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The Budget's surprising cut to company tax rates has been welcomed by businesses in New Zealand says ONE News Business Reporter Nadine Chalmers-Ross.
Only a few weeks ago when the Australian Treasurer Wayne Swan was delivering his budget, the fear was that our trans-Tasman neighbours would undercut our company tax rate of 30% and thus lure more Kiwi businesses offshore.
As it happened, their planned cut was less aggressive than feared and will see their company rate come down to 28% by mid 2014.
Yesterday's announcement by Finance Minister Bill English that New Zealand's company tax rate will be cut to 28% two years earlier than that came as a surprise.
Business New Zealand's chief executive, Phil O'Reilly says it will help to boost the country's competitiveness.
Remember however that many small businesses are not registered as companies and thus pay the applicable personal tax rate. Therefore the top personal tax rate coming down from 38 to 33% is positive news for them.
A partner at KPMG Paul Dunne says the move to cut the company tax rate so quickly "releases a pressure value" for businesses, which now don't need to be concerned about trying to position themselves to take advantage of better tax rates in other jurisdictions.
He says moving the tax structure towards higher Goods and Services tax and personal and company tax levels that are less harmful for economic growth is a change for the better and in line with international trends.
At the same time, the tax treatment of Loss Attributing Qualifying Companies, or LAQCs, will change.
Currently losses of an LAQC can be used to offset personal income and bring down personal tax rates, whereas the LAQC's profits are taxed at the company tax rate.
The changes will require both profits and losses to be added or subtracted from personal income and taxed at the applicable personal income tax rate.
The intention is to stop top-income earners from using LAQCs as tax shelters.
At the same time KPMG warns businesses should be aware that the IRD received a funding boost from the government and can be expected to more aggressively pursue those not paying the right amount of tax.
