COVID-19 and tax for the self-employed

As part of their COVID-19 response, the IRD has introduced a number of measures aimed at alleviating the financial pressure on those who are self-employed.

Tailored tax rates and exemptions
Self-employed workers who have had their income significantly affected by COVID-19 and no longer fit in their current withholding rate can apply for a tailored tax code. This can be done through myIR Secure Online Services.

Additionally, self-employed citizens may be able to apply for a certificate of exemption for schedular payments (not salary or wages) if they have a good record of filing tax returns and paying tax.

Provisional tax
The threshold for provisional tax has been increased from $2,500 to $5,000. If you are a current provisional taxpayer with payments under $5,000, you must pay your tax bill by 7 February following the year you file. The increased threshold is aimed at lowering compliance costs for smaller taxpayers, and it means that some taxpayers will no longer have to pay provisional tax for the 2020-2021 income year and onwards.

Loss carry-back scheme
Self-employed workers who expect to make a loss in the 2019-2020 or 2020-2021 financial years may be eligible for the loss carry-back scheme. The scheme will enable businesses to carry their losses back one year to the preceding income year, offsetting profits that were made the previous year. Your loss carry-back can be claimed by:

• Including the carried back loss in your tax return. The IRD will then provide you with a refund of overpaid tax.
• Asking for a refund of any provisional tax you paid for 2020 if you plan to carry back a loss from 2021.

Requesting for your KiwiSaver funds early due to financial hardship

Inland Revenue has announced that those experiencing financial hardship as a result of COVID-19 may be eligible to withdraw their KiwiSaver funds early. In addition to applying for an early release, you can also apply for a KiwiSaver savings suspension in the event that you want to stop further contributions being made from your wages within the first 12 months of experiencing financial hardship.

To be eligible for an early release of your KiwiSaver funds, you must prove that you are experiencing significant financial hardship in the form of you:

• Being unable to meet minimum living expenses;
• Being unable to pay the mortgage of the home you live in (and your provider is enforcing the mortgage despite your financial circumstances);
• Needing to modify your home to meet the special needs of a dependent family member;
• Needing to pay for medical treatment for yourself or a dependent family member;
• Having a serious illness;
• Needing to pay funeral costs for a dependent family member.

Once meeting one or more of the above conditions for financial hardship, you can apply with the Inland Revenue for an early release of your KiwiSaver funds. Keep in mind that if your application is accepted, you can only withdraw your and your employer’s contributions to your KiwiSaver. Your application will also only be considered during the first two months after Inland Revenue has received your first contribution. After the first two months, you will have to contact your KiwiSaver provider. The Inland Revenue recommends contacting your provider for those who are self-employed and pay their own KiwiSaver contributions.

To apply for your KiwiSaver funds early, first gather your relevant information including a list of your assets and liabilities, details of your income and your costs and your bank account details (for a refund if Inland Revenue approves your application). Next, you will need to fill out an application from the Inland Revenue’s website coded KS5 2020 and submit it online or through postal services.

After reviewing your application, you will either receive a confirmation letter with a refund into your bank account or a rejection letter with reasons explaining your ineligibility. The Inland Revenue may also contact you if more information on your financial circumstances is necessary.

COVID-19 tax relief for businesses

The Inland Revenue will provide all New Zealand-based businesses struggling to pay their taxes due to COVID-19 with various forms of tax relief. Here’s a breakdown of the key relief strategies applicable to your business during these tough times.

Penalties and interest write-off:
Businesses unable to pay their taxes on time due to financial strain caused by COVID-19 will have their penalties and interest written off by the Inland Revenue. Commissioners now have the ability to remit use of money interest charged if a taxpayer’s ability to pay their tax on time has been adversely affected by the coronavirus. This discretion applies to tax payments due on or after 14 February 2020 and Commissioners will retain the ability to remit interest until 25 March 2022.

Businesses will be assessed by Commissioners on their ability to pay tax and whether or not their financial circumstances indicate that they are eligible to have their penalties and interest written off. To qualify for the write-off, businesses must also agree to pay their outstanding tax at the earliest opportunity or “as soon as practicable”.

Instalment arrangements:
The Inland Revenue will also be providing businesses with a number of payment options, including more flexibility as well as a lower threshold for instalment arrangements set up in myIR. The new minimum repayment rates are $20/week, $40/fortnight and $80/month and payments can be made with internet banking and through myIR.

Wage subsidies:
Employers who are relying on the Government’s wage subsidies to pay their employees will not have to worry about income tax or GST (goods and services tax) on the subsidy received from MSD. Employers are deemed not liable for usual income tax and GST duties if their employees’ wages are paid through Government subsidies. They will also not be entitled to an income tax deduction for wages paid out of wage subsidy.

