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February tax bill – what’s in store for you?

On 26th February, the Government introduced the long-awaited Taxation (Annual Rates for 2015-16, Research and Development and Remedial Matters) Bill. This post provides a brief overview of what tax changes are in the pipeline.

 

Cashing out R & D tax losses
In a bid to boost innovation in the New Zealand economy, the Bill introduces new rules for research and development (R & D) intensive companies. In a nutshell, companies with R & D will be able to “cash out” losses from R & D activities by way of claiming a tax credit at the company tax rate (currently 28%).

Like any other tax concession, strict eligibility criteria will have to be met, but overall, the proposals intend to deliver cash flow timing benefits to R & D companies with losses in the start up phase.

The proposals, if passed, will apply from 1 April 2015.

Blackhole R & D expenditure

Continuing on the R & D theme, the Government has also introduced a proposal to allow a one-off deduction for capitalised development expenditure on intangible assets which are derecognised for accounting purposes. A claw-back will apply of the previously derecognised asset is sold or becomes useful again.

More intangible assets eligible for tax depreciation

At present, an intangible asset can only be depreciated for tax purposes if it is specifically listed in Schedule 14 of the Income Tax Act 2007. Design registrations (including applications) under the Design Act 1953 will become eligible for tax depreciation if the Bill is passed in its current form. Similarly, a copyright in an artistic work that has been applied industrially will also become depreciable. These intangible assets will be added to Schedule 14 to allow for depreciation.

Body corporates and GST

The Bill clarifies that levies charged by body corporates are taxable supplies and therefore subject to GST. However, for registration purposes, body corporates are only required to register if supplies to non-members exceed the $60,000 registration threshold. So if a body corporate only provides services to members, it will not have to register for GST. If a body corporate is required to register or voluntarily registers, it will be required to pay GST on all of its supplies, including levies charged to members.

Working for families

The Bill confirms that educational scholarships and bursaries are not included as part of family scheme income. Therefore, the receipt of these payments should not affect entitlement to Working for Families tax credits.

Individual tax returns

Back in 2012, the Government introduced legislation in relation to individual tax return filing which was due to take effect from the 2016/17 income year. Briefly, taxpayers who are not required to file tax return in a particular income year but who choose to file anyway, must file tax returns for the preceding four years as well as the income year concerned. The law is aimed at preventing taxpayers from “cherry picking” the income years in which they file tax returns depending on whether a refund is due or tax is payable.

This latest Bill repeals the above law, the rationale being that the Inland Revenue’s Business Transformation programme will render this “cherry picking” practice redundant.

Other changes

The Bill also makes changes in the areas of child support, the donations tax credit, tax pooling, superannuation, controlled foreign companies (CFCs), mixed use assets and the GST ratio method for calculating provisional tax.

A copy of the Bill and related commentary can be found on the Policy Advice Division website.

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