FAQ

ACC AND CLAIMS: I have just had an accident and will not be able to work in my business for some time. How do I go about making a claim for loss of earnings?

At the time you saw your doctor, or when you were treated at the hospital, you should have completed an ACC Claim form. This is the form that explains to ACC what injury you have suffered and how the accident happened.

This is always the first step in the ACC process. On that form you need to indicate that you are unable to continue in your employment and that you are self-employed or a shareholder employee.

You do still need to complete a few forms from ACC. On those forms you need to indicate that you are on ACC CoverPlus. You will need to provide ACC with information on the number of hours you were working and the type of work you were doing prior to the accident. You will not however have to provide them with any financial data.

ACC will process this form and acknowledge your claim – that is – they will accept your claim.

To hurry things along, you can ring the ACC Claims Service Centre on 0800-101-996. They will be able to get your Income Compensation claim underway.

Clients On Standard CoverPlus Extra
Because you are covered under the ACC CoverPlus Extra scheme, you will automatically receive weekly compensation based on the amount ACC agreed to – just remember that PAYE will be deducted from this and there is a one week stand down period. This claim should be approved fairly quickly. This compensation will continue until you are able to return to work full-time (30 hours per week).

Clients On CoverPlus Extra With The Option of Lower Levels of Compensation
Because you are covered under the ACC CoverPlus Extra scheme, you will automatically receive weekly compensation based on the amount ACC agreed to – just remember that PAYE will be deducted from this and there is a one week stand down period. This claim should be approved fairly quickly.

Because you chose the option of ‘Lower Levels of Compensation’ you will only receive the full entitlement to compensation while you are not able to work at all. Once you are able to return to work in a diminished capacity the amount you receive in compensation will reduce. Once you are able to return to work full-time (30 hours per week) your compensation will cease.

Clients on ACC CoverPlus
ACC will want to know how much you earned from your business in the year prior to your accident occurring. At the very least they will want to see your financial statements for your last financial year. We can provide a copy of these at the appropriate time. If your tax return has not yet been filed for the previous financial year, we need to attend to this as soon as possible.

You may be entitled to a weekly amount based on 80% of your previous year’s earnings. Unfortunately the current financial year’s result has no impact on the amount ACC are able to pay you in compensation.

You may also have to prove that your income has dropped because of your accident.

We suggest you ring the ACC Claims Service Centre on 0800-101-996. They will be able to provide the appropriate forms for you to claim Earnings Related compensation.

Once you have these forms, contact us again, and we will help you to complete them.

Our experience tells us that this process may not always run smoothly, so please contact us if you have any queries about the information you receive from ACC.

ACC LEVIES: We are receiving regular invoices for ACC levies and find these confusing. How does the levy system work?

There have been massive changes in the way ACC Levies are collected and calculated over the last few years. There is certainly a lot of confusion out there as to what levies are payable and when.

As a self-employed person you may pay one or two of three different types of levies – employer levies, shareholder employee levies or self-employed levies. There are various components within these levies – these include Earnings Compensation Cover, Residual Claims Levies, Working Safer Levies, and Earner Levies. These are all based on the income that you earn or that you pay to your employees as wages and are payable directly to ACC.

In all cases ACC gets the information they require for billing purposes from Inland Revenue Department. This means that the times at which ACC starts to send out invoices for a particular year is in part driven by when IRD is provided with the earnings information.

As a general rule though: levies for the WorkPlace cover for your employees will arrive after July each year; for shareholder employees after August; and for the self employed after November.

In some cases your invoice may cover a two year period – there may be a wash-up for the previous year (now that ACC have actual earnings) and there may be an invoice for the financial year we are currently in.

It is important to check the various components on your invoices. The two most important are the amount of liable earnings and the classification rate that ACC is applying to your invoice. We can help you confirm these details if necessary. We certainly don’t want you paying any more to ACC than is absolutely necessary.

There may be a way in which we can make the ACC levies you pay for self-employment or as a shareholder employee work better for you.

For self-employed and shareholder employees the standard ACC scheme is called ACC CoverPlus. If you have an injury covered by ACC and proof of loss of earnings, it will provide you with weekly compensation based on 80% of your previous year’s earnings, or if you are newly self-employed, you would receive the minimum (ACC can provide the latest figures).

This scheme has a number of complicating factors and does not really provide much comfort and certainty for shareholder employees and self-employed people.

However there is an alternative option for self-employed and shareholder employees in regard to their cover. This alternative ACC scheme is called ACC CoverPlus Extra.

Under this scheme you and ACC enter a contract where you both agree the amount of compensation that you will receive should you have an accident. This amount is then paid on a weekly basis until you are able to return to work full-time.

In many instances we are able to save our clients significant premiums by applying for ACC CoverPlus Extra. If we take a dairy farmer for example: he may have an income of $80,000. Under ACC CoverPlus, he has to pay ACC levies based on this level of income. He knows however, that if he has an accident, he could hire a farm manager and pay him $40,000 per annum and still maintain his income from the farm. Under ACC CoverPlus Extra, we would then apply for cover of $40,000 and there would be a saving in levies, plus he would have the certainty that if he had an accident, he would be paid on this basis – he would not have to prove loss of earnings to ACC.

Because there are many different types of levies, we can send you a detailed explanation of the various types. If you have any queries whatsoever, don’t hesitate to come and see us.

ALLOWANCES: We’re recruiting for a new position where there will be a fair amount of travel. If we pay a travel allowance, would it be tax free?

Employers may pay cash allowances to reimburse an employee for travel between home and work.

It will be tax-free if special circumstances apply and the travel is somehow extra to the employee’s normal travel to and from work.

We can send you out a report which explains this in more detail.

AUDITING: Will you audit our club’s financial statements?

Thank you for asking Business Buddy to undertake an audit of your club’s financial statements. We regret that this practice does not conduct audits and we have to decline this engagement.

However, we are happy to explore alternative ways in which we may be able to help the club.

We have a brief report which we can send you today. It sets out some useful detail about audits and also raises some alternatives that might be helpful to you.

BALANCE DATES: My business operation has changed. Can I change my balance date? or What are the implications of changing my balance date?

