McLEAN AND CO. Chartered Accountants

Accounting          Taxation         Business Advice and Development Assistance           Audits                             

 P.O. Box 10 , Clive         133 Main Rd, Clive           Tel. (06) 8700952          Fax. (06) 8700955 

Email murray@mcleanandco.co.nz                                  Website www.mcleanandco.co.nz

 
 
EMAIL NEWSLETTER  DECEMBER 2008
 
 

Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. We trust you find it informative.  

 

NEW CLIENTS

We are happy to accept new clients.  We would be happy to assist colleagues and acquaintances as new clients.

 

INDEX

  1. Personal Tax Cuts

  2. KiwiSaver Changes

  3. What causes Property Prices to Rise and Fall?

 

 

SEASONS COMPLIMENTS

Here's wishing you and your families a Happy Christmas and New Year, and a succesful one at that.  The office will be open between Christmas and the New Year and closed Jan 3-Jan 11 2009.

 

 

PERSONAL TAX CUTS

The government is introducing a three-year programme of personal tax cuts starting from 1 April 2009. These changes are in addition to the tax cuts that came into effect on 1 October 2008. The package has two key elements:

changes to personal income tax rates and thresholds; and

the introduction of an independent earner tax credit (IETC).

Changes to Personal Tax Rates and Thresholds

Reductions to personal tax rates and changes to personal tax thresholds will be phased in over three years starting on 1 April 2009. These changes will result in the following personal tax structures:

  From 1 April 2009 From 1 April 2010 From 1 April 2011
$0 $14,000 12.5% 12.5% 12.5%
$14,001 $48,000 21%    
$14,001 $50,000   21% 20%
$48,001 $70,000 33%    
$50,001 $70,000   33% 33%
$70,001 + 38% 37% 37%

The current tax rates and thresholds ,effective from 1 October 2008, are as follows:

Income to $14,000- 12.5%

$14,001-$40,000- 21%

$40,001-$70,000- 33%

$70,001 and over- 39%

Salary and wage earners will receive the tax cut through a reduction in the PAYE tax that their employers withhold on their regular pay. Self-employed and other non-salary and wage earners will receive the tax cut when they file a tax return or request a personal tax summary at the end of the tax year.

Consequential changes to other parts of the Tax System

To ensure that the changes to the personal tax rates and thresholds flow through the tax system correctly, other changes have been made to other parts of the tax system. These areas include fringe benefit tax rates, the employer superannuation contribution tax and extra pay thresholds.

There will be no immediate changes to the tax rate structure that applies to portfolio investment entities (PIEs) to reflect the new personal tax rate structure. The associated changes to the PIE tax rates will be considered after further consultation with the managed funds industry, and it is likely that any changes would apply from 1 April 2010.

Similarly, the necessary changes to the resident withholding tax (RWT) rates on interest will not be fully implemented until there has been further consultation with banks and other financial institutions. However, banks and other financial institutions will be able to apply a new optional 38% RWT rate from 1 April 2009. It is likely that changes to the RWT rate structure to fully implement the new personal tax rate structure will apply from 1 April 2010.

Independent earner tax credit (IETC)

The independent earner tax credit (IETC) will provide tax relief to middle-income New Zealanders who do not receive core assistance from the government.

The IETC will, from 1 April 2009, deliver $10 per week to individuals who earn between $24,000 and $44,000 and who do not receive a benefit, Working for Families tax credits or New Zealand superannuation. The IETC will be abated at 13 cents for every dollar of income earned over $44,000. The amount of the IETC will increase to $15 per week from 1 April 2010.

It is estimated that around 630,000 people will qualify for the tax credit in its first year.

Salary and wage earners can receive the IETC regularly in their pay packets by electing a new tax code with their employer. A separate tax code is required to distinguish those who are eligible for the IETC from those who are not.  IRD will provide information on how to do this closer to the 1 April 2009 start date. Self-employed and other non-salary and wage earners can receive the IETC when they file their tax return at the end of the tax year.

The IETC will only be available for New Zealand residents and will be pro-rated for part-year residents.

 

 

KIWISAVER CHANGES

KiwiSaver changes recently passed are:.

