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McGregor Bailey Blog

More tax tips, traps and troubles

More tax tips, traps and troubles

 

Attention landlords

At present you must hold a residential property (that isn't your main home) for at least two years to avoid paying income tax on any capital gain. Labour has firmly stated they intend to increase this period to five years and also because it's just tweaking legislation already there it will be sooner rather than later.

 

The good news is they are not planning on making the legislation retrospective, so it will only apply to properties purchased after the law is changed. The Government also plans to abolish the tax benefits of negative gearing but has provided no specifics yet.

 

One scenario is to only allow rental property losses to be offset against rental property profits. Also, we don't know yet whether the law change will apply to residential rental only, or whether it will include commercial property

 

New ideas

The new Government has introduced Best Start, a $60 a week payment for a year following paid parental leave. If your household income is less than $79,000, the payment will continue until the child is three years old.

 

It has also enacted a "winter energy" payment of $450 a year spread over five months for people receiving superannuation or a main benefit. These payments will not be means tested. Couples will get $700 between them to spend how they wish.

 

Backdated holiday pay

If you back pay an employee or ex-employee for holiday pay, tax this as a lump sum.

 

IRD seeking more data, quicker

 

Inland Revenue is aiming to get as much data from you, in electronic format, as it can.

It also wants to get this data much more quickly, so it can make regular adjustments to the tax rates to cater for the Working for Families tax credit etc. More and quicker data would also enable the Government to get rid of secondary tax. Most of these changes will occur on 1 April 2019 or 2020.

 

You're going to have to file PAYE information electronically if your PAYE and ESCT deductions are $50,000 a year or more. This information will be required within seven working days of making the wage payment.

 

The department also wants details of interest and dividends reported monthly. It's going to require this information to be filed electronically, unless to do so would cause great hardship.

 

If you don't supply your IRD number to a payer of interest or dividends, there will be a non-declaration rate of 45% applied to the payment you get.

 

The banks will no longer be required to send out certificates of annual interest as these will be available on the Inland Revenue website and taxpayers will be able to access them through MyIR.

 

Disclaimer

This publication has been carefully prepared, but it has been written in general terms only. The publication should not be relied upon to provide specific information without also obtaining appropriate professional advice after detailed examination of your particular situation.

Brightline test to be extended

Bright-line test to be extended, 15 February 2018

On 15 February 2018, the Minister of Revenue, the Hon Stuart Nash, confirmed that the bright-line test on residential property sales will be extended from two years to five years.

Supplementary Order Paper No 13 is to be introduced to the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Bill currently making its way through Parliament.

The objective in extending the current bright-line test from two years to five years is to ensure that speculators pay tax on the gains from property speculation and also to improve housing affordability for owner-occupiers by reducing demand from speculators.

The proposed five-year bright-line test has the same structure and design features as the two-year bright-line test. These design features includes the following:

• The five-year period for the bright-line test runs from the date of settlement to the date a person enters into an agreement to sell the property. An additional rule applies for sales "off the plan".

• The extended bright-line test only applies to properties for which an agreement to purchase the property was entered into from the date of enactment of the Bill.

• The bright-line test only applies to residential land. Residential land includes empty land planned to be used for residential purposes but excludes business premises and farmland.

• The bright-line test does not apply to a person's main home. A person can only have one main home. The main home exception is available to properties held in trust.

• There are exceptions for relationship property and inherited property.

• Taxpayers are allowed deductions for property subject to the bright-line test according to ordinary tax rules.

• Losses arising from the bright-line test are ring-fenced so they may only be used to offset taxable gains from other land sales.

Extending the bright-line test from two years to five years has a consequential effect on the current residential land withholding tax rules. These rules generally require a conveyancer to withhold tax from the proceeds of the sale of residential land by an offshore person when the disposal would be subject to the bright-line test. Consequential amendments have been made to these rules to align them with the extended bright-line test.

The Minister noted that the extension to the bright-line test will apply to residential investment properties purchased from the date on which the Bill receives the Royal assent, which is expected in March. The Minister said that the passage of the Bill will also enable the Tax Working Group to factor the change into any consideration of a capital gain tax.

Source: taxpolicy.ird.govt.nz

2017 Budget Report

2017 Budget Report - Family income and tax rates

The Package will make changes to tax thresholds, Working for Families and the Accommodation Supplement to help Kiwi families get ahead.  It is a first step towards simplifying the income tax system.

The Family Incomes Package is carefully designed to assist low and middle income earners with young families and higher housing costs.

It will benefit 1.3 million working-age families in New Zealand by, on average, $26 per week.

There have been no changes in tax rates, but the thresholds where the progressive tax rates kick in will increase from 1 April 2018. The changes are intended to correct, or at least mitigate, the effects of "fiscal drag". Fiscal drag is the effect of rising wages pushing people into a higher tax bracket.

