Tax Facts

ACC Premiums

Employer invoicing by ACC takes place from June each year and is based on employee earnings for the year ended 31 March.Your ACC Premium consists of:

• Work Account Levy – your classification unit rate x each $100 of liable earnings.

• Working Safer Levy – $0.08c x each $100 of liable earnings.

The Classification Unit Rate is based on the actual cost of work-related injuries that occur within your classification unit.  A classification unit is a group of businesses that operate within a similar industry.

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Depreciation Allowances

Depreciation allows for the wear and tear on a fixed asset and must be deducted from your income.

Generally you must claim depreciation on fixed assets used in your business that have a lifespan of more than 12 months. However in special circumstances you can elect not to depreciate an asset by applying to the IRD.

Not all fixed assets can be depreciated. Land is a common example of a fixed asset that cannot be depreciated.  Also from 1 April 2011, depreciation allowances on most building structures cannot be claimed, however depreciation can still be claimed on a wide range of commercial and industrial building fit-out assets.

To view the depreciation rates and the methods for calculating depreciation, please refer to the IRD Depreciation Guide.

Entertainment

Entertainment expenditure is limited to a 50% deduction if it falls within the following:

• Corporate Boxes

• Holiday Accommodation

• Pleasure Craft

• Food & Beverages consumed at any of the above or in other specific circumstances, for example:

• incidentally at any of the three types of entertainment above, eg, alcohol and food provided in a corporate box

• away from the taxpayer’s business premises, such as a business lunch at a restaurant

• on the taxpayer’s business premises at a party, reception, celebration meal, or other similar social function, such as a Christmas party for all staff, held on the business premises (excluding everyday meals provided at a staff cafeteria)

• at any event or function, on or away from your business premises for the purpose of staff morale or goodwill, such as a Friday night ‘shout’ at the pub

• in an area of the business premises reserved for use at the time by senior staff and not open to other staff, such as an executive dining room used to entertain clients

Fringe Benefit Tax

Fringe Benefit Tax (FBT) is a tax on benefits that employees receive as a result of their employment, including those benefits provided through someone other than an employer.

The four main groups of fringe benefits are:

• Motor vehicles (refer to the IRD website for more information on how to calculate)

• Low-interest loans other than low-interest loans provided by life insurance companies

• Free, subsidised or discounted goods and services, including subsidised transport for employers in the public transport business

• Employer contributions to sick, accident or death benefit funds, superannuation schemes and specified insurance policies

Fringe Benefit Tax is payable quarterly (however some employers may be able to elect payments filing on an annual basis).

Gifting

A gift is something given when:

• Nothing is received in return; or

• Something is received in return, but its value is less than the value of the property given.
  If something of lesser value is given in return for a gift, the value of the gift is the difference between the two values.

In the context of trusts, these items can all be gifts:

• Transfers of any items (for example, company shares or land).

• Any form of payment.

• Creation of a trust.

• A forgiveness or reduction of debt.

• Allowing a debt to remain outstanding so that it can’t be collected by normal legal action.

If you propose to make a gift to a trust, please contact us to discuss the implications.  It is important to take into consideration what the trust, and the gifts to the trust are designed to achieve as part of a long-term strategy.

The government abolished gift duty for dispositions of property made on or after 1 October 2011.  This means that:

• Gift duty will not be payable for dispositions of property made on or after 1 October 2011
  Gift statements will not need to be filed for dispositions of property made on or after 1 October 2011

Goods and Services Tax

GST is a tax on the supply of goods and services in New Zealand by a registered person on any taxable activity they carry out. The rate for GST is 15% although it can be zero-rated for exports.

Certain supplies of goods and services are ‘exempt supplies’ and exempt from GST. These include:

• Certain financial services

• Sale or lease of residential properties

• Wages/Salaries

GST registration is required if the annual turnover of the business for a 12-month period exceeds or is expected to exceed $60,000.

GST returns can be filed monthly, bi-monthly or six-monthly.  There are certain requirements for who must file monthly returns and who can file six monthly returns.

There are three methods of accounting for GST:

• Invoice Basis

• Payments Basis

• Hybrid Basis

GST and E-Commerce

Sale of Physical Goods via the Internet

If a GST-registered person sells goods via the internet and the goods are physically supplied to a customer in New Zealand, GST is chargeable at 15%.

If goods are sold via the internet and physically supplied to customers overseas the sales can be zero-rated for GST purposes. It is important to prove the goods have been exported (entered for export by the supplier) and sufficient evidence should be held to prove the export.

Sale of Digital Goods via the Internet

If a GST-registered person sells digital products via the internet which are downloaded, such as music, software or digital books, to a New Zealand customer they must charge 15% GST. (These products are treated as services for GST purposes).

If digital products are sold via the internet and downloaded by an overseas customer they can be zero-rated but it is important to prove that the products are “exported” otherwise GST must be charged.

Evidence required to prove products are exported

Scenario 1:

Physical goods are exported overseas by the supplier. The customer is located overseas.

