16 Nov, 2020 | The Week in Tax
- What will be in Inland Revenue’s Briefing to Incoming Minister? The challenges ahead for the new Minister of Revenue.
- The small business cashflow scheme is extended
- Should people working from home pay higher taxes?
Transcript
Last week, David Parker was sworn in as the new Minister of Revenue. As part of his transition into his role, Inland Revenue will have prepared a Briefing to Incoming Minister, which introduces him to his portfolio, his role and the department. As the briefing to Stuart Nash in 2017 explained,
This document “sets the scene” to the work we do and how we can support you and outlines the strategic context of our work…As Minister of Revenue, you are accountable for the overall working of New Zealand’s tax system for Inland Revenue as a government department and for protecting the integrity of the tax system. You are also responsible for policy, direction and priorities and decisions on Inland Revenue overall budget.
We are here to help you support you, carry out your ministerial functions and servicing the aims and objects objectives you set. We do this by advising you on policy and strategy, implementing government policy and carrying out day to day functions of the department.
So that’s the top-level view setting out what the respective roles are. And then the document will run through what’s going on within the department and its key priorities. The 2017 briefing to Stuart Nash was rather internally focused, it talked extensively about Inland Revenue Business Transformation programme.
Three years on that’s now largely complete. Although those who listen to last week’s podcast will know that we there are some issues emerging there. So whether that is brought to the minister’s attention, we’ll know in due course when the briefing is released.
But certainly, I would expect other bodies, such as the Chartered Accountants of Australia and New Zealand who, as is traditional, are writing to the Minister of Revenue to say “Congratulations, here are a few things we think you need to look at”, I’m sure they will be raising that point with the new Minister.
Labour’s tax priorities
Now, the document will then talk about what is the immediate government’s priorities, as officials will have read Labour’s manifesto and seen what directions they need to take on tax. So the first cab off the rank will be raising the top tax rate from 33 to 39% on incomes over $180,000. Now, that will require a tax bill, but that’s a relatively straightforward matter and it’s planned to be pushed through before Christmas.
Now, the other policy objective outlined in Labour’s manifesto was work on a digital services tax. And so we can expect Inland Revenue to carry on doing more work on that. This is an interesting space around the world. It seems that governments are hoping that the OECD can come to a resolution on international taxation by mid-2021, but they’re enormously complicated tax issues to work through. And there’s politics involved. And although the United States gets singled out for its lack of cooperation on that matter, they’re not the only country which is raising objections to the OECD’s proposals
What is happening is that instead of waiting for the OECD, some countries such as the United Kingdom and India have jumped the gun and introduced a digital services tax. So that’s something that David Parker and Inland Revenue would consider. I don’t think, as I’ve said previously, they will move forward on it, but I suspect they will do a lot of policy work to have it ready. They could then implement it if they feel that nothing significant is going to happen with the OECD.
Other pressing matters
But there will be other matters that Inland Revenue and David Parker will need to look at. There’s a tax bill that was going through Parliament before the election. This is the Taxation (Annual Rates for 2021, Feasibility Expenditure and Remedial Matters) Bill. Now that bill will be reactivated and reintroduced into Parliament. The intention would be that it will complete its select committee processes and be enacted some time in March or April next year.
The bill includes an item which has picked up some attention relating to something called purchase price allocation. This is where parties to the sale and purchase of assets can allocate the sale price between them for tax purposes. Now, Inland Revenue has estimated that at the moment, differing allocations of prices between buyers and sellers could mean that the government is going to lose out on over $150 million dollars of revenue between 2021 and 2024.
What’s been happening is some sellers and buyers have been picking differing values for individual parts of the businesses and taking the most advantageous tax position. This means that the seller and the buyer can probably report very different values for the same items. Now, this has been going on for some time. Inland Revenue has been raising some concerns about it, and the bill is designed to try to tackle that.
There’s a report in Stuff written by Thomas Coughlan, which gives an example where the buyer and seller between them managed to reduce their tax bill by $7 million.
So that’s one of the matters on the agenda for the new minister. It’s worth pointing out that some of what goes on around that price purchase price allocation is driven by the fact we don’t have a capital gains tax.
And that’s going to be a growing issue for the government despite its declaration it’s not going to introduce a capital gains tax because having increased the top tax rate for individuals to 39%, there’s an 11 percentage point differential between the top rate for individuals and the company tax rate. That presents opportunities to try and convert income into capital. This is something Inland Revenue was already concerned about when the gap between the two rates was only five percentage points.