The tax rate changes are combined with a simplification to, and increased funding of, Working for Families. The Independent Earner Tax Credit, which less than a third of eligible people actually claim during the year, is being scrapped. The Family Tax Credit is being aligned so that it is the same no matter how old a taxpayer's children are (up to 18 years of age).

The final component of the Family Incomes Package sees an increase to the Accommodation Supplement.

The following elements make up the Package:

  • Increasing the bottom two income tax thresholds:
    • From $14,000 to $22,000; and
    • From $48,000 to $52,000.
  • Discontinuing the Independent Earner Tax Credit (IETC).
  • Family Tax Credit (FTC):
    • Increasing payment rates for children aged under 16, so that they align with the rates for children aged 16 to 18 years; and
    • Increasing the abatement rate from 22.5 cents to 25 cents in the dollar and decreasing the abatement threshold from $36,350 a year to $35,000 a year.
  • Housing costs:
    • Increasing the maximum Accommodation Supplement (AS) payments and updating locations of Accommodation Supplement areas to reflect increases in housing costs; and
    • Increasing the weekly payments of Accommodation Benefit for eligible Student Allowance recipients by up to $20.

Superannuitants will gain from the tax threshold increases and some will also gain from the Accommodation Supplement increases.

For further information and analysis of the budget go to the 2017 CCH Budget Report

http://www.wolterskluwer.co.nz/category/budget-report/

Mileage Rates for 2017

2017 review of Commissioner's mileage rates

Mileage rate for motor vehicles increased

For the 2017 tax year (1 April 2016 to 31 March 2017), the mileage rate for both petrol and diesel fuel vehicles has increased to 73 cents per km.

This year we are also able to set mileage rates for hybrid and electric cars. The mileage rates for these vehicles are:

  • hybrid - 73 cents per km
  • electric - 81 cents per km.

For both Hybrid and Electric vehicles, our data shows that although these types of vehicle have lower running costs, these are offset by higher fixed costs.

If you're an employer you can use the above rates when reimbursing employees for the use of their private vehicle for work-travel for the current tax year (1 April 2017 to 31 March 2018).

The mileage rate is reviewed after a tax year ends so the rate reflects the average motor vehicle operating costs for that year. If you've filed your 2017 income tax return using the 2016 rate of 72 cents per km, you can request an amendment.

If the mileage rate doesn't reflect your actual costs, or your work-travel is more than 5,000km per year, you must keep a record of your actual vehicle expenses.

For more information about mileage rates go to http://www.ird.govt.nz/technical-tax/op-statements/os-review-mileage-rate-2017.html

Kreston - Doing Business in New Zealand

DOING BUSINESS IN NEW ZEALAND

 

New Zealand (NZ) has a relatively deregulated and open economy and is consistently ranked as one of the easiest countries in which to do business.   The World Bank and International Finance Corporation (IFC) ranks NZ first in the world for protecting investors and starting a business.

 

As well as simplicity the tax system has the major attractions of predictability, fairness and a minimum of loop holes.

 

Of course one of the major attractions of NZ is the more relaxed living philosophy and lifestyle which seems to be more obtainable than in many other countries.

 

However local knowledge of the legal, accounting and taxation framework is essential when looking to set up or do business in NZ.   This document provides a brief summary of the practical issues you will need to consider.

 

WHAT TYPE OF BUSINESS STRUCTURE SHOULD WE USE

 

Foreign investors can operate in NZ through whatever entity they choose and the most common ones used are locally incorporated companies or a branch of a foreign entity.

 

1.  Limited Company

  •  Provides limited liability.
  • Can be foreign owned or a subsidiary company.
  • Must have at least one local director.
  • The Register of Companies maintains a file for each Company and details must be updated annually.
  • Corporation tax to be paid on Company profits.
  • A "Large" company with more than 25% foreign ownership must file audited financial statements with the Register of Companies.   There is no requirement to file the overseas Parent Company's Statements.
  • Large as above is defined for the NZ Company as greater than $10 million turnover or $20 million assets for the two preceding years.

 

2.  Branch (of an overseas business)

  •  Not a separate legal entity but an extension of the overseas parent company.
  • No limited liability or ring fencing of the NZ operations.
  • Must register with the Registrar of Companies.
  • Corporation tax is payable on NZ profits.
  • Must file separate audited financial statements for both the Parent and the NZ Branch operations.

 

3.  Look Through Companies

  •  Incorporated as a company but treated like a Partnership for income tax purposes.
  • All profits or losses flow through each year to shareholders in proportion to shareholdings.
  • Subject to loss limitation rules.
  • Can have non resident shareholders.

