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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.

Deductibility of legal expenses for rental property investors

Previously, rental property investors could not deduct legal expenses under section DB 62 unless they were in the business of providing residential rental accommodation. Recent changes have been made to allow property investors who are buying a residential property to access these deductions.

Under section DB 62 of the Income Tax Act 2007, an individual can deduct legal expenses if they are $10,000 or less in an income year, including legal expenses that relate to spending on capital assets such as property. The legal expenses still need to meet the general permission of being incurred in deriving income or as part of a business activity, and cannot be claimed if they relate to expenditure of a private or domestic nature, i.e., the purchase of the family home.

The Inland Revenue Department’s (IRD) position regarding selling a rental property has not changed – rental property investors who are not in the business of providing residential rental accommodation are not eligible to claim legal expenses for selling a rental property. However, those in the business of providing residential rental accommodation can continue to claim legal fees incurred in selling a rental property.

The IRD is allowing those who relied on their previous advice to request an amendment under section 113 of the Tax Administration Act 1994. These requests will be considered on a case-by-case basis.

Posted on 11 May '18 by , under tax. No Comments.

KiwiSaver mistakes

If you have joined KiwiSaver, you are already heading in the right direction towards building a steady nest egg. However, joining KiwiSaver without much consideration of your type of fund or investment goals can be detrimental to your final retirement balance.

Here are three KiwiSaver mistakes to avoid:

Choosing the wrong fund
Sticking with your default fund is one of the biggest mistakes you can make with KiwiSaver. Many Kiwis do not realise they can change funds to better suit their age, investment goals and experience. It’s a good idea to check the fees and performance of your current fund and weigh them up against your investment risk and time frame.

Not contributing enough
Taking too many contribution holidays (where you stop making contributions to your KiwiSaver) may be convenient for you at the time but it can make a substantial difference to your savings in the long run. Try to avoid taking contribution holidays and instead keep your contributions consistent and realistic for your budget and financial goals.

Withdrawing funds
Applying for significant financial hardship to pay off your credit cards is a big no-no. Many think KiwiSaver is easily accessible. Yes, you can apply for significant financial hardship but the IRD makes it clear to do so you must be unable to meet minimum living expenses or mortgage repayments, modifying your home for a dependent family member with a disability, suffering from a serious illness, incurring funeral costs, or paying for medical treatment for a dependent family member.

Posted on 11 May '18 by , under super. No Comments.

Recent tax changes

The beginning of April marks the start of the new financial year in New Zealand. And along with the new financial year, there are many tax changes that have come into effect.

Here are four important tax changes affecting employers, individuals and contractors:

The bright-line test
The bright-line test for residential property has been extended from 2 years to 5 years from 29 March 2018. The extended bright-line test only applies to properties for which an agreement to purchase the property was entered into on or after 29 March 2018. The 2-year bright-line test will remain for properties entered into before that date. The 5-year bright-line test will operate in the same way as the 2-year bright-line test.

Payday filing
Payday filing is an online option for submitting employment information to the IRD every payday. It is voluntary from April 2018 and will become compulsory from April 2019. There are three ways to file online: direct from your payroll software, by file upload in myIR, and on-screen in myIR.

Changes to myIR
MyIR has a range of changes made from 17 April 2018. The ‘My GST’ section has changed to ‘My Business’ and now employers can:
Register for and delete account types
Include attachments when you send IR a message
File, pay and amend GST, FTB, GMD, PIE returns

Introduction of AIM
From 1 April 2018, the accounting income method (AIM) is the new option for provisional tax. AIM allows employers to get refunds throughout the year. It can help business owners to manage their cash flow better as you do not need to pay provisional tax if you do not make a profit.

Posted on 3 May '18 by , under tax. No Comments.

Changes to provisional tax

Small businesses, sole traders and contractors can choose a new pay-as-you-earn option rather than paying provisional tax instalments several times a year as changes to pay-as-you-earn tax have come into place this April.

The changes were made to help small businesses pay provisional tax based on their cash flow rather than the previous year’s earnings or estimated earnings for the current year. Paying provisional tax as you earn profit provides more certainty about cash flow.

This new method is known as the Accounting Income Method (AIM). It is optional and only available for businesses with an annual turnover of less than $5 million. Other options for provisional tax still remain in place.

For those who do select AIM, you will need to set it up in your accounting software before your first provisional tax payment of the 2018/19 financial year.

The first AIM payment dates are 28 May for monthly GST filers, and 28 June for two- and six-monthly GST filers, and those not registered for GST. If switching from provisional tax instalments to AIM, your final instalment payment is in early May so be prepared for the overlap in tax payments.

Posted on 16 April '18 by , under tax. No Comments.

The in’s and out’s of asset allocation

Deciding where to allocate your assets can be confusing and even daunting, particularly if you aren’t confident in your knowledge of the current financial sphere.

Consider the following in’s and out’s of asset allocation to make the process much easier:

Set goals

Goal-setting is extremely important, particularly when it comes to your money. When deciding where to allocate assets, you should set both short-term and long-term goals. If you are planning to save for a vacation or a new car, this would be a short-term goal, a mortgage would be a medium-term goal and your nest egg would be a long-term financial goal. The goals you set should be SMART; specific, measurable, achievable, realistic and timely. You should also revisit your SMART goals and assess how well you are doing, thus allowing you to make appropriate adjustments if need be.

