Simplifying the taxation of small businesses in New Zealand
NZICA released the second instalment of its thought leadership paper on ways to simplify taxation for New Zealand’s thousands of small businesses on Wednesday 16 May 2012.
This paper was written by NZICA's tax team and the NZICA Tax Advisory Group. This concept was first tabled in October 2009. Since then we’ve consulted with tax policy officials, business groups, the general public and our members.
The intention of NZICA, and specifically the NZICA member Tax Advisory Group, is to raise awareness and promote debate on a fresh approach to tackling the ongoing issue of tax compliance for our many small businesses.
It is NZICA’s view that a simplification of rules would create an environment that is more conducive to business growth and productivity.
Simplifying the taxation of small business in New Zealand (PDF, 1.34MB)
Summary of proposals
Micro business tax
A business with no employees, turnover of less than $60,000 and unregistered for GST.
- A final income tax rate of 14% for businesses that are not traders and 7% for businesses that trade in goods (such as retailers) will be paid on business turnover.
- Tax payments will be made monthly or at any time.
- No filing of returns.
- The micro tax of 14% and 7% includes a component for Accident Compensation Corporation levies.
- Income for the purposes of social policy commitments (child support, student loans and working for families tax credits) is 50% of gross income.
- The income will be transferred to the taxpayer’s summary of earnings and no further income tax on this business income will be payable.
Small business tax
A business with turnover of $600,000, GST registered and may have employees.
- Income tax will be calculated on a cash basis on the GST return and will be essentially a final tax.
- Small businesses that trade through a company or partnership will be taxed analogously to a sole trader by taxing the entity based on the personal marginal tax rate structure.
- Transactions, such as dividends and salaries, between the business entity and its owners are eliminated, as is the need to maintain an imputation credit account.
- Income tax and GST will be calculated and paid two monthly.
- Trading stock and plant equipment purchases are deducted on a cash basis.
- No provisional tax, no fringe benefit tax and no entertainment tax apply.
- There are no balance date and square up issues such as stocktakes.