Archive for 'tax'

Calculating your provisional tax

For business owners or those who are self-employed, your income tax is paid in several instalments instead of a lump sum at the end of the year. This is referred to as provisional tax.

Provisional tax must be paid for individuals who owed more than $2,500 of tax at the end of the year for their previous return. It is then payable in the following year after the individual tax return has been completed. The income that provisional taxpayers often earn includes self-employed income, rental income, overseas income, or income earned as a contractor or from a partnership.

Provisional tax payments are based on your business profits during a certain payment period. There are a number of ways to work out provisional tax. These include:

Standard option:
Calculated by either last year’s residual income tax + 5%, or your residual income from two years ago + 10%, the standard method is useful if your income is steady or will increase over the next year.

Estimation option:
When you know that your income will decrease over the next year, the estimation method is used. Add up all the taxable income that you expect to receive in the next year, then work out the tax on this amount and deduct any PAYE and other income tax credits you would be entitled to.

Using each of these methods to calculate provisional tax is followed by filing your return and commence making provisional payments through myIR.

Posted on 10 May '19 by , under tax. No Comments.

Secondary tax changes

The Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill passed its third reading on 13 March and will now come into effect on 1 April. The bill amends incorrect secondary tax codes, relieving workers with more than one job who have previously been paying too much tax annually.

The IRD will now be looking closer at tax paid by wage and salary earning individuals throughout the year to ensure proper PAYE tax codes are applied. The legislation will now enable automatic tax refunds for about 750,000 people per year. This bill also removes the need for people who solely earn employment or investment income to file a personal tax summary (PTS) to get a tax refund.

Other changes included in the bill further relate to the IRD and updating the tax system as a whole. Some of these changes are:

  • New KiwiSaver contribution rates of 6% and 10%, making the savings scheme accessible to people over 65.
  • Depreciation roll-over relief for properties affected by the Canterbury earthquakes in 2010 and 2011 extended until 2024.
  • Clarifications of how the IRD can collect, use and disclose taxpayer information.
  • Introduction of a ‘short process ruling’, meaning small businesses can easily apply for a binding ruling from the IRD on any tax matters.
  • Confirms the annual rates of income tax for the 2018/19 tax year remain the same as previous years.

Posted on 25 March '19 by , under tax. No Comments.

Payday filing

Payday filing is a new method of submitting and processing employment information to the IRD, meaning you will have to file more information and more frequently. This process will be implemented on 1 April. This system allows software providers to send employment information and changes to employees’ details to the IRD each pay cycle instead of monthly. The due dates for employer deductions filing and payment remains the same as the 20th of each month or if you file twice a month, the 5th and 20th. There are three ways to file online:

  • Direct from payroll software.
  • File upload to myIR.
  • Onscreen in myIR (if you have smaller pay runs).

With this new system, employers will need to file the pay details of employees and other relevant employment information every payday. It is also required to produce new and departing employees’ address information, contact details, etc. You will need to ensure your employees are aware that the information is now requested from the IRD. Filing will now be done electronically, from payday compatible software or through myIR, if your annual PAYE/ESCT is $50 000 or more.

Payday Filling is very straightforward, there are two methods to using the system. Employers can use myIR by going through the payroll returns account through file upload, where payday filing compatible software is required, or online data entry. Alternatively, you can go directly from your payday filing compatible software. With this option, employers will file directly from their software. It should be noted that paper filers can’t shift to Payday Filing before April 2019.

Posted on 1 March '19 by , under tax. No Comments.

E-commerce and income tax

In 2015, New Zealanders spent an estimated $3.5 billion in goods and $1.2 billion in services online. With the growth of online shopping, rates having increased considerably year by year. How does tapping into the digital economy affect how you manage your business’ taxes?

Double Taxation:
As a considerable number of online businesses undertake trade overseas, your business’ income may be subject to tax in both New Zealand and abroad. This can occur when areas of your business’ operations are undertaken in both New Zealand and in another country. However, you may be eligible for a tax credit if New Zealand has a double tax agreement with the foreign country of concern.

Distinguishing between business profits and royalty payments for overseas transactions:
The intention behind a customer’s purchase is vital when distinguishing between a business profits payment and royalty payment. The downloading of a digital product from an overseas source for personal use by a New Zealand resident would be considered a business profits payment. A New Zealand resident looking to download and reproduce digital content for their own business (i.e. paying for the rights to use the content or intellectual property) would be a royalty payment. This would be subject to the ‘Non-resident withholding tax’.

Selling goods online:
If you are selling a physical or digital product to a customer in New Zealand, the 15% GST rate is chargeable. If the product is to be exported (and provided the export transaction can be supported by evidence) the sale can be exempt from GST charge (zero-rating).

Posted on 31 January '19 by , under tax. No Comments.

Heavy fines for lack of employment records

Employers must keep complete and accurate records of their employees to avoid severe fines. Remain compliant with the Employment Relations Act 2000 and the Holidays Act 2003 and follow the checklist given below.

