KiwiSaver for new employees: what you need to know

Upon hiring a new employee, there is a range of obligations and responsibilities you will have to meet when it comes to KiwiSaver.

Start the enrolment process
Firstly, you will be required to check whether they are eligible to join KiwiSaver. The employee needs to be enrolled in KiwiSaver (providing they are eligible for automatic enrolment) unless you offer an approved alternative superannuation scheme.

You must provide every new employee with KiwiSaver information (KS3), including a KiwiSaver deduction form (KS2) and an Opt out request (KS10) form. Ensure you keep a copy of the KS2 form for your records. If your employee does not complete the KS2 form, you can apply the default rate of 3 per cent.

Should you have an employer-chosen KiwiSaver scheme, you will be required to confirm this in writing for the new employee explaining that you have chosen a scheme they will be allocated to unless they choose their own scheme. You will need to provide them with your scheme’s investment statement as well.

First pay
Once they begin their job, you must make KiwiSaver deductions from the employee’s first pay until:
– The opt out notice takes effect.
– They no longer receive a salary or wage.
– Their contributions holiday is granted.
– The IRD notifies you to stop making deductions.
– The employee is eligible to and withdraws their savings.

New employees who have been automatically enrolled in KiwiSaver can opt out anytime on or after day 14 and on or before day 56 after starting their new position.

Employer superannuation tax (ESCT)
Generally, an employer superannuation tax (ESCT) will be deducted from the contributions you send to the employee’s KiwiSaver or super account. You must contribute at a minimum 3 per cent of their salary or wage.

Provide employee details
When they should be automatically enrolled, provide IRD with your employee’s full name, IRD number and address via a KiwiSaver employee details (KS1) form (you only need to give the information that the employee gives you).

This must be provided no later than the date for providing the IR348 or EI that corresponds to the employee’s first pay.

When they are an existing member
If your new employee is already enrolled in KiwiSaver, they must give you a:
– KiwiSaver deduction form (KS2),
– or a valid KiwiSaver contributions holiday request (KS6)

Usually, you will not have to send a KS1 for a new employee that is an existing member.

Introduction of Best Start

From 1 July 2018, eligible parents who have a baby born on or after 1 July 2018 will receive a Best Start payment of $60 per child.

Eligible individuals will receive $60 a week until the baby turns one regardless of household income. For those with a household income of less than $79,000, you will receive $60 a week until the child turns three.

The eligibility requirements are as follows:
– You must be the principal caregiver of the child
– You must be a New Zealand resident or citizen and have been in New Zealand for a continuous period of 12 months at any time, or
– The child you are claiming for is both a resident and present in New Zealand
– You must be a New Zealand resident
– You must have an IRD number for the child you will receive Best Start payments for.

Families can apply when registering their baby’s birth through “Register your Baby” on the SmartStart website, or by completing the Working for Families Tax Credits registration (FS1) form which can be found on the IRD website.

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.

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.

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.

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.

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.

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.

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.

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.