ACCOUNTING 4 PROFIT LIMITED
NEWSLETTER - MAY 2008
Edition Number 3.
Well, the big news is Dr Cullen's Budget 08 - being labelled the 'block of cheese budget'. Why? Simply because someone on the average wage of about $47K will be getting an extra $16-00 per week - the current cost of a family size block of cheese.
What does this budget mean? What has he given us?
The tax cuts proposed are to be phased in over 3 years, with the first taking effect on 1 October 2008, then 1 April 2010 and finally 1 April 2011. Based on current polling it would seem that we will have a new government by the end of the year. This means that all the proposed tax changes happening after 1 October are purely academic and possibly will not happen in the form proposed in this budget.
So, our discussion must focus only on these 1 October changes.
Current personal tax rates:
Income: Rate: Or:
0-9,500 15% } 19.5% with a sliding
9,501-38,000 21% } rebate for income <38,000
38,001 -60,000 33%
>60,000 39%
From 1 October:
Income: Rate:
0-14,000 12.5%
14,001 - 40,000 21%
40,001 - 70,000 33%
>70,000 39%
Let's look at an example (assuming a full year at new rates):
Taxable income $62,000.
Annual tax payment at current rates = $15,540
Annual tax payment at new rates = $14,470
An annual saving of = $ 1,070 or $20.57 per week.
However, as this is only coming in on 1 October, you can halve this for the March 2009 (current) tax year. Does this mean that you are better off financially (in real terms) after 1 October than you were on 1 October last year?
Some of the other changes announced (see later) were part of the ongoing effort of the government to reduce compliance costs!!
What about the 1 October tax rate changes? IRD now have to re-calculate all their PAYE tables and reprint the tables they supply to employers. Electronic Payroll packages have to be re-written and new copies provided to users with new installations - all carrying a cost which has to be paid for - by the end user!
With the majority of small companies, shareholders' salaries are calculated at year end - with a change in tax rates do we have to assume that the salaries were paid at the same rate throughout the year? (There would be no problem if the tax rate throughout the year remained unchanged). If we make an assumption that the shareholders received an increase in salary after 1 October will IRD consider this as tax avoidance, as less tax will be paid on the second half year higher salary?
We will have to wait and see what happens as these things are tested,
A summary of the other tax changes is as follows:
1. PAYE needs to be filed once a month if annual PAYE deductions are <$250,000 per annum (was <$100,000);
2. FBT can be filed annually if annual PAYE deductions are <$250,000 per annum (was <$100,000);
3. FBT can be filed annually for small companies where the only fringe benefits provided are no more than 2 vehicles provided to shareholder employees;
4. GST registration compulsory when gross turnover reaches $50,000 (was $40,000);
5. You can choose to file GST returns on a 6 monthly basis if taxable supplies are <$500,000 (was $250,000);
6. Individual taxpayers with residual tax of >$35,000 would be subject to Use of Money Interest if provisional tax was short paid - this has increased to >$50,000.
Finally, the Company tax rate decreased from 33% to 30% on 1 April 2008. This means that individuals earning in excess of $38,000 (or $40,000 after 1 October) are paying tax at a higher rate than companies - there are issues here for Shareholder employees. We will assist all clients falling into this category in achieving the best tax position under current legislation!
Please talk to us if you have any concerns with regard to these tax changes.