Business and Tax Updates September 2023: IBBZ Accounting

Summary:

Next month is election year, by mid-October a newly elected govt will take charge. In this issue we will try to cover the tax policies of different parties for small business owners. We want to express our sincere gratitude for entrusting IBBZ Accounting with your financial needs. It is our privilege to collaborate with you, offering personalized accounting solutions that drive your business forward. Without further ado, let us delve into the highlights of september newsletter.

Proposed Tax Policies by different parties in the upcoming election.
National Party
(source national.org.nz)

• Top tax bracket of 39% on over $180k and above remains unchanged. Tiered tax structure brackets are aligned to inflation. The change would mean the 10.5 per cent tax rate would apply to the first $15,600 of income, not $14,000 as it is currently. The 17.5 per cent rate would extend to $53,500 rather than $48,000. And rather than the 33 per cent tax rate starting at $70,000, it would increase to $78,100.

• Rental property tax changes. Fully restore interest deductibility for rental properties. This change will be phased in the following stages:

  • Interest deductibility will to be kept at 50% in April 2024 (rather than reduced to 25%)

  • Interest deductibility will be increased to 75% in April 2025 (rather than fully removed)

  • 100% interest deductibility will be fully restored from April 2026.

  • Remove Labour’s capital gains tax by stealth, by taking the bright-line test for rental properties back to two years, from  existing 10 years by July 2024  This means properties acquired before July 2022 will not be subject to the bright-line test at sale

• Current Ute tax will be abolished.

• Keep the foreign buyer ban for all homes worth less than $2 million.

• Introduce a 15% foreign buyer tax for purchases of homes of $2 million or more by people who do not hold a resident class visa in New Zealand

• Ending depreciation on commercial building. This current change was introduced as a response to covid-19 and then make the change permanent. National will remove this tax break.

• Restore IETC (Independent Earners Tax Credit) $10 a week up to $520 a year. The lower limit of eligibility will be $24,000 and upper limit of eligibility will be extended to $70,000 with abatement starting from $66,000.

• From 01 April 2024 new GST rules will be applied to marketplace and ride share companies such as Air BNB, the national has promised to abolish the introduction of GST on electronic marketplace.

Labour Party
(source labour.org.nz)

• Removal of GST on fresh fruits and vegetables. Labour has announced the next steps in our Cost-of-Living Plan – we will take GST off fruit and vegetables from 1 April next year, saving families around $20 a month.

• No change to income tax rates and rental investments existing tax laws.

• No introduction of comprehensive capital gain tax.

• Overall, not a major change from status quo

Act Party
(Source act.org.nz)

• Act will abolish bright line tax in full. ACT would abolish not just the Government’s increases to the test, but the test itself.

• Repeal the denial of interest deductibility on rental properties.

• ACT would take New Zealand from five tax rates on income down to three over the next few years.

• In order to ensure that every earner would receive a tax cut, ACT would also create a new Low and Middle Income Tax Offset (LMITO), starting in fiscal year 2022/23. This tax offset would be worth $800 per annum for all earners earning between $12,000 and $48,000. It would gradually grow at a rate of 8% from $0 per year for taxpayers earning $2,000 to the full $800 for taxpayers earning $12,000. At incomes above $48,000, the offset would abate at a rate of 8%, reaching $0 at an income of $58,000.

Green Party
(Source green.org.nz)

• First $10,000 income tax free bracket.

• Introduce wealth tax 2.5% tax on net wealth above $2m.

• 5 weeks of annual leave introduction.

• Support comprehensive capital gain tax.

Business Updates 

1. OCR update will be announced on 04 October 2023, we will look into policy documents and will provide the update.

2. In general, it seems lot of things are on hold pending election outcome next month. 
   
   

Tax Updates 

Is a forfeited land deposit income for the seller?

When parties enter into agreement for the sale of land, the buyer will often need to pay a deposit to guarantee performance. This is especially important in land sale agreements where there is often a delay between the date entered into the agreement and the settlement date. A deposit is typically 10% of the purchase price.
If the sale is to fall through due to the buyer defaulting, then the seller is allowed to retain the deposit. In this case, the seller must consider whether this forfeited deposit will be taxable.

Taxable income or not?

IRD have received a question regarding whether a forfeited land deposit will constitute as an income for the seller.
IRD have stated a forfeited deposit from a cancelled land transaction will count as an income if the following situations apply:

• The forfeited deposit is business income if the sale of land that is subject to the cancelled agreement was part of the current operations of the business or an ordinary incident of the business.

• A forfeited deposit is income from a profit-making scheme if the seller is carrying on a profit-making scheme which involves the sale of the land.

• A forfeited deposit is income under ordinary concepts if it has the character of income. The character of income is present if the proceeds of the sale would have been taxable under the land sales rules had the sale gone ahead.

A forfeited deposit is not income to the seller under the land sale rules because there is no ‘disposal’ of land if the agreement is cancelled, and settlement and registration do not take place.