Newsletters
May 2023 Newsletter
Wow, the last week in the tax world has being interesting. Its not often that Tax policy dominates the headlines.
As you will have heard, the Minister of Revenue released the results from the 2 year study into how the wealthy were taxed. The headline results were that the Ultra wealthy paid tax on 8.9% on their "economic" income wheres the Treasury study indicated someone on the average wage had an average tax impost of 22%.
What is top of mind in the Tax World?
The formula was quite simple, Income Tax + GST paid/Economic Income. The part of the equation we need to dig into is what makes up the Economic Income.
Economic Income for the purposes of the IRD Study was the Sum of the following:
▪Annual net income or loss (base or Taxable income).▪ Realised capital gains (for assets sold during the Project period).▪ Accrued capital gains (for assets not sold during the Project period).▪ Non-taxed distributions from companies and trading trusts.▪ Trustee taxable income (and capital gains on the assets in trusts).▪ Taxable income of land-rich entities (this replaces distributions from those entities and is in addition to the capital gains on real property).▪ Imputed rental on owner-occupied housing.
The main stream media have picked and focussed on the "imaginary" income of the Capital variety both realised and unrealised. (Note, Most CGTs are based on realisation of the gains i.e. Sale of a property). The measure also includes untaxed distributions from companies and Trading trusts, which is either capital you have put in or After tax income left in that the company that you subsequently take out as say drawings. The limb of the equation that has received the least coverage is the imputed rental on owner occupies housing. In short, it proposes that the market rental of your house is an income/benefit to you ( and ignores outgoings like Mortgage Interest, Rates etc). This has the effect of adding between $600 to $1000 of "income" per week for the average house in Auckland which naturally drives the Effective Tax rate south quite quickly.
In not his finest yet a slightly comical moment, the Revenue minister during an interview with Ryan Bridges implied that you could take the capital gains to buy burgers.https://www.youtube.com/watch?app=desktop&v=9tRwamgqoys&fbclid=IwAR0DLE6hgVUyvjTqQYtPKQ5athvVvHPEN9xSi6EFOq2vEOvopvo9Nch_EPw
The Prime Minister and Revenue Minister have both pointed out that this is not necessarily their Tax policy, but that the Tax policy will be made known before the election. One can suspect that this will come out in the coming months between the Budget on 18th May and subsequent policy announcements as we move into election mode. One thing the Prime Minister has surprisingly said is that now is not the right time to address 12 years of Bracket creep and amend the income tax thresholds. https://www.newshub.co.nz/home/politics/2023/04/prime-minister-chris-hipkins-says-tax-thresholds-will-eventually-need-to-be-adjusted-but-not-now.html?fbclid=IwAR0qwbnevtHXL2aVrZZOJemVdoE0aLgAhSSu_295oAHg9O-pl-cDjBztFp4r
So this does leave the scene set for a policy announcement in the near future about a CGT/Wealth Tax/Levy or some other targeted legislation to tackle this issue. The public will have the opportunity to vote on this in mid October.
In other news, IRD have recently put out a fact Sheet and Interpretation statement on the application of the Bright Line provisions for when the Bank of Mum and Dad help fund their kids into a home. https://www.taxtechnical.ird.govt.nz/fact-sheets/2023/is-23-02-fs .
I will soon start sending out the annual questionaires for the year ended 31 March 2023 to those that need to complete them (i.e. Non Xero based clients who have Rental Properties, Overseas Income, those on Withholding Tax etc)
Please feel free to get in touch for a no obligation initial consultation
Until next time – stay safe out there.
Hayden.