It’s a worldwide issue. I see that the UK Treasury’s Office of Tax Simplification has suggested to the UK government, that it should consider aligning capital gains tax rates more closely with income tax rates.
Currently, capital gains tax rates in the UK top out at 28%, but the top personal tax rate is 45% so you it’s quite a gap. So the Office of Tax Simplification is suggesting change to discourage taxpayers from trying to disguise income as capital. That’s something that’s always going on in our tax system where if you don’t tax capital gains, the temptation is for people who can to shift assets into the non-taxed category. So those pressures will be there all the time.
Another matter Inland Revenue and David Parker will want to look at is the question of the hidden economy. Last week, you may recall that I talked about the amount of tax being gathered from fraud and evasion was estimated to be about $160 million a year. That’s about only 15% of what we think is going on in the hidden economy. In other words, a billion dollars a year of tax is being evaded there, but only 15% is being picked up. So there’s more work to do there for the Department and the Minister.
And as we highlighted last week, the Department itself seems to have problems with its staff, with low morale. That, again, is something that needs to be addressed. So, David Parker and the new Parliamentary Under-secretary for Revenue, Dr Deborah Russell, will have plenty on their plates as they get into their role.
Doling out interest-free loans…
Moving on, this week, the Government announced changes to the Small Business Cash Flow scheme.
As promised, it has decided to extend the applications for the loan scheme from 31st of December this year, for a further three years, right through to 31 December 2023. The amounts that can be applied for will remain unchanged.
The other couple of changes are potentially a little bit more significant. Currently, no interest is charged if the loan is repaid within one year. That interest free period will be increased to two years. At the moment the loan can only be used for core operating costs They’re going to broaden this so the loan can be used, for example, on capital expenditure.
Now, all this is really welcome stuff, and it’s a precursor to a more permanent regime, which I would hope has higher lending limits, because as we’ve talked previously, a lot of small businesses are undercapitalised. There was that Inland Revenue report that suggested $10,000 dollars was the point above which taxpayers basically gave up trying to pay tax debt, which suggests that there are some very undercapitalised businesses.
… and then expecting banks to lend more to SMEs
More broadly speaking, the government needs to be putting pressure on the banks to lend more to smaller businesses. I understand that in reports filed with the Australian Stock Exchange about customer engagement and support for banks, small businesses are highly unfavourable in their commentary about the banks’ lending practises. So there’s opportunities in that space.
And the Business Finance Guarantee Scheme, which was intended to help in this space, didn’t actually take off to the degree it could. It was quickly overtaken by the lending on the Small Business Cash Flow scheme. Small businesses are very, very important to the whole economy and enabling them to secure steady finance is a matter for the broader economy, which needs to be addressed.
Taxing working from home
And finally, from the “Maybe not quite such a good idea, but you know what they’re trying to do” ideas box, Deutsche Bank researchers have called for what they call a 5% ‘privilege tax’ on people choosing to work from home. The money would be recycled through to low-income staff.
This is actually come out of a major report Deutsche Bank prepared on rebuilding after Covid-19. The idea behind the thinking is to compensate for the money that people working from home aren’t spending on lunch breaks. Therefore employees who choose to work from home should pay an extra tax.
The idea is that the tax that could be generated from this should be redistributed to low income workers who cannot carry out their jobs remotely, such as nurses, factory workers and in some cases, retail workers.
Now, the estimate is that a 5% tax could raise US$49 billion a year in the US, €20 billion Euros in Germany and £7 billion in the UK. The idea won’t go very far, but it’s an example the lateral thinking is starting to happen around the tax base. I think everything is being shaken up and so a decision that may have been taken years ago that these are the tax settings and we’re not going to change them has to be revisited in the wake of Covid-19 because that’s changed everything.
For example, I think the Government with the pressure of the housing market, might be reflecting on whether, in fact, it was such a good idea to say no capital gains tax for the future.
And on that note, that’s it for this week. Thank you for listening. I’m Terry Baucher and you can find this podcast on my Website www.baucher.tax or wherever you get your podcasts, please send me your feedback and tell your friends and clients until next week, Ka kite āno.
18 Aug, 2020 | The Week in Tax
- A refresher on the tax deduction rules for working from home;
- Inland Revenue guidance on the meaning of ‘minor’ for subdivisions; and
- Are New Zealand’s tax policy settings correct?
