Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. We trust you find it informative.  

We are happy to accept new clients.  We would be happy to assist colleagues and acquaintances as new clients.

INDEX

1. Tax Rate Changes

2. Tax Rates for Charitable Giving are Changing

3. Unclaimed Money

TAX RATE CHANGES

The company tax rate (CTR) will reduce from 33 to 30% from the beginning of the 2008/2009 income year- 1 April 2008 for companies with a standard balance date.   This applies to companies, and other entities defined as companies by the Income Tax Act, including incorporated societies and unit trusts.

The change also applies to some savings industry entities.   In addition, the top rate for portfolio investment entities (PIEs) has been capped at 30%.

Business Structure Changes

The CTR change may prompt you to consider changing your business structure.  McLean and Co can assist in company incorporation. 

When the new Tax Rate becomes Payable

Use the new CTR when calculating your company's income tax payable for the 2008-09 income year onward. The first payment to which the new rate applies is the first provisional tax instalment for 2008-09.

TAX RULES FOR CHARITABLE GIVING ARE CHANGING

The changes, effective from the 2008/09 income year, include:

• the removal of the $1,890 rebate threshold on donations made by individuals
• the removal of the 5% deduction limit on donations made by companies and Maori authorities.
• the company deduction for the donations will be extended to include unlisted companies with five or fewer shareholders

The changes recognise the significant contribution made by the charitable and non-profit sectors to the well-being of our communities, and foster a stronger culture of charitable giving in New Zealand.

How will the changes work?

For Individuals

• The $1,890 threshold for which individuals can claim a tax rebate for cash donations to donee organisations will be removed
• Individuals will be able to claim a 33 1/3 % tax rebate for donations, up to a maximum claim equal to their annual taxable income.

For example:

Indira donates $3,000 to various charities and other non-profit organisations, including her local church. Her taxable income for the 2009 year (1 April 2008 - 31 March 2009) is $35,000.

In the past Indira could only claim a maximum of $630. With the removal of the threshold Indira will now receive $1,000, a gain of $370.

For Indira to claim her rebate she will need to complete the Rebate claim form (IR526). Indira will need to include her receipts from the approved charitable organisations with her rebate claim form.

For Companies

The 5% limit on deductions that companies can claim for cash donations to donee organisations will be removed

• Companies will be entitled to a deduction for donations made to donee organisations, limited only by the amount of the company's net income
• The donation deduction is also being extended to unlisted close companies (companies with five or fewer shareholders)

For example:

Company Ltd is a publicly-listed company. In the 2009 tax year (1 April 2008 - 31 March 2009) Company Ltd supported the local community charities, donating $20,000. The Company Ltd net income before taking into account its donations was $200,000.

Under the current law, Company Ltd is entitled to a tax deduction of $10,000.

Under the new rules, the full $20,000 can be deducted. The tax deduction will be included in the company's income tax return (IR4).

Maori Authorities

• The 5% deduction limit for cash donations to donee organisations and Maori associations will be removed
• Maori authorities will be entitled to a deduction for donations made to donee organisations, limited only by the amount of their net income

The change will operate in exactly the same way as the change to the company deduction and the donation deduction will be included in the Maori authority's income tax return (IR8).

UNCLAIMED MONEY