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Imputation tax credit to stay: English

Thursday 18th February 2010

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The government will keep the imputation system preventing the double taxation of company dividends when it unveils its tax package in the May Budget, Finance Minister Bill English announced today.

The decision suggests the government has had a firm signal from Canberra that Australia, too, will keep the comparatively unusual but effective system for preventing the double taxation of company dividends. 

It also sets the stage for a cut to the corporate tax rate in the Budget, although English says he is still mulling whether to align personal, corporate and trust rates.  

“The government agrees with both the Tax Working Group and the Capital Markets Development Taskforce that the current imputation system is worthwhile,” English told a business audience in Auckland.

Both Australia and New Zealand have the system and it “plays an important role in the overall tax system,” he said.  

Still, the government is still considering whether to align the top personal tax rate with the corporate and trust rates though this needs to “generate reasonable public support so it endures through time,” he said.  

Lining up the trust and top personal rates were the “most important issue” as they are both final taxes. 

The TWG made the same recommendation, suggesting a lower corporate tax rate could be justified for international competitiveness reasons. 

The government has asked for more work to be done on aligning the rates, and its decision will be announced in the Budget on May 20.    

English also flagged the removal of tax credits for depreciation on buildings that don’t depreciate as one measure to address the advantage property investors have. 

Improving the definition and policing of existing capital gains tax rules was also on the agenda. 

Prime Minister John Key outlined the parameters of a Budget tax package in his opening statement to Parliament last week, when he raised the prospect of increasing GST to 15%.

English repeated Key’s assurance that any increase in GST will be “accompanied by compensation for low and middle income earners, beneficiaries, superannuitants and people receiving Working for Families.”

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