Transcript
The big news this week, obviously, is the reintroduction of the Level 3 lockdown restrictions in Auckland and Level 2 around the country in general. Under Level 3 the requirement is people must work from home where possible unless they’re an essential worker. So of course, this comes back to something we looked at in some detail several months ago, which is what is the position for employees claiming a deduction for home office expenditure?
Now, this turned out to be a matter of great interest to a lot of people, understandably. And Inland Revenue came to the party with the Determination EE002 Payments to employees for working from home costs during the Covid-19 pandemic.
Now, the Determination laid out the rules that apply where employers have either made or intend to make payments to employees to reimburse costs incurred by employees as a result of having to work from home during the pandemic.
And a reminder is that only the employer can claim a deduction for such expenditure, but they can reimburse employees for the costs and such payments would be exempt income for the employee. The Determination is not binding on employers who can work out their own allocations within the rules.
Now remember, the Determination also sets out the amount of allowances that Inland Revenue thought to be acceptable. Under the Determination an employer paying an allowance covering general expenditure to an employee working from home during the pandemic can treat up to $15 per week as exempt income. This applies in a pro-rata basis: $30 per fortnight or $65 per month. Anything above that threshold, the excess would be taxable income and subject to PAYE, unless the employer can show that the costs are higher.
Additional payments can be made for the cost of furniture and equipment. And these are to recognise the fact that an employee would have suffered a depreciation loss on furniture and equipment used in a home office. But because of the employee limitation rule they can’t claim a deduction. Instead, there’s a safe harbour option where the employer can pay up to $400 dollars to the employee and it would be treated as exempt income. Alternatively, the employer can reimburse employees for the actual cost of furniture and equipment purchased for use in a home office.
This is all great stuff with generally simple rules. The one caveat is this Determination was initially a temporary response, and it applied to payments made for the period from 17th of March to 17th of September. Now, 17th of September isn’t that far off. So I would hope we’d soon see Inland Revenue issuing an extension to this Determination if the lockdown is extended.
Regardless of that, this Determination is a useful set of rules for future lockdowns, if any, to cover the position for working from home. But just note the Determination is temporary and expires in just over five weeks’ time.
“Minor” development work
Moving on, as is well known New Zealand does not have a general capital gains tax, but – and it’s a very big but – there are a number of transactions which would normally be treated as capital gains that are taxed. And there’s a whole series of transactions in particular which relate to the taxation of land.
One of these provisions is Section CB 12 of the Income Tax Act 2007. Under that provision an amount a person receives from the disposal of land is taxable if the development or division work carried out as part of the sale is “not minor”.
This provision highlights one of the key problems of our current taxation of capital, which is that many of the provisions which would tax capital are very subjective in their approach. For example, the general provision in section CB 6 taxes the sale of land where the land was acquired with a purpose or intent of sale.
During last year’s debate over taxing capital gains, I was always frustrated to hear when people said capital gains taxes were complicated. There are definitely complexities in it, but at least the imposition of a general capital gains tax clarifies the position. We’re not then relying on matters of subjectivity as to intent or in this particular section CB 12 what is the meaning of the word “minor”.
Now, in this context, Inland Revenue has just released an Interpretation Statement, IS 20/08, which sets out when development work or division work is “minor”. This Interpretation Statement is an update and replaces a previous Interpretation Guideline, IG0010 “Work of a minor nature” which was issued in February 2005.
The main conclusions in the 2020 Interpretation Statement are unchanged from that previous Interpretation Guideline. But some parts have been updated for clarity and, extremely importantly, also identified safe harbour figures for absolute cost and relative cost to assist with compliance.
And this is a big, big step forward because the previous Interpretation Guideline wasn’t very specific as to what would represent work of a minor nature. Under that guideline, work of a minor nature was very relative and the cases, some of which went back to the 1970s before the massive inflation in property prices took off, involved what seem relatively small sums being deemed to be not of a minor nature.
So to just quickly recap the provision here. Section CB 12 deems an amount from the disposal of land to be income when the person carries on an undertaking or scheme (that doesn’t necessarily mean in the nature of a business), and this undertaking or scheme involves the development of the land or the division of the land into lots; the development of division work is carried on by the person or another person for them, this work is not minor, and the undertaking or scheme was begun within 10 years of the date on which the person acquired the land.
So the 10 year time limit is the often critical part of this provision. People are probably well aware of the bright-line test, which now applies for five years from the date of acquisition. However, people are less aware that these set of rules in section CB 12 have a ten-year clock on them. And by the way, just a reminder that the bright-line test in section CB 6A only applies if any other taxing provision doesn’t apply. Remember it’s a fallback provision.
