Easily overlooked aspects of the Tax Working Group’s Interim Report

Top 5 aspects (in no particular order)

1. Tax cuts coming for low and middle income earners?

In the days since the release of the Interim Report Finance Minister Grant Robertson encouraged the Tax Working Group (TWG) to recommend an overall package of tax measures that “could result in a revenue-neutral package”.  Given the TWG:

  • is not considering a reduction in the top 33% personal tax rate; and
  • does not recommend lowering the 28% corporate tax rate or 15% GST rate;

there is a good chance that the TWG will recommend that revenue raised from a capital gains tax should be used to fund tax cuts targeted at low and middle income earners.

2. Changes to the taxation of savings

In line with the above, the TWG is already recommending changes to the taxation of KiwiSaver investments to encourage saving by low and middle income earners including:

  • lowering the 17.5% and 10.5% PIE rates for KiwiSaver investments to 12.5% and 5.5% respectively; and
  • removing ESCT from matching 3% employer contributions for those on incomes up to $48,000.

If implemented, these changes will have important systems and documentation implications for KiwiSaver providers and managers.

3. Extending the 17.5% Maori Authority tax rate to subsidiaries of Maori authorities

The current tax settings can make it difficult for Maori Authorities to access the 17.5% Maori Authority tax rate across their business ventures, and incentivises the use of complex structures using “look through” vehicles.  The extension of the 17.5% Maori Authority tax rate to subsidiaries of Maori authorities would reduce the need for such structuring.

4. Comments on the tax treatment of charities

The TWG has noted that the accumulation of tax-free earnings by charities can give them a competitive advantage, allowing them to increase their capital bases faster than businesses that are not charities.  The TWG has recommended a review of the tax treatment of the charitable sector, including (amongst other things) consideration of whether there should be a distinction between privately-controlled foundations and other charitable organisations.

5. Introducing measures to make directors personally liable for arrears on GST and PAYE obligations, provided there is an “appropriate warning system”

We are concerned about this recommendation, in particular the risk that any law change in this area could overreach and discourage directorships.

We recommend that anyone potentially affected by the recommendations above keep a close eye on developments, including the release of the TWG’s final report due in February 2019.  For those interested, there is still time to make submissions to the TWG.

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