Firm Journal

“Influencers” Are Warned By IRD That Eyes Are On Them And Their “Gifts” This Tax Time

Inland Revenue has its eye on social media content creators, with a draft statement published that will see gifted items incur tax. In an industry field that thrives on freebies, this is a gamechanger.

 

This move means that items that businesses (small or large) gift to social media content creators will need to be assessed for their resale value, and that those content creators could be liable to pay tax on any free products that they have received from brands.

 

The primary issue for many influencers that may arise out of this new tax obligation, is having to pay out-of-pocket cash when they haven’t received any fiscal payment.

 

Companies will now have to pay influencers to post their products to social media so that the income can then be taxed, instead of the current loophole where gifted items often get the spotlight at no cost. For some influencers, these gifts can exceed tens of thousands of dollars in value and have been a previously unaddressed tax blind spot.

 

If you promote products that you receive as gifts on social media, come speak with your accountant. They can better advise you specifically on your taxable assets and income.

Posted on 30 June '21, under tax.

How To Maximise Buyer Appeal For Your Home

If you’re in the process of preparing your home for sale, you may be trying to work out exactly what would attract potential buyers to your home, and raise the selling price higher. It can also be hard to see the appeal of the home you’ve lived in for so long, especially to a potential buyer.

 

If you are in the process of preparing your home for sale, you may be trying to work out how you can maximise your sales potential and attract potential buyers to your home. It might seem like more of a difficult task if you’re feeling a little blind to the appeal of the home that you’ve lived in for so long, especially to a potential buyer. Sometimes, the easiest way to raise the appeal of your home is to take a step back and look at what you can do to help (and then do it). 

Fixing minor defects, such as cracked tiles, peeling paint, faulty door handles and dripping taps are inexpensive fixes that you as a homeowner can potentially undertake to add value. Simple steps like mowing your lawn, repainting fences or weeding the garden can boost the kerbside appeal of your home to buyers, and raise the initial valuations of your property in the buyer’s eyes. 

Decluttering and depersonalising the home allows your prospective buyers to envision themselves in their potential home. You want the buyer to be picturing themselves there in the space on a blank canvas, not one your family pictures are doodled onto. You can try reducing the number of personal items visible to buyers within the home, or remove them completely with the skip bin treatment.

Areas of focus for potential buyers within a property can be a make or break situation. When preparing your house for sale, focus on key, functional living spaces where the new owners may spend most of their time. This could include the kitchen, living room, or the deck and backyard, and the effectiveness of a space on a buyer may depending on the time of the year (a pool won’t look as appealing in the winter months as it would in the summer, for example).

Finally, open homes are a critical impression point for potential buyers and can be used to really hone in on the buyers. Putting the final small touch to an open home, such as the smell of baking, fresh flowers, or a new welcome mat can cement with buyers the feeling of the home being theirs, rather than a simple house for sale.

Posted on 21 June '21, under Uncategorized.

What Does Paying Tax On Rental Income Involve?

Did you know that if you rent out your home to others, you will be required to file a tax return on that income received from the rental property, like you would do for other income received?
Needing to file a tax return, and pay tax on their rental income can apply to those who have an overseas residential property, are joint owners of a rental property, or are not New Zealand residents but who earn rental income from their New Zealand properties.

To work out what tax there is to pay, you must deduct your allowable rental expenses from your gross rental income.

Rental income needs to be brought to your accountant at market value, usually done by determining the amount being charged to an arms-length or third party tenant. If you are renting to a family member and letting them have it at a rent that is below the market value, doing so will impact the deductibility of interest and other costs.

The way in which income and expenses are worked out is not the same for all residential properties, and you must ensure that you are doing so according to what your property is classed under.

For assistance with filing a tax return on your rental property income, you can come to see us. We’ll ensure that you’re complying with your tax obligations when it comes to your rental property.

Posted on 8 June '21, under tax.

Depreciation of Assets, And You

Depreciation is calculated annually over the useful life of the asset as part of your end-of-year accounts. To calculate the depreciation, you need to know the asset’s value, your depreciation method and the approved Inland Revenue depreciation rate.

