Firm Journal

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.

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.

KiwiSaver continues to grow

Since KiwiSaver started ten years ago, KiwiSaver members have built up total assets of more than $40 billion dollars and 2.7 million New Zealanders have joined the scheme, according to the FMA’s annual KiwiSaver report 2017.

Based on returns as at 31 March 2017, total assets were up $7 billion from $33.8 billion in 2016. Investment returns of $2.7 billion were more than double those of 2016.

For the second year running, the number of transfers (between providers) is higher than new members joining the scheme.

The FMA’s findings raise alert for the number of default KiwiSaver providers who are not meeting their responsibilities in terms of addressing the financial literacy of members. The FMA has written to the chief executive of each default provider to address this.

From March 2018, KiwiSaver providers will need to show the dollar amount of fees paid on a member’s annual statement. The change comes to help members better understand their fees.

Posted on 13 October '17, under super.

New provisional tax option for small business

From 1 April 2018, small businesses with a turnover of less than $5 million a year can work out their provisional tax using the accounting income method (AIM).

AIM uses new functionality in approved accounting software to work out payments. It will suit businesses that have irregular or seasonal income and have accounting software or want to start using accounting software.

Businesses can continue to use another provisional tax option if they prefer.

Those businesses that do choose to use AIM will only pay provisional tax when their business makes a profit, helping with cash flow.

If payments are made in full and on time, there is no exposure to use-of-money interest. Businesses that make a loss can receive a refund immediately rather than waiting until the end of the year.

To choose AIM, complete the set up in your software. You are required to opt into AIM at the beginning of the tax year before your first payment would fall due.

For new businesses and those new to paying provisional tax, you can opt into AIM anytime before your first payment would be due.

On your first due date, you must send Inland Revenue your statement of activity through your software and send your payment if there is one to make.

AIM is not available for a transitional year or if you are a partnership, portfolio investment entity, super fund, trust or a Maori authority. If you have foreign investment funds (FIF) or controlled foreign companies (CFC) attributed income you are also excluded.

Posted on 27 September '17, under tax.

KiwiSaver provider backs compulsory super

New Zealand’s biggest KiwiSaver provider ANZ is backing compulsory super after new research finds that just 53 per cent of New Zealanders who earn less than $50,000 are members of KiwiSaver.

Although the research found that 80 per cent of those surveyed who earned more than $100,000 were KiwiSaver members, many were not regularly contributing to the scheme.

Since KiwiSaver was launched 10 years ago, 2.7 million people had joined, however, 375,000 working-age people have not enrolled in the scheme.

ANZ is proposing that KiwiSaver is made compulsory. If it is not made compulsory, ANZ is suggesting all adult non-members should be automatically enrolled with an option to opt out or a reintroduction of Government incentives to join up.

ANZ said the findings do raise questions about whether KiwiSaver is reaching the people who need it the most. Only 35 per cent of those surveyed said they have calculated how much they will have saved by age 65. A further 37 per cent said there was too much uncertainty and 22 per cent said it was too hard to work it out.

Posted on 14 September '17, under super.

Business tax bill is now law

The Taxation (Business Tax, Exchange of information, and Remedial Matters) Act 2017 received Royal assent on 21 February 2017.

The new legislation focuses on changes to business taxation to make tax simpler. From 1 April 2017, the threshold for self-correction of errors under section 113A of the Tax Administration Act 1994 has increased from $500 to $1000; the use-of-money interest will be reduced or removed for the vast majority of business taxpayers; and most RWT exemption certificates can now be issued for more than one year.

For the 2017-18 and later income years:

  • The 63-day rule for employee remuneration has been made voluntary.

  • The PAYE/ESCT threshold for annual and income year FBT return filing is increasing from $500,000 to $1 million.

  • A new simplified method of deductions for dual use vehicles and premises will be available.

From 1 April 2018, the introduction of the accounting income method will give smaller businesses a new pay-as-you-go option for provisional tax. The accounting income method will allow small taxpayers to use their accounting software to calculate and pay their provisional tax, taking the guesswork out of calculating provisional tax.

Posted on 12 April '17, under tax.