The Government has introduced the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill to Parliament.

The bill sets the annual rates of income tax for the 2020-21 tax year, and has a number of proposals aimed to improve current tax settings within a broad-base, low-rate framework and to modernise and improve settings for tax administration, the GST regime, KiwiSaver, and social policy rules administered by Inland Revenue.

Revenue Minister Stuart Nash says the bill will support growth and assist businesses on the road to economic recovery.

“The bill proposes that businesses can get tax deductions for ‘feasibility expenditure’ on new investments,” says Mr Nash.

“We’ve already introduced R&D tax credits to support investment in research and development. This new proposal is the next step in giving businesses the confidence to invest in growth – even when some of their ideas don’t work out.

“Business owners tell us that costs incurred in exploring a new asset or business model are often not tax deductible and this can deter them from investing in growth and innovation. The new legislation addresses these barriers to help unlock investment.

“Businesses would be able to claim a deduction spread over five years for feasibility expenditure incurred in investigating a new asset, process or business model even if it is subsequently abandoned.

“To keep things simple and reduce compliance costs, particularly for small and medium businesses, qualifying expenditure of less than $10,000 would be immediately deductible in the current income year. This helps with business cash flow.”

The bill also contains the following proposals that have previously been subject to public consultation:

• New rules governing purchase price allocation, where parties to the sale of two or more assets with different tax treatments allocate the sales price between the assets for tax purposes.
• New rules from the ongoing review of the taxation of land, particularly in relation to investment property and speculators. The changes will improve efficiency of the tax system and encourage productive use of land and properties.
• Allowing dairy and beef cattle farmers who have unexpected taxable income as a result of their herd being culled (in pursuit of eradicating Mycoplasma bovis from New Zealand), to evenly spread that income forward over six years.

“This bill promotes growth while maintaining the integrity of the tax system,” says Mr Nash.