m in tax over the next 3 years from 2014/15.

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