New tax laws enacted

Revenue Minister Peter Dunne has welcomed the enactment of tax reforms introduced in the Taxation (GST and Remedial Matters) Bill, saying they were a significant step towards increasing fairness and consistency across the tax system.

The new rules in the legislation enacted this week close off a loophole in the GST rules where some GST-registered purchasers have claimed a GST refund without the corresponding payment having been made because the supplier in the transaction has been deliberately wound up to avoid making the GST payment.

The practice has been of particular concern in the property sector, where the GST involved can be substantial.

The new rules will prevent such “phoenix” schemes by requiring GST-registered vendors to charge GST at a zero rate on most transactions involving land if the purchaser is also GST-registered.

Mr Dunne said the new rules were part of a package of changes announced by the Government in Budget 2010 to strengthen the integrity of the tax rules and make them fairer for everyone.

“This included making the rules around access to social assistance fairer, where some people with substantial financial means have been able to structure their income in ways that have allowed them to gain advantages that are clearly unfair to other taxpayers. The new rules will put a stop to that,” he said.

A number of these changes were introduced by supplementary order paper during the bill’s passage.

They include:

· broadening the definition of income for Working for Families, the Student Allowance and the Community Services Card to help prevent people from structuring their income to gain entitlements to these social assistance programmes;

· closing loopholes in the tax treatment of loss attributing qualifying companies (LAQCs); and

· changes to clarify building depreciation rules made in Budget night legislation. The new rules confirm that people can still claim accelerated depreciation on the fit-out of commercial and industrial buildings. They will also be able to claim the depreciation loading on assets if the investment decisions were made before 20 May 2010, but not completed until sometime after.

The new legislation also introduces some useful changes to the GST rules to make it easier for taxpayers to understand their GST obligations, saving time and money, Mr Dunne said. They include simplified change-in-use rules and greater clarity over when GST applies to residential and commercial accommodation.

Other changes in the legislation were intended to make the tax laws easier for taxpayers to apply, he said, such as allowing PIEs a deduction for credit impairment provisions.

“And the further good news is that the redundancy tax credit previously repealed in Budget 2010 as a result of lower personal tax rates has been extended to 31 March 2011. The extension will be available to redundancy payments made before 1 April 2011and the tax credit will be paid at the rate of 6 cents in the dollar to a maximum of $3,600.”