Business Tax Changes Passed into Law

For more information on these changes, contact our taxation team

Brad Phillips

Principal

03 211 3782

021 317 151

bradp(at)mdp.co.nz

Craig McCallum

Tax Advisor

03 928 5158

027 698 9511

craigm(at)mdp.co.nz

Kathryn Ball

Consultant

03 211 3774

027 454 8414

kathrynb(at)mdp.co.nz

Two tax Bills, discussed in earlier editions of Topical Taxes, have now been formally passed into law.Below is a summary of the important tax changes:

  • Amending Look-through Company (LTC) rules, including;
    • modification to the LTC eligibility requirementsfor companies owned by trusts.
    • disqualifying charities and Maori authorities from being shareholders in LTCs or from being beneficiaries of a Trust which is a shareholder of an LTC.
    • restricting the amount of foreign income an LTC can earn if the LTC is controlled by non-residents.
    • removing the deduction limitation rule in the majority of situations.
    • allowing LTCs to have more than one class of share.
  • Existing Qualifying Companies (QCs) will now lose their QC status upon a change in control of the company.
  • Capital gains derived by a company from the disposal of assets to associated persons will no longer be taxable on liquidation of the company in certain situations.These capital gains are what are known as “tainted” capital gains.
  • Companies can opt-out of deducting resident withholding tax (RWT) from a fully imputed dividend paid to another company.
  • Allow the backdating of fully imputed dividends to clear overdrawn shareholder current accounts.
  • Shareholders of close companies will now have the ability to pay themselves both a PAYE salary and a non-PAYE salary in the same tax year.
  • A change to the rules around NRWT for related party debt from 1 April 2017.
  • It is proposed that there will be no debt remission income when debt is forgiven in the following situations:
    • the debtor and creditor are members of the same wholly owned group of companies; or
    • the debtor is a company or partnership (including LTCs and limited partnerships), all of the debt is owed to shareholders or partners in the debtor, and the relevant debt is remitted or capitalised pro-rata to ownership.
  • Allow commonly owned companies (but not wholly owned companies) who offset losses to also transfer imputation credits to avoid potential double taxation.
  • Increase the threshold at which use of money interest (UOMI) applies for individuals from residual income tax of $50,000 to $60,000
  • Extend the threshold at which UOMI applies for non-individuals from $2,500 to $60,000
  • Change the date from which UOMI applies, from the first provisional tax instalment date to the third provisional tax instalment date for all taxpayers who use the uplift method (ie tax based on previous years’ level of income) for all but the final instalment of provisional tax
  • Allow contractors to elect their own withholding tax rate and extending withholding tax to labour-hire firms
  • Remove the monthly 1% late payment penalty on new GST, provisional tax, income tax and Working for Families debt
  • Remove the requirement to renew RWT exemption certificates annually
  • Increase the threshold for filing annual FBT returns from $500k to $1m of PAYE/ESCT
  • Allow Inland Revenue to share information about a company’s significant tax debts with the Companies Office.The Companies Office will receive better information to support prosecutions of people committing serious offences
  • Modify the 63 day rule on employee remuneration; and
  • Allow businesses to use an “Accounting Income Method” (AIM) to calculate their provisional tax through their accounting software.Small businesses will be able to use their accounting results to ensure their provisional tax payments more accurately match income as it is earned.This method is effective from the beginning of the 2019 income year.

Unless otherwise stated these changes will apply from the 2017-2018 income year.

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