• Delivery evidence, for example, bill of lading showing export by sea, air waybill for export via air, packing list or delivery note showing overseas delivery address, insurance documents.

• Purchase order showing overseas delivery address.

Scenario 2:
Physical goods are exported overseas by the supplier. The customer is located in New Zealand at the time of purchase.

• Delivery evidence, for example, bill of lading showing export by sea, air waybill for export via air, packing list or delivery note showing overseas delivery address, insurance documents.

• Purchase order showing overseas delivery address.

Scenario 3:
Digital products are downloaded by a customer who is located overseas.

• The customer should make a declaration at the time of the transaction that they are located overseas and that the products will be used outside New Zealand. For example, “I declare that I am not in New Zealand at this time and will not be making use of this supply in New Zealand” and provide their name and full address.

• Evidence of payment received from overseas customers. Credit card information may be a guide as certain credit card number series may only be issued in New Zealand. However, this process is changing and is not entirely reliable.

• Email address may suggest that the customer is overseas but is not final proof as a New Zealand resident can obtain an overseas email address.

• Internet Protocol (IP) address of the customer – although this is not final proof that the customer is overseas.

Note: In this scenario, as can be seen from the above list, it is unlikely that only one form of information will prove that the customer is overseas. It is expected that a reasonable attempt would be made to confirm the customer is overseas to support zero-rating.  For more information refer to the E-Commerce and GST section on the IRD website.

KiwiSaver

All New Zealand residents and people entitled to live here permanently are eligible to join KiwiSaver.  All new eligible employees must be automatically enrolled in KiwiSaver. However, there are some employees who are exempt from automatic enrolment.  These include:

• Those under 18 years of age

• Casual agricultural workers or Election Day workers

• Private domestic workers

• Casual and temporary employees employed under a contract of service that is 28 days or less

Employees who are automatically enrolled can opt out but must do so within a specified time (from the end of week 2 of their employment to the end of week 8) by filing the prescribed from (KS10).

All eligible existing employees can join the scheme at any time they wish by notifying their employer.

There are 5 employee contributions rates, being 3%, 4%, 6%, 8% or 10%.  The employee can elect the rate at which they want their contributions deducted.  If an employee does not elect a rate then the default rate of 3% will be used by the employer for contribution deductions made.

Compulsory Employer Contributions

From 1 April 2008  it became compulsory for employers to contribute to their eligible employees’ KiwiSaver scheme unless the employer is already paying into another registered superannuation scheme for the employee.

This minimum compulsory contribution rose to 3% from 1 April 2013.

Employer contributions are subject to Employer Superannuation Contribution Tax (ESCT) on a progressive scale based on the employees’ marginal tax rate.

Government Assistance

The government also:

• Pays annual member tax credit (for those 18 and over up to age 65) of up to $521.43 (effective from 1 July 2011)

• Funds first home deposit subsidy through Housing NZ if the relevant criteria are met

Prior to 21 May 2015, the government made a $1,000 ‘kick-start’ contribution.

Note: There is no Crown guarantee of KiwiSaver schemes or investment products of KiwiSaver schemes.

A list of KiwiSaver providers is available at www.kiwisaver.govt.nz

PAYE on Salaries and Wages

Pay As You Earn (PAYE) is the basic tax taken out of your employees’ salary or wages. The amount of PAYE you deduct depends on each employee’s tax code.

PAYE employees must complete a Tax code declaration (IR 330) as soon as they start working for you. If an employee fails to complete the tax code declaration, you must deduct PAYE at the no-declaration rate.

Employers must also file Employment Information with IRD immediately following each payday detailing each worker’s gross earnings and deductions.

If you are a ‘small employer’ with gross annual PAYE deductions of up to $500,000,   payments are made to IRD on the 20th of the month following the deductions.

• If you are a ‘large employer’ with gross annual PAYE deductions over $500,000, the deductions made from payments made to employees between the:
  1st and the 15th of the month are paid by the 20th of the same month.
  16th and the end of the month are paid by the 5th of the following month (except for December payment to be made by 15 January).

Provisional Tax

Provisional Tax is not a separate tax but a way of paying your income tax as the income is received through the year. You pay installments of income tax during the year, based on what you expect your tax bill to be. The amount of provisional tax you pay is then deducted from your tax bill at the end of the year.

If your residual income tax is $5,000 or more you will have to pay provisional tax for the following year. Residual income tax is basically the tax to pay after subtracting any rebates you are eligible for and any tax credits (excluding provisional tax). Residual income tax is clearly labeled in the tax calculation in your tax return.

There are three ways of working out your provisional tax. First is the standard option, another is the estimation option, and the third is AIM.  If you are also registered for GST and meet the other eligibility criteria, the ratio option may be available to you as well (see below for more on the GST Ratio option).

Standard option

The IRD automatically charges provisional tax using the standard option unless you choose the estimation or ratio options.

