New Research and Development tax incentive

The Coalition Government will introduce a new tax incentive aiming to unlock further spending on research and development. The research and development (R&D) tax incentive is the government’s response to extensive consultation with businesses.

As part of the incentive the government has stated that the rate will be higher, the threshold lower and the definition more inclusive so that as many businesses as possible can benefit from this incentive.

The R&D incentive aims to give business’ the opportunity to increase productivity and boost wages. The Coalition agreement will work to increase R&D spending to two per cent of GDP over 10 years. The government will also include refundable tax credits for start-ups and loss-making businesses in the first year of the tax incentive.

The key features of the policy include:

• A credit rate of 15%
• A $120 million cap on eligible expenditure
• A minimum R&D spending threshold of $50,000 per year
• A limited form of refund in its first year mirroring Inland Revenue’s tax-loss cash out scheme (to be replaced by a more comprehensive approach in the scheme’s second year)

KiwiSaver statements to show retirement incomes and likely total savings

KiwiSaver annual statements will soon show projected balances at retirement and income figures to help consumers make a better decision about their savings.

This initiative intends to provide people with clear, easy-to-understand information about their current savings and how that tracks towards retirement. Statements will show people an estimate of the savings built-up by the time they are 65 and will include the weekly retirement income that sum would provide over 25 years.

The changes made to annual statements will take place after consultation with providers. Expectations from the government are that this amendment will be executed without substantial delay.

The collaboration also resulted in the introduction of the requirement of KiwiSaver providers to disclose to investors the total dollar fees they have charged them throughout the year.

The improvements to KiwiSaver are to allow individuals to make informed and confident decisions about their retirement savings.

Everything you need to know about payday filing

From 1 April 2019 employers must comply with the new payday filing scheme. The due date for employer deductions filing and payment remains the same as the 20th of the month.

Employers must:

• File employment information every payday instead of an Employer monthly schedule
• Provide new and departing employees’ address information, and their date of birth- if they have provided it to you
• File electronically (from payday compatible software or through myIR) if your annual PAYE/ESCT is $50 000 or more.

  How to payday file

Employers must Include employment information (and correct a file), employee details and employer deductions. It should be noted that paper filers can’t shift to payday filing before April 2019 unless they change to electronic filing.

The methods include:

• In myIR through the payroll returns account through file upload (payday filing compatible software is required) or online data entry
• Directly from your payday filing compatible software. With this option, employers will file directly from their software.

  Steps to shift to payday filing today
  There are several steps employers can undertake to start payday filing as soon as possible:

• Review payroll processes, plan and schedule when to make the shift
• Ask the software provider when they will have payday filing compatible software
• If the decision is to use myIR to file the IRD must be notified when the change is made to payday filing.

Divorce and your KiwiSaver

Going through a divorce is an extremely difficult experience; among the emotional challenges are the financial issues, particularly when you consider what will happen to your KiwiSaver?

The good news is the balance in your KiwiSaver prior to the relationship is safe and will not be divided between you and your partner when you divorce. However, the amount in funds contributed, and the growth incurred in your KiwiSaver during the relationship falls under the category of relationship property and as such is to be divided equally amongst a divorcing couple.

Regardless of whether the value is made from government contributions, employer contributions or individual contributions, it will still be categorised as relationship property and divided appropriately. The value of your KiwiSaver (to be divided) will usually be at the date you and your partner separate or the date of resolution.

Generally, the Court will order your KiwiSaver fund to pay out a portion of your funds to your partner’s bank account or KiwiSaver unless there is another option available. For instance, you and your partner may agree that he or she will take a larger share from the relationship’s other financial assets instead of from your KiwiSaver.

It is also important to know if full disclosure is not given during the divorce settlement in relation to your assets, your former spouse will have the option to take proceedings against you.

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.