JACAL NEWS

WINTER 2020

Tax changes in recent years, at least as they have affected the typical SME and SME owners have been largely tinkering, except perhaps in respect of tightening up on rules aimed at property speculation (but which unfortunately go somewhat further than mere property speculation). Now is the time when we need to be incentivising and assisting those in our communities who have ideas, skills, and the willingness to take calculated business risks.

These are the people that we want to encourage to start a business or expand or improve their existing one: to employ that extra person, start a new product line, enter a new market, invest in new technology, undertake some research and development, and ultimately grow our cake – increase the wealth of this country.

Tax has a role in helping grow a bigger cake, so below are some thoughts;

1. Re-indexation of the tax thresholds in terms of the income figures at which tax rates start to apply, at least based on CPI or average income movements. This hasn’t been done since October 2010 – ten years ago! Backdate to 1 April 2020
2. Big increase in small asset write-off deductions, and simplify the rules around how these apply. The $1,000 threshold which will apply once the current temporary (one year) increase to $5,000 finishes should be at least $10,000. Perhaps have a deduction allowed for up to $20,000 of new assets each year – similar to the legal expense deduction rule which allows up to $10,000 of deduction each year. Backdate to 1 April 2020
3. Depreciation loading on new assets (with the exception of buildings) of 50%, for the current and future income years
4. 150% deduction allowed on R&D expenditure which results in NZ owned IP
5. Allowing couples to file joint tax returns if they choose

Allowing couples to file joint tax returns if they choose;

The family ‘unit’ is perhaps the foundation that safe and healthy and contributing communities are built on. It is hard to argue with this.

It’s time our income tax system was changed to reflect this, and to put more money back in families’ pockets.

Some countries operate an elective tax system where couples can choose to be taxed as a couple rather than as individuals. In other words they file a combined or ‘joint’ income tax return and often end up paying less tax in total due to the way personal marginal tax rates work, and the ‘averaging’ effect that filing as a couple achieves in many cases. One could make a rational argument that perhaps that taxing option should always have been available in New Zealand given the central importance of the family unit, and also on the basis of the real world economics of the family unit (and I am talking about family in the broad sense here – not the ‘nuclear family’ concept I was taught about at school).

I believe it is time to adopt this approach in New Zealand. Such an approach I think would reflect the reality of how many or perhaps most family units operate. This was the view of Peter Dunne, former Minister of Revenue. In fact he had a bill before parliament which proposed a tax credit for couples with children, which was designed to achieve something along the lines of what I have described above – a family being taxed on its ‘family income’, rather than each individual being taxed on their personal/individual income. Mr Dunne’s bill passed its first reading in 2010 and made it to Select Committee but then made it no further and then lapsed in 2017.
One of the hurdles identified in respect of that bill at the time was that supposedly under the Bill Of Rights Act such a law would discriminate against those not in a relationship with children. Really? Please forgive my ignorance – I’m not a lawyer and I’m certainly no expert on the Bill Of Rights, however to a lay person is that really “discrimination”? If so, is Working For Families also discrimination since it is in part based on the number of children you have – the same issue raised in relation to Mr Dunne’s bill?

Putting that aside, I can think of no good reason why a family with a single income earner earning $100,000 should pay significantly more tax than the same family with two income earners earning $50,000 each. Families with one primary income earner are being overtaxed. Now is the perfect time to fix that, put more money in families pockets, and have the tax laws more accurately reflecting how many families operate.

Mark Davies – Director of Tax, Johnston Associates

BAD DEBTS WRITE-OFF

PORTAL PUBLISHING