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Tax Facts

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ACC Levies

Self employed (on your own or in partnership, or in LTC, or you have withholding tax deducted from your earnings)

  • On commencing self employment, ACC cover is automatically provided with the standard CoverPlus Policy, however it is possible to apply for CoverPlus Extra which allows for an agreed amount of compensation.
  • The filing of an income tax return will prompt ACC to calculate the levies payable, and the levies payable for the next year.  A washup calculation is made when an income tax return is filed where a provisional levy calculation has been made.
  • The levies are calculated based on the earnings from the tax return and the classification rate of the business activity.
Employers
  • Employers are required to have ACC cover for work related injuries.
  • WorkPlace Cover is the standard ACC cover available and automatically covers all employees including shareholder employees and working owners who have PAYE deducted from their earnings.
  • Employers can reduce their levies by participating in various ACC programmes such as the Partnership Programme.
  • Employers are invoiced for levies between June and September each year, and the invoice will contain the washup levy calculation for the year just past and the provisional levy for the coming year.
  • The levies are calculated on the liable salaries and wages paid by the employer and the classification rate for the employer’s activities.
Shareholder Employees
  • Shareholder employees are employees of a company who also own part or all of the shares in a private company.  Shareholder employees may be paid by either one of two ways; by having PAYE deducted from a regular salary paid, or by paying their own tax according to the provisional tax system.
  • For PAYE deducted shareholder employees the cover is WorkPlace Cover.
  • For non PAYE deducted shareholder employees they can apply for CoverPlus Extra which allows a guaranteed level of cover.  There are two types of cover – standard and lower level of weekly compensation.  The lower level option allows for lower levies in return for compensation that reduces the more hours that are able to be worked.

For more information on ACC levies – visit www.acc.co.nz 

Entertainment

Entertainment expenses are deductible provided they relate to a business activity.  The most common forms of entertainment expenses are only 50% deductible.

These include:

  • Recreational events, e.g., corporate boxes
  • Holiday accommodation
  • The hiring of yachts to hold business lunches and/or dinners
  • Any food and beverages supplied at the above venues as well as at the business premises

Forms of entertainment that are 100% deductible include:

  • Food and beverages consumed on business trips, conferences or educational courses
  • Entertainment outside of New Zealand
  • Entertainment from promotional events and trade displays
  • Benefits that are fringe benefits

Entertainment costs can include incidental costs such as the hiring of catering staff or providing music.
For more information : http://www.ird.govt.nz/forms-guides/number/forms-200-299/ir268-guide-entertainment-expenses.html

Fringe Benefit Tax

FBT (or fringe benefit tax) is tax paid by a company or employer on non-cash benefits paid to employees. This includes shareholder employees. The usual fringe benefits are cars, low interest loans and the personal use of business assets. It is payable quarterly or annually for some employers.

Common examples of benefits subject to FBT are:

  • Employer contributions to superannuation funds or benefit schemes
  • Private use or availability for private use of a motor vehicle
  • Low interest loans
  • Subsidised or free goods and services

For more information: http://www.ird.govt.nz/fbt/categories/

Gift Duty

Gift duty was abolished in New Zealand from 1 October 2011.  There is no paperwork to be lodged with Inland Revenue after that date.

However, we recommend that any substantial gifts are recorded by Deed of Gift, which your lawyer can assist you with.  We also suggest that you complete a Solvency Statement at the time of gift.

Gifts over $5,500 per year will be added back for means testing when applying for rest home subsidies.

The Property Law Act 2007, Insolvency Act 2006, Child Support Act 1991 and Property Relationship Act 1976 all contain clauses to grant the Courts the power to set aside gifts where the donor was insolvent at the time of gift, an intention to defeat creditors, an intention to reduce child support liability or defeat the interests of a party to relationship property.

Therefore, we strongly recommend that you seek legal and accounting advice before making a substantial gift.

Goods and Services Tax

When must I register for GST?

You must register for GST when you are conducting a taxable activity:

  • That has produced a turnover (sales and income) of more than $60,000 over the last year (this month plus the previous 11 months); or
  • That you expect to produce a turnover of more than $60,000 over the next year (this month plus the next 11 months);
  • For which you indicate (e.g. in a price list or an invoice) that the price includes GST.
How often do I file a GST return?

You choose to file your GST returns:

  • Every six months, provided the total value of your taxable supplies in any 12 months is not likely to be more than $500,000; or
  • Every two months, which is the standard ‘default’ option if you do not elect your own option; or
  • Monthly, this is the only option for entities that make taxable supplies over $24 million per annum.
How  do I account for GST?

There are three methods of accounting for GST:

  • The invoice basis – account for GST in the taxable period when you issue/receive an invoice or receive/make a payment, whichever is earlier; or
  • The payments (or cash) basis – account for GST in the taxable period when you make/receive a payment. This option is available if your taxable supplies were $2.0 million or under for the previous 12 months and are not expected to exceed this threshold in the next 12 months; or
  • The hybrid basis – account for GST on your sales income using the invoice basis, but claim GST on your expenses using the payments basis.

For more information: http://www.ird.govt.nz/gst/

Home Office Expenses

Any expense that is incurred at home when the home is used partly as business premises or when work related activities are conducted at home can be deductible as home office expenses.

