Tax Specialsts Auckland
Chartered Accountants

Publications

Newsletter July 2018

TAX CALENDAR

July 30, 2018

3rd instalment of 2018 provisional tax is due on the 28th July, however as this is Saturday it will be the next working day Monday the 30th July 2018.
(June balance dates)

August 28, 2018

1st instalment of 2019 provisional tax
(March balance dates).

Pay GST for period ended 31 July 2018

New rules for mileage

If you are in the habit of claiming your vehicle running expenses based on your mileage, you will need to know the new rules.

The 5000-kilometre limit has been abolished. Instead, you look at your first 14,000km of total running. This is called tier 1 and the mileage rate is higher than it is for tier 2.

You calculate the business proportion of that first 14,000km. Shall we say that is 20%, which amounts to 2800km. Next, you work out the rest of the total mileage. This is called tier 2. Shall we say you did 29,378km in the year. This means the rest of the mileage is 15,378km and your 20% would be 3076km.

The 2018/19 rates have not yet been announced and they will vary according to the type of vehicle you have, be it petrol, hybrid, electrical or diesel. You should make a point of telling us which source of energy you are using.

As you can see, you really need to know the total number of kilometres you travel every year. Make a diary note to have a look at your odometer at the end of the day on the last day of your financial year. If you sell your vehicle, note the final speedo reading on the old car and the starting figure on the new car. Similarly, note the reading on the new car.

Marketing is an ongoing process

If you are bit quiet it may be a good time to review your marketing plans. Your marketing plan should usually be your first consideration. You should consider the following:

  • Can you sell more to your existing customers? Maybe all you have to do is a little staff training. Everyone should ask the classic upselling question: “Will you have fries with that?”
  • Your existing customers are often a good source of new customers. An electrician who has a reputation for excellent work (and substantial prices), sends a notepad and business card with his invoices. Notepads are a great way of constantly reminding your customers you are around. They are too substantial and useful to throw away, unlike most other advertising material.
  • Involve as many people as you can in thinking about how you can go about your marketing. If yours is a small business, look for low-cost and no-cost ways to get more customers. Try looking up guerrilla marketing on the internet.
  • Marketing is not a one-off exercise. If you put flyers in people’s letterboxes, for example, you are not going to get much of a response if you do it just once. Repetition increases your chance enormously of converting a prospect to a customer. Real estate agents are good at this.

Interest on short-paid provisional tax

Are you likely to pay more than $60,000 provisional tax per year?

If your record keeping is good, whether you are using an accounting package or not, you will be able to determine with reasonable certainty the amount of revenue you have earned and the amount of expenses you have incurred for the 12 months, which should give you an idea of your taxable income.

Provided you pay your provisional tax using the standard method, which is the default method automatically applied when your tax return is prepared, there will be no use of money interest charge on the first and second instalments. In addition no interest will be charged on the third instalment of provisional tax, provided that your residual income tax is $ 60,000 or less and you pay the standard amount and no associated person estimates their liability.

There is however an expectation that you will be able to work out your income for the entire year in time for the third provisional tax instalment as the use of money interest will now be charged on underpaid provisional tax but only from the third instalment, provided that standard calculation method was used for your first and second provisional tax payments.

The standard calculation for provisional tax automatically allows for an increase in your income by 5%. If you think your income for the year ended 31 March 2019 is going to be more than this (we assume you have a 31 March balance date) we recommend that you let us know and instead of estimating your provisional tax for the year we will ask you to make a voluntary payment on 7th May 2019. It is important that you communicate with us so that we can plan for the increased voluntary tax payment, which may have an impact on your cash flow.

ACC CoverPlus Extra

There are some very real advantages of using CoverPlus Extra instead of the ordinary ACC cover.

One of the main ones is that you can insure for a specified amount so if you have a claim, it will not depend on the actual performance of your business. The premiums for CoverPlus Extra are higher than for ordinary cover. If you are using CoverPlus Extra, be careful. If you fail to pay your premium on time your policy will automatically cancel and revert to the ordinary cover. Also, your cover won’t start until ACC has received your signed policy acceptance form.

The Department recommends you send this by email at [email protected]

Christmas & Employee Christmas gifts

Non-monetary gifts to employees are likely to be “unclassified fringe benefits”, or UFB, under tax law.

The year seems to be flying by at the speed of light. Before you know it will be Christmas again and many of you will be considering Employee Christmas Gifts.

Each employee is entitled to receive up to $300, including GST, worth of gifts per quarter, provided the total UFBs for your business does not exceed $22,500 including GST, in any 12-month period. Monetary gifts are not UFBs. They are additional wages and should be treated as such.

You may be entitled to switch from quarterly fringe benefit tax returns to annual ones. This could be useful if you want to make Christmas gifts worth more than $300. Those accounting for fringe benefits annually have a limit of $1200 per year per individual instead of $300 per quarter. This means you could make a gift worth $500, for example, and not incur fringe benefit tax, provided the employee didn’t get more than $1200 in one financial year.

