Q2 Tax Update – By Abhishek Chatley

As promised the new Government has made few tax changes for 2018 to the current system, but if re-elected will have a mandate for what we expect will be large scale change to the tax infrastructure.   Here is the snapshot of recent changes:

Holiday Pay paid within 63 days

From 2017-2018 income tax years, employers can choose if they want to claim employment expenditure paid within 63 days after the end of income year.  Previously, the 63day rule was mandatory.

While claiming holiday paid reduces the tax bill, the cost to calculate the deduction is often relatively high and many smaller businesses struggle to do so.  Employers can now choose the simpler option of claiming holiday pay in the year that is paid.

Good news for the parents having babies in 2018

It is a government initiative to help children to have a “best start” in life:

  • Paid parental leave is extending from 18 weeks to maximum of 22 weeks for the babies expecting to born on or after 1 July 2018.
  • Best Start payments – New parents will get $60 per child per week (up to $3,120 per year) for 1 year no matter what their household income is.
  • After one year families with household income less than $79,000 will continue to receive $60 a week until the child turns 3. The upper threshold is $94,000 (for one child) when payment stops.

Parents will receive their Best Start payments once the paid parental finishes.

Parents can apply through smartstart website, when they register their baby’s birth.

Not so good news for property investors

The government continues to try to subdue the property market and has extended the existing Bright Line Rule introduced by the previous National government.

What is the bright-line rule?   In laymen language, if you sell a residential property (other than your family home) within the bright-line period, tax is payable on the capital gain.

A residential property bought between 1 October 2015 and 28 March 2018 has a 2-year bright-line rule. From 29 March 2018, the bright-line period has been extended to 5 years for properties purchased on or after that date.

Care, therefore, needs to be taken if you are considering a restructure of your affairs (for example, selling rental properties to another entity in your group) as you may unintentionally trigger the bright-line tax.

IRD has also proposed ring fencing losses for rental properties as a part of these tax changes for 2018.  If legislated that will mean that losses from rental properties will only be able to be claimed against rental property income.  If there is no rental income the rental property loss will need to be carried forward to a future tax year rather than offsetting against other business or employment income.

Ring fencing is still in the early discussion stages and may not receive Government consent.   We will update you on this once further information is available.

 

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