Depreciation is a method of spreading the cost over time of significant assets you buy for your business or your work as a sole trader or contractor. This can be effective if you’re looking to mitigate the tax implication of the purchase over a more extended period.

Instead of claiming the total cost of the item initially, you claim the amount that the asset depreciates each year. The Inland Revenue approved depreciation rates can be claimed annually in your income tax return.

For tax purposes, you must depreciate assets that:

  • Are owned by you or your business and are available for business use
  • Cost more than $500
  • Have an expected life of more than 12 months

You cannot claim tax for depreciation of

  • Assets you’ve elected to treat as not depreciable with inland revenue
  • Trading stock
  • Land or buildings (barring fixture or land improvements)
  • Most intangible assets e.g. goodwill
  • Low-value assets (less than $500) which are entirely written off when you buy them
  • Assets where the costs are already deducted under another tax provision
  • Assets that don’t decline in economic value because of compensation for loss or damage
  • Assets where the cost was or is allowed as a deduction under special provisions relating to primary sector land improvements.

We can assist you in determining the depreciation of any assets you may be wishing to claim for your business or work as a sole contractor. Discuss your depreciated assets with us for more information.

 

 

Posted on 31 May '21, under tax.

Depreciation of Assets, And You

Depreciation is calculated annually over the useful life of the asset as part of your end-of-year accounts. To calculate the depreciation, you need to know the asset’s value, your depreciation method and the approved Inland Revenue depreciation rate.

Depreciation is a method of spreading the cost over time of significant assets you buy for your business or your work as a sole trader or contractor. This can be effective if you’re looking to mitigate the tax implication of the purchase over a more extended period.

Instead of claiming the total cost of the item initially, you claim the amount that the asset depreciates each year. The Inland Revenue approved depreciation rates can be claimed annually in your income tax return.

For tax purposes, you must depreciate assets that:

  • Are owned by you or your business and are available for business use
  • Cost more than $500
  • Have an expected life of more than 12 months

You cannot claim tax for depreciation of

  • Assets you’ve elected to treat as not depreciable with inland revenue
  • Trading stock
  • Land or buildings (barring fixture or land improvements)
  • Most intangible assets e.g. goodwill
  • Low-value assets (less than $500) which are entirely written off when you buy them
  • Assets where the costs are already deducted under another tax provision
  • Assets that don’t decline in economic value because of compensation for loss or damage
  • Assets where the cost was or is allowed as a deduction under special provisions relating to primary sector land improvements.

We can assist you in determining the depreciation of any assets you may be wishing to claim for your business or work as a sole contractor. Discuss your depreciated assets with us for more information.

 

Posted on 31 May '21, under tax.

Gender Inequality in Superannuation

Gender gaps can affect superannuation funds as much as they can affect salary rates. With barriers to entering into fields, lower hourly rates of pay, less hours worked and more unpaid labour affecting the amount of super New Zealand women are retiring with, as compared to men.

Currently, the median man’s KiwiSaver balance is 25% larger than the median woman’s, with the gap widening with age. In the 55-64 age bracket, the median man’s KiwiSaver balance is 30% larger than the median woman’s.

This gender divide when it comes to superannuation can be seen in the cost of maternity leave on superannuation. With women taking their time off from work and losing out on super contributions during this period of paid parental leave, it can affect their super in the long run as it exacerbates the income and superannuation gaps that were already in effect during their employment.

It can also be exacerbated by existing salary gaps across the workforce. Despite traditionally male-dominated fields experiencing high percentages of female graduates entering into the workforce, the positions that they fill are not always high-ranked, irrespective of experience.

Women are also less likely to take risks with their Kiwisaver’s investments, opting for lower-risk, lower-returning KiwiSaver funds. This means that their fund is more likely to grow at a slower rate, which results in less money available in their retirement funds.

If you have any concerns about your superannuation, would like advice on how to grow your super, or have questions about how you can better invest, come speak with us for more information.

 

Posted on 10 May '21, under super.

Penalty Payment Rates for Tax Shortfalls

New Zealand’s tax system follows self-assessments concepts. This means that it is the taxpayers responsibility to ensure that they are correctly calculating their tax, and have taken the reasonable care to do so.

