28%

[peat]

So we're beating the Aussies to the company tax rate of 28%

Why hasnt the market responded a bit more....thats a straight out unanticipated benefit to investors and their dividends , surely!

[trackers]

I agree Peat, really good initiative by the govt and I'm surprised there hasn't been more coverage... People too worried about whether they'll get $15 or $20 a week back after tax cuts / GST increases...

[peat]

so lets make this the Budget thread.... kind of surprised no one else started one

re the building deprecation and the 50 year rule.... so does this mean if you expect your building to be dead in less than 50 years you can still claim??
coz I reckon a lot of apartment buildings wont last 50 years.

[trackers]

so lets make this the Budget thread.... kind of surprised no one else started one

re the building deprecation and the 50 year rule.... so does this mean if you expect your building to be dead in less than 50 years you can still claim??
coz I reckon a lot of apartment buildings wont last 50 years.

Yeah that certainly is interesting... There must be more caveats than that, surely? In general, I think claiming depreciation on appreciating (generally) land is crazy stuff.. So, overall sounds good to me.

Will be interesting to see how difficult it is for govt to enforce including tax shelters like LAQC's and Trusts in calculating WFF (and other) benefits...

Back to the company tax rate, given the shambles state of politics in Aus (read, resource rent tax) NZX is starting to look pretty attractive again for commodities/miners! If you believe that NZD will rise against AUD in the coming months, then this is further so!l Might cast my eye over a few small caps sometime soon.

[peat]

yes there was an article about Aussie getting hammered due to the RSPT
http://www.businessspectator.com.au/bs.nsf/Article/Australian-dollar-mining-tax-Bear-sharemarket-euro-pd20100520-5LT5P?OpenDocument&src=kgb

depreciation has never been claimable on land.

[darksentinel]

I think the other important aspect of the budget is that with more cash in hand, retail investors will hopefully be drawn to saving/investing some of it, particularly since savings income (as well as rent/mortgage payments) are largely unaffected by the GST hike. Perhaps the increase cost of spending money will also induce people to spend less and save more, with generally positive influences on the country overall and potentially the sharemarket (hopefully coupled with a move away from property towards other forms of investment).

[whatsup]

Yeah that certainly is interesting... There must be more caveats than that, surely? In general, I think claiming depreciation on appreciating (generally) land is crazy stuff.. So, overall sounds good to me.

Will be interesting to see how difficult it is for govt to enforce including tax shelters like LAQC's and Trusts in calculating WFF (and other) benefits...

Back to the company tax rate, given the shambles state of politics in Aus (read, resource rent tax) NZX is starting to look pretty attractive again for commodities/miners! If you believe that NZD will rise against AUD in the coming months, then this is further so!l Might cast my eye over a few small caps sometime soon.

Yeh, Name me a Aussie co that would relocate to N Z just to take advantage of the 28% tax rate?

[darksentinel]

Yeh, Name me a Aussie co that would relocate to N Z just to take advantage of the 28% tax rate?

Perhaps it's more about causing companies currently considering relocating across the ditch to reconsider.

[fungus pudding]

yes there was an article about Aussie getting hammered due to the RSPT
http://www.businessspectator.com.au/bs.nsf/Article/Australian-dollar-mining-tax-Bear-sharemarket-euro-pd20100520-5LT5P?OpenDocument&src=kgb

depreciation has never been claimable on land.

Quite so, and it's strange that English claims buildingd don't depreciate. They sure as hell do - rapidly. We certainly won't see any capital works on rental stuff.

[peat]

Perhaps it's more about causing companies currently considering relocating across the ditch to reconsider.
exactly , with FBU being one of the more likely candidates and we wouldnt want to lose our No1

[peat]

the thing is too that depreciation on buildings was only an interest free loan anyway (if the building did in fact appreciate and was sold at a profit)

[fungus pudding]

the thing is too that depreciation on buildings was only an interest free loan anyway (if the building did in fact appreciate and was sold at a profit)

It was deferred tax, and assessed only on the amount recovered. Profit was irrelevant. Anyway they ALWAYS depreciate. Any gain was nominal.

[Arbitrage]

I noticed that repairs and fittings are still deductible expenses. My feeling is that this will become the focus for tax savings rather than capital depreciation. There has always been a grey area between fittings and capital improvements, and this new position of not allowing depreciation will shift a lot of stuff to the tax deductible fittings column.