Time extension:
Another small but important tax relief strategy available to businesses is the extended timeframe for filing Basic Compliance Packages (BCPs). The date has now been extended to 30 June 2020.

Default KiwiSaver super accounts to increase in investment opportunity

New Zealand’s national super fund, KiwiSaver, has most recently announced the move of their default super accounts from “conservative” to “balanced”. KiwiSaver default super funds have long been “conservative” due to only 10-35% of funds in accounts being invested into growth assets.

However, with the change coming into effect in July 2021, the move to a “balanced” account means that default accounts will be increasing their funds invested in growth assets to 35-63%. The new change to balanced funds is aimed to benefit workers who have five to twelve years horizons.

As over 90% of KiwiSaver users are below the age of 60, experts believe that the transition will be greatly beneficial to youngKiwiSaver account holders, as there is a greater chance for their users to make more money off of investments with their super. With most default accounts being owned by younger workers with many years until retirement, any losses resulting from the change won’t be as impactful as they have time to recoup the losses that might result from a more aggressive allocation of their super funds.

In addition to the super default account changes from “conservative” to “balanced”, KiwiSaver has also announced that they will ban all their super accounts from investing in fossil fuel production and illegal weapons. Investment in companies that only sell but don’t produce fossil fuels like petrol will be allowed.

The ban also comes at a time where New Zealand is transitioning into a lower carbon economy. Experts also believe the ban makes sense in a global business context, as the world moves towards reducing emissions and the risk of investing into stranded assets is high, especially for KiwiSavers account holders with five to twelve years left until their retirement.

Taking advantage of the new building depreciation deduction claims

As part of the New Zealand Government’s $12.1 billion emergency COVID-19 stimulus package, the Government has reintroduced building depreciation deduction claims for property owners with commercial and industrial properties. The deduction claims will be at a level of 2% a year starting in April 2020.

This business relief measure will provide property owners with a substantial boost to their operating balance sheets and with its permanency, will also aid with ongoing seismic strengthening costs.

With the new changes from New Zealand’s stimulus package, negative economic impacts for commercial property and business owners will be softened and with a collective cost saved of $2.6 billion across all New Zealand businesses, business owners can certainly put their saved money into other avenues.

Here are a few things you can consider doing now that you’ve got some more money on hand:

• Establish cash reserves
• Invest further into your business and your employees in a sustainable manner
• Maximise capital expenditures
• Consider buying or collaborating with other businesses in the industry
• Set up retirement accounts

IRD offers tax relief for those affected by COVID-19

With the outbreak of the coronavirus disease (COVID-19) being declared a Public Health Emergency of International Concern, IRD has provided a tax relief guideline for paying taxes during this time.

If you have been unable to pay outstanding tax due to hardship, then you may be able to set up an instalment arrangement in myIR for GST, FBT, income tax, resident withholding tax, Working for Families, gaming machine duty and tax credit claims. In cases of serious hardship, you may also be eligible for a write-off when you don’t expect that you’ll be able to pay the full amount owing.

Extensions for late filing and late payment have also been made available for certain income tax returns. If a payment has been made late due to the coronavirus, then the normal penalties for late payments may be remitted.

If your circumstances have been affected by the coronavirus, then you may be able to make a re-estimation of provisional tax. If provisional tax has been overpaid prior to re-estimation, early refunds can be made.

Paid parental leave is also an option if you have a baby or are expecting one, or if you have been the primary carer for a child under six months since 1 April 2016 or after. If you normally make child support payments but are struggling to meet the due dates for the payments, you can contact the IRD to see the options available for you. You may be eligible to reduce the assessment upon a re-estimation of your income if it has been affected by the coronavirus.

If you receive Working for Families Tax Credits entitlements, you may be able to receive increased payments or an increase in the frequency of your payments if your family income has decreased due to the coronavirus situation.

Tax implications of selling your home

When selling your home, there are many initial questions that will often come to mind – how much will you earn from it? Where are you going to move to? Is it ready to be put for sale? This makes it easy to forget about the tax implications that will affect you when selling your home.

If the property you’re selling is your main residence, then you pass the bright-line property rule, which is when you need to pay tax when you buy and sell a residential property within five years unless an exception applies. The exclusions to this rule are when:

• The property is your main/family home.
• You inherited the property.
• You’re the executor or administrator of a deceased estate.

The person selling the property will decide if it counts as their main residence, based on the exclusion criteria. If you make a loss on the sale instead of a profit, then the losses would be ring-fenced.

