KEY POINTS:
* Reducing the company tax rate from 33 per cent to 30 per cent, at a cost of $2.1 billion over four years, and additional transitional costs of $130 million.
* Reducing the tax rate for widely-held savings vehicles and the top tax rate for Portfolio Investment Entities from 33 per cent to 30 per cent, at a cost of $180 million over four years.
* Introducing a tax exemption for the active income (income derived from active business, such as from manufacturing or industrial activity) of NZ controlled foreign companies, a t a cost of $112.5 million over four years, to allow NZ-based firms to globalise at a lower tax and compliance cost.
* Investing $630 million on a tax credit for research and development to encourage greater innovation and dynamism in NZ businesses and to make NZ a more attractive location for innovative businesses.
* Providing an additional $87.8 million over four yearws for the Market Development Assistance Scheme (MDAS). MDAS is aimed at encouraging firms to take new products to new markets, and encouraging growth in both exports and national income.
* Spending $53 million over four years to boost participation in industry training and to enable the Government's growth targets for such training to be achieved.
SAVERS
* The top tax rate on investment income earned on behalf of individuals who invest in managed funds that choose to use the new portfolio investment entity tax rules will also reduce from 33 per cent to 30 per cent.
* The tax rate for unit trusts and group investment funds taxed as companies will change to the new, lower company tax rate of 30 per cent.
* People who invest in life insurance savings products will have tax paid on their behalf by life insurers at the rate of 30 per cent.
* Widely held superannuation funds and widely held group investment funds that are taxed as trusts will be taxed at 30 per cent.
* The top tax rate on income earned by portfolio investment entities for individual savers will be 30 per cent, down from 33 per cent.
INTERNATIONAL TAX
* Active income earned by NZ resident companies through their controlled foreign companies will be exempt from domestic tax. Only their passive income will be taxed.
* Dividends from controlled foreign companies to the NZ parent will be exempt from domestic tax.
* The government plans to develop a simple 'active business' test that exempts all controlled foreign companies with less than 5 per cent passive income. It will replace the eight-country 'grey list' exemption.
* Even if a controlled foreign company does not meet the active business test, only its passive income will be taxed back in NZ.
* Once the exemption is in place, interest allocation fules will limit the extent to which NZ businesses can deduct interest costs relating to offshore investments that are outside the NZ tax base.
* The rules on conduit taxation, which deal with the NZ tax liability on foreign income of the non-resident owners of the NZ-resident companies, will be repealed.
* A limited set of 'base company' rules for services will be adopted.
RESEARCH AND DEVELOPMENT
* NZ businesses conducting research and development will be eligible for a tax credit of 15 per cent of allowable expenditure. Their activities must be systematic, investigative and experimental. They must seek to resolve scientific or technological uncertainty or involve an appreciable element of novelty and be directed at acquiring new knowledge or creating new or improved products or processes.
* To qualify for the credit, a business must control the project, bear the financial and technical risk of it and own the project results.
* The research must be carried out predominantly in NZ.
* Eligible expenditure includes the cost of employee renumeration, depreciation of tangible assets used primarily in conducting research and development, overhead costs, consumables and payments to entities conducting research and development on behalf of the business.
* Ineligible expenditure includes interest, loss on sale or write-off of depreciable property, the cost of acquiring core technology (technology used as a basis for further research and development), expenditure on intangible assets and professional fees in determining eligibility.
* Research and development credits will reduce tax payments and imputation credits will arise for the amount of the reduction. Research and development credits will be paid out in cash to loss making businesses such as start-ups. The person to whom it is outsourced will not get the credit.
* Businesses will be able to claim the tax credit as part of their normal tax return process.
* Businesses that commission research and development from Crown Research Institutes, tertiary institutionns and District Health Boards may be eligible for the credit, but those institutions will not recieve a credit for research and development undertaken on their own account.
* The credit will be available for software research and development, but software developed for in-house use will normally be subject to a $2 million cap.
* The businesses will have to incur at least $20,000 of eligible expenditure in the year a claim is made unless the research and development is outsourced to a listed research provider.
