Now that the election dust has settled and the Labour-NZ First coalition has been formed (with support from the Green Party), we take a look at possible tax policy changes. This article is based on the tax policy changes planned by these parties that were publicised prior to the election:
Capital Gains Tax
Although NZ First planned no changes to this area, Labour wants to establish a Working Tax Group to consider tax reforms. The Greens also want to introduce a CGT (exempting the family home). Therefore, the introduction of a general CGT appears to still be on the table and will depend on the influence of NZ First and the recommendations of any Working Tax Group.
Residential Property Sales
Labour wants to extend the current 2 year 'bright line' test (for sales of residential property) to 5 years. Labour also plans to ban foreign speculators from buying existing residential properties in NZ i.e. they would only be able to buy new homes. NZ First did not propose any changes in this area. If the 5 year bright line change is made, it will generally result in all sales of residential properties being taxed if bought and sold within 5 years (subject to certain exclusions such as the family home)
Small and Medium-Sized Businesses
Labour's plans are:
o Abolishing late payment penalties on provisional tax
o Increasing the provisional tax threshold from $2,500 to $5,000
o Bringing in a voluntary withholding tax for businesses
NZ First's plans are:
o Establishing a dedicated unit at IRD to simplify tax for small businesses
o Raising the deduction for low value assets from $500 to $20,000
o Tax evasion crackdown with a focus on the black economy and e-economy
Personal Tax Rates
Both Labour and NZ First want to abolish the secondary tax rate that applies to secondary employment. Labour wants to reinstate the Independent Earner Tax Credit (IETC) and the Greens want to lower the 10.5% lowest marginal tax rate to 9%, and raise the top marginal tax rate from 33% to 40% for income over $150,000
Research and Development
Both Labour and the Greens want to provide R&D tax credits, while NZ First wants to provide tax incentives for business to engage in research and development.
Both Labour and the Greens plan to counteract negative gearing on rental properties by ring-fencing those types of tax losses i.e. tax losses from rental properties would only be able to offset rental income, and not other types of income. Labour's plan is for this to be introduced on a 5 year phased basis. NZ First plans are for landlords to treat improvements made to rental properties to be fully deductible for tax purposes. Labour also proposes grants to homeowners and landlords of up to $2,000 towards upgrading insulation and heating.
Other changes planned are:
o GST: NZ First wants to exempt food and residential rates from GST
o Kiwisaver: NZ First wants to make Kiwisaver compulsory and provide a tax advantage for savings
o Tax Investigations: Labour want to increase tax investigation IRD staff
o Water use: both Labour and the Greens want to charge for commercial use of water
o Multinationals: Labour wants to introduce a diverted profits tax on multinationals companies which are considered to be paying insufficient tax in NZ.
The Government's new policies should be made public shortly and don't be surprised if many of the above changes are included. We will keep you informed of any changes and planning opportunities. If you would like to discuss any of these issues, please contact your usual McIsaacs' advisor