Incidentally, if you exceed a threshold, the whole benefit is subject to FBT and not just the amount in excess.

TAX TIPS, TRAPS AND TROUBLES

Attention Residential Property – Landlords

With the introduction of the 5 year Brightline rule you should think carefully before changing the ownership of your existing residential property holdings, as your existing properties may either be completely outside of the Brigtline Rule or within the 2 Year Brightline Rule. What constitutes residential property is quite broadly defined and includes land that is zoned residential and this will include bare land as well.

With the introduction of the 5 year Brightline Rule you must hold a residential property (that isn’t your main home) for at least Five years to avoid paying income tax on any capital gain, where the land is acquired on or after 29th March 2018.

Any change in the ownership of your existing residential property, i.e. transferring from yourself to a Family Trust, will suddenly mean that the property will need to be retained for period of 5 years as a minimum otherwise the increase in value of the property will be taxable. Luckily this change was not retrospective, so properties that are outside of the Brightline rule or that are within the 2 Year Brightline rule, will remain as such.

Consequently, if you are considering changing the property ownership for some reason, come and talk to us as such a change may give rise to a lock in period of 5 years. It is too early to say what this will do to the property market. One view is that residential property investors will keep properties for longer which will affect supply.

The Government also plans to abolish the tax benefits of negative gearing by ringfencing rental property losses with effect from 01 April 2019, other than loss offset against other rental property profits. As most people do not rely on a tax refund from IRD to pay their mortgage, what may happen is that the landlords may seek to increase the weekly rental to recover the tax benefit that they would otherwise have received.

If you have rental properties which overall produce losses then it would pay to talk to us about restructuring of debt to avoid losses.

Settlors Migrating to or from New Zealand

If you are a Settlor of a New Zealand or an Offshore Trust your relocation to or from New Zealand will have NZ tax consequences for your Trust.

If you are a Settlor of a NZ Trust and you decide to move to say to Australia, your New Zealand Trust can lose its Complying Trust Status and become a Non- complying Trust. Distributions from a Non-Complying Trust are taxed at penal tax rate of 45% unless the distribution is a beneficiary income distribution or a distribution from the corpus of the Trust. You may be surprised to know that the 45% taxation is also imposed on distributions of any capital gains and accumulated trustee income, which in effect could give rise to double taxation. A simple solution may be to file your Complying Trust election within 12 months of the last Settlor leaving NZ, or simply to file the tax returns for each year in which you make an election to remain a Complying Trust.

In addition to the above if the Settlors or Trustees migrate from NZ to Australia or another jurisdiction, this could give rise to the Trust being caught within that country’s tax laws.

If you are a Settlor of an Offshore Trust and you migrate to NZ, you need to ensure that you file Complying Trust elections within the prescribed period, either within 12 months from your arrival to NZ if you do not qualify for transitional residency, or within 12 months from the end of your transitional residency if you qualify as a transitional resident. The purpose of this election, as with emigrating Settlors, is to ensure that the Trust will not become a Non- Complying Trust and subject to Penal Taxation at 45%.

If you are contemplating relocation from NZ or are new to NZ and are a Settlor or a Trustee of a Trust, please come and speak to us so that we can assess your situation as sometimes a little bit of tax planning or minor changes may go a long way to preventing unintended tax consequences from arising.

BIT OF TECHNOLOGY UPDATE

How to Stay Safe Online

Almost everyone is now making financial transactions of some sort online.

It is making the job of doing business simpler and more efficient, but it’s certainly not without risk. We need to be aware of how to stay safe and stay protected every day. Online hacking and identity theft is on the rise and can have devastating consequences for those affected. Consequently, you must be careful whom you give your personal information to or where on the internet you leave your passwords and personal information. The accounting software company CashManager listed a few useful tips of what to Do and what Not to Do to improve your online security.

ALWAYS:

  • Choose a password that contains a combination of characters, at least eight characters long.
  • Update your website, software and apps as soon as a new update becomes available.
  • Be cautious when receiving an email from an unknown sender.
  • Keep your anti-malware and antivirus software up to date.
  • Report all phishing scams to the official organisations they are trying to replicate. NEVER:
  • Give out your bank details unless you are on a legitimate shopping site with https in the url, or your official bank website.
  • Use the same password for your online accounts.
  • Store your personal information in unprotected documents.
  • Re-enter your passwords and private information in pop-up boxes.
  • Click on links that look suspicious.

STAFF NEWS

Some of you will have noticed a familiar voice or have seen a familiar face when you have either called in or came in to our offices recently. We welcome back Janine after a year’s absence. She has been busy since her return re-organising a lot of our files and making many other improvements.

Contact Us

Michael Roberts

[email protected]

Martina Evans

[email protected]

Shane Zhou

[email protected]

P: 09-9661370
Level1, 10 Manukau Rd, Epsom, AKL