It is suggested your balance date be changed to coincide with your year-end.

We can apply to the Inland Revenue Department, to have your balance date changed.

Once we have received approval from the Inland Revenue Department, we are required to file transitional tax returns, to take into account income derived during the period between the new and original balance dates.

If you already pay provisional tax, the payment dates will change in line with the new balance date. A fourth instalment may be required in the transitional year.

The calculation of tax for a transitional year is slightly different to the normal twelve months’ calculation.

As the rules are complex, we suggest, that you make a time to see us in the near future to discuss when is the best time to change your balance date, as there are tax payment issues to consider.

BALANCE DATES: What balance date should I use? or Can I adopt a non-standard balance date?

The standard balance date normally applied is the income year ending 31 March.
We can in certain circumstances, apply in writing to the Inland Revenue Department on your behalf, for a non-standard balance date.
Your balance date affects the due date for Income Tax payments. It is therefore important that we establish your exact balance date as soon as possible.

BUSINESS INTEREST AND RWT: If I make a business loan to someone other than a bank or normal lending institution, do I have to deduct tax?

Interest paid on money lent is known as resident withholding income and in certain circumstances must have resident withholding tax deducted (RWT).

If you pay more than $5,000 in business related interest per year to a financier other than a bank or normal lending institution, (for example a family member or friend), you will be required to register with the Inland Revenue Department as a RWT payer. You will then have to deduct RWT from the interest payments and forward it to the Inland Revenue on a regular basis.

RWT is deducted at different rates for different entities.

If the RWT deducted is $500 or more each month, the deductions must be paid by the 20th of the following month to the Inland Revenue Department

If the RWT deducted is less than $500 per month, each time the deductions accumulate to $500, the deductions must be paid in by the 20th of the month after the month the deductions have reach $500. Once the RWT deductions have been paid to the Inland Revenue Department, the $500 accumulation threshold recommences.

CHARITIES: Can you advise me on how the changes to reporting requirements for charities affect our organisation?

New reporting requirements for registered charities came into force from 1 April 2015.

Registered charities need to comply with the new standards which require quite a bit more non-financial information than in the past. There are also legal requirements for many charities to have their financial statements audited or reviewed by a ‘qualified auditor’.

We are happy to work with you as we have in the past to prepare the financial statements to comply with the new standards. However we don’t want to pass the costs of preparing the additional non-financial information on to you. We understand funds are limited and, in any case, you are better placed to prepare that information than we are.

We can send you a fact sheet with more information on this today along with a handy checklist.

COMMISSION BASED AGENTS: I’m a commission based insurance agent. Do I have to register for GST and what GST can I recover?

A commission based insurance agent is usually selling different types of insurance such as:

  • Life
  • Medical
  • Income protection

Life insurance is exempt from GST so is treated as a ‘financial service’ for GST purposes.
Therefore, commissions earned that relate to life insurance are exempt for GST, whereas, medical and income protection insurance attract GST.
GST can’t be claimed on the expenses that relate to the selling of life insurance policies.

If you incur expenses that relate to both life insurance as well as other types of insurance, you will need to make an apportionment of those expenses.

DISPUTES: I’ve made a mistake in my tax return that I’m a bit worried about. Can you advise me?

Depending on the type of mistake you have made there are a number of options available to correct your tax return. How you deal with a mistake in your tax return will depend upon the nature and consequences of that mistake. In particular:

  • What type of mistake was made?  Was it an arithmetic miscalculation in the calculation of what tax is payable?  Or a ‘genuine error’ as to the correct treatment of certain items of income, deductions or timing issues?
  • Will correcting that mistake result in an increase or reduction in your tax liability?
  • Is the tax arising from that mistake ‘material’?  In other words, is it a big mistake or a little one?

It’s also relevant to consider whether it’s a mistake that increases tax liability or a mistake that reduces tax liability.
Tax return was filed less than 4 months ago

The option to submit a NOPA is time critical. The issue of a NOPA is the first step in this process called the Disputes Resolution Procedure.

The disputes procedure can be a long and involved process and the Government have imposed strict legislative timeframes. If you want to amend your return using the disputes procedure you will need to complete the next step in the process 4 months from the date the assessments were issued.

We can send you a fact sheet which provides further detail on the options available and the disputes resolution procedure. And IRD have published a free booklet explaining the procedure for disagreeing with an assessment you have previously taken (see IR778).

We recommend that you come in to meet with us as soon as possible to review your return/s and discuss what we can do next. Bring along a copy of the return/s and any documents which show any income or expenditure for the tax period/s in question such as your workpapers, applicable tax invoices, bank statements etc

Tax return was filed more than 4 months ago

We can send you a fact sheet which provides further detail on the options available and IRD have published a free booklet explaining the procedure for disagreeing with an assessment you have previously taken (see IR778).

However, as some of the options are time critical, we recommend that you come in to meet with us as soon as possible to review your return/s and discuss what we can do next. Bring along a copy of the return/s and any documents which show any income or expenditure for the tax period/s in question such as your workpapers, applicable tax invoices, bank statements etc?

DISPUTES: I’ve received a letter from IRD that I’m a bit worried about. Can you advise me?

or I’ve received a Notice of Assessment from IRD but I never filed a tax return for that income year or GST period. What should I do?
This is commonly referred to as a ‘default assessment’.
We recommend that you come in to meet with us as soon as possible to review the assessment/s and discuss what we can do next.

Bring along a copy of the assessments, any letters from IRD, and any documents which show any income or expenditure for the tax period/s in question such as your workpapers, applicable tax invoices, bank statements etc.

Firstly, you need to check

  • income tax or GST returns have been filed
  • whether you have paid any tax owing for that return
  • what date the Notice of Assessment was issued

Assessments issued less than 4 months ago

If you do not agree with the IRD’s assessment the only way you can dispute the assessment is by:

Filing the outstanding return for that income year or GST period; and
Issuing a legal document called a Notice of Proposed Adjustment. A Notice of Proposed Adjustment is more commonly referred to as a NOPA.
The issue of a NOPA is the first step in this process called the Disputes Resolution Procedure.