 

4.  Other trading Entities

  •  Individual (sole trader)
  • Trust
  • Partnership
  • Limited Partnership

 

CORPORATION TAX

  •  Currently a flat rate of 28%.
  • NZ operates a dividend imputation system whereby tax paid at the company level can effectively be credited against shareholder tax liabilities on dividends received.   These credits may be restricted when paid offshore.
  • NZ resident companies are subject to tax in respect of worldwide income.   Non resident companies are liable for tax only on income earned in NZ.

 

CROSS BORDER TRANSACTIONS

  •  Generally NZ rules follow the OECD guidelines to ensure an arm's length basis to protect the NZ tax base.
  • Thin capitalisation rules apply to ensure that NZ taxpayers do not deduct a disproportionately high amount of worldwide group interest expense. 

 

EMPLOYMENT TAXES

NZ operates a PAYE system (Pay as you earn) and employers are required to deduct this tax from wages and salaries paid to employees.

 

NZ has Compulsory Accident Insurance (ACC) and employees are subject to this tax (approx. 2%) which is included with the PAYE.   The levy is capped at a fixed level of earnings.   This levy provides for loss of earnings and medical expenses as a result of workplace or recreational injury or disability.

 

 

NZ has a voluntary work based superannuation scheme (Kiwisaver) and employers are required to make a compulsory contribution of 3% of gross salaries for those employees who choose to join the scheme.

  • There is no payroll tax.
  • There is no social security tax.
  • There is no health care tax apart from ACC as above.
  • There is a fringe benefit tax system (FBT) which can impose a tax on benefits supplied to employees.

 

 

PERSONAL TAXATION

 

There are rules to determine tax residency in NZ which can be quite complex and professional advice is advised.

 

Current personal income tax rates are:-

 

Income   to   $14,000                                  10.5%

$14,000   -    $48,000                                  17.5%

$48,000   -    $70,000                                  30.0%

$70,000   and    over                                   33.0%

  •  Tax returns are filed on an individual basis and there is no provision for amalgamation of household income.
  • There are transitional resident rules which generally exempts such persons from NZ tax on foreign income for the first 4 years of residency, which can be of great benefit.
  • NZ tax residents are taxed on their world wide income.

 

 

OTHER TAXES

NZ has a simplified tax system where taxes that apply in many other countries do not apply in NZ.

  •  There is no capital gains tax except in some special cases.
  • There is no inheritance, estate or wealth tax.
  • There is no stamp duty.
  • There is no gift duty.
  • There is no local or state taxes apart from property rates levied by local councils.

 

GOODS AND SERVICES TAX

 

NZ operates a Goods & Services Tax (GST) similar to VAT which is a consumption tax borne by the final private consumer.   It is imposed throughout the chain of production and therefore applies in respect of business to business transactions.   The current rate of GST is 15%.

  •  Registration is mandatory for the supply of goods or services exceeding $60,000 over a 12 month period.
  • GST returns are required to be filed on either a one month, two month or six month basis according to taxpayer requirements and annual turnover.
  • There are very few exemptions from GST.

 

 

OTHER MATTERS

  •  A wide range of free trade agreements and pro competitive regulations make NZ an ideal base for expansion in the Asia Pacific region.
  • More than 80% of the value of imported goods into NZ are tariff – free.
  • GST is payable to NZ Customs on goods imported into NZ and is generally recoverable by GST registered persons or entities.
  • NZ has double tax treaties (DTA) with 39 countries which generally provides relief from double taxation.
  • Non resident withholding tax (NRWT) is applied to dividends, interest and royalties paid to non residents.   NRWT is generally a final tax and the rates will often depend upon the DTA applicable.

 

 

CONTACT

 

TO DISCUSS YOUR REQUIREMENTS PLEASE CONTACT THE INTERNATIONAL OFFICE +44 (0) 1245 449266 OR EMAIL US DIRECTLY AT McGREGOR BAILEY CHARTERED ACCOUNTANTS – SEE OUR WEBSITE

 

 

KRESTON INTERNATIONAL

 

Kreston International Limited is a global network of independent accounting firms with the reputation for providing trusted compliance and advisory services to entrepreneurial business in the SME and mid-market sectors.

 

Currently ranked as the 13th largest accounting network in the world, Kreston has a presence in over 100 countries, providing a resource of over 20,000 professional and support staff.

 

 

Our members are accustomed to working together to deliver cohesive international solutions to ensure clients receive the highest quality of expertise available in their respective countries.   Beyond assurance, quality and experience, clients will enjoy the unique synergy that stems from the trusted relationships that Kreston members have created globally and which support the consistent delivery of exceptional international service.

 

This information is provided for guidance only and is not a substitute for professional advice.   Neither Kreston International Limited nor its member firms accept any liability for any loss arising as a result of actions taken or not taken based on the information contained in this document.

 

The information in this document was prepared as at 25th July, 2016. 

 

 

 

 

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