As an employer you must:

  • Be able to show you have paid your employees all minimum employment entitlements like the minimum wage rate and four weeks’ annual holidays
  • Keep records with the name, age, address, and date employees started working, what their job entails, public holiday payments and tax declarations
  • Keep records for seven years even if they have left
  • Ensure all employees have complete and current employment contracts

Penalties
Employers who fail to follow these record-keeping requirements are liable for severe financial penalties. Individuals found in breach of this requirement could be fined up to $50,000, and companies up to $100,000 or three times the amount of the financial gain made. Labour inspectors can also issue an infringement notice for breach of the record-keeping requirements.

Posted on 7 December '18 by , under tax. No Comments.

New Research and Development tax incentive

The Coalition Government will introduce a new tax incentive aiming to unlock further spending on research and development. The research and development (R&D) tax incentive is the government’s response to extensive consultation with businesses.

As part of the incentive the government has stated that the rate will be higher, the threshold lower and the definition more inclusive so that as many businesses as possible can benefit from this incentive.

The R&D incentive aims to give business’ the opportunity to increase productivity and boost wages. The Coalition agreement will work to increase R&D spending to two per cent of GDP over 10 years. The government will also include refundable tax credits for start-ups and loss-making businesses in the first year of the tax incentive.

The key features of the policy include:

  • A credit rate of 15%
  • A $120 million cap on eligible expenditure
  • A minimum R&D spending threshold of $50,000 per year
  • A limited form of refund in its first year mirroring Inland Revenue’s tax-loss cash out scheme (to be replaced by a more comprehensive approach in the scheme’s second year)

Posted on 12 October '18 by , under tax. No Comments.

Everything you need to know about payday filing

From 1 April 2019 employers must comply with the new payday filing scheme. The due date for employer deductions filing and payment remains the same as the 20th of the month.

Employers must:

  • File employment information every payday instead of an Employer monthly schedule
  • Provide new and departing employees’ address information, and their date of birth- if they have provided it to you
  • File electronically (from payday compatible software or through myIR) if your annual PAYE/ESCT is $50 000 or more.

    How to payday file

Employers must Include employment information (and correct a file), employee details and employer deductions. It should be noted that paper filers can’t shift to payday filing before April 2019 unless they change to electronic filing.

The methods include:

  • In myIR through the payroll returns account through file upload (payday filing compatible software is required) or online data entry
  • Directly from your payday filing compatible software. With this option, employers will file directly from their software.

    Steps to shift to payday filing today
    There are several steps employers can undertake to start payday filing as soon as possible:

  • Review payroll processes, plan and schedule when to make the shift
  • Ask the software provider when they will have payday filing compatible software
  • If the decision is to use myIR to file the IRD must be notified when the change is made to payday filing.

Posted on 24 September '18 by , under tax. No Comments.

Introduction of Best Start

From 1 July 2018, eligible parents who have a baby born on or after 1 July 2018 will receive a Best Start payment of $60 per child.

Eligible individuals will receive $60 a week until the baby turns one regardless of household income. For those with a household income of less than $79,000, you will receive $60 a week until the child turns three.

The eligibility requirements are as follows:
– You must be the principal caregiver of the child
– You must be a New Zealand resident or citizen and have been in New Zealand for a continuous period of 12 months at any time, or
– The child you are claiming for is both a resident and present in New Zealand
– You must be a New Zealand resident
– You must have an IRD number for the child you will receive Best Start payments for.

Families can apply when registering their baby’s birth through “Register your Baby” on the SmartStart website, or by completing the Working for Families Tax Credits registration (FS1) form which can be found on the IRD website.

Posted on 5 July '18 by , under tax. No Comments.

Budget 2018: Ensuring fairness across the tax system

This year’s Budget focused on the Government’s commitment to creating a fairer tax system for all New Zealanders.

New initiatives aimed at cracking down on tax dodgers are expected to generate an extra $726.3 million in revenue. The additional revenue is set to assist the Government in addressing significant under-resourcing of critical public services.

Inland Revenue will receive $31.3 million of operating spending over the next four years, and $23.5 million to ensure outstanding company tax returns are filed. This is expected to recover approximately $183.3 million.

Initiatives designed to reduce distortion in the tax system are also set to provide additional revenue. Speculators and investors can no longer offset tax losses from residential properties against other income.

Offshore suppliers of low-value goods will be required to register for, collect and return GST. This is estimated to provide $218 million in new revenue over the next four years, and is expected to increase each year as online shopping grows.

Posted on 7 June '18 by , under tax. No Comments.

Registering for GST

Businesses need to register for GST once they earn more than $60,000 in 12 months. Penalties may be enforced if businesses do not register when they are required.

This applies to all business structures including sole traders, contractors, those in a partnership and companies.

Although business owners need not register if they do not think they will turnover that much, voluntary registration means you may be able to claim a GST refund. Once you register, you must complete regular GST returns.

When registering, you must decide on how often you will file returns, i.e., monthly, two-monthly or six-monthly. You will also need to choose an accounting basis from the following options:

  1. Payments basis – you account for GST in the period you file returns in which you have made or received a payment.
  2. Invoice – you account for GST in the period you file returns when you have sent or received an invoice.
  3. Hybrid method – a combination of both payment and invoice methods.

After you have registered for GST, you will need to include GST in your prices, or you could be out of pocket.

Be sure to keep records of all your invoices and expense receipts (and keep these records for seven years). Any GST payments you receive should be put aside to pay Inland Revenue at return time.

Posted on 25 May '18 by , under tax. No Comments.