By Hayes Knight – 20 May 2010

Finance Minister Bill English delivered his 2010 budget today. As expected, the Budget has reduced personal tax rates and increased GST from 1 October 2010, and the forewarned changes to the rental property sector has materialised in a reduction in depreciation rates for new assets and buildings with a useful life of more than 50 years.

However, there were a few surprises in today’s budget;  the company tax rate is being reduced from 1 April 2011, two years ahead of Australia’s planned corporate tax rate reduction, and LAQC’s will be treated as limited partnerships for income years starting on or after 1 April 2011.

Below is a brief overview of the 2010 budget.

Personal income tax rate cuts will reduce from 1 October 2010:

  • 0 – $14,000   10.5%
  • $14,001 – $48,000  17.5%
  • $48,001 – $70,000  30%
  • $70,000 and over 33%

The company tax rate will fall to 28% from the 2011-12 income year. This rate will also apply to savings vehicles, such as unit trusts, superannuation funds, life insurers and portfolio investment entities (PIEs).  A transitional period will allow dividends to be imputed at 30% for a two-year period to the extent company tax was previously paid at 30%.

The trustee tax rate remains at 33%.

GST will rise to 15% on 1 October 2010.

The majority of benefits and allowances (ie, superannuation, working for families tax credits) will increase by 2% to compensate for the increase in GST.

The 20% depreciation loading for new assets will be removed for new assets purchased on or after 21 May 2010. The loading will still apply to assets purchased prior to 21 May 2010.

Depreciation deductions will no longer be allowed for buildings with an estimated useful life of more than 50 years.  A 0% depreciation rate will apply to all such buildings from the 2011-12 income year.

Loss attributing qualifying companies (LAQCs) will be treated as Limited Partnership’s from the 2011-12 income year.

Tax rates on savings will reduce to 28% from 1 October 2010.  Those on low incomes can elect for a lower PIE rate.

The thin capitalisation threshold will reduce to 60% from the 2011-12 income year.

Rental losses will no longer be taken into account when calculating working for families eligibility and trust income will need to be taken into account.

Due to these changes, in particular GST, businesses will need to start planning for these changes leading up to 1 October.

Full details of the budget are available on the  Policy Advice Division website

Taxpayers can also check their tax savings on www.taxguide.govt.nz.

If you would like to discuss this further or any information relating to your business affairs contact Phil Barlow and Shelley-ann Brinkley, or your Hayes Knight adviser.