The taxes you pay when selling property also depend on:

• Your intent at the time of purchase: if the property has been bought with the intention of selling it again, you have to pay tax on any profit you make from the sale. This applies even if the intention to sell isn’t the only reason for buying.
• Your history of buying and selling: If you have an evident history of buying and selling property, then you could count as a property dealer. If this is the case, you may have to pay tax when you sell a property, even if it’s your family home.
• Whether you’re involved with the property industry: if you’re a dealer, developer or builder, you can be liable to pay tax on the profit you make from any property you sell that were bought as part of your property or building business.

Introducing Better Later Life

Better Later Life – He Oranga Kaumātua 2019 to 2034 is the Government’s plan to provide older New Zealanders with a better quality of living. The strategy was launched on 1 November 2019.

Designed to ensure everyone gets the chance to live well as they get older and create opportunities for everyone to participate, contribute and be valued as they age, the Better Later Life strategy helps to prepare New Zealand for the aging population.

Better Later Life has five key areas for action, based on feedback from nationwide consultations. These areas are:

• Achieving financial security and economic participation.
• Promoting healthy ageing and improving access to services.
• Creating diverse housing choices and options.
• Enhancing opportunities for participation and social connection.
• Making environments accessible.

Unlike the previous policy, The Positive Ageing Strategy 2001, Better Later Life also considers the next generation of older people aged 50-64.

Going forward, an action plan will be developed based on the strategy’s key areas. Changes are already being implemented to the SuperGold Card to stretch peoples’ income and the Residential Tenancy Act is being reformed, in addition to the creation of the Age-Friendly community programme.

This strategy has links to other strategies, such as Healthy Ageing Strategy 2016, New Zealand Disability Strategy 2016 and New Zealand Carers Strategy 2008.

Deducting holding costs for privately used land

Inland Revenue released a consultation document in October 2019 regarding the deductibility of holding costs for private uses. Holding costs are expenses including interest, insurance, repairs and maintenance.

The document proposes three options for the treatment of holding costs for periods when land is used privately:

• Apportion the holding costs between private use and the taxable gain on sale, where only costs apportioned to the taxable gain on sale will be deducted.
• Allow all deductions on holding costs, so that full deductions on holding costs can be claimed despite any private use. Deductibility will then be determined by whether the land has any taxable use, instead of whether the land is ever privately used.
• Deny all deductions for holding costs for periods where land is used privately, regardless of whether there are still costs related to earning taxable income during private use periods. This is the Inland Revenue’s preferred option.

Aside from individual owners, the proposal to deny holding cost deductions for private use would also apply to other entities such as partnerships, trusts and look through-companies.

The proposal also considers the treatment of costs on vacancy periods, concluding that whether or not the land is used privately or for income, the tax treatment will depend on how the land is just for the majority of the time. If the land is always vacant, deductions of holding costs will only be available if the land was acquired with the purpose of earning income. Otherwise, the land is considered to be used for private purposes.

Creating a successful work team

If you’ve never had a bad teamwork experience, then you’re often considered to be very lucky. Creating a successful team at work can be challenging as it forces people with a range of opinions, values, work styles, work goals and past experience to work together in proximity. To help build a successful team, certain measures can be considered:

Choose the right people:
Taking the time to deliberate and choose a group of people with the right skill set for the project can increase the team’s chances of success. Having the right amount of people doing a particular job in the team can help prevent there from being too many workers in one area with other areas failing to be completed. Choosing a diverse team can also provide a broader perspective on the project and allow for growth.

Encourage team-building exercises:
Allowing the team to spend time together before undertaking a collective project can be a good way for them to get to know each other without the pressures of work. This can strengthen relations and make it easier for team members to ask each other questions, ask for help and offer their opinion when the work begins. Having team-building exercises can also help identify who is suited for what role and who works well together.

Have a clear purpose:
Make sure that your team is all on the same page about their purpose and the short-term and long-term goals they should be working towards. It is helpful when these goals are specific and measurable to avoid arguments of what the team is working towards.

Outline performance expectations:
If the team is unsure of what is expected of them, they may get off track or not meet work standards. Outlining deadlines, work quality and work hours can help the team perform effectively. This can also prevent arguments and criticism about each others work performance.

Reward good teamwork:
If the team excels in an area of work, it can be motivating to show your recognition of their achievements. This can be as simple as verbally congratulating the team on their work, or can be more formal, such as a workplace announcement or a spot in the company’s internal newsletter.

Ongoing checkups:
While teams may feel uncomfortable with being micromanaged and feeling like they are under constant surveillance, having simple evaluations throughout the project can be helpful. The results from evaluations can show you if your team is on track as well as if there are any problems that may be arising. This can help the team be motivated to succeed and help you identify and resolve problems early.