Tax Working Group: TWG decisions at a glance

About the Author:

Robyn Walker

National Technical Director and Tax Specialist at Deloitte New Zealand
Robin is responsible for making sure Deloitte is up to date with all tax developments, preparing submissions and developing thought leadership in the area of tax.

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Recommend to pursue

Recommendations reached by the TWG:

The government Tax Working Group (TWG) has issued its interim report on tax reform. Chair, Sir Michael Cullen says “We have made some good progress in setting out the main choices and options – but there is still a great deal of work to do before we provide our Final Report in February.” 

Here, Deloitte’s Robyn Walker summarises the key messages of the report:

Retirement savings

• Modest tax savings for low income earners contributing to KiwiSaver and investing in Portfolio Investment Entities (PIEs)

Taxation of business

• Retain the 17.5% tax rate for Māori authorities and extend the tax rate to subsidiaries of Māori authorities

Administration of the tax system

• There should be more aggregated statistical information released about taxes

• Statistics should be collected about tax consequences of environmental concessions or taxes

• Establish a taxpayer advocate service to assist with tax disputes

• Add a purpose clause to the Tax Administration Act 1994

Integrity of the tax system

• Inland Revenue should get more powers to require shareholders to provide security to Inland Revenue; directors should become personally liable for arrears on employee deduction payments

Environmental and ecological outcomes

• There should be periodic reviews of the Emissions Trading Scheme to ensure it is fit for purpose

Recommend not to pursue

The TWG has ruled out pursuing some initiatives:

Capital and Wealth

• Wealth tax or land tax

GST and financial transaction taxes

• GST should remain largely unchanged and the TWG has ruled out a reduction in the rate, exemptions for certain products and changes to financial services

• The TWG has ruled out introducing a financial transactions tax

Personal taxes and the future of work

• No reduction in the top marginal tax rate of 33%

Taxation of business

Do not:

• lower the company tax rate

• introduce a progressive company tax rate

• introduce alternative methods of taxing smaller businesses

• change thresholds for depreciating fixed assets

Environmental and ecological outcomes

• Do not change the existing petroleum and mineral royalty regimes (last reviewed in 2012)

Further work required by TWG

The TWG will provide recommendations in their final report:

Capital and Wealth

• The Group is still forming its views on the best approach towards extending the taxation of capital income

• Work will be undertaken to understand the potential implications for assets held by Māori

Retirement savings

• To continue to consider the taxation of savings as a consequence of any conclusions reached about taxing capital income

Housing affordability

• Housing affordability is linked to the work on the taxation of capital

• To further consider 3 initiatives which may lead to additional housing supply

Administration of the tax system

• A review of the information and data collected by Inland Revenue

• Considering the merits of a truncated dispute resolution process for small disputes

Personal taxes and the future of work

• Recommendations about personal tax rates will be included in the final report

Taxation of business

• Consider measures to reduce compliance costs e.g. increasing thresholds for provisional tax, trading stock and deducting legal fees

Integrity of the tax system

• Further consider Departure Prohibition Orders on taxpayers with unpaid tax and aligning the standard of proof for GST and PAYE offences

Environmental and ecological outcomes

• Review existing tax concessions for agriculture which results in degrading natural capital and consider incentives for activities which generate environmental benefits

Further work required by others

Areas where the TWG believes the Government, other working groups or Inland Revenue continue undertaking work:

GST and financial transaction taxes

• International developments in relation to taxing financial services should be monitored

• There should be a review of whether contractors should be required to register for GST

• The Government should review the GST concessions offered to non for profit organisations

International income tax

• The Government should be ready to implement an equalisation tax if a critical mass of other countries move in that direction

Integrity of the tax system

• Undertake a review of loss trading and loss continuity rules

• Establish a centralised Crown debt collection agency

Corrective taxes

• Alcohol excise taxes should be reviewed and simplified; priority should be given to measures to stop smoking rather than more increases to the tobacco excise rate; and the Government should articulate its goals in relation to sugar consumption and gambling before taxes can be considered more

Personal taxes and the future of work

• The Government should look to align the definitions of employee and dependent contractor for tax and employment purposes

Environmental and ecological outcomes

• Government should consider removing FBT from employers subsidising public transport use by employees

Charities

• The Government should undertake a review of the tax treatment of the charitable sector

Robyn Walker 
National Technical Director - Tax 
Deloitte New Zealand
04 470 3500
www.deloitte.co.nz

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