The standard option takes your residual income tax for the previous year and makes an adjustment.  The calculation for the adjustment from the current year is:

• your previous year’s residual income tax with an uplift of 5% added

• if the previous year’s income tax return has not been filed, it will be the year prior to the previous year with an uplift of 10% added

Estimation option

Another way to work out your provisional tax is to estimate what your residual income tax will be. When working out the tax, keep the following points in mind:

• To get the right tax rate -Add up all your estimated income

  • Work out the tax on the total

  • Subtract any tax credits (like PAYE)

• Using the estimation option, if your estimated residual income tax is lower than your actual residual income tax for that year, you may be liable for interest on the underpaid amount

• You can estimate your provisional tax as many times as necessary up until your last installment date. Each estimate must be fair and reasonable

AIM option

The Accounting Income Method became available from the 2018-19 tax year. It is a method of estimating provisional tax based on actual financial results using AIM capable software. Certain information is transmitted directly from your accounting software (MYOB) or tax software (Xero) to Inland Revenue every one or two months depending on your GST filing frequency.

This method is available to most businesses other than trusts and partnerships with a turnover of less than $5,000,000 per annum.

Due dates

The due date and amount of installments you need to make for payment of your provisional tax each year depends on your balance date, which of the above options you use and how often you pay GST (if registered).

If you have a 31 March balance date and use the standard or estimation option,  provisional tax payments are due on:

First installment:          28 August
Second installment:     15 January
Third installment:        7 May

Interest

In most circumstances, you will be charged interest if your residual income tax is greater than $60,000 and the provisional tax you paid is less than your residual income tax.  If the provisional tax you pay is more than your residual income tax, the IRD may pay you interest on the difference.

Another Option – the GST Ratio Option

If you are also registered for GST you are able to pay your provisional tax at the same time as your GST payments.  You will be able to use the ratio option if:

• You’ve been in business and GST-registered for all of the previous tax year, and the tax year prior to that
  Your residual income tax for the previous year is greater than $2,500 and up to $150,000
  You are liable to file your GST returns every month or every two months
  The business you’re operating is not a partnership
  Your ratio percentage that IRD calculates for you is between 0% and 100%

This method of paying provisional tax may not suit everyone.  Solutions such as tax pooling can also be used to ease taxpayers’ concerns and costs in calculating provisional tax.  We suggest that you discuss your options with us.

Resident Withholding Tax (RWT)

Resident Withholding Tax (RWT) is a tax deducted on interest earned from investments and bank accounts.  The investment organisation or bank deducts this tax when they credit interest to you.

Companies may also deduct withholding tax from dividends paid to shareholders.

If you receive interest as income you need to:

• Provide the interest payer with your IRD number, and
  Elect the tax rate at which this is to be deducted by them

The RWT tax rate used will vary for individuals and different types of business entities.

Tax Credits for Donations

Tax credits for donations made can be claimed by individuals (not companies, trusts or partnerships) who:

• Earned taxable income during the period being claimed for; and
  Were in New Zealand at any time during the tax year (including non-residents)

You may qualify for a donations tax credit for:

• Donations made of $5 or more to an approved charity
  Donations made of $5 or more to state and state-integrated schools (note donations do not include tuition fees, payment for voluntary school activities, payments for classes where there is a take-home component or payments for transport to or from school activities)

The tax credit able to be claimed is up to the lesser of 33.33% of the total donation or 33.33% of your taxable income and will require valid receipts.  Donations rebates for payments for childcare or a housekeeper have been removed from 1 April 2012.

Taxpayer Penalties

Taxpayers who do not meet their tax obligations may face penalty or interest charges. To avoid such charges, you should pay the full amount of tax you owe by the due date.

The main kinds of charges for failing to meet tax obligations are:

• Interest on the amount of tax you owe if you have underpaid your tax. The interest rates charged are based on market rates.

• A late filing penalty if you do not file a return by the due date.

• A late payment penalty if you post or deliver a payment to IRD after the date it was due.

• A shortfall penalty where the correct amount of tax is higher than the amount you paid (e.g. because of an understatement of tax, or where the amount of a refund or loss is reduced). These penalties can be as high as 150% (for evasion) and may include imprisonment for serious instances of evasion.

• EMS non payment penalties where you file an employer monthly schedule but do not pay the full amount payable on that schedule. These penalties are in addition to any of the other penalties that may also then be payable.

Solutions such as tax pooling can also be used to ease taxpayer concerns and the resulting exposure to use of money interest.

Working for Families Tax Credits

Working for Families tax credits are available to families with dependent children aged 18 years or younger.  These are refundable, meaning that if the credits exceed the person’s income tax liability they are able to be refunded to the taxpayer.

The Working for Families tax credits are made up of the following:

• family tax credit

• in-work tax credit

• minimum family tax credit

• best start tax credit

Inland Revenue administer the Working for Families tax credits, however, taxpayers who receive an income-tested benefit will receive payments from Work and Income.

For more information or guide on the above tax facts visit the IRD website.