TAX TIDBITS
Issue Seventeen, March 2007


In this months issue:

Law Changes to Relax Tax Penalties
Offshore Portfolio Investment Changes
Other Tax Snippets


 

LAW CHANGES TO RELAX TAX PENALTIES

Earlier this month the Government announced plans to introduce legislation in May which will relax a whole range of tax penalties and update associated legislation to encourage voluntary compliance. The rationale for the changes is to have tax penalties that better reflect the seriousness of the offence as people comply with the law more willingly when they see it as reasonable. The current system of penalties does not always distinguish between people who try to do the right thing but fail, and people who have little regard for the law.

One of the main changes to be introduced will reduce the number of penalties faced by people who have a tax shortfall if they tell Inland Revenue about it before being advised that they are to be audited. In that case, penalties will not be imposed on them for not having taken reasonable care or for having adopted an unacceptable tax position. That change will apply from the date of introduction of the bill.

Another notable change planned is that first-time late payers will not automatically attract a penalty - instead they will be notified by Inland Revenue that they are late with their payment and be given time to pay the amount owing before a penalty is imposed. In a similar vein, the shortfall penalty for underpayments of PAYE will be graduated for employers who file an employer monthly schedule on time but do not pay the associated PAYE.

 

 

OFFSHORE PORTFOLIO INVESTMENT CHANGES

There has been plenty of media coverage regarding recent Government changes to rules which impact on shares held in foreign companies and units held in unit trusts but why the fuss?

 

Currently t here are a number of issues with existing tax rules for offshore portfolio investment in shares. Currently, individuals who invest directly in a company which resides in a “grey list” ( Australia , U.S, U.K, Japan , Norway , Canada and Germany ) country generally pay tax only on dividends received. However, if they invest in a “grey list” country via a New Zealand managed fund they are typically taxed on any realised capital gains on these investments. The new rules will resolve the problem by requiring a reasonable level of tax to be paid by direct investors who have substantial share portfolios outside Australia .

 

Some key points: -

  • These new rules apply from 1 April 2007.
  • Individual direct investors whose aggregate cost of all non-excluded investments is $50,000 or less are excluded from these rules.
  • Investments in Australian resident countries who are registered on an approvided index (e.g. ASX) and keep a franking credit account are excluded from these rules.

 

These changes are complex and we suggest you consult your advisor to see how these changes may effect your overseas investments.  

OTHER TAX SNIPPETS

  • The student loan interest rate for the year commencing 1 April 2007 has been reduced from 6.9% to 6.8%.
  • New Zealand has signed a tax information exchange agreement with the Netherlands Antilles (a small Caribbean offshore finance centre). This will improve transparency and allow better access to information on criminal and civil tax matters.
  • The Government has extended the deadline for public submissions on suggested reform of the taxation of life insurance to 2 May.

What's new at HWI:

The founder and editor of both the Tax Tidbits and Better Business e-newsletters, Kane Laurence, is heading on an "OE" with his last day at HWI being Thursday April 5th.  I have enjoyed preparing these publications and know that HWI is looking forward to bringing you a continuation of these in the future.

 

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.





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