Risks

The more open an individual is to risk, the greater the opportunities for where they allocate their assets. If an individual is open to investing in higher-risk assets, they can consider options such as investing in shares. If they are more attracted to low-risk assets, options such as a term deposit are more suitable.

Speak to a professional

If you make it known to friends and family that you are deciding where to allocate your assets, you will become inundated with tips and advice of what and where you need to invest. This can become overwhelming and more of a hindrance than a help. The best person you can talk to is a professional you trust, such as your financial advisor. They will be able to give you all the information you need, they will be able to answer all your questions, and they will be unbiased.

Posted on 16 March '18 by , under super. No Comments.

Making the most of share market volatility

When share markets drop, it is not uncommon for investors to feel threatened and anxious about their investments.

Luckily, there are strategies you can adopt when share markets fluctuate, in order to use the volatility to your advantage. Consider the following:

Patience

One of the greatest tools you can have when it comes to investing, in any market, is patience. Many investors react when there’s market volatility and start shifting their money and pulling their investments, ultimately resulting in them losing their money. You need to be patient and understand that the nature of share markets is for them to move up and down.

Diversify

Diversifying your portfolio as an investor is always a smart strategy. Putting all your eggs in one basket is extremely risky, as you’re either going to succeed or fail. When you diversify and invest in a range of different areas, you are more likely to be protected in times of volatility.

Professional advice

Having confidence in your investment strategy is always easier when you have backing from a financial expert. When feeling anxious about your portfolio, you should never hesitate to speak to your financial advisor.

Posted on 16 February '18 by , under super. No Comments.

Short term rentals: the basics

Entering into the short-term rental field can be a very lucrative decision, but there are considerations to be made.

To ensure you cover all bases and don’t find yourself caught out financially, make sure you understand the following:

Tax obligations
Remaining compliant in terms of your tax obligations when you rent your property as a short-term rental is important. According to the New Zealand Government, you:
– Must include income generated through providing accommodation on an Individual tax return (IR3). This is due by July 7th each year.
– Must keep clear and accurate details of all income and expenses attributed to renting out of the property.
– Can claim expenses for the time of renting the property.

To be eligible to claim expenses on your short-term rental property, you must declare your rental income on your annual tax return. Remember that expenses can only be claimed for the period the property was rented. If only a portion of the property was rented out ie. a bedroom or granny flat, you can only claim a portion of household expenses.

Rental agreements
Understanding the difference between renting your property as a long-term rental verses a short-term rental is essential. You are not covered by the Residential Tenancies Act when you fall into the latter category, meaning standard rental agreements don’t apply.

For those involved in short-term renting of their property, creating a rental agreement can cover you, particularly if it details the following:
– Expectations regarding payments, refunds, deposits, cleaning fees etc.
– Expectations regarding smoking and pets
– Noise guides
– Number of guests permitted
– Many hosting sites include a standard terms and conditions for individuals who book properties. It is ideal to research if this is included where you advertise your property, and if you are satisfied with the guidelines set out in these terms and conditions.

Insurance
It is always wise to speak to your insurance company about what you are and are not covered for in the event that something happens to your property whilst it is being rented out. It is worthwhile ensuring you are covered for:
– Cover during times where the property is vacant
– Loss of income cover
– Theft or damage cover whilst the property has tenants.
– You may be required to pay a higher premium but, this is often recommended as it prevents you being caught out financially should something occur.

Health and safety
Ensuring your property meets health and safety standards is important. Some of these health and safety standards set out by local councils as explained by the Government include:
– Appropriate fencing of pool and water environments.
– Appropriate fencing for decking over the height of 1 metre.
– Fit smoking detectors installed.
– Hazardous chemicals such as cleaning products and chlorine etc. stored correctly.

Role as landlord
It is against New Zealand law to ask long-term tenants to move out during holiday periods to allow you to move short-term renters in and make more money. If you rent your property to long-term tenants and they chose to go away, you can ask their permission to rent the property out while it is vacant. In this situation, you need to adhere to their tenancy agreement.

Posted on 2 February '18 by , under tax. No Comments.

Secrets to a savvy SMSF

Opting for a self-managed super fund (SMSF) can be a clever financial decision, but it’s not for everyone.

If you aren’t prepared to adhere to the following tips, your SMSF will most likely fail to perform as well as you would of hoped it to.

Stay informed
You can’t expect your SMSF balance to be the most profitable for you in your retirement phase if you don’t remain educated on the vastly changing compliance laws. Remaining up-to-date with these changes, and how they impact upon your nest egg is an essential aspect of making your SMSF work for you, your spouse and your children.

Strategy
The ultimate long-term goal of your SMSF is to allow you to retire comfortably, maintaining the life you have become accustomed to throughout your working years. To do this, you need to have a strategy; the decisions you make regarding your SMSF should be part of this strategy, not just transfers here and there because your financial advisor told you to. Your strategy should be reviewed at least annually. You need to be aware of how each decision will impact upon and ultimately lead you towards the financial security you work so hard to achieve for your later years.

Seek advice
Running a self-managed super fund doesn’t involve having all the answers, but it does require understanding when it’s time to talk to a professional to get the best advice on your SMSF. You can never ask too many questions when it comes to your future financial security.

Posted on 17 January '18 by , under super. No Comments.