The disputes procedure can be a long and involved process and the Government have imposed strict legislative timeframes. If you disagree with the assessments the IRD have issued you will need to complete the next step in the process i.e. issue a NOPA, within 4 months from the date the assessments were issued.

Assessments were issued more than 4 months ago

However, the Government have imposed strict legislative timeframes on the disputes procedure, so you must have filed your NOPA disputing this default assessment within 4 months from when it was issued by IRD. Unfortunately it appears that this time period has lapsed.

If the 4 month period expired more than just a few days ago (i.e., this wouldn’t be considered minimal delay) or unless you have already advised IRD in writing that you do not accept the default assessment and intend to dispute it, then under the law the IRD are generally not able to accept a late NOPA unless exceptional circumstances apply.

An exceptional circumstance is broadly a situation that arises which is outside the taxpayer’s control that prevents the taxpayer from rejecting the IRD’s position within the required timeframe.

EMPLOYEE VS. INDEPENDENT CONTRACTOR: I need to employ some one in my business, but I’d like to avoid the employment issues. Can’t I just treat that person as an independent contractor and they give me an invoice once a week or month?

or “One of my employees wants to be treated as an independent contractor so that I don’t have to deduct PAYE. Can I do this?”

If you do not want to register as an employee and account for PAYE, the only option is for your employee to invoice you, plus GST if he/she is registered for GST.

However, you need to be sure that your situation can withstand the employee versus independent contractor test. If you ignore this test and IRD decide later on that this person really is just an employee, you will be liable for any unpaid PAYE.

Actually, this is a very important issue for you to be very clear on, as if the independent contractor status does not survive this test, not only will you be liable for unpaid PAYE, but you could even incur other costs such as unpaid holiday pay, sick and statutory leave, should an employment issue arise.

A number of matters are taken into account in deciding the real status of an employee, such as:

  • The intention of the parties. Is there a written contract, for example?
  • The control test – does the employer direct the work to be done?
  • The fundamental test – is the employee in business on his/her own account? For example, does the worker provide his own equipment, hire his own staff, take some financial risk, have the ability to make a profit from good management?
  • The integration test – is the employee “his own man”, or is he part of the organisation?
  • Generally speaking, a person will probably be treated as an employee if he has to do the work himself, cannot employ someone else to do it, works set hours, has to work as directed, is not truly in control of his own business, has to follow the rules as set by the employer and works on the employer’s premises. 

EMPLOYEES: If one of my employees works from home and incurs costs on my behalf, can I pay them a reimbursement allowance and what is the tax treatment of that allowance?

OR “My employee uses their own vehicle for work-related purposes. What can I pay to them as a reimbursement allowance and what is the tax treatment?”

The Inland Revenue Department allows you to reimburse your employee for any work-related costs incurred on your behalf.

Any reimbursing allowance paid by you is tax free to your employee.

When reimbursing your employee for use of their private vehicle for work-related purposes, you can choose either:

  • to reimburse actual costs incurred by your employee; or
  • to use the Inland Revenue Department mileage rate; or
  • to reimburse the employee based on other published rates (e.g. the AA rates); or
  • to reimburse the employee using a reasonable estimate of the expenditure likely to be incurred.

The IRD Rate is currently 72 cents per kilometre irrespective of what type of car is driven. The rate is reviewed periodically by IRD and takes into account the cost of fuel, repairs and depreciation.

When reimbursing your employee for travel costs, they must be additional to costs incurred in travelling between their home and place of work, in their private car or via public transport.

If you pay your employee more than what they incurred as a cost on your behalf, then that excess is treated as monetary remuneration and is subject to PAYE.

As the rules are complex, we can send you a detailed report on the subject.

EMPLOYMENT RELATIONS ACT & HOLIDAYS ACT: What should I be doing to implement the changes to the Holidays Act and the Employment Relations Act?

Changes to the Holidays Act 2003 and the Employment Relations Act 2000 have been passed by Parliament and introduced a wide range of changes to employment.

The main changes to the Holidays Act include:

The ability for employees to cash in a maximum of one week of annual holidays
Transferring public holidays to another working day
The main changes to the Employment Relations Act include:

  • Extending trial periods to all employers
  • Changes to the personal grievance provisions
  • Requiring consent to be given before a union can access a workplace, and confirming communication with employees can occur during collective bargaining
  • Requiring employers to retain employment agreements
  • Extending the role and powers of labour inspectors

Most changes for both Acts come into effect on 1 April 2011.

One provision in the Holidays Amendment Act 2010 came into effect immediately. This provision relates to the treatment of holidays and leave during a ‘closedown’ of a business. For example if your business has an annual ‘closedown’ or ‘shut down’ period that includes public holidays (as can happen over the Christmas / New Year period) then the employee is entitled to be paid for the public holidays if it is an otherwise working day for the employee.

One provision in the Employment Relations Act 2010 comes into effect from 1 July 2011. This provision requires employers to retain a signed copy of individual’s employment agreement or current signed copy of the terms and conditions. Employees are entitled to a copy of their agreement if they request one.

Keeping up with the changes
A guide to the new changes is available here on the Department of Labour web site. You can also call The Employment Relations Infoline on 0800 800 863.

EXPENSES: Are Christmas presents to clients fully deductible?

or “Is a bottle of wine given as a gift to a client fully deductible?”
As a general rule, if you provide a gift to a client, depending on the type of gift, it may be completely deductible, or only 50% deductible.

If the gift is in the nature of “entertainment”, such as food and wine, it will be 50% deductible.

Certain other types of gifts – for example a calendar, will be fully deductible.

EXPENSES: I conduct plenty of business from home, what expenses can I claim?

If you use your home to conduct business, you are entitled to claim a fair and reasonable portion of the house out goings.

Usually, the proportion you can claim is based on the area used for business purposes (for example, an office, storage, workshop), as a percentage of the total area of the home.

Outgoings that are claimable include:

  • Heating
  • Lighting
  • Rates
  • Insurance
  • Mortgage interest/rent
  • House and contents insurance
  • Repairs and maintenance
  • Telephone rental

It is not necessary to set aside a specific room for business purposes, nor is it necessary for your home to be physically changed to suit the business.