So as I said, these these rules are complex. They provide plenty of work for tax advisors let’s put it like that. And the key takeaway I want to bring out today is about the safe harbour figures that have been introduced into this Interpretation Statement.
Now, under the case law relating to this provision, and there’s plenty of it, there are four factors that have to be considered when you’re trying to assess whether work is minor. Firstly, what is the total cost of the work done in both absolute and relative terms? What are the natures of the professional services used, the extent of the physical work undertaken and the significance of the changes to the physical nature and character of the land and so forth.
One sticking point in dealing with this section is around what amount of costs in absolute or relative times is minor? Because in recent years, compliance costs, particularly in relation to the Resource Management Act, have risen quite considerably. What this determination sets out is that the Commission of Inland Revenue will accept that costs of $50,000 or below will be regarded as low in absolute cost terms. And similarly, that relative costs of less than 5% of the value of the land at the start of the development are low in relative cost terms.
So these are now the safe harbours. They would be considered in conjunction with the other three factors I mentioned: the nature of services used, the nature of the extent physical work required, and the significance of the changes to the physical character and nature of the land. But right now, the good thing about this Interpretation Statement is we have some form of baseline. And that actually would clear up quite a lot of these issues I encounter straight away. People know above those thresholds they’ve got to think very hard that they’re looking at a potential tax bill, and they have to consider the tax consequences.
So this is a good move by Inland Revenue. It clarifies the position and sorts out quite a bit of the wheat from the chaff on this matter. Also it gives a realistic number to people who think that subdivision work is pretty easy, just take a slice off the excess land at the back of a house and there you go. It’s not as simple as that. And the fact that Inland Revenue considers $50,000 of costs to be relatively low in absolute terms should make people thinking of subdivisions as simple, quick and easy projects pause for thought.
But no doubt, as always, people will charge ahead and then they’ll come to advisors like myself looking to see, well, “where we go with this and what are the tax consequences?” I’m sure other advisors will say the same – that it’s remarkable the number of times people go a long way down a project before they start thinking about the tax implications of it. By which time, more often than not, it’s too late.
What’s the rush?
Moving on, as you might expect I was very interested to read John Cantin of KPMG’s piece asking whether or not we have our tax settings right.
There was a lot of good stuff to consider in John’s article, which I thoroughly recommend.
In particular I think the two considerations around which he framed his discussion were very important. Firstly, we have time. That is, we are likely to be cushioning the economic impact of Covid-19 for some time. And his second point was and Covid-19 relies on availability and how that might apply to tax policy. I thought those were two really salient points, which you have to keep in mind.
Clearly, we are going to be stuck with the consequences of this virus for quite some time. So rushing ahead into tax changes and other changes is not necessarily what we need to do at this stage. It’s perhaps a softly, softly approach as we work out where the changes can be made without damaging a recovery, and also what fits with the longer-term shape of the economy post the pandemic.
So his first conclusion is we don’t really need to charge in and make changes right away now. But you can expect that sooner or later the question of how we’re going to pay for all this debt the government has incurred will arise. And you can imagine how much more difficult those conversations are going to be in other countries which do not have the margin for lending that New Zealand currently does.
John’s commentary around tax policy was quite interesting as he noted tax policy has tended to be done on a “in time basis”. That is when a decision is made to proceed on topic that’s when the thinking about what is required is done. His view here is that we should think about investing in tax policy so we can consider different options sooner. That does increase the cost of running the tax system but means we’re better able to respond.
That said, and it needs repeating, Inland Revenue has responded extremely quickly to the demands of this pandemic. It would be very churlish to be critical of its response. But its responses have highlighted a thought I’ve had for some time – that we need to beef up the tax policy staffing and resources because we are going to have ongoing issues with this pandemic and we have to really think about them.
In addition and I raised it at the beginning of April, at some stage we are going to have to pay for this. So how is the tax system going to need to adapt to meet those demands? John’s article is really worthwhile with a lot of very interesting commentary in it. Well worth a read.
Reminder
Finally, talking about having to pay for the bill, just a quick reminder that the first instalment of Provisional tax for the year ended 31st March 2021 is due in two weeks time on 28th August. I imagine clients will be starting to get letters and reminders about this from their accountants.
Remember, one of the options we’ve talked about before is tax pooling. If you think you may be struggling to make those payments,get in front of your advisor and Inland Revenue straight away. Don’t leave it to the last minute because although Inland Revenue has a lot of discretion, one senses that sooner or later its patience may run out.