[beacon]

depreciation on buildings was only an interest free loan anyway (if the building did in fact appreciate and was sold at a profit)

It was a cashflow easing tool that allowed investors to keep rents competitive. Rents should rise if this sector is ever to be on commercially sound footing and viable, as a consequence ...
Sanity has thankfully prevailed. This is a fairer budget than anticipated and mildly positive for property long term. There shouldn't be an avalanche of mortgagee sales that some commentators are predicting...

[fungus pudding]

I noticed that repairs and fittings are still deductible expenses. My feeling is that this will become the focus for tax savings rather than capital depreciation. There has always been a grey area between fittings and capital improvements, and this new position of not allowing depreciation will shift a lot of stuff to the tax deductible fittings column.

It's hard to see a grey area between fittings and capital improvements. The grey area has been defining what amounts to repairs and maintenance, as opposed to capital expenditure.

[moimoi]

it seems that chattels valuations, which were the main component of residential property depreciation, will continue to be valid.?

Cutting of personal tax rates all good and pretty impressive when you consider what is likely to happy in UK and USA.

[belgarion]

Don't forget that the 28%b applies to PIEs as well. That encourages saving and investment for many at the 33% rate.

[troyvdh]

No ring fencing of losses...bit of a surprise....Ive owned rentals for 30 yrs.....happy it aint been changed.....in a funny sort of way have always thought that those who did "reduce" their income to claim WFF were being a bit sly.....

[Arbitrage]

Can anyone explain what is the budgets effect on LAQC's?

[darksentinel]

Can anyone explain what is the budgets effect on LAQC's?

They will be treated as limited partnerships. http://business.scoop.co.nz/2010/05/20/govt-closes-loophole-and-aligns-laqc-tax-rates/

[trackers]

Yeh, Name me a Aussie co that would relocate to N Z just to take advantage of the 28% tax rate?

None? Thats why I never suggested that. I'm suggesting that foreign investment into NZ companies looks comparatively more attractive than in the past

[upside_umop]

Can anyone explain what is the budgets effect on LAQC's?

Basically, it will benefit you, relative to before budget if:

-Your income is less than $70k: Your profits are now taxed at your marginal tax rate. For upto $48k this is now 17.5% or if you earn $48k-$70k, then your profit is taxed at 30%. Your losses are still offset the same as before (personal marginal tax rates) albeit with new tax rates. You will be the same as before if you are in that $48k-$70k bracket as marginal tax rate before was 30% for companies which is equal to the new personal tax rate for the bracket of 30%. However, if your lower than $48k...the benefits for profit are much better. 30%-17.5%=12.5% less tax on your profit.

But will be detrimental to you, relative to before the budget if:

-Your income is greater than $70k: Your profits are now taxed at your marginal tax rate of 33% (as opposed to before at 30%) but your losses are still offset the same as before (personal marginal tax rates) albeit with new tax rates.

To me, this only encourages more people on lower incomes (below $70k) to buy rentals* as they are either the same, or better off relative to before. Higher tax bracket people will be even more incentivised to run at a loss or cashflow neutral, as their tax on profit through the LAQC is now higher.

*Rentals will be subject to changes in depreciation rules, however. Therefore, the net effect will probably be downwards. :)

[CJ]

Can anyone explain what is the budgets effect on LAQC's?I have just heard that loss offsets from LAQC's will be limited to the amount of equity in the company. Apparently this is in the detail of the Bill.

I haven't confirmed this but it is bad if it is true!!!

Edit: have found the detail. There is a proposed lose limatation rules similar to limited partnerships. Losses limited to equity. Not sure how personal guarantees will effect 'equity'.

www.taxpolicy.ird.govt.nz/sites/default/files/2010-ip-budget2010-laqcs.pdf


A shareholder of a qualifying company will only be able to offset allocated
losses to the extent of their investment in the company. To measure a
shareholder’s level of investment in the company, officials propose to adopt
a qualifying company membership basis similar to the “partner’s basis” in
section HG 11 which applies for limited partners. This would include the
share of any debt guaranteed by the shareholder.

[peat]

shareholders of a qualifying company need to declare their % allocation for tax liability purposes already so wouldnt it just be the same as that?