EXPENSES: I have a business trip coming up. Can I claim all the relevant travel and accommodation costs for GST and income tax purposes?

Generally, a tax deduction is allowed for work-related travel. This is likely to include:

  • travel between business places
  • travel overseas
  • travel to acquire plant

The IRD may request that records support a claim for travel expenses.

Practically speaking, the best way to ensure that you have sufficient proof of the connection between the travel expenses and your business is to record a memo of the nature of the trip and its relationship to your business with the expenses invoice/receipt.

IRD audits tend to happen a couple of years (at least) down the track and it is unlikely that you will remember the details of the trip at a later stage.

Overseas travel expenses are deductible if they are “incurred in the course of the taxpayer’s business”. Any part of the travel that relates to a holiday needs to be split out, as it is not deductible.

If a companion accompanies you on your business travel, their expenses will only be deductible where the companion supports you on the business being undertaken. That is, they will need some knowledge of the business being undertaken, or possess specialist skill or expertise to provide support in a material way.

Practically speaking, the best way to support your travel expenses claim is to:

  • establish letters of introduction with business associates in advance of the trip
  • keep an itinerary or diary and fill it in often
  • retain as much information from overseas contacts as is possible, such as business cards and brochures

The itinerary should provide enough information so that all costs can be calculated, and a fair and reasonable apportionment can be made between business and personal.

Remember to treat the GST correctly. In general terms, domestic travel includes GST whereas overseas travel will not.

EXPENSES: I’ve been asked to sponsor a community event. Is this deductible?

OR “I’ve been asked to sponsor a client’s netball team uniform. Is this deductible?”
As a general rule, if you provide sponsorship for a team or community event, depending on the type of sponsorship and as long as your business is being promoted, it may be completely deductible.

If the expenditure is of a capital nature, such as a permanent neon sign or billboard, it is not fully deductible, and needs to be capitalised and depreciated.

Other types of promotion – for example costs of sponsoring the local netball team uniform, where your business name is clearly displayed on the uniform, will be fully deductible.

As the rules and exemptions are complex, we can send you a detailed report on the subject.

EXPENSES: If I pay for an employee’s accommodation, or provide accommodation as part of his/her salary, am I liable for FBT?

or “We pay our employees an accommodation allowance as part of their salary package. How should we treat these payments?”

An accommodation allowance is not liable for FBT if it is part of your employee remuneration package. However, it is subject to PAYE.

If your employee pays a portion of their rent, PAYE is calculated on the difference between what they receive as an allowance and what they pay as rent.

EXPENSES: What entertainment expenses are deductible?

  •  If I take a client out for a meal to discuss business, what is deductible?
  •  If I shout my team, what is deductible?
  •  If I want to hold a promotional evening for my clients, what is deductible?

As a general rule, if you provide entertainment for your team or clients, some of your business entertainment expenses are tax deductible.

Some examples of fully deductible entertainment expenses are food and drink:

  • While travelling on business
  • At promotions open to the public
  • At certain conferences

Some other entertainment expenses are only 50% deductible, for example:

  • Taking a client out for a meal to discuss business
  • Staff drinks in the office
  • Staff Christmas party

If your entertainment expenses are only 50% deductible, you need to make an adjustment once a year on your GST return to repay the GST on the 50% non-deductible portion.

If employees (including shareholder-employees) enjoy entertainment benefits at their discretion and outside their normal employment duties, then these will be subject to FBT.

To support your claims for business entertainment expenses, you should keep invoices/receipts, attaching a note recording the purpose of the expense, who was present and their relationship to your business.

As the rules and exemptions are complex, we will now send you a detailed report on the subject, including a table of some of the more common types of expenses and their treatment.

FBT AND COMPANY VEHICLES: Our Company is about to buy a new car. Can we claim the GST back and is any FBT payable?

As a general rule, as long as the company makes a vehicle available for an employee (including a shareholder-employee), the company will be subject to FBT, whether in fact the vehicle is actually used for private purposes.
However, various exemptions from FBT apply, for:

  • Work related vehicles (this is not the same thing as a business vehicle)
  • Emergency calls and some out of town travel

In order to claim that a shareholder-employee has restricted private use of a company vehicle, strict guidelines and documentation must be followed and if these are ignored the FBT cost to the company can be significant.

FBT is calculated by multiplying the GST-inclusive cost price of the vehicle by 5% per quarter, and then applying an FBT rate of 49.25% to the total. Alternatively you are able to use the depreciated value of the car multiplied by 9% per quarter, and then apply the FBT rate of 49.25%. So, FBT is an expensive business and it is worthwhile taking the time to ensure that you have followed the rules and therefore minimised your exposure.
At the end of the day, a company must decide whether it is better that the vehicle in question be owned by the company or the shareholder-employee.

As the rules and exemptions are detailed, we can send you a full report on the issues. We then suggest that we get together and put in place the right ownership structure and documentation, so that your FBT is legally minimised.

FINES: I incurred a speeding fine in the course of business, is this deductible for tax purposes?

Fines are usually non-deductible. Even though in many cases there may be a strong relationship between the fine and the business, Inland Revenue have issued a policy statement stating that fines and penalties are not deductible in any circumstances.

It appears that they have made this decision on the grounds of public policy or what they believe is the correct moral stance to take.

FOREIGN INVESTMENT FUND: What are the Foreign Investment Fund tax rules and how do they affect me?

The tax rules on foreign investments were amended in 2012 for future income years. For most taxpayers these became effective from 1 April 2012.

They apply to shareholdings in foreign companies of less than 50%.
There are several key features which will determine whether the foreign investment fund rules apply to you and, if so, which of the methods for calculating the income will be appropriate for your situation.
We can send you a detailed report on how the new rules apply to individual investors and family trusts today.

FOREIGN SUPERANNUATION: I’ve heard new tax rules are coming in for my foreign superannuation funds. How will they be taxed?

OR “I’ve withdrawn funds from my foreign superannuation scheme. How will this be taxed?”
Up until 1 April 2014, if you had funds in foreign superannuation schemes, you were taxed on an accrued or deemed income basis under the Foreign Investment Fund (FIF) rules.

