Businesses to benefit from Government's Tax Assistance Package
It's not always easy for smaller businesses to manage cash flow and meet tax
obligations, particularly in difficult economic times. For many businesses, cash
flows are especially tight at present, and it can take time and effort to meet tax
obligations at the best of times.
The package of changes announced on 4th February 2009 are aimed at easing
the burden of tax on cash flow for smaller businesses and making it easier and
less expensive - in terms of both time and money - for them to pay taxes. For
example, changes to the provisional tax rules will allow smaller businesses to
hold on to tax monies longer. Changes to various tax thresholds will lower costs
for businesses by reducing the number of tax returns they have to fill in, the number
of calculations they have to perform and the number of tax payments they have to
make. All this can save them time and money.
How will it work?
- Provisional tax uplift rates will be reduced for the 2008/09 and 2009/10 income years, reducing the size of provisional tax payments that businesses have to make. The 105% rate goes down to 100% and the 110% goes down to 105%. For transitional provisional tax payers the rates go down from 100% to 95% and from 95% to 90%.
- Use of Money Interest (UOMI) rate for underpayment of tax will be reduced form 14.24% to 9.73%. The rate for overpayments will reduce from 6.66% to 4.23%.
- The GST payments threshold basis will be raised from $1.3 million to $2 million, allowing more businesses to enjoy the cash flow advantage of only having to account for GST when payments from invoices is actually received.
- The GST registration threshold will be raised from $40,000 to $60,000, allowing businesses that earn less than $60,000 to de-register from GST if they wish.
- Businesses with $10,000 or less of business-related legal expenditure will be able to fully deduct the expense in the year it was incurred, regardless of whether it is capital in nature or not.
- The PAYE once-a-month filing and payment threshold will raised from $100,000 to $500,000, allowing more employees to file PAYE returns and pay PAYE one a month instead of twice a month.
- The FBT annual filing threshold will be raised from $100,000 to $500,000 allowing more employers to file the FBT returns and pay FBT annually rather than quarterly.
- The value of minor fringe benefits (such as chocolates and flowers) that can be provided to employees without attracting FBT will be raised to $300 per quarter per employee and $22,500 a year per employer. This will mean fewer businesses will be required to return FBT on certain minor benefits provided to employees.
- The FBT prescribed interest rate applying to low-interest, employment-related loans will be lowered from 10.90% to 8.05%
- Some other thresholds, relating to accrual expenditure adjustments (such as for certain prepaid advertising/travel/lease costs) will be raised.
- Certain SME tax simplification measures that are part of a bill currently before Parliament will be fast tracked.
Example
Junior Limited is a consulting business with a turnover of $1.8 million. It has 20 emplopyees who are provided with low-interest loans and other minor fringe benefits (such as gym memberships) that are normally subject to FBT (amounting to $80 per employee per month). The company has legal fees of $8,000 a year, prepays 5 months of advertising costs (amounting to $12,500) at the end of end of its income year, and pays its provisional tax on the standard uplift basis.
As a result of the changes announced today, Junior Ltd will benefit from:
- only having to pay PAYE over to IRD once a month, instead of twice a month;
- only having to file and pay FBT returns once a year, instead of quarterly;
- having to pay less FBT on the low-interest loans it provides to employees;
- not having to pay FBT on the minor fringe benefits it provides to its employees;
- only having to account for GST when payments are actually received, rather than when an invoice is issued should Junior Limited opt to use the payments basis of accounting for GST;
- not having to differentiate legal fees between their revenue and capital components, and being able to claim an immediate tax deduction for the legal fees;
- not having to adjust its income tax return to reflect prepaid advertising costs;
- being able to make provisional tax payments in respect of its remaining instalments for the 2008/09 and 2009/10 income years.
If Junior Limited is subject to UOMI on any underpayments of tax, it will benefit from a (4.51%) reduction in the UOMI rate to 9.73%.
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Where to from here?
The changes that involve law changes will be included in a taxation bill to be introduced this month for application generally from 1 April 2009, or from the 2009/10 income year where appropriate. The new use of money interest rates will apply from 1 March 2009, and the new FBT rate on low-interest, employment-related loans will apply from 1 January 2009.
Contact us at BSS4U Limited it you require any further information regarding the implementation of these measures.
