BUDGET TAXATION ANNOUNCEMENTS 2012
The National Government Budget 2012 has been delivered today. Although no significant changes were predicted, some of the announcements, although perhaps not significant in dollar terms, will have a significant impact on many families in New Zealand.
We are told the changes are expected to save the country $410 million over the next three years. These savings have then been reallocated to new spending to deliver another zero budget.
As previously signalled, there will be changes to student loans and the livestock valuation rules.
Certain livestock valuation changes are to be implemented in the May Budget legislation, as anticipated. The first changes relate to the inability to revoke livestock valuation methods which will become law almost immediately, as anticipated.
We expect the remaining changes regarding livestock valuations, such as those relating to associated persons, will be introduced through legislation issued later in the year.
The student loan repayment amount is to increase from 10% to 12% of the annual income above the repayment threshold of $367 per week. Once again, this change was anticipated. The definition of income is to be widened to ensure further sources of income are captured when calculating repayment amounts. There are also to be changes to the structure of the student loan scheme which we will discuss in a future issue.
Finally, the change that had been signalled but in very general terms is that relating to mixed use assets. Taxpayers that rent out their holiday homes will no longer be able to claim a deduction of all expenses pertaining to that property if they use the property themselves. Any deductions will be limited to the amount of the income derived from renting out the property.
There is no specific detail regarding this change as yet, but we will provide details as they become available.
One final change has been to remove three tax credits that impact on families and low earners. We discuss these changes below.
How it affects you
The changes discussed above have specific application to certain taxpayers, but perhaps will not impact significantly on the wider population. The changes discussed below, although smaller in dollar terms, will have a wider impact.
IMPACT OF BUDGET ANNOUNCEMENTS
– TAX CREDITS
As noted in the above article, perhaps one of the unexpected changes that will affect the income levels of a large number of New Zealand families is the removal of certain tax credits.
The first of these is to remove the low income tax credit which impacts on all people earning less than $9,880 per annum. This credit was introduced as part of the 1986 tax reform package to ensure that low paid full-time workers were not financially worse off due to tax reforms. The Government is concerned that the credit has been claimed by those outside the group for which it was originally intended and consider it therefore no longer appropriate. The removal of this tax credit will affect students, part-time workers, and many on the minimum wage.
Specific transitional rules will apply for the 2012/13 year where the credit is currently being applied through the PAYE system. In effect, this means the benefit of the credit will continue for the 2012/13 year even though it has been repealed.
Secondly, the childcare and housekeeper credits are also to be removed. Although that may not be a significant sum in straight dollar terms, for those families claiming the credit, it is yet another blow to the financial viability of their households. Although the Government has indicated Working for Families covers those seeking the childcare credit, we consider some families will still suffer as a result of this change.
Finally, the tax credit for the active income of children is being removed. The reason for this is that most employers of children now deduct PAYE from their income and the child claims the credit when filing their tax return.
A new tax exemption is proposed that will mean that school children will not need to pay tax on income earned up to $2,340 if it is not taxed at source (baby sitting and lawn mowing for example). The threshold is a hard amount, so if the child earns more than $2,340, there will be no exemption.
Where PAYE has been deducted, no refund will be able to be obtained on that income.
How it affects you
If you have been claiming any of these credits, you should seek advice from your business advisor to find out what these will mean to you.
POINTS OF INTEREST…
The "standard-cost household service for childcare providers" amounts have been increased to take into account the annual movement of the Consumers Price Index for the 2012 income year. For childcare providers with a standard 31 March balance date, the change applies for the period 1 April 2011 to 31 March 2012. The fixed standard-costs for ownership of domestic dwellings for Educators have also been reduced from the 2012 income year.
The "standard-cost household service for boarding service providers" has been reviewed. The fixed cost percentage of the purchase price of the property used to calculate the ownership costs has been reduced from 5% to 4% to reflect the removal of depreciation on buildings.
TO THE POINT…
"It's about implementing the Governments plan to build opportunities for New Zealanders from all walks of life."
Hon Bill English