New rules came in on 1 April 2014. These rules effectively tax the funds in foreign superannuation schemes on a withdrawals basis. In a large amount of cases, lump-sum amounts from foreign superannuation schemes will only be partially taxed. Also current exemptions for transfers from Australian superannuation schemes will continue. Transfers made into Australian superannuation schemes from other foreign schemes however may be taxable.

If you have previously complied with the FIF rules, you may choose to continue using the FIF rules applying prior to 1 April 2014 or to apply the new rules, depending on which is more appropriate for your circumstances.

As part of the new rules, an additional optional method is available to tax withdrawals up to 31 March 2014, including concessions for withdrawals or transfers that have not complied with the current FIF rules.

We can send you a report today that covers this in more detail. When you have had a chance to look through this, please contact us to discuss which options may be most suitable to your situation.

GST: I have heard that you can pay your provisional tax at the same time as your GST? How does this work and should I be doing this with my business?

From the beginning of your 2008/2009 income year you are able to use another method to calculate and pay your provisional tax. This new method isn’t available to everyone – for example, if you are trading as a partnership you cannot use this option.

Using this option you make your provisional tax payments at the same time as your GST payments – on the same form in fact. IRD works out what your GST Ratio is and you then apply that to your two monthly turnover as per your GST return.

There are advantages and disadvantages to using this method. I have a report here that explains what these are and what the rules are regarding this option. I will send this to you today and then in a couple of days I will give you a call and we can discuss whether this option is suitable for you.

GST: Our overseas suppliers are charging us GST. Is this right?

From 1 October 2016 non-resident businesses that supply remote services, including online services, from outside New Zealand to New Zealand resident customers are required to register for and return GST if they meet certain conditions.

Remote suppliers are not required to return GST on services supplied to New Zealand GST-registered businesses. However they must have evidence that the service supplied was to a New Zealand resident.

I receive a wages subsidy for one of my employees; do I have to pay GST on it as income?

Work and Income can offer wage subsidies to an employer who employs a person recommended by them.
The amount of the subsidy paid will depend on the employee’s circumstances and certain eligibility criteria being met.

Any wage subsidy paid to you as an employer by the government or any public authority will usually include GST.

If you are registered for GST you must then include the amounts received as part of your total income received in your GST returns.
We can send you a detailed report on the subject.

KIWISAVER: What do I need to know about KiwiSaver?

KiwiSaver is a voluntary work based savings scheme to help New Zealanders with their long term saving for retirement.
Employers are required to make KiwiSaver available to new staff aged 18 to 64 years old who are NZ residents and people entitled to live here permanently. This excludes:

  • Casual and temporary employees employed under a contract of service that is 28 days or less
  • Those under 18
  • Election day workers
  • Private domestic workers
  • All other existing employees may join the KiwiSaver scheme at any time they choose to do so.

Contributions to the KiwiSaver scheme for enrolled employees are deducted from the employees’ pay and are paid to IRD together with the compulsory employer contributions the employer is required to make to KiwiSaver for their employees.

MIXED USE ASSETS: We have a bach which we rent out when the family’s not using it. Please can you advise me on whether I can claim for it and what records I need to keep?

If you have a bach which you also rent out commercially, the way you calculate what is and isn’t deductible has changed.

From the 2013–14 income year, along with the normal records required for income and expenses, if you have a holiday home which you also rent out commercially, you should keep the specific records to track usage and expenses.

PARENTAL LEAVE: As a self-employed person, am I entitled to paid parental leave, and if so, how do I apply?

Paid Parental Leave is an eighteen week government funded entitlement that enables a self-employed person to take paid leave when they are having a baby, or adopting a child under 6 years old.

There are certain eligibility criteria that a self-employed person must meet in order to receive this.

The paid parental leave entitlement of 18 weeks is administered through Inland Revenue.

PARENTAL LEAVE: My employee has applied for parental leave; how do I know if they are eligible and what are my obligations as an employer?

Employees are entitled to take parental leave from the workplace when they are having a baby or adopting a child under six years old, provided they meet the eligibility criteria.

Parental leave is unpaid leave from the job.
If an employee is eligible for parental leave they will then also be entitled to government funded payments for up to 18 weeks of their parental leave. This paid parental leave is administered through Inland Revenue.

There are certain criteria that employees must meet in order to qualify. As an employer you too have obligations under the parental leave provisions.

PARTNERSHIPS: Can we allocate a higher or lower profit share to one partner and can we vary that allocation from time to time?

In the absence of a formal partnership agreement, the IRD can reallocate income or losses between partners in a family partnership if the profit allocations are not reasonable. To decide if those allocations are reasonable, IRD will take into account:

  • The nature of the work done by each partner
  • Contributions made by each partner, by way of work done and capital advanced
  • Any other issues that are relevant

Therefore, profits should be split accordingly to each spouse’s capital contribution, the services they perform in the business, as well as any special skills they provide.”

PAYE: Salary vs Drawings

Salary with PAYE deducted

An advantage is that you receive a regular tax paid amount so you can determine the amount required to meet personal living expenses and your personal spending budget.

The tax paid on your salary or wage is paid monthly to the IRD which may be easier on cashflow than paying provisional tax in 3 lump sums during the year.

You have a set income based on an employment agreement which is helpful when applying for personal loans.

Your income is confirmed for ACC purposes as the salary being received.

A disadvantage is that you may end up paying tax (PAYE) on a salary when the company overall in a tax loss situation meaning tax for the group (company and individual) is higher than it could be.

Drawings – with a shareholder salary declared at the end of the year based on company profits

An advantage of this method is that the overall tax paid by the group can be minimised with a salary being declared based on the level of the company profits.

A disadvantage is that the tax paid on a shareholder salary is paid as provisional tax in 3 lump sums during the year which can make a dent in cashflow. The amount of provisions tax payable is normally based on a prior years income which means it can fluctuate quite dramatically from year to year and you can end up over paying or underpaying when the results are not consistent from one year to the next.

