Firm Journal

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, under tax.

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, under super.

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, under super.

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, under tax.

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, under super.

Claiming expenses on work-related trips

When travelling for business or paying for employee travel there are many daily expenses that can be claimed.

Generally, you can claim for flights, taxis (or mileage if you use your own car), accommodation, meals and snacks when you are away from home on business travel.

For work-related meetings, conferences or training courses that require an overnight stay, employers can claim the cost of accommodation.

If an employee is working away from home for an extended period, you can claim for accommodation or any accommodation allowance paid providing it is for a period of no more than two years (or three years for capital projects).

The cost of purchasing a meal while travelling on business is 100 per cent deductible for employers. However, you can only deduct 50 per cent of the cost of food and drink if either:
– The trip is mainly for the purpose of enjoying entertainment, i.e., a team bonding trip.
– A celebration where you won’t be working, i.e., a reception, or a staff Christmas party.
– The trip is mainly for entertainment, i.e., a team bonding trip.

If refreshments are usually provided at work, an employer or employee can claim for snacks and refreshments.

The cost of entertainment can be claimed if its purpose is to build up business contacts, keep employees happy or promote goods and services, i.e., offering food to entice customers to a stall at an expo.

Entertainment expenses can be either 50 or 100 per cent claimable. Work-related entertainment expenses incurred while traveling overseas are 100 per cent deductible.

Posted on 21 December '17, under tax.

NZ Super and Veteran’s Pension recipients and overseas travel

For those who receive NZ Super or the Veteran’s Pension, travelling overseas may have implications on these payments.

If you travel overseas for more than 26 weeks and are not residing in an overseas country, you will need to pay New Zealand tax on the payments receive, provided you receive one of the two payments without tax deducted prior to your travels.

To do this correctly and remain compliant under regulations stipulating by the Inland Revenue Department, you will need to file an Individual tax return (IR3) as you have received income that has not been taxed at source. This income will need to be included in the ‘overseas income’ box in the return. Certain circumstances may mean you will also need to make provisional tax payments.

If you receive NZ Super or the Veteran’s Pension and meet the conditions above, you can file online or request a paper copy of the IR3 if you don’t receive one by the end of May from the IRD.

Posted on 7 December '17, under super.

Boost for tertiary education

The Government has announced that it will be introducing a new programme to make tertiary education and training more affordable.

From 1 January 2018, the Government’s first 100 day programme will involve providing a $50 a week boost to both student allowances and loan entitlements for living costs and will make the first year of tertiary education-fees free.

These changes will affect more than 130,000 students New Zealand wide.

Student allowance base rates and the maximum amount students can borrow for living costs will rise by a net $50 a week. The increase will be $1000 net a week where the allowance rate reflects the living costs for two adults.

Allowance payments for single students aged under 24 and living away from home, for example, will rise from $177.03 to $227.03. The maximum amount that students can borrow will rise from $178.81 to $228.81.

Student allowance rates and loan living costs maximum will be further adjusted from 1 April 2018 in line with any increase in the CPI. The Accommodation Benefit is also scheduled to rise by $20 a week in 2018 to a maximum of $60 a week for students.

The 2018 changes for the first-year of fees-free educations and training are just the first step in the process as the Government rolls-out a full programme of three years’ fees-free tertiary education by 2024 for New Zealanders.

Posted on 22 November '17, under tax.

Finding the best KiwiSaver fund for employees

Since an employee’s retirement savings outcome is ultimately impacted by decisions made today, some employers may feel the need to help their employee’s find a fund that best suits their financial situation.

It is more than likely that the majority of employees respond to this challenge by simply choosing one at random. For employees that avoid making this decision, the Inland Revenue Department usually assigns a fund at random for them.

The number of New Zealanders who enrol in some kind of KiwiSaver fund is growing at a rapid pace. And with almost two hundred KiwiSaver funds currently on offer, it can often feel like quite an overwhelming task to choose a fund that not only fits an individual’s circumstances but is also easy keep track of.

There are many kinds of KiwiSaver fund options to choose from, with returns from funds ranging from under three per cent to over 20 per cent p.a. Some funds are even as much as ten times more expensive than others.

Therefore, it is important that employee’s choose the right fund to avoid missing out on increasing their potential. For example, an employee may be on a $60K salary, contributing the minimum 3 per cent to a KiwiSaver fund and have a matching contribution from their employer.

If they choose a KiwiSaver fund that earns five per cent p.a., they will have a balance of around $340,000 by the time they retire. Alternatively, if they were in a fund that earned eight per cent p.a., their balance at retirement would be around $675,000. This significant increase is a result of just a three per cent p.a. difference.

To avoid ending up in a ‘default’ fund, employees need to know what to look for, what is relevant to them as an individual and avoid being influenced by those who receive commissions from providers. Even though there is a range of different fund types to choose from, there is only a handful of concepts that can determine the best outcomes for an employee.

The length of time before employees can or need to access their KiwiSaver balance determines how long their savings will be invested. Understanding this can help narrow down the type of funds to choose from.

For example, a 25-year-old employee may work for another 40 years before accessing their savings. The employee may be able to invest in a fund that has a larger allocation to growth assets. However, if they require funds for a first home withdrawal, their investment timeframe may be only a year, rather than 40. If this is the case, choosing a conservative fund may be the better option.

Employees should also base their decision on a fund’s characteristics and how well it is managed. Funds can be ‘actively’ managed, or ‘passively’ managed. Some may charge ‘performance’ fees, ‘exit’ fees or other special fees and costs.

While finding the right KiwiSaver fund for an employee can be time-consuming process, it is a worthwhile exercise since long-term returns can be quite substantial.

Posted on 15 November '17, under super.

Managing employer returns

There have been proposals for changes to the management of employer returns.

The Government has announced that changes will be made to the process of filing employer returns, with the main change proposed being to file returns based on the business pay cycle rather than based on the calendar month. You won’t have to make the return on the payday, you will have time to do this. On top of this, payment due dates for your PAYE and other deductions won’t change.

There are multiple benefits to this change, including:

  • Having current information on hand and fresh in your mind, rather than having to file it away and fetch it at a later date.
  • Makes it easier for the IRD to use up-to-date, accurate information to ensure everyone pays and receives the correct tax and entitlements throughout the year.

For those who process their returns online, as of April 2018, there will be changes to the online services, including how information is uploaded and how the services look.

If these proposals become law, payday reporting will be voluntary from April 2018 and required from April 2019.

Posted on 27 October '17, under tax.