Take advantage of government contribution to your KiwiSaver

To help you add savings into your KiwiSaver account, the Government will make an annual contribution of up to $521 to all contributing members over the age of 18. Over a KiwiSaver member’s working life, the government contribution could be worth as much as $36,000.

Check your eligibility:
The Government contribution stops when a member reaches the age of eligibility for NZ Super or has been a member for 5 years. If you’re an employee who earns at least $34,762 a year (before tax) and you contribute the minimum 3% into KiwiSaver, then your contributions will be at least $1043, the amount required to receive the full payment from the government. In this case, the full amount of $521 will automatically be paid into your account by late July or August.

See if you’ve contributed the correct amount:
Contractors, freelancers, part-time workers or those who earn less than $34,762 a year, will need to check how much has been contributed to their KiwiSaver account in the past year. There is still time to top your account to receive the full government contribution if you find that you come up short.

Top-up your KiwiSaver by mid-June:
The official deadline to top-up your KiwiSaver account is 30 June. However, many providers will prefer members to have a minimum amount of $1043 in their account by mid-June in order to process the government contribution efficiently. You could consider making arrangements to top-up your account either by automatic payments or a lump sum, as the government will match each dollar with 50 cents.

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.

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.

Succession planning for small businesses

Retirement is a big commitment and even more so for those who are self-employed or run their own business. All the factors that go into the decision to retire are magnified with a business to consider. Selling or closing are not the only paths if you choose to move on, this is why succession planning for your business is a great start for you to see where you want to go. For business owners, planning for your business’s future can be the key to its survival after you leave.

With the succession planning process, you will need to set ultimate goals, such as what you want to happen to your business, if you still want a role and what would it be, who should run the business in the future and when you want to leave. To make the best plan for you and your company, know all your assets and liabilities. This will help to value your business so you can calculate shares or a sale price. Having a timeframe and early planning will make it easier to leave comfortably when the time comes. Professional advice at various stages of your planning and exit will greatly help with your strategies as well as documenting your plans, having key decisions written down for advisors or successors to easily access.

Everyone’s retirement needs are different, with no official retirement age in New Zealand, super can start being collected from age 65 in conjunction with you continuing to work part-time or having a smaller role in your business. If moving on completely isn’t for you just yet, you could decide to keep a stake or shareholding to give you an income in retirement. Alternatively, you may decide to still offer advice in a director or consultant role. If this is the case, you and your successor will need to have a discussion about how this process will work. Whatever option you want to go with, seeking professional advice will help you make informed decisions.

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.

KiwiSaver benefits

A KiwiSaver account is a great resource for compiling and saving for your retirement and future security. It is a voluntary, government-run initiative designed to help you financially plan ahead, but what exactly are the benefits? Here are a few ways having a KiwiSaver account would aid you throughout your life.

Member Tax Credit:
This credit depends on how much you deposit into your account each year. The government will pay 50 cents to every dollar up until you’ve reached the maximum government payment of $521.43.The government will help you save by making an annual contribution to your account as long as you fit their guidelines.

• You are 18 years or older
• Mainly reside in New Zealand (exceptions for government employees serving overseas, regulated volunteer work or meets requirements under the Student Loan Scheme Act 2011)

Compulsory employer contributions:
Provided you are a member making contributions from your pay, your employer has to put money in, equalling 3% of your pay. Since 2012, employer contributions have been liable for tax, meaning their additions may be reduced.

KiwiSaver HomeStart Grant:
Having contributed to your account for three to five years, you could be entitled to the HomeStart Grant. There are two types of grants available:

• When purchasing an existing home, a grant can be between $3,000-5,000 based on $1,000 each year of membership
• When building/purchasing a new home or land on which to build a home, a grant can be doubled to $2,000 each year of membership, making the maximum amount $10,000.

Whilst eligibility criteria applies, if you have owned a home before you may still qualify under certain circumstances. Housing New Zealand would be the ones to determine if you are eligible to receive funding.

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).

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

Penalties
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.

Impacts of overseas travel on your KiwiSaver

KiwiSaver members who go overseas for an extended period will not receive all the benefits their accounts usually give them. Find out what you are entitled to when you go away so you can make the right financial moves.

Contributions while you are away
Your contributions will automatically stop once you cease work in New Zealand and you may need to contact your KiwiSaver provider about this. However, you can make voluntary contributions at any time while you are away. Refer to KiwiSaver information on how to do this.

Benefits you are eligible for
You will not receive a member tax credit while you’re not living in New Zealand unless you are a:

• New Zealand government employee living overseas, or
• New Zealander volunteering or working abroad for token payment for a specified charitable organisation.
• You will not receive compulsory employer contributions as you are no longer employed in New Zealand.

Permanent departure from New Zealand
If you emigrate to countries other than Australia permanently, you can apply to withdraw your savings and close your KiwiSaver account after one year. Member tax credits you have received since joining will be returned to the Government, and you may keep any interest on the tax credits you have earned. You can leave your savings in a KiwiSaver account or transfer to an Australian complying superannuation scheme if you permanently emigrate to Australia.

KiwiSaver investors should stay calm after market drop

The Retirement Commissioner Diana Maxwell has urged KiwiSavers to remain calm after the steep decline in world share markets has affected savings.

The NZX-50 Index dropped 3.65 per cent on 11th October and had since slowly edged up by 1.17 per cent.

Maxwell urged KiwiSaver investors to remain calm and refrain from meddling with their funds. She advised that any long-term investment will fluctuate but riding out economic downturn is the best option and your balance will inevitably rise.

You should avoid switching funds, providers or suspending your super contributions as the fees or decline in the growth of your investment will not be worth it once the market’s rough patch ceases. Maxwell advised that the KiwiSaver banking apps are fantastic in tracking growth, but investors should avoid watching the apps too closely to prevent panic at small changes in the market.

However, if you are more risk averse and changes in the market provoke anxiety, consider changing your super risk profile to something more conservative.