Shifts in personal tax rates mean that most New Zealanders will be affected by this years Budget, announced yesterday. 

However, some will be affected more than others.  And what about those in business and property investors?

The following are some of the key points from the government’s “all-about-tax” Budget 2010:

• There is a major shift to lower, and create more uniform income tax rates; and
• There is more indirect taxation.

Personal Income Tax

From 1 October 2010, Personal Income Tax Rates are as follows:

• Income up to $14,000 – from12.5 to 10.5%
• Income between $14,000 and $48,000 – from 21% to 17.5%
• Income between $48,000 and $70,000 – from 33% down to 30%
• Personal income over $70,000 from 38% to 33%

(To calculate the effect on you go to www.taxguide.govt.nz)

GST

Finance Minister Bill English stated that all personal income tax rate reductions are “sufficient to match the increase in GST.” 

As was clearly forecast, GST increases, 12.5 to 15%. 

(Statistics NZ have indicated that this increase will actually only result in a 2% increase in prices – which is less than CPI and inflation in each of past 6 years)
 
Company Tax

Your tax rate has been decreased from 30% to 28% from the start of the 2011/2012 tax year.  This change puts us ahead of Australia by nearly 3 years.

Property Investors?

The 33% tax rate for Trusts remains. 

The government has been very keen to target what they call “widespread avoidance,” where individuals utilise various different legal vehicles to benefit from lower tax rates.

The change comes with the gap between Trust and higher income decreasing.  It is intended that this uniformity will make those Trusts existing solely as tax planning vehicles, redundant.

Depreciation

The depreciation rate for some buildings will change. Where the life expectancy of the building is over 50 years the depreciation rate will be 0% from 1 October 2010. (Depreciation rates for buildings with a life expectancy of less than 50 years remains the same, and provisional rates will still be available).

The treatment of commercial building fit-outs will be reviewed following the Budget.

LAQC’s

At this point LAQC’s are untouched, but …

The government has indicated that legislation will follow a short period of consultation (for implementation April 2011) and that LAQC’s will be taxed as limited partnerships.  That is, both profits and losses will be assessed at the marginal rate of the investor.