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The
Government
has already signalled that it will include some tax changes.
The Tax Working Group's report noted that the tax
system requires significant change:
• The aligning of tax
rates, especially between trusts, PIEs and individuals.
• The company tax rate needs to be competitive
with other countries, especially Australia. To fund a reduction of top tax rates
and align tax rates, the tax base needs to be broadened.
Given that the Tax Working Group did not
recommend a specific capital gains tax, and the Government is philosophically
opposed to such a tax, the choices are limited.
The Tax Working Group recommended the following:
• Increase
GST to 15 per cent (but with targeted transfer payments to those on low
incomes).
• Residential rental properties may be taxed on a "risk free return" basis
(that is, a tax on a notional return of, say, 6 per cent).
• Introduction of a low rate land tax – just like rates, but paid to
central government.
• Removal of depreciation on some or all buildings.
• Removal of the
20 per cent loading for new plant and equipment.
The increase in GST appears to be a given. I
believe there will be changes to depreciation of residential rental properties
as the Government and many commentators believe many investors in residential
rental properties are not bearing their fair share of the tax burden.
There may also be a limit on the rental losses that can be offset against other
income.
The unpalatable truth is that the Government has relatively few options to
choose from. Capital and skilled labour are relatively mobile and can leave for
greener, or at least lower taxed, pastures.
Source:
The Southland Times, New Zealand, dated 15/05/2010
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