Archive for 'tax'

Simplifying provisional tax for small businesses

Inland Revenue is making provisional tax simpler for New Zealand small businesses through the Accounting Income Method (AIM). Now in its second year, AIM allows business owners to pay a tax bill only when they’re making a profit.

Under the previous rules of provisional tax, payments must be made three times a year and in equal amounts. As most businesses don’t earn their income equally across the year, this can cause strain on the business’s cash flow if taxes are paid earlier than profit is made.

AIM does not replace existing methods, but is available alongside previous ways of paying provisional tax. It is currently provided through three accounting software providers and aims to take the guesswork out of provisional tax by using a business’s real-time account information. This can then provide them with more certainty that they are paying the right amount of tax at the correct time. AIM also reduces a business’s exposure to penalties and interest on provisional tax.

AIM is currently provided as part of software accounting packages from MYOB, Reckon and Xero. To find out whether AIM will assist your business, speak with your accountant or tax agent.

Posted on 6 August '19 by , under tax. No Comments.

What to know about the IRD’s new automatic tax assessments

From 20 May 2019, Inland Revenue has begun to automatically assess the 2019 tax position for over 380,000 tax-paying individuals. These assessments are a part of the IRD’s business transformation program, which aims to modernise and streamline the process of New Zealand’s tax system.

These new assessments will finalise the end-of-year information for the annual tax year ending 31 March 2019. Individuals that are affected will be those that have a reportable income only, such as salary or wages, interests or dividends, and NZ super. The end-of-year assessment uses employer and bank information to show you how much you’ve earned and how much tax you’ve paid, as well as providing you with a tax calculation. Individuals with a myIR account will be notified when their tax assessment is ready to view.

Upon receiving an automatic tax assessment, you should check it immediately as the IRD will need to be informed of any discrepancies or income that is not shown in the assessment. You will have until your terminal tax date to do this, which is 7 February 2020, or 7 April 2020 if you are using a tax agent.

No further action is needed for tax assessments that are correct, as the IRD will automatically pay any refund directly into your bank account within 48 hours of the assessment completion. In cases where tax is owed, Inland Revenue will confirm the amount that is owed and the due date. There will be a range of payment options available to individuals, including payment plans.

In cases where you have other sources of income, do your own tax return, or are self-employed, then you should not receive an automatic assessment and will still need to file your own income tax return. Consulting a tax advisor for further assistance may be helpful in these circumstances.

Posted on 8 July '19 by , under tax. No Comments.

What businesses need to know about the new R&D Tax Incentive

The Taxation (Research and Development Tax Credits) Act 2019 has received the Royal Assent, and was passed into law on 7 May 2019. The R&D Tax Incentive will apply to eligible R&D activities conducted by businesses from the 2019/20 income year. Here is what eligible businesses need to know about the recent legislation.

The aim of the tax incentive is to raise New Zealand’s expenditure on research and development to 2% of GDP over the next 10 years. This is in the hope that it will create a more productive and sustainable economy. However, in order to reach this target, more businesses will need to increase their expenditure on R&D. The main features of the incentive are:

  • A credit rate of 15% applied against income tax liability.
  • A minimum expenditure threshold of $50,000 per year, with a $120 million cap.
  • Limited form of refunds for the first year of the scheme that is similar to the R&D tax-loss cash-out scheme run by IRD.

Core R&D activities are defined as having a material purpose of creating new knowledge or new and improved processes, or to resolve technological or scientific uncertainty.

For most businesses, expenditure on eligible R&D activities that are undertaken from 1 April 2019 will qualify for the tax incentive. These businesses will be eligible to transition into the new regime at the start of their 2019-20 income year and should start recording their R&D expenditure now to ensure that their records are ready to file.

Posted on 11 June '19 by , under tax. No Comments.

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

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.