Well, that’s it for this week. I’m Terry Baucher and you can find this podcast on my www.baucher.tax or wherever you get your podcasts. Thank you for listening. Please send me your feedback and remember to tell your friends and clients. Until next week. Ka kite āno.
3 Sep, 2019 | The Week in Tax
What are the “Unknown unknowns” of tax? Our 3 stories from the week in tax
- The financial arrangements regime and Inheritance Tax
- Wage theft and missing PAYE and KiwiSaver contributions
- National’s tax policy – indexing thresholds, changes to the bright-line test and loss ring-fencing
Podcast transcript
In February 2002, in the run up to the invasion of Iraq, then U S Secretary of Defense, Donald Rumsfeld, commented;
“Reports that say that something has happened are always interesting to me because as we know there are known unknowns. There are things we know we know. We also know there are known unknowns. That is to say we know there are some things we do not know, but there are also unknown unknowns. The ones we don’t know, we don’t know and if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones.“
This quote was a core theme in my presentation last week to the Financial Advice New Zealand annual conference. The unknown unknowns are also a very difficult category in tax. And what are these unknown unknowns? The ones that trip up people because they didn’t know they were there.
Well in New Zealand the biggest culprit in this would be our financial arrangement rules. These rules have been around since 1986 and yet despite their very broad application, are largely unknown. I have come across CFOs who were completely unaware how they could apply.
Financial arrangements rules apply to just about any financial instrument you can think of. Mortgages, bank term deposit accounts, swaps, bonds, gilts in the UK phrase, all those all caught within it. It’s so broad it could apply to season tickets for public transport. And in one case I dealt with we thought that electricity contracts would be caught. Actually, we were debating whether in fact they were in the stock rules or in financial arrangement rules. Welcome to the arcane world of international tax.
But the financial arrangement rules are very broadly, largely unknown to individuals and they have particular bite in the foreign exchange field. That is where exchange rate movements such as is going on right now with Brexit which is back in the news again, so the Pound will move around.
Two groups of people get caught here. Obviously, investors who have bonds or term deposits denominated in an overseas currency, the value of the New Zealand dollar falls [that is more dollars are required to buy the offshore currency], they make an exchange gain and if the value rises, they have an exchange loss.
Then there are those with, for example, a rental property in the United Kingdom, and they have a mortgage there, it works the opposite way. The Pound may become weaker against the dollar so that in dollar terms, their mortgage diminishes, then that is income. Now on an unrealised basis for most people, this largely doesn’t matter, but very abrupt movements which add up to $40,000 on an unrealised basis will pull people into the foreign financial arrangements regime and they then will have to pay tax on unrealised gains.
The classic example I encountered was a client who had substantial property interests and mortgages in the UK. In year one there was an unrealised $300,000 foreign exchange gain, on the movement on the Sterling and had to cough up $100,000 in tax. The following year, it moved back the other way and she had a $300,000 loss but she never got that tax back. Even though there’s a wash up calculation when an arrangement matures or a mortgage rolls over and so of all the unders and overs are taken into account. But if you paid tax too soon in the piece, say you paid tax two years ago and then you find out that you actually never made any gain once everything is all closed out, you’ll never get the tax back. It’s one of the harsher parts of the financial arrangements regime.
The other trap is that the arrangements regime will apply to people who have total financial arrangements of $1 million or more and that is a gross amount. What I sometimes see is people may have $500,000 of term deposits and $500,000 of mortgages overseas mortgages and they think that after netting the two off, I’m below the threshold for the regime. Economically, your net worth comes out as nil. But financial arrangements regime takes them in aggregate so therefore the two are added together so the person actually has a million dollars in financial arrangements and is therefore within the accrual part of the regime. That person will be taxed on an unrealised basis.
The financial arrangements regime just the most common trap New Zealand advisors and clients fall into in my experience.
Following on from that, the other area that I’m seeing a lot more of is UK inheritance tax. Inheritance Tax is an estate and gift tax that applies to anyone domiciled in the UK or with assets in the UK.
Domicile, without getting in to too much detail, is a complicated concept, but basically, it’s where your permanent attachments are. I spoke in a previous podcast earlier about the unfortunate New Zealand woman whose Scottish partner died and because they weren’t married, she finished up paying £50,000 pounds inheritance tax on the transfer of his interest in the New Zealand property to her. So that’s not the first trap to watch for.
