Tax changes to research and development (R&D)06.11.2014

Two tax measures which were signalled in last year’s Budget were explained in more detail in the 2014 Budget:

o Loss-making start-up companies will be able to “cash out” up to $500,000 of their tax losses from R&D expenditure (ie instead of carrying forward the losses, they will receive a cash payment). This cap of $500,000 will eventually rise to a maximum of $2 million.

o Businesses will be allowed tax deductibility for R&D “black hole” expenditure that is currently neither deductible nor depreciable. In particular:

  Capitalised development expenditure that relates to a patent, patent application or plant variety rights, and which results in a depreciable tangible asset, will be depreciable for taxpayers carrying out R&D.
  A one-off deduction will be available for capitalised development expenditure that does not result in a depreciable intangible asset.

These measures take effect from the 2015/16 income year

FBT rate for low-interest loans increases06.6.2014

The prescribed interest rate used to calculate fringe benefit tax on low-interest loans provided by employers will increase from 5.90% to 6.13% from 1 July 2014.

The Income Tax (Fringe Benefit Tax, Interest on Loans) Amendment Regulations 2014 (LI 2014/183), which came into force on 29 May 2014, their date of notification in the New Zealand Gazette, amend the Income Tax (Fringe Benefit Tax, Interest on Loans) Regulations 1995.

Donation tax credits for Individuals05.21.2014

Question
Our client, an individual, has $45,000 of income for the 2013 income year. However the client has brought forward losses of $50,000, making his 2013 taxable income nil.

Can our client claim a donation tax credit even though his taxable income for 2013 is nil?

Answer
The amount of the donation tax credit must not be more than the taxpayer’s taxable income. Taxable income is determined by offsetting available net losses against net income.

Accordingly, as the client’s taxable income is nil, no donation tax credit is available.

Basics of business expenses04.11.2014

One of the most common questions we get particularly from new business owners is what can and can’t be claimed as a business expense.

Here is a short video from the IRD explaining the basics.