The cash taken as drawing is often the net amount as no tax paid and it can be easy to take more drawings than the profit available to pay as a salary meaning that at the end of the year, you end up owing the company for the money you have taken in excess of the salary declared and interest must be charged in this loan.

Your income for ACC purposes is limited to the actual salary declared so if you have an accident, your level of cover may not be sufficient to cover personal living expenses (this can be modified with ACC Cover Plus or personal income protection insurance).

PAYE: What is the PAYE intermediary subsidy and am I eligible for this?

The PAYE intermediary subsidy was introduced to assist small employers to simplify their tax obligations and reduce their compliance costs.

The subsidy is available for those small employers who outsource their payroll obligations to an accredited listed PAYE intermediary and whose total PAYE deductions are less than $500,000 per year.

The subsidy is paid at $2 per payday, per employee for up to a maximum of five employees. This is claimed by and paid directly to the PAYE intermediary on a monthly basis.

There are other requirements that need to be met in order to obtain the subsidy.

PPSR: I’ve just read through the Securities Interest Report you sent me – thanks very much – and spotted some which have been discharged. What’s the process from here?

Since the changes to property law, there are tax implications you need to be aware of if:

  • you are considering buying or selling residential property
  • your company is thinking about a large scale share transfer, or
  • you are considering changes to your family trust’s trust deed or trustees

The ‘bright-line test’ applies where a person who has purchased a residential property on or after 1 October 2015 then sells it within two years. The sale will be taxed unless the property is the seller’s main home, inherited from a deceased estate or sold as part of a relationship property settlement.

All vendors and purchasers of property other than their main home must now provide an IRD number as part of the land transfer process.

Where a vendor is considered to be an ‘Offshore RLWT person’, a withholding tax may be required to be deducted from the sales proceeds and paid to the IRD where property is sold within 2 years of acquisition. This may affect New Zealand registered companies whose majority directors are New Zealand based but have directors based overseas).

PROPERTY: How does the Personal Property Securities Act 1999 affect me?

The ‘secured party’ – the company or person with whom you have signed a contract – is the only one able to discharge the security.

You can make a formal request in writing under section 162a of the Personal Property Securities Act 1999 giving the secured party 15 working days to discharge the security.

We have a report with some useful information on PPSR Financing Statement Discharges which you can request from us today.

PROPERTY: I want to buy a rental property. What sort of structure should I trade under? What types of expenses are deductible?

There are four main structures used to operate a rental business.

These are:

  • Sole Trader
  • Partnership
  • Company
  • Trust

The type of business structure you choose will affect your taxation position, your personal legal liability and the life of your business.

The following are just some of the items that are deductible from your rental income:

  • Accounting fees
  • Agent’s fees and commission
  • Depreciation
  • Interest on funds borrowed to acquire the rental property
  • Insurance and Rates
  • Legal fees in connection with arranging a mortgage to finance the rental property
  • Mortgage repayment insurance
  • Motor vehicle expenses (an appropriate proportion)
  • Repairs and maintenance

As there are many issues to consider before choosing the right type of structure for your rental business, we will can send you a detailed report on the subject. We suggest that you make a time to see us in the near future to discuss your options

PROPERTY: We’re thinking about selling off some property. Please can you advise us how that affects our tax position?

Since the changes to property law, there are tax implications you need to be aware of if:

  • you are considering buying or selling residential property
  • your company is thinking about a large scale share transfer, or
  • you are considering changes to your family trust’s trust deed or trustees

The ‘bright-line test’ applies where a person who has purchased a residential property on or after 1 October 2015 then sells it within two years. The sale will be taxed unless the property is the seller’s main home, inherited from a deceased estate or sold as part of a relationship property settlement.

All vendors and purchasers of property other than their main home must now provide an IRD number as part of the land transfer process.

Where a vendor is considered to be an ‘Offshore RLWT person’, a withholding tax may be required to be deducted from the sales proceeds and paid to the IRD where property is sold within 2 years of acquisition. This may affect New Zealand registered companies whose majority directors are New Zealand based but have directors based overseas).

PROPERTY: What is the Bright-line rule?

The new bright-line rule requires people who sell residential property within two years of buying to to pay income tax on the sale unless:

  • it’s their main home
  • they inherited the property
  • they receive a property as a part of a relationship settlement

All existing property tx rules. for example the intention test, still apply. They bright-line rule only applied to a residential property. Business premises and farmland are not subject to this rule.

How to return property income

You will continue to return property income listing it in the “other income: box on their income tax return.
In addition they will now also complete an IR833 Property Sale Information form. This form will be submitted along with their income tax return.

From 1 April 2016, the IR833 form will be available:

from your tax agent.
download from the forms and guides section of the IRD website
order through the IRD self-service line 0800 257 773
For more information visit www.ird.govt.nz/propertychanges

PUBLIC HOLIDAYS: I have some questions about the close down for Christmas – can I talk to you?

Firstly, do you already have the list of public holidays for Christmas and the new year? If you don’t there’s a really helpful page on the Department of Labour site that will give them to you.

The Department of Labour also has some helpful advice on closedown periods. It covers a range of issues relating to employment, pay and leave.

QCs AND LTCs: You’ve recommended our new Company be an LTC (or stay a QC), why is this?

Companies have two tax status options on incorporation:

  • Standard
  • Look Through Company (LTC)

Previously, the Qualifying Company (QC) regime was also an option. However, there can be no new elections to this regime for income years beginning on or after 1 April 2011.

A QC could also have Loss Attributing Qualifying Company (LAQC) status. For income years starting on or after 1 April 2011 existing QCs and LAQCs can continue to use the QC rules, but LAQCs no longer have the ability to attribute losses.

Under the Standard tax status all losses generated by a company must be held in the company until future profits offset them, as long as there is no breach of shareholder continuity. A company may also make its tax loss available to offset the net income of another group company. Capital gains can only be distributed to shareholders tax free from a Standard tax status company on liquidation.

An LTC’s income, expenses, tax credits, rebates, gains and losses are passed on to its owners. These are generally allocated to an owner in proportion to the number of shares they have in the LTC. Any profit is taxed at the owner’s marginal tax rate. The owner can use any losses against their other income, subject to the loss limitation rule.