And I’m seeing more and more people caught by this, we have 300,000 Britons in the country. People like me, who’ve come from Britain, many more still have assets over in the UK. Maybe their children are going backwards and forwards to the UK and working there. And they’re all potentially all caught up in the inheritance tax regime.
A common thing that often gets overlooked is the implication of having assets in the UK or burial plots. Famously after Richard Burton died in 1984 the then HM Inspector of Taxes nailed his estate for inheritance tax on the basis that he had retained a burial plot in the village in Wales from which he came. So that was a very expensive burial plot as it turned out. I believe he actually is buried in Switzerland, but that’s how arcane the rules around inheritance tax are. It is the great unknown unknown. And as Donald Rumsfeld said, “These unknown unknowns tend to be the difficult ones.”
Earlier this week, Andrea Black who runs the excellent blog “Let’s Talk About Tax” went drinking with some young people. Actually, she was there to advise a group of hospitality workers who had been caught out as a result of Wagamama going into receivership. And the issue they were talking about is what’s called wage theft in the hospitality industry.
This is where the company, an employer, goes bust owing employees thousands of dollars in unpaid wages and salaries. There is often also a lot of unpaid pay as you earn floating around. There are several issues here. First and foremost, the employees have been left out of pocket and so they want to know what’s going on and when they can recover that. Then the tax man is very much often out of pocket. It often emerges that pay as you earn has been unpaid for several months an issue which I’ve seen this, and which Andrea talks about it as well.
You do wonder how quickly Inland Revenue reacts to this. Now I do hope that one of the things that will come out of Inland Revenue’s business transformation is much swifter responses to issues where pay as you earn falls into arears. My experience is Inland Revenue has let this go on for far too long. I’ve come across instances where there had been unpaid pay as you earn for going on for four years, which is just an absurd position. Someone there is either deliberately playing the system, in which case they should be hit with the full force of the law or is so hopelessly incompetent they should have been put out of their misery long ago.
Now the other thing that also comes into play for the employees is the unpaid employer KiwiSaver contribution and this adds up to quite a bit. Back in 2016 I spoke to Radio New Zealand about this matter.
At that time there was over $29 million dollars in outstanding KiwiSaver payments. In June 2015 1,663 employers had failed to pass on 15.3 million dollars in KiwiSaver payments deducted from employee’s salaries. Employees are missing out on this and on the employer contributions and it’s a real issue within the industry. Andrea asks whether the Small Business Council looked at this issue. We’ve delivered our report to the Minister and what I can say this matter did come into discussion during our deliberations.
One other thing on this. There is a tax bill just going through Parliament at the moment, the Taxation (KiwiSaver Student Loans and Remedial Matters) Bill.
It covers a number of matters. One is the question that we talked about previously about people with the incorrect prescribed investor rate. There’s also provisions making it easy for Inland Revenue to collect unpaid employer contributions in relation to KiwiSaver and ensuring employers pass on the employee contribution to Inland Revenue.
Hopefully employees will get the investment returns they’re missing out on because they haven’t been paid or the deductions and employer contributions haven’t yet hit their KiwiSaver account. By the way, submissions on that bill close on Monday so you’ve still got a chance to make a submission in support of that or raising other issues.
Finally, National have released their tax policy for next year. A number of things they are promising include tax cuts. Particularly they’re proposing something which I think is long overdue, and that is indexing tax thresholds. I think this is one of those quite sneaky tax increases that causes bracket creep and pushes people up into higher tax brackets gradually and it’s something which is effectively a tax increase by stealth. I think in the interest of transparency it’s a good move.
There’s a number of interesting other matters they want to deal with. That said, I’m not entirely sure if you are not a homeowner or rental investor and you’re trying to get into the investment property or to rent a property you’d appreciate what they’re proposing. They want to dial back the bright line test for residential property from five years to two years and remove loss ring fencing, which is a big break for tax investors.
That brought a fairly forthright denunciation from Jenée Tibshraeny. She also was less than impressed by the idea of removing the inflation component of interest. It’s an arcane point which has been talked about for some time which although it sounds arcane it is actually quite important.
Anyway, that will be the first shots fired in next year’s election about tax policy. All eyes will be on what the coalition will do in next year’s Budget. Given that tax thresholds haven’t been raised for more than 10 years by that time it’s hard to imagine that they wouldn’t try and do something, particularly when they’re running a surplus. I mean, cynical tax cutting budgets are not just the preserve of right wing governments. But we shall wait and see.
