Yesterday’s Budget announcement contained two tax issues that were highlighted in the previous year’s Budget.
Mixed Use Assets
The first is regarding the taxation of mixed use assets. The Government sees this as a risk to the tax base where taxpayers are receiving deductions for what they consider is essentially a “private” asset. In 2011, the Inland Revenue released a document covering the proposed changes for the tax treatment of such assets such as holiday homes, boats and aircraft.
An example given by the Minister of Revenue concerned a holiday home where the owners rented it for 30 days of the year and used it privately for 30 days of the year. It is proposed that a deduction will only be available for 50% of the general costs, whereas under the current rules taxpayers can generally claim expenses for all the days in the year, excluding any private days (i.e. 335 / 365 days), providing the asset is actually marketed and available for rent on the remaining 305 days.
The second change that was highlighted in last year’s Budget related to the tax treatment of livestock and valuation methods able to be selected. The changes will restrict livestock owners from switching methods to ensure no tax advantage is gained.
There are some minor changes being made to three tax credits which taxpayers are currently eligible for:
- The tax credit for childcare and housekeepers;
- The tax credit for income under $9,880; and
- The tax credit for school children.
The tax credit for childcare and housekeeper expenses (currently capped at $310) will be repealed effective from 1 April 2012.
The tax credit for income under $9,880 will also be repealed effective 1 April 2012.
The rules for school children claiming tax credits will be amended with a new tax exemption for income up to $2,340. Where the child’s income exceeds this amount, an income tax return will need to be filed.
Taxpayers filing their 2012 income tax returns are still eligible for these credits.
The Government estimates that these minor tax changes will result in $410 million of revenue over the next four years.
We note that the Inland Revenue have allowed an extra $78 million to be allocated over the next four years to improve its auditing and compliance function.
Student Loan Changes
The Budget is also proposing a number of changes to the student loan rules. The changes include:
- Increasing student loan payments from 10% to 12% for income earned over the threshold;
- Widening the definition of ‘income’ for student loan repayment purposes;
- Continuing the freeze on parental income thresholds that apply to student allowances;
- Providing allowances for first degrees only;
- Repealing the rules for the voluntary repayment bonus of 10%. The majority of these changes will take effect from 1 April 2013.
Qualifying Companies (QCs) Transitioning to Look-Through Companies (LTCs)
For QCs with substantial shareholder funds there can be significant tax advantages obtained by electing to be a LTC. Please note that an election for the QC to be a LTC from 1 April 2012 can still be made provided the election is filed prior to 30 September 2012.