After much public anticipation the New Zealand Government released a media statement on March 22nd announcing that New Zealand and Australia have given legal effect to the DTA and passed legal notes which to that effect, allowing the agreement to come into effect soon. The newly established withholding rates will apply from May 1st 2010 onwards, and all other changes will begin on April 1st.

Under the now-established tans-Tasman agreement tax-free pensions from one country will remain exempt if the recipient moves to the corresponding nation. Several measures are taken within the DTA which attempt to reduce compliance costs for businesses, and raise tax payer. The agreement also gives strict definitions on a time period in which certain short-term business activities can be carried out in one country before they are to be considered resident activities for the purposes of taxation.

The DTA will serve to lower withholding rates on non-portfolio dividends from the current 15 percent to 5 percent or 0 percent, depending on shareholding levels. The rate of withholding tax on royalties will be halved to a new level of 5 percent. The withholding rate on interest from banks and financial institutions will be 0 percent, compared to the current 10 percent.

Commenting on the final ascendance of the document into law, Peter Dunne, New Zealand Revenue Minister, said, “The new DTA builds on the already close economic relationship that exists between our two countries and reflects the considerable growth and change that has occurred in trade and investment between our two countries since the last agreement was signed in 1995.”

Photo by Ewan-M

The New Zealand Government has begun to incorporate the DTA into the country’s law system through a signing of an Order in Council on February 17th, according to Peter Dunne, New Zealand Revenue Minister. Once the legal incorporation is complete for both nations the DTA will come into full effect. Australia is yet to commence their respective ratification process. Changes within the DTA are expected to begin in late 2010, two months after the expected conclusion of both countries’ ratification process.

The DTA which was a product of more than a year’s worth of negotiations was signed on June 29th 2009. The main features of the agreement are superannuation portability and several lowered withholding tax rates. On royalties the withholding rate levy will be cut by half to a level of 5 percent. The rate on interest will be lowered to 0 percent for all financial institutions, and remain at 10 percent for all other firms. Dividend payments will be categorized into one of three rates, ranging from 0 percent to the current 15 percent, differentiated by shareholding levels. Further, tax-exempt pension payments from either country will be regarded as tax-free in the corresponding nation.

At the Order of Council announcement, Peter Dunne described the DTA as a recognition and update of the already close business relationship between New Zealand and Australia. He continued on and said, “I expect the new DTA to bring significant benefits to New Zealand and improve certainty for trans-Tasman business.”

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Peter Dunne, New Zealand Revenue Minister, announced the release of a supplement to the Taxation Bill, which is near its final stages of parliamentary approval. The first of the amendments involves GST on inbound tour packages, the second concerns non-resident withholding tax rate reductions, and the third involves superannuation portability. According to Peter Dunne, the remaining six changes are minor and remedial.

The first change clarifies that facilitation services for tour packages for overseas tourists will be levied with GST at the current rate of 12.5%. As a transitional measure, inbound tour operators will be able to zero-rate their services up to July 1st 2008. Peter Dunne stated that the second measure concerns reducing the withholding tax on non-portfolio dividends paid to non-residents to either 5% or 0%, circumstance dependant, from its current 15%. This section must be passed before new tax treaties with Australia, Singapore and the US can come into effect. The third change aims to alter current New Zealand law to fully reflect recent changes Australia-New Zealand superannuation portability agreements.

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New Zealand Finance Minister Bill English and New Zealand Finance Minister Bill English singed a Memorandum of Understanding on the 16th of July, indicating that both governments formally acknowledge their intent to implement into law provisions for superannuation portability.

Legislative changes are still required before the superannuation portability can become a reality, this is expected to occur mid-2010. Conditions upon the portability are still to also fully be determined, although some have already been determined in regards withdrawal ages and the matter of Kiwisaver member benefits and kick-start amounts.

An agreement in these talks could see a complete set of portability rules in regards to the superannuation of residents of either country permanently moving to the other. Bill English has stated that the envisaged set of rules will allow for the movement of Kiwisaver funds an appropriate compatible Australian counterparts. As the details have yet to be discussed between appropriate parties, future solutions are purely speculation, but it is thought that portability will work both ways with no strong restrictions, and serve to aid the Single Economic Market Programme between Australia and New Zealand.

The Australian Tax Office currently over A$13 billion in “lost accounts” in the superannuation system of Australia. It is believed that a significant part of this must belong to New Zealanders who have since transfered back to New Zealand. These talks could lead to these people being able to transfer their money across.

While opposition is expected to any budget announcement, this year’s has seen a significant amount of vehemence. Labour Party Leader Phil Goff has been one of the key figures in the opposition to the budget announcement.

The two key points that Phil Goff has been opposing is the “deferral” of the personal tax cuts and suspension of superannuation payments. While the personal tax cuts are indefinitely deferred, Phil Goff was adamant that this means that they are never to be seen. He also suspects that while the Superannuation has been suspended officially for at least one year, it will be almost a decade before payments will be seen again.

Phil Goff voiced concern about the effect that these suspensions will have on future generations of New Zealanders. He commented on the amount of attention that seems to have been paid to credit rating agencies and their view of New Zealand, as opposed to the well being of New Zealanders.

The new Government’s first Budget has been released amongst poor economic conditions and threats of credit rating downgrades. No particular surprises were featured, that have not been circulating over the previous weeks.

The promised personal tax cuts for 2010 and 2011 have been deferred, with no set date. To some analyst this has suggested these cuts be in perpetual deference, as John Key has talked of working to build a government surplus over the coming 5 years.

The Kiwisaver mortgage diversion facility has also been withdrawn due to its compliance cost and participation numbers of only 600.

Automatic contributions to the New Zealand Superannuation Fund have been suspended, with future payments being decided upon on a year by year basis.

The Health Sector will receive a further $3 billion. Education will $1.3 billion extra. Broadband infrastructure has $290 million of its $1.5 billion required set aside. State Highways maintenance has received $1 billion over the next three years.

Home insulation will receive an upgrade with 180,000 homes being eligible for a $1,800 grant towards insulation and heating. This grant can be expanded to $3,000 for Community Service Card Holders.

This is the first of the three tax cuts put forward by Finance Minister Michael Cullen. The effect of this will be most felt with those in the $38,001 – 40,000 taxable income bracket, with a drop from a tax rate of 33% to 21%. Earners in the $14,001 – 38,000 bracket will see no change, while $9,501 – 14,000 will see a drop of 8.5% to a level of 12.5%. Lastly, earners between $0 and 9,500 will see a drop of drop to 12.5% from its previous 15%. There are no changes at levels above $40,000 annual taxable income.

This tax change is accompanied by a raise in superannuation pay and favorable changes to the Working For Families tax credit. The second and third round of tax cuts are scheduled to take place in 2010 and subsequently in 2011.

Political analysts expect the National Party to release their counter-plan to the tax cuts as early as next week. It is expected that this event and the planned tax cuts will be an important if not pivotal argument of the upcoming campaigns for the November 8th national elections.

The Australian government estimates that the currently hold $13 billion AUD in unclaimed superannuation funds, estimates put up to 30% of this as possibly belonging to New Zealanders who no longer reside in Australia. By current regulation there is no way to access these trans-Tasman funds until their owner is 60 years old.

The scheme allows for reciprocal action of Australian residents wishing to transfer their New Zealand superannuation funds to Australia. Under the scheme proposed by Trade Minister Phil Goff, the portability of superannuation will begin in 2009.