If a tax return has been lodged incorrectly or there are details missing from it that are needed, the taxpayer may not have paid the amount of tax that they are actually required to. If this is the case, the taxpayer can incur a penalty against them which is known as a shortfall penalty.

This penalty is charged as a percentage of the tax shortfall, which is the difference between tax property payable by the taxpayer and the lowest amount of tax that would have been payable by the taxpayer if it were assessed on the basis of the taxpayer’s return.

Generally there are five types of shortfall penalties that may be applied to taxpayers.

Reasonable care

Essentially, the taxpayer must ensure that they are meeting their tax obligations accordingly. Good recording systems should be in place to ensure that their income and spending are properly recommended, as tax agents need access to the right information.

When deciding whether or not the taxpayer has taken reasonable care, Inland Revenue will consider:

  • The complexity of the law and transaction
  • The amount and seriousness of the shortfall
  • Accidental errors
  • Professional advice the taxpayer may have received
  • The difficulty and expense of taking precautions against a shortfall occurring
  • The age, health and background of the taxpayer

Business customers will also receive additional consideration. This could include:

  • The size and nature of the business
  • The internal controls in place
  • The business’s record keeping practices
  • Any system failures

The shortfall penalty rate for not taking care is 20% of the tax shortfall.

Unacceptable tax position

Decisions that are made by taxpayers when filing a tax return are known as a tax position. These are sometimes used to reduce or delay paying tax. “Unacceptable” tax positions are decisions that may have been made that are more likely to be wrong rather than right. Courts cannot seriously consider any of unacceptable tax positions as being reasonable decisions.

A penalty will be charged when the tax shortfall:

  • Resulted from a tax position that was more likely to be wrong than right
  • Is in income tax
  • Is more than both $50,000 and 1% of the taxpayer’s total tax figure for the relevant

Unacceptable tax positions incur a penalty of  20% of the resulting tax shortfall.

Gross carelessness

Gross carelessness in taxation matters is when the taxpayer has shown:

  • No care in managing their tax
  • Little or no thought to the consequences
  • Unreasonable behaviour leading to a high risk tax shortfall

The gross carelessness payment is not affected or based on whether or not the taxpayer was careless on purpose or by accident. The penalty for gross carelessness is 40% of the resulting tax shortfall.

Adopting an abusive tax position

If a taxpayer uses a tax position for the main purpose of not paying tax, it is known as an abusive tax position. Abusive tax positions receive a penalty of 100% of the resulting tax shortfall.

If they promote, sell or issue a tax arrangement to 10 or more investors in a tax year, and it involves an abusive tax position, they may also be liable for a promoter penalty. However, the investors may reduce their penalty rate from 100% down to 20% if the promoter of the abusive tax position is penalised.

Tax Evasion

Tax evasion is a serious offense, and can either be a penalty payment of 150% of the tax shortfall or a criminal prosecution (which could result in imprisonment of up to five years and a fine of up to $50,000).

Tax evasion may involve:

  • Evading the assessment or payment of tax on your own or another’s behalf
  • Using deducted or withheld tax for anything other than its lawful purpose
  • Failing to make a legally required deduction or withholding tax
  • Getting a refund or payment of tax that you know you are not entitled to.
  • Enabling somebody else to get a refund or payment of tax you know they are not entitled to

Employees who act on behalf of their employer could face a penalty if they fail to deduct or withhold tax for them, or use tax for anything than payment to Inland Revenue.

Shortfall penalties can be increased by 25% if an Inland revenue officer is obstructed in the process of ascertaining. You may also be criminally penalised for obstruction, if you:

  • Refuse reasonable access to your business premises
  • Destroy relevant records
  • Lie or falsify details
  • Deliberately delaying in order to frustrate enquiries.

To avoid getting into this situation, speak with us to ensure that your tax return is correct and lodged properly. We’re here to help you.

Posted on 4 May '21, under tax.

Cryptocurrency – A Potential Alternative Investment Option For Your KiwiSaver?

Digital cryptocurrency could be an investment option to consider for your KiwiSaver fund in the future if NZ Funds Management’s new approach to investing super pays off. 