There is no longer one recommendation to generally suit most situations. Please do contact us to discuss your situation and the best option for you.

SHAREHOLDER: I’ve heard about the Penny & Hooper decision and I don’t know whether it changes things for the way our business is structured. Can you advise me please?

The Penny & Hooper decision is widely regarded as a landmark case and has generated a great deal of discussion.

The recent Supreme Court decision in Penny and Hooper v CIR was decided in favour of the Commissioner of Inland Revenue (CIR) and concluded that the setting of artificially low salaries amounted to tax avoidance.

The IRD is now actively reviewing businesses providing professional services to determine whether they fall foul of the Penny & Hooper decision, and it is fair to say they are doing so with a fair amount of rigour and enthusiasm!

We can send you a report today that covers a synopsis of the Penny and Hooper decision and IRD’s current poisiton in more detail. After you’ve read that, if you’d like to discuss how this could affect you, please do give us a call.

SPONSORSHIP: Community Events and Teams

As a general rule, if you provide sponsorship for your team or community event, depending on the type of sponsorship and as long as your business is being promoted, it may be completely deductible.

Fully deductible sponsorship
For sponsorship to be fully deductible, it needs to satisfy the general deductibility test. The IRD must be satisfied that the expense is in the connection with advertising, and not a private expense on a recreational pastime. Therefore, for the expense to be deductible the business must be promoted in some way, and the recipient of the sponsorship must benefit from the expenditure.

Two examples of fully deductible sponsorship
Sponsoring $2,000 towards the local rugby league team’s new uniforms. In return, the team agrees to display your business logo on the uniforms
Sponsoring $10,000 towards Life Education Trust “Colour for Life” event. In return, the trust agrees to advertise your business in all media publications
Expenditure on sponsorship of a capital nature
If the expenditure is of a capital nature, such as a permanent neon sign or billboard, it is not fully deductible, and it needs to be capitalised and depreciated as follows:-

Neon sign – Depreciation rate of 21.6% on a diminishing value base
Non electrical sign – Depreciation rate of 11.4% on a demising value base

STOCKTAKE: Why do I need to do a stocktake and how do I go about it?

Most businesses that buy and sell goods or manufacture things need to do a stocktake. In some cases a business may have a rolling inventory system – however they still need to do regular stock counts to make sure the calculated amounts are accurate.

Smaller businesses (those with a turnover of up to $1,300,000 and where stock on hand is likley to be less than $5,000) do not have to value their stock at year end – they can just use the opening value if they wish.

It is really important to have good procedures for cut-off and inwards goods as this can have a significant effect on the calculation of gross and net profit.

There are a number of things that need to be considered when counting stock – when to do it, what to count, at what price items should be included, etc. We can send you a report on doing a stocktake together with a really helpful checklist and a sample Stock List that will make sure you are heading in the right direction.

If after reading the report you need more help, do give us a call

STUDENT LOAN: What are the repayment obligations on my student loan?

A student allowance is a weekly payment to help with your living costs while you study full-time. A student loan is money advanced to assist with your fees, course-related costs and living costs.

Student Allowances
To qualify for a student allowance you need to be:

18 or over (however some 16 and 17 year olds may be able to receive in special circumstances)
studying full-time
on a secondary or tertiary course approved by the Tertiary Education Commission
a New Zealand citizen; if you’re not a New Zealand citizen, you’ll need to:
be entitled under the Immigration Act 2009 to reside indefinitely in New Zealand and have held a residence class visa for at least 3 years (2 years if study was commenced before 1 January 2014) and
be ordinarily resident in New Zealand or
be a refugee or protected person and hold a residence class visa, or sponsored by a family member who has refugee status
To qualify for the maximum allowance your income cannot exceed $211.96 a week before tax.

Student Loans
To qualify for a student loan you will need to:

be a New Zealand citizen, permanent resident or refugee
sign a contract with the government
be enrolled on a Tertiary Education Commission approved course. The course must be full-time (or limited full-time with StudyLink’s approval) or part-time and 32 weeks or longer
Other Information
StudyLink administers both student allowances and student loans. You will need to contact them directly to apply for either of these.

As the rules are complex, we can send you a detailed report on the subject today. The StudyLink website at www.studylink.govt.nz also contains useful information and documentation.

TAX: Can you tell me how the new moves to simplify tax will affect my business?

The Government has been working on simplifying the tax system for some time. It is expected that some of their proposals will come into effect in April 2017, and more in April 2018.

It’s a rolling programme to review the administration of the whole tax system.

We can send you a detailed report on the subject today.

TAX: Frequently asked question where the accountant has identified the client has a tax debt owing to IRD

Where typically the client (or prospective client) will call with a question, in some cases the accountant may identify the client has a tax debt owing to IRD.

In these cases the accountant should contact the client as soon as possible.

I understand that you have received a letter from IRD.

As a result of IRD action (audit / investigation / dispute), you now have a debt with the IRD.
what date was the IRD’s letter issued?
what is the total amount IRD says is owed?
what tax types are involved?
2. Have IRD imposed penalties or interest?

[If yes]
IRD has sent this to you because their understanding is that you have passed the due date for payment of the tax you owe.
The important thing to note here is that if we don’t address this now, IRD will impose further penalties. The longer the debt is owed, the more these penalties will mount up. IRD also charge interest on the amounts owed and, over time, with interest, the debt can snowball till it’s unmanageable. If we start to deal with this promptly, we may be able to work with the IRD to reduce future penalties imposed.

[If no]
The important thing to note here is that if we don’t address this now, IRD will impose penalties. The longer the debt is owed, the more these penalties will mount up. IRD will also charge interest on the amounts owed and, over time, with interest, the debt can snowball till it’s unmanageable. If we start to deal with this promptly, we may be able to work with the IRD to reduce the future penalties imposed.

Let’s meet
You do have some options to help you liaise with the IRD and it is important that you come to see us to discuss what might work best for you.
We recommend that you come in to meet with us as soon as possible to discuss what we can do next to reduce the impact of accruing interest and penalties.

To prepare for this, we can send you out a fact sheet. We can also send an IRD form and a list of documents we need which will help us to assess your situation. When you receive the form please can you complete the sections indicated and gather together the documents requested and bring them with you to our meeting.

