TAX TIDBITS
Issue Twelve, September 2006
In this months issue:
Offshore Investment Tax Changes
Partnership Changes
Correcting GST Returns
OFFSHORE INVESTMENT TAX CHANGES
There has been plenty of recent media attention regarding the proposed taxation of unrealised capital gains on share investments held in offshore countries (except Australia). Initially the government was proposing that investors holding such interests will be taxed on 100% of dividends received plus 85% of the investment’s market value movement each year. Due to significant negative feedback the government has now submitted amendments whereby individuals would be taxed on a maximum of 5% of the value of their offshore shares in a given year.
Individual investors would be able to pay tax on a fair rate lower than 5 per cent if they can show that their offshore portfolio share investments made a return of less than 5 per cent. Where an individual investor’s shares make a negative return, no tax would be payable. The government is still proposing a $50,000 total cost threshold where an individual's investments would not be subject to the new rules.
The aim of the changes are to eliminate the tax advantages some investors have enjoyed for many years with a number of offshore investment vehicles paying no or very low dividends so that their investors avoid paying tax. The government also wishes to encourage greater diversification so investment decisions are driven by returns, not tax advantages.
The amendments are back before the Finance and Expenditure Select Committee and are due to be reported back later this year. Watch this space.
PARTNERSHIP CHANGES
In light of recent reviews of the tax system, the Government is planning to introduce new legislation modernising the rules regarding partnerships including introducing limited partnerships, which benefit from the associate tax rules.
A discussion document regarding this was introduced back in June which proposed introducing a new business vehicle, a limited partnership, which enjoys both separate legal entity status and partnership (flow-through) income tax treatment.
The Government has also stated that the future of the Loss Attributing Qualifying Company ('LAQC') rules is to be reviewed, however, until the final form of the legislation is released it is not known what this will encompass. There will need to be extensive consultation on the LAQC rules if changes are afoot and HWI believes that people considering using an LAQC for their affairs should not be discouraged in the short to medium term.
CORRECTING GST RETURNS
If you have made an error in an earlier GST return period, you can correct it by making an adjustment in the subsequent return, dependant on the amount of GST involved: -
$200 of GST per return when your annual turnover is up to $250,000; or
$500 of GST per return when your annual turnover is $250,000 or more
For errors above these thresholds then amended GST returns should be prepared and filed with the Inland Revenue Department.
Website of the Month:
www.worksite.govt.nz
A comprehensive government website which provides answers to employment related issues. It contains information for people who are currently employed, looking for a job ro currently employ staff.
Disclaimer Information contained within this document is of a general nature and does not constitute advice. Readers are cautioned not to act or reply on it without first seeking professional advice.
