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2012 Budget Highlights

We can't say they didn't warn us ...

The signs have been plain in the lead-up to the Budget: "Don't expect too much!"

The Minister of Finance, Bill English, has not veered from that script with the Budget he has delivered this afternoon: no surprises, no bold measures. Restraint, discipline and responsibility are the catch phrases of the day.

The tax-related highlights of the Budget were, for the most part, telegraphed well in advance. No signs of a surprise capital gains tax!

Tax initiatives

Inland Revenue receives an additional $78.4 million in funding to further improve its tax auditing and compliance functions.

Tax-base broadening measures include:

  • Tightening the rules around deductions for certain high-value, mixed-use assets such as holiday homes, boats, aircraft
  • changing the rules around herd-scheme elections for livestock valuation to prevent farmers receiving an unintended tax break, and
  • repealing three tax credits: the tax credit for income under $9,880, the childcare and housekeeper tax credit and the tax credit for the active income of children.

Mixed-use assets

The Government announced in its 2011 Budget that it planned to review the tax treatment of high-value, mixed-use assets. The family bach that is rented out for two weeks of the year received particular focus: how should the owners treat expenditure (including interest deductions) for that asset if it is earning income for only a short period each year?

The Budget announcement is short on detail. It states that the new rules "will require mixed-use asset owners to apportion their deductions based on the actual income earned and private use of the asset".

Repeal of tax credits

The provisions regarding two tax credits - the tax credit for income under $9,880 and the tax credit for childcare and housekeeper expenditure - are being repealed. Taxpayers will no longer be able to claim such credits, with effect from the 2012/13 tax year.

The tax credit for the active income of children is being replaced by a limited tax exemption. This exemption means that a school child will not need to declare untaxed income of less than $2,340. The exemption will not apply to salary or wages, or other income on which tax has already been paid.

Transitional rules apply.

Herd scheme elections for livestock valuations

The Budget 2012 announcement simply confirmed the Government's March announcement that elections to use the herd scheme are now irrevocable, except where there is a change of farming operation to a fattening regime.

The change applies from 18 August 2011 (the date the officials' issues paper Herd Scheme Elections was released). If any taxpayer has made any election to exit the herd scheme since 18 August 2011, the election will not be effective.

Transactions between associated parties are also affected. A purchaser associated with a vendor will be required to adopt the vendor's herd scheme elections and base herd numbers, with effect from 28 March 2012. If the transaction involves a "complete inter-generational change of ownership", the purchaser will be exempt from this requirement.

Student loan announcements

 The student loan voluntary repayment bonus will be removed from 1 April 2013.

  • The student loan repayment rate for all New Zealand-based borrowers earning over the repayment threshold will be increased to 12 cents in the dollar from 1 April 2013.
  • The definition of "income" for student loan repayment purposes will be broadened to include a wider range of income types from 1 April 2014.
  • An information match between Inland Revenue and the New Zealand Customs Service to identify student loan borrowers in serious default will be implemented.

Kiwisaver changes

New disclosure rules which take effect from April 2013 will allow participants to evaluate and compare the performance of different funds. Fund managers will be required to disclose all fees and costs as well as performance, returns, assets and portfolio holdings.

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