  • The minimum member contribution rate will reduce from 4% to 2%, and 2% will be the default contribution rate for new employee members from 1 April 2009.
  • The member fee subsidy (currently $40.00 per year) will be discontinued from 1 April 2009.
  • Compulsory employer contributions will be capped at 2% from 1 April 2009.
  • The employer tax credit will be discontinued from 1 April 2009.
  • The employer superannuation contribution tax exemption will be capped at the compulsory employer contribution of 2% from 1 April 2009. (That is equivalent to 2% of the employee's gross salary or wages.)
  • The KiwiSaver Act will be amended to make it clear that upon joining KiwiSaver, no employee can have their gross pay reduced as a result of employer contributions. This will ensure that when employees join KiwiSaver, the compulsory contributions from their employer are a genuine addition to their existing pay. The changes will also provide employers and employees with the ability to negotiate their own arrangements in good faith. The Employer Relations Act amendment relating to KiwiSaver will then be obsolete, and will be repealed from the date of assent of the Employment Relations Amendment Bill.
  • The KiwiSaver Act will also be amended to provide a limited exemption from compliance with securities and other related legislation for a limited period so that providers have time to update prospectuses and investment statements, for example.

Features of KiwiSaver that have been retained are the member tax credit of up to $20 a week, the $1000 kick-start, mortgage diversion, deposit subsidy and the first-home withdrawal provisions. .

Of importance in these changes from 1 April 2009 in respect to measures a number of clients have currently introduced relating to KiwiSaver:

  • the Tax Credit currently claimed on PAYE Schedules monthly as a refund of Employer Contributrions (partially or fully) will not continue
  • The maximum Employer Contribution that will be claimable as an expense and be exempt from Superannuation tax is 2% of the gross earnings for each period.  Employers can still continue to contribute at a higher level than 2%, but only 2% will be claimable for income tax and be exempt from superannuation tax.

 

 

WHAT CAUSES PROPERTY PRICES TO RISE AND FALL?

Property prices are driven by supply and demand.

If there are plenty of houses for sale but no strong demand for them from buyers, ( e.g every purchaser has a choice of four or five suitable homes available for sale), then there is nothing pushing up property values. However if for every house for sale there is a queue of 4 or 5 people ready to make an offer, this pushes up property values.

The demand for property is affected by the local economy, job growth, market sentiment and affordability. Supply is affected by developers and builders building new homes and sellers putting their properties on the market.

The state of the rental market also affects how the buying market works. When demand for rental properties exceeds supply and rents start to increase, this increased cost of renting makes purchasing a home a more attractive proposition and encourages people to look at this as an alternative.

The level of interest rates also has a huge impact on home prices, because the biggest expense of owning a home is generally the mortgage repayments. When interest rates rise and houses become less affordable, property values tend to drop., particularly in suburbs where young families live, as they are often the hardest hit by increasing mortgage payments.

At other times in the property cycle when interest rates drop, housing becomes more affordable and more buyers are out there looking for new homes, encouraging property values to increase. 

New home prices are also inflated by the increase in the cost of land. As land becomes built out, particularly in inner city areas, it becomes a lot more valuable. This is where supply and demand becomes an obvious driver for the real estate market because as land becomes more scarce, its value starts to increase dramatically.

 

 

  

 

 

 

 

 

 

 

 

McLEAN AND CO KNOWLEDGE CENTRE AND ARTICLES ABOUT TAXATION AND BUSINESS IN GENERAL PRESS HERE FOR BUSINESS STARTUP KNOWLEDGE CENTRE PRESS HERE
FOR INFORMATION ABOUT COMPANY INCORPORATION PRESS HERE FOR PREVIOUS MONTH EMAIL NEWSLETTERS PRESS HERE

FOR PROPERTY INVESTMENT AND TAX INFORMATION PRESS HERE

FOR FRANCHISE INVESTMENT AND TAX INFORMATION PRESS HERE


The information provided in this email newsletter is for informational purposes only.   McLean and Co. accept no responsibility for the opinions and information expressed in the information provided and it is provided "as is" without warranty of any kind.    The user assumes the entire risk as to the accuracy and use of this document.   Readers are asked to seek professional advice pertaining to their own circumstances.    The McLean and Co. email newsletter may be copied and distributed subject to the following conditions:
  • All text must be copied without modification and all pages must be included.
  • This document must not be distributed for profit.    

 

If we can assist further, please email McLean and Co as follows:

 CONTACT McLEAN AND CO. BY EMAIL BY CLICKING ON THIS LINK

BACK TO HOME PAGE