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Budget 2012 residential care subsidy threshold changes

In addition to tax changes outlined in Talk Tax, Budget 2012 also changes how annual increases to exempt asset thresholds are calulated.   An annual flat $10,000 per year increase, which was to apply until 1 July 2025, has been replaced with an annual CPI adjustment.

This little hearalded move means that the asset thresholds that would have increased from $210,000 and $115,000 (the lower limit, which is not available to all applicants, is in addition to the family home and car) to $220,000 and $125,000 on 1 July 2012; will now (presuming amending legislation is enacted in current form) increase on 1 July 2012 to the lesser amounts of $213, 297 and $116,806 resepctively.

The changes to the thresholds mean that it will take longer for some applicants to become eligible for a residential care subsidy.

References:

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CCH Budget Report

Prepared by CCH analysts with the assistance of Ernst & Young and Bell Gully, CCH are pleased to bring you their 2012 Budget report.

CCH Budget Report

Budget 2012

The Government released its 2012 Budget at 2pm this afternoon. Spencer Smith, Tax Director, and Sybrand van Schalkwyk, Senior Tax Manager, both from Staples Rodway, Chartered Accountants in Christchurch, discuss their impressions of the tax issues in the Budget in this podcast.

Click here to listen. Budget 2012

For our website please click here: Christchurch Chartered Accountants for our contact details.

Tax changes announced in today’s Budget

The major item would appear to be mixed use assets.  Not clear however whether the government is adopting one of the models considered by PAG in last year’s discussion document or whether a third option is being implemented.

Don’t sell the beach house just yet.

Change Timing Savings / Expense over next 4 years
Inland Revenue will receive an extra $78.4m of funding to assist with tax compliance activities, with a particular focus on the black economy, debt collection and following up on unfiled tax returns. Over the next four years $345.4m
The tax treatment of mixed-use assets such as holiday homes, boats and planes, which are privately used and which are also rented out, is changing.  Owners will be required to apportion deductions based on the actual income earned and private use of the relevant asset. Date to be set in the bill $109m
Recently announced changes to livestock valuation rules will be enacted into legislation so that farmers cannot easily switch between the two principal livestock valuation methods of the herd scheme and national standard cost scheme. 18 August 2011 $184 million
Repeal of “income under $9,880” and “childcare and housekeeper” tax credits, and replacing the “active income of children” tax credit with a narrow exemption so that children earning up to $2,340 annually are not taxed on that income. The start of the 2012/13 income year $117m
A number of changes have been announced to the student loan scheme:
  • Voluntary repayment bonus will be removed for student loans
1 April 2013 $43.5m
  • Repayment rate for New Zealand-based student loan borrowers will be increased from 10 cents to 12 cents in the dollar
1 April 2013 $184.2m
  • “Income” definition will be expanded for the purposes of the student loan scheme only
1 April 2014 $3.1m
  • Information sharing arrangement to be implemented between Inland Revenue and Customs Service to identify student loan borrowers in default
Changes have also been announced to the student allowances scheme:
  • Student allowances will be granted to first degrees only and will be unavailable for postgraduate study
1 January 2013 $33m
  • Parental income thresholds for determining student allowance payments will be maintained at current levels
Until 31 March 2016 $12.7m

Changes to the QROPS regime: Crackdown on UK to NZ pension transfers

The UK qualifying recognised overseas pension scheme (QROPS) regime has been the subject of recent change. Regulations introduced by the UK Government, effective from 6 April 2012 (the start of the UK tax year), targeted NZ QROPS providers (among others) with the result that many have had to review their eligibility as a QROPS and make changes to their compliance processes.

What is the significance of QROPS status?

UK residents may transfer pension savings out of the UK without triggering a UK tax liability provided the transfer is made to a QROPS. By contrast, transfers to non-QROPS may incur a significant tax cost (up to 55% of the transferred value).

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Tax issues for receivers and liquidators

One of the side-effects of the GFC has been an increase in the number of tax cases arising in the context of liquidations and receiverships. In the cases discussed below, the IRD has used its status as a preferred creditor to make significant inroads into the secured creditor’s priority in an insolvency.

Inland Revenue’s priority over accounts receivable

Until recently it had been understood that a preferred creditor’s priority over a debtor’s “accounts receivable” was limited to the book debts of the company. The High Court’s decision in Burns & Agnew v CIR means, however, that the scope of the Inland Revenue’s preference may at present extend to almost any monetary obligation. Until the law is clarified secured creditors need to pay particular attention to any asset sales by a distressed debtor in the period leading up to a receivership or liquidation. The sale of a secured asset would have the effect of taking an asset outside the scope of any general security agreement with the proceeds being treated as an “account receivable” that will accrue to the benefit of the preferred creditors.

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Australian Taxation Office issues new alert on New Zealand Foreign Trusts

The arrangement causing concern

Trusts with no New Zealand resident settlor are exempt from New Zealand tax on their foreign source income. Where such income is sourced from Australia, many practitioners argue that such amounts should also be exempt from Australian tax under the Australia/New Zealand Double Tax Agreement. The Australian Taxation Office (ATO) disagrees with this analysis and has released a taxation alert to that effect (TR 2005/14).

The ATO has continued to express a number concerns about New Zealand Foreign Trust (NZFT) arrangements. This week, in relation to the Project Wickenby, the ATO released a supplementary Taxation Alert dealing with circular arrangements involving NZFTs. This Alert identifies arrangements where an Australian business uses a NZFT as an intermediary when supplying or receiving goods or services with the profit margin retained by the NZFT and not reported or assessed for tax in New Zealand or Australia.

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Relying on Inland Revenue

Inland Revenue has released a draft statement for public consultation setting out the Commissioner’s view of the current law in relation to the status of different types of advice (other than binding rulings) that the Commissioner gives and the implications of reliance on it.

Situations where the Commissioner will take the view that advice he has previously given is incorrect include when:

  • a court decision clarifies the law and shows that the earlier advice is incorrect;
  • the Commissioner discovers an error in the earlier advice; or
  • the Commissioner reconsiders earlier advice and changes his view.

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Recent comments

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  • Rizwana Saheed: You are on the right track that there is an exemption when employees work overtime but whether or not...
  • bryan: as a group of employees we get paid meal money if we exceed 11hrs on any day. Employer says he wants to tax...
  • linda: My mother is 94 and has dementia. With govt assisted carers she is still living in a home gifted within the...
  • Sharon: Hi Daniel, Can you please advise how owners of a profit-making LTC pay themselves? The owners used to pay...
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