2014 budget – "the white budget??"

While many are referring to the recently released Australian budget as the “Black Budget”, not so for our own issued by Bill English yesterday (15th May 2014).
The Budget in itself was fairly tame, not surprising considering it is an election year. And being an election year, there was of course a sly mention that there could be some tax cuts next time around (although not until 2018/19) – a carrot for votes, you be the judge.
The only real unexpected announcement was increasing the age children could visit their GP for free, plus free prescriptions, to 13 years of age from 1 July 2015 (subject to discussions with GP’s beforehand naturally since they appear to not have been forewarned in any way).
So from an accounting and taxation perspective, what were the other announcements:
Paid Parental Leave –

• To be extended by four weeks over a two year period – so increasing the entitlement to 16 weeks from 1 April 2015 and then to 18 weeks from 1 April 2016.
• Extending the range of entitled persons to include permanent guardians and people in less regular work or those who have recently changed jobs (presently you have to have worked for the same employer for at least six months prior to the baby’s due date).

Parental Tax Credit –

• To increase the entitlement from $150 per week to $220 per week from 1 April 2015.
• To increase the entitlement period from 8 to 10 weeks from 1 April 2015.
• The rate at which the entitlement abates will increase from 3.26 cents per each additional dollar of family income to 21.25 cents per dollar.

Cheque Duty –

• Presently your cheque books incur a duty of 5c per cheque which your bank automatically charges your account each time a new cheque book is issued.
• Cheque duty will be abolished from 1 July 2014 since the revenue collected has reduced from some $17 million during 1991/92 to $4 million during 2013/14 as the use of cheques has continued to decline.
• Should you want a refund of any duty you have been charged on any unused cheques in your current cheque book, you need to make a request to your bank before 30 June 2014.

Research & Development –

• Innovative start-ups will be able to cash-out an amount of their tax losses arising from qualifying R&D expenditure. Presently tax losses must be carried forward for offset against future assessable income and there is a risk the losses may never be utilised either because the business fails and is shut down or there is an equity change and shareholder continuity provisions for losses are breached resulting in a forfeiture of the losses.
• Applicable to income years commencing 1 April 2015 or later, cash-out will be up to $500,000 in the first year of the initiative, increasing the cap by $300,000 per year to an eventual maximum of $2 million (on a 28% tax rate, cash back of between $140,000 and $560,000).
• Timing benefit not a grant as there will be an eventual return of the cashed-up amount either as the company begins to make profits or realises a non-taxable capital gain from certain defined events.
• Entitlement arises only where wage intensity threshold (defined term) satisfied and the company is carrying out eligible R&D (also defined).

Black hole R&D Expenditure –

• To provide a remedy for certain types of business expenditure that presently does not result in a tax deduction either immediately or over time.
• Capitalised development expenditure that relates to a patent, patent application or a plant variety right which becomes an item of depreciable intangible property will be included in the assets cost for depreciation purposes.
• One off tax deduction for capitalised development expenditure relating to an intangible asset which has been written off for accounting purposes.
• Claw-backs to cover events where either the intangible asset becomes useful or is sold subsequent to having been written off.
• Registered designs and applications for registration of a design will be added to schedule 14 of the Income Tax Act 2007 (depreciable intangible assets). Associated capitalised development expenditure will then have identical rules to those now been legislated for patents, patent applications and plant variety rights.
• Clarification that capitalised expenditure relating to the successful development of software for use in ones own business is depreciable.
• All changes will be effective from the commencement of the taxpayers 2015/16 year (for expenditure incurred on or after 7 November 2013) with exception of in-house software development expenditure which will have application from the taxpayers statutory time bar.

Student Loans –

• The repayment threshold will be frozen at its current level – $19,084.

ACC Levies –

• Possible reduction on levies charged on private motor vehicles by $130 a year from 1 July 2015.

Inland Revenue funding –

• Increase of $48 million to existing budget with a focus on compliance, particularly chasing up on unfiled, overdue income tax returns.

Conclusion –
There is not a lot in this years Budget for the team at GS to get their teeth into. However we will be closely monitoring the R&D changes to ensure affected clients understand the rules and that we can then assist them to maximize their claims.
As with any article on our website, if you would like to discuss the contents of this report further, please do not hesitate to contact one of our team.