Paul's Post
24 January 2011

“Enthusiasm is the mother of effort and without it nothing great was ever achieved.” Ralph Waldo Emerson

Looking back at 2010

 Looking back at 2010, it was an interesting and busy year from a tax perspective

The Government's Budget in May contained a mix of expected and unexpected changes, including:

1.    An increase in GST to 15 per cent as at October 1.

2.    Changing the rates and thresholds for personal tax and in particular aligning the top personal marginal rate with the rate for trusts (33 per cent).

3.    Removal of depreciation on all buildings with an estimated useful life of 50 years or more, with effect from April 1, 2011.

4.    Removal of the 20 per cent loading for new plant and equipment bought after Budget day.

5.    For the purposes of calculating Working for Families payments, from April 1, 2011, it will no longer be possible to reduce income by including losses, and assets held in trusts will be taken into account.

6.    Treating qualifying companies and loss-attributing qualifying companies as "flow-through" entities. Legislation introducing "look-through" companies has been introduced.

7.    Reducing the company tax rate to 28 per cent for the 2012 income year.

8.    Treating transfers of land between registered persons as zero-rated for GST purposes, with effect from April 1, 2011.

Other tax changes included:

1.    Removing the principal purpose test for GST with effect from April 1, 2011. It will be possible for registered persons to claim GST on assets used both for making taxable supplies (ie, where GST must be accounted for) and either or both of exempt supplies (eg, residential rents and bank charges) or private use on the basis of anticipated percentage of business use.

2.    The abolition of gift duty with effect from October 1, 2011.

 

 

 

Look Through Companies:

 

The new rules contain extensive transitional rules that allow existing LAQCs to seamlessly transfer into the Look Through Company (LTC) regime or into an alternative limited partnership, general partnership or sole trader structure if desired without a tax cost.  This is an excellent outcome for taxpayers utilising LAQCs at present.

 

If you have an LAQC at present going into the 2011/2012 income year you have four options as follows:

 

1.    Do nothing which will see your company remain an LAQC but lose the ability for the losses to be attributed to the shareholders.

2.    Transition into the LTC regime.  Under the new legislation you will have six months to file an election with the IRD to convert your LAQC into an LTC which will then see it taxed as noted above.

3.    Take advantage of the transition provisions to restructure your LAQC into a limited partnership, partnership or sole tradership.  Any such transition will not come at a tax cost but there are restrictions as to when this is available.

4.    Revoke LAQC status and have the company revert to being an ordinary company.

 

The legislation is very new and IRD are yet to release appropriate forms. We are still educating ourselves so that we can best advise you. It is clear that the review process will necessitate additional costs. We will be contacting each of our LAQC clients to discuss and determine your best options. In the meantime please feel free to contact us about your circumstances.

 

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Although every effort has been made to ensure the accuracy of this newsletter, the information is necessarily generalised. Clients are therefore requested to seek specific advice and not rely solely on the above, if they are interested in any matters mentioned.

 

Paul Enoka Chartered Accountants Ltd

PO Box 31-348 Lower Hutt 5040, New Zealand

Phone (04) 939-7977