[elZorro]

I certainly like the look of the 28% company tax. There's an incentive to keep equity inside the business high, which should free up investment capital. In theory, an established business will earn superior income with more investment, however it will in turn pay more GST on its newfound added value.

It's a very clever tax, GST. If you turn $10 of material into $100 of sales, but it costs you $120 in wages (exclude overheads for now) to make the changes to the materials, you still have to pay 15% GST on $90 added value, and you can't claim back anything on the wages component towards GST. GST is fine if you don't have a big labour content in your outputs, or if you have a good margin in there.

[shasta]

I certainly like the look of the 28% company tax. There's an incentive to keep equity inside the business high, which should free up investment capital. In theory, an established business will earn superior income with more investment, however it will in turn pay more GST on its newfound added value.

It's a very clever tax, GST. If you turn $10 of material into $100 of sales, but it costs you $120 in wages (exclude overheads for now) to make the changes to the materials, you still have to pay 15% GST on $90 added value, and you can't claim back anything on the wages component towards GST. GST is fine if you don't have a big labour content in your outputs, or if you have a good margin in there.

Wonder if down the line the Govt will further reduce the company tax say to 20% & have employers pay there employees say 5% super?

By reducing the company tax rate (below Australia) makes our companies a little more competitive, & we need to bring in some kind of super, cos in 15 - 20 years there won't be any!

Overall i thought the budget was very business friendly & on the right track

[whatsup]

Quite so, and it's strange that English claims buildingd don't depreciate. They sure as hell do - rapidly. We certainly won't see any capital works on rental stuff.

F p, cause there will be, Cap work will from now be labled as R & M and will be claimed at the rate of 100% in that year instead of dep at the rate of 3-4% nuts if you ask me.

[fungus pudding]

F p, cause there will be Cap work will from now be labled as R& M and will l be claimed at the rate of 100% in that year instead of dep at the rate of 3-4% nuts if you ask me.

Except to claim capital expenditure as R and M is very very naughty, and it's something the IRD do check on. (Believe me - I know) And certainly will do for this next year or so. They now have an increased budget to catch this sort of thing and traders who pretend they're investors.

[elZorro]

FP: I think work on a building below $500 is not treated as an asset. Whatsup could do any repairs in smaller blocks?

John Key was on TV1 this morning, and they are expecting companies to hold onto more of their equity, instead of directors paying themselves large salaries, which would be taxed at a higher rate. This is all assuming that the business environment continues to improve over here.

One sign that all that might come to pass, is in the hoped-for milk payout next year. Most farms are run as companies.

http://tvnz.co.nz/business-news/fonterra-payout-tipped-soar-3544335


An $8 payout in 2010-2011 would be huge, there would be a lot of smiling faces in the provinces, and that would filter through everywhere.

[POSSUM THE CAT]

Shasta If that is a business friendly budget in your opinion I would hate to see a an unfriendly one only 5% of your customers got anything extra to buy your product 30% probally got less money to spend on your product after the GST increase and the GREEN TAX LEVY Starting on JULY ONE I might just break even and you say it is business Friendly It is no use having a tax reduction if you have a lot less profits to pay tax on.

[peat]

according to Gaynor :
No other Western country, with the possible exception of tax-free havens, has a more favourable environment for investors yet very little of our capital is invested in domestic productive enterprises.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10646653&pnum=0

[elZorro]

Thanks Peat - Brian Gaynor's articles are always worth reading. Some of those very high tax figures I'd forgotten about, or they didn't impact me at the time. Imagine the scrambling going on to evade those. I did have to pay over 20% interest on a house mortgage though. So I now think 7-8% is low.

There has probably never been a better time to start a manufacturing business over here. Importing raw materials is cheap and easy, there are many good industrial tools to chop out some labour, the web helps enormously with contacts and marketing, and most manufacturing of first samples is lower cost than ever before. But niche, techy products are still required, mass volume products will attract overseas interest very quickly, or will end up being made overseas, cutting out employment options.

A classic firm locally is Endace, very high-tech routing/monitoring equipment that spun out of university research, but had to list on the London Stock Exchange to get the funding it needed. The NZ market would not have been responsive enough. Look at OGC, listed here, on the ASX and the TSX. Yet it's a perfectly solid business, not that big that NZ couldn't have had the only listing in theory.