To be eligible to claim home office expenses, there must be:

  • A relationship between using the home and the business related activities; and
  • A direct proportion of the home is easily identified as being used for work related activities

The amount of the expense that is deductible can be calculated as follows:

  • Expense * (Area of home used for business)/(Total area of home)

Common examples of home expenses that are deductible are:

  • Interest on the home loan
  • Depreciation (prior to 2012 financial year)
  • Rent
  • Repairs and maintenance
  • Telephone rentals and some toll calls.  (Rentals are usually deductible at 50% but can be increased to a higher percentage if records can prove so)
  • Land and water rates
  • Electricity

Interest Paid

Interest is deductible if it is incurred:

  • In order to create gross income
  • For the carrying on of a business for generating gross income; or
  • To buy shares by one company in a group of companies
  • If incurred by a company (except qualifying companies)

Interest is only deductible when the borrowed funds are used to generate gross income (except for companies which are not qualifying companies where the interest is deductible in full). This only requires the expectation of income, e.g. when money is borrowed to buy shares, in the expectation of receiving dividends and dividends are not forthcoming, the interest is still deductible.

Deductibility of interest is also allowed when there is a loss for the year, e.g., rental properties.

If interest is incurred on a taxpayer’s home where the home is also used for business related activities, then interest under can be claimed as home office expense.

Is My Spouse Travelling With Me Deductible

In general, business travel for spouses is considered a private cost and non-deductible if there is no direct relationship between the spouse and the business (paying for the travel).

Factors that might support a claim for the spouse’s travel expenses are:

  • The companion spouse or family member is employed full time in the business and is actively engaged on business activities while overseas
  • The taxpayer travelling on business must be accompanied because of ill health
  • An associated overseas organisation expects that a spouse should accompany a taxpayer
  • The taxpayer attends a conference and the spouse contributes in some integral way to the conference

Documentation supporting the claim should be kept; this includes the itinerary, details of the business conducted and business contacts made, the private portion of the travel and the total cost of the trip.

Kiwisaver

More detailed information and all forms, are available from  – http://www.ird.govt.nz/kiwisaver/employers/

Legal Expenses

In general terms, for legal expenses to be deductible, they must have been incurred to generate income, or be part of normal operating expenses and can not relate to the creation, amalgamation or termination of a business or the taking over of another business.

Expenses that can be claimed for tax purposes include:

  • Improving employment contracts
  • Fees for stamping and registering leases on property
  • Renewals of leases
  • Expenses that relate to registering, renewing (and defending) patents, renewal and defending trade marks, contracts and other commercially important information

Expenses that are not deductible include:

  • The costs of registering new trademarks
  • Acquisition of capital assets
  • Expenses incurred in the sale of a business
  • Forming, registering or liquidating a company

However, legal expenses incurred of under $10,000 are tax deductible in full.

IRD Newsletter – Business Tax Updates

These are available at: https://www.ird.govt.nz/aboutir/newsletters/business-tax-update/

Penalties

Late payment penalties

Late payment penalties consist of an initial penalty for paying tax late, and monthly incremental penalties on any amounts unpaid.  The late payment penalties are calculated on the amount of tax that was paid late or remains unpaid.  The incremental penalties are calculated on the amount of outstanding tax plus the initial late payment penalties that were imposed.

The initial late payment penalty is a 1% penalty charged on the day after the due date, and a further 4% penalty charged if there is still an amount of unpaid tax seven days from the due date.

Every month the amount remains owing, a further 1% incremental penalty will be charged.  Note in addition to the late payment penalty charged, interest will also be charged.

Shortfall Penalties

A shortfall penalty is imposed as a percentage of a tax shortfall (a deficit or understatement of tax) resulting from the actions of a taxpayer.

The penalties are as follows:

  • Lack of reasonable care – 20%
  • Unacceptable tax position – 20%
  • Gross carelessness – 40%
  • Abusive tax position – 100%
  • Evasion – 150%

Penalties may be reduced on a voluntary disclosure made by the taxpayer to the Inland Revenue Department.

For more information: http://www.ird.govt.nz/how-to/debt/penalties/

Provisional Tax

Provisional tax is a method of paying tax as you go during the year but without the formalised PAYE system. If you are earning income as a sole trader or as a shareholder employee then you are not required to deduct PAYE from your earnings. Instead you can pay provisional tax during the year with a “wash-up” at year end. The amount of provisional tax you need to pay is the same as the tax you paid on last year’s actual earnings plus 5% if your tax for the year is $50,000 or less. If your tax for the year is likely to be more than $50,000 then you are required to estimate your tax each year and pay it in equal instalments during the year. If at year end your tax was more than you had estimated then you will pay interest on any shortfall. If you paid more tax than was required then IRD will pay you interest as well as refund you any overpayment.

For more information: http://www.ird.govt.nz/gst/additional-calcs/calc-prov-tax/
For dates: http://www.ird.govt.nz/calculators/keyword/importantdates/

Resident Withholding Tax

Resident Withholding Tax is tax deducted on the payment of dividends and interest.  The tax is deducted on the payment date and not the date the interest was earned.  If the recipient of interest has a certificate of exemption, then no withholding tax need be deducted.

The withholding tax required to be deducted on the payment of dividends to New Zealand resident shareholders is 33%, less any imputation credits attached to the dividends.  The withholding tax required to be deducted from interest is based on the rate chosen by the recipient, provided the recipient has provided an IRD number.
For more information: http://www.ird.govt.nz/rwt/

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