TAX: How does the provisional tax system work?

It’s very important that you have a broad understanding of the Provisional Tax system. In your first year of business, you can receive quite a tax deferral.
What we mean by that is, your first year’s tax bill is in some cases not payable until 7 April the following year. For example, if you go into business in June 2012, assuming you have a March balance date, your first year’s tax bill may not be due and payable until 7 April 2014, which is quite some time away. To add insult to injury, your provisional tax for the following year may not be payable until May 2014.

The first two tax bills you sometimes receive in business, being terminal tax for the previous year and Provisional Tax for the current year are referred to in accounting circles as ‘The double tax whammy’, and for good reason. In fact, if you aren’t aware of these impending tax bills, and if you don’t seriously plan for them, they can be a rude shock to the system and have a serious effect on the cashflow of your business.

We believe it is vitally important that six months in to your new business, at the very latest, we should be preparing a simple tax plan for you so that you have a general idea of how much tax will be payable and when and can therefore programme the likely payments in to your cashflow plans. This is a far more comfortable situation than waiting until the following year to find out your tax commitments.
There is also the opportunity for newly self employed people or people in partnerships to make voluntary payments of provisional tax during that first year of business and receive a 6.7% discount on that first years tax.
Because the Provisional Tax system is so complex, we will today send you a written summary of the main provisions. If you have any queries whatsoever, don’t hesitate to come and see us.

TERMS OF TRADE: I need to write a Terms of Trade Agreement. How should I set this out?”

Terms of Trade differ from business to business. Small businesses providing goods and services often want, and can fit Terms of Trade on an A4 sheet of paper. Terms of Trade for more complex businesses may run to several pages.

We have a report and several sample templates that set out the main issues and terms you should consider. We can send these to you. After you’ve read the report and templates and thought about the various issues, I suggest you make a time to see us. We will then prepare a brief so that your solicitor can prepare your Terms of Trade Agreement.

TRUSTS: Are legal fees to set up a Family Trust deductible?

OR “My solicitor or professional trustee charges an annual trustee fee, is this tax deductible?”
Some legal and administration expenses related to trusts are deductible, but many are not.

Generally speaking, these are deductible if connected with:

Preparing/reviewing/assigning leases
Preparing Deeds of Acknowledgement of debt
Remuneration to trustees relating to earning of income
Remuneration in relation to tax advice
Remuneration to trustees in relation to reviewing financial statements
Attendances in relation to finance documentation (where finance costs are deductible)
Legal and administration expenses are not deductible if connected with:

Preparing the Trust Deed
Capital administration
Distribution of income to beneficiaries
Appointing new beneficiaries
Settling beneficiary disputes
Costs associated with a gifting programme
Legal and administration costs to do with preparing gift statements and deeds of reduction of debt are not deductible to the trust, as they are completed on behalf of the donor.

If the trust’s total legal expenses for the income year are equal to or less than $10,000, they are tax deductible. If the total legal expenses for the income year exceed $10,000, then the ordinary rules apply.

As the rules are relatively complex, we can you a summary of those rules. If you need further specific advice, be sure to contact us.

USE OF MONEY: How do I reduce the amount of Use of Money Interest that I am paying?

Not everyone has to pay use of money interest – there are four categories of taxpayers that have to pay this interest to the IRD. They are:

companies and trusts that pay income tax in their own name
people who have estimated their provisional tax
people who have income in their own name that creates a tax liability (before provisional tax payments) of $50,000 or more, and
people or entities that pay their taxes late
The majority of our clients do not have to make any payments of use of money interest because they fall outside these categories. Most individuals are what we call ‘safe-harboured’ for provisional tax and as such are not subject to this interest – unless their income grows to such an extent that they have a tax liability of over $50,000.

The clients who do pay use of money interest don’t like doing so – it is at a much higher rate than the banks usually charge – 8.27% at the moment. If the IRD has to pay you interest it uses the rate of 1.62%. Use of money interest is designed in such a way that you aren’t tempted to use the IRD like a bank.

The way in which use of money interest is calculated on the first three categories of taxpayers above is a little complicated. I have a report that summarises how that works and I will pop that in the mail to you today. This will give you a good understanding of how the system works.

In order to minimise the amount of interest you pay it is necessary to keep an eye on where your income in the current year is going. If you could keep me up to date with what is happening in your business on a regular basis I will have a much better chance of reviewing your income for tax purposes more accurately and ensuring that the income tax payments you are making are appropriate. We can thereby minimise your exposure to use of money interest.

If you are at risk of having to pay use of money interest we will review the level of your tax payments prior to each instalment of provisional tax to make sure you are on the right track.

Once you have read through the report if you have any queries whatsoever, don’t hesitate to come and see us.

WAGES: Can I pay my spouse a wage for the work he/she does doing the books?

OR “My wife cooks for my farm employees, can I claim a deduction for the wages paid to her?”
If you are a sole trader, you must get written approval from the Inland Revenue Department before you can claim a deduction for wages paid to a spouse.

You need to satisfy the Inland Revenue Department that the payments are reasonable and are necessarily incurred in the production of your income. There are no specific rules if you are in a partnership or trading as a Trust or a Company.

As there are precise rules you need to meet to satisfy the Inland Revenue Department.

WORKING FOR FAMILIES: Am I eligible for family assistance?

OR “Can I have your help working out what income is included in family income?”
Working for Families is a package designed to help make it easier for you to work and raise a family.

There are four types of assistance available. Different income thresholds apply to each of them and it’s important to take all forms of income into account as the definition of income has broadened considerably in recent years.

If you’re caring for your child/ren in a joint custody arrangement, your eligibility to receive Working for Families tax credits depends on your ability to qualify as a principal caregiver.

If you have a child support arrangement in place administered through Inland Revenue and Work and Income, the amount you either pay or receive may change. Both parents’ income is now included in the formula calculation so the cost of the child’s care is shared between both parents.

We can send you a report today that covers this in more detail. When you’ve had a chance to read through it, please contact us if you’d like more information about your eligibility or entitlement.