As it stands, KiwiSaver isn’t a saving’s account – it’s an investment of your money on your behalf by your KiwiSaver provider. Each provider may have a different selection of investment options that they choose to invest in, but each fund type has its own specific asset types it traditionally invests in. 

With investments like gold, stocks and bonds, and property included in many KiwiSaver funds, the popular cryptocurrency Bitcoin is considered to be a commodity on par with gold when it comes to investing. It has the potential to become a way to diversify your investment portfolios, much like how current funds invest into various growth assets to boost their returns.

Bitcoin as an asset for investment currently contains 5% of NZ Fund’s KiwiSaver Growth Strategy fund’s money. The fund began investing in the cryptocurrency back in October 2020, following in the footsteps of Australian super providers who had begun a similar investment option for its members in terms of cryptocurrency.

Currently, KiwiSaver funds focus primarily on investing in one of six categories:

  • Defensive
  • Conservative
  • Balanced
  • Growth
  • Aggressive
  • Life Stages

Speak with your KiwiSaver provider about ways to invest your money for the future in your fund.

Posted on 12 April '21, under super.

Choosing a fund for your Kiwisaver

Individuals should regularly check whether their Kiwisaver fund is right for them and not shy away from switching funds to a more suitable one if they are not appropriate. 

The following points are what you should focus on when reviewing your fund:

  • Is the fund suited to your situation – depending on which stage of life you are in, the fund that suits you or can provide you with the most benefit could change.
  • Does it have reasonable fees – higher fees should correspond to higher returns, make sure you conduct research to identify the appropriate amount of fees.
  • Will you receive good service and communication – In the case that you may need assistance, you should be able to easily contact your provider and acquire the support you need.
  • How has your super performed – Review how your super fund has performed over the years. Don’t focus on just one year, look at how the fund has performed over time. If your fund has performed poorly, then look at how your potential other choices have performed. 

There are 5 Kiwisaver options available:

  1. Defensive
  2. Conservative
  3. Balanced
  4. Growth
  5. Aggressive

Defensive has the lowest risk level, low volatility, low potential results, and the length of investment is only 1-3 years. With each level, these factors increase so that the aggressive option has the highest risk, high volatility, high potential results and the length of investment is as high as 13 years.

Posted on 15 February '21, under super.

Provisional tax options

Provisional tax helps manage income tax payment. Rather than paying a lump sum at the end of the year, you are able to make repayments throughout the year. There are 4 main options available to work out provisional tax:

Standard

Based on your previous year’s residual income tax (RIT) plus 5%. This is particularly useful if your income is steady or increases over the following year. If you choose the standard option, then you will pay 3 instalments throughout the year. Individuals registered for GST (filing biannual GST returns) will only pay 2 instalments. You may also be required to pay more tax after filing your returns. 

This option is selected automatically unless you specifically choose otherwise. 

Estimation

This option helps you avoid overpaying and underpaying your tax. It may be an ideal option if you already pay provisional tax and:

  • Your income will be decreasing over the next year
  • You suffer a loss which could drastically offset your income
  • Your income is set to increase a lot and your RIT will be more than $60,000 higher than how much the standard option has calculated
  • You have shifted from untaxed income (i.e. self-employment) to wages or salary

You must choose the estimation option if you’re choosing to be a provisional taxpayer but did not pay provisional tax last year. 

Account income method (AIM)

This option is available to individuals and companies with a yearly turnover under $5 million. This option is suitable if:

  • Your business has been growing 
  • You are new to business
  • You have experienced a decrease in income from last year and find it difficult to estimate your income
  • Your income is seasonal or irregular
  • It is difficult for you to forecast your income accurately
  • You have or want to start using accounting software

You only have to pay provisional tax when your business earns a profit – if your payments have been made on time and in full then no use of money interest will be charged

Ratio

Ratio option allows you to match provisional tax payments with business cash flow. I.e. your provisional payments are based on a percentage of your GST-taxable supplies. 

This option is useful if your income is varied or seasonal and you will need to meet various to select this option. 

Posted on 4 February '21, under tax.