Tax Types you need to know if you’re a business owner

Tax Types you need to know if you’re a business owner

Taxation is usually a complex subject. So, as part of our New Years present to all of you, we thought we could simplify the different tax types.

Some of the most common taxes are as follows:

Income Tax

Income tax is payable on profits for businesses and on personal income earned by
individuals. The rates of tax that applies depends on the type of entity or if you are an
individual.

Companies and Trusts pay tax on income at a rate of 28% and 33% respectively whereas
individuals pay tax at the marginal rates between 10.50% and 33%.

End-of-year tax (this is also known as terminal tax) is payable before 7 February the
following tax year, or 7 April the following year if you have a tax agent.

Provisional Tax
Provisional tax breaks up the income tax you pay to IRD by letting you pay it in installments during the year as opposed to one big sum at the end of the tax year.

Any taxpayer – whether they be an individual, company or trust – who earns income where tax is not deducted when it was received like self-employed or rental income may have to pay provisional tax.

You become a provisional taxpayer if the income tax due for the previous year (this is known as your residual income tax) was more than $2500. There are some other rules that applies to first year of business.

The payment is based on the provisional tax method you’ve chosen. There are four methods available to calculate your payments: Standard uplift, estimation, GST ratio method and the accounting income method (AIM).

In most cases, you will pay three installments of provisional tax throughout the year: 28
August, 15 January and 7 May, However, this may vary depending on the calculation
method and how often you file your GST returns.

The calculation methods, dates and provisional tax rules will be discussed in more detail in
more blogs to come.

Goods and Services Tax (GST)
GST is a tax on most goods and services supplied in New Zealand by registered persons. It
also applies to most imported goods, and certain imported services. GST of 15% is added to the price of taxable goods and services. If you're a GST-registered business, you pay GST on your supplies and collect GST on your sales. The difference between these two is what you pay to Inland Revenue.

You are required to register for GST if your turnover was more than $60,000 (average
$5,000 per month) for the last 12 months or expected to exceed that amount in the next 12 months.

There are 3 methods of accounting for GST: Payment, Invoice and Hybrid basis of which the payment basis is the most common and the filing frequency for GST is monthly, two and six monthly. The method and filing frequency are subject to rules that apply based on turnover.

Pay As You Earn (PAYE)
Employees earning a wage or salary are taxed directly from their pay. This is known as
PAYE (pay as you earn).  As an employer, you’re responsible for deducting and paying
PAYE on your employees’ behalf.

Different rules can apply to some payments, eg. lump sum payments like bonuses or
redundancy payouts, or to special types of workers. The amount of PAYE you deduct
depends on the employee’s tax code and how much they earn.

Each pay period you need to calculate and deduct PAYE. Each payday you send Inland
Revenue the pay details for your employees. This is called payday filing, and you can do all
of this directly from your accounting software (like SmartPayroll), or online through Inland
Revenue’s myIR service.

The easiest way to file your PAYE returns is to use a payroll software such as Smartpayroll.

Fringe Benefit Tax (FBT)
Benefits given to employees other than their salary or wages are fringe benefits which are
levied on the value of the fringe benefit provided to employees.

The main groups of taxable fringe benefits are:

  • motor vehicles available for private use
  • Free, subsidised or discounted goods and services
  • Low-interest loans
  • Employer contributions to sickness, accident or death benefit funds, superannuation
    schemes and specified insurance policies.

You’ll have to file an FBT return either quarterly or annually, depending on the election
made.

FBT can be calculated at 49.25% single rate (flat rate), or at multi rates depending on the
income of the employees.

FBT is tax deductible by the employer as an expense in their income tax return.

Written by Johan Potgieter

January 21, 2020

Related Articles

A Summary of all the Tax Changes and Support Schemes for COVID-19

The year 2020 and the world’s current economic status has taken a battering with the outbreak of COVID-19. With governments racing to create relief and incentive schemes for local businesses, the purpose of this article is to simply outline all the key tax changes and...

COVID-19 Resurgence Wage Subsidy Scheme: Everything You Need To Know

A new Resurgence Wage Subsidy Scheme payment has been announced by the government for employers and self-employed people who have been impacted by the recent resurgence of COVID-19.  What Is The Eligibility Criteria? All New Zealand employers who have had or expect to...

What’s New for Property Owners: Airbnb to Boarders

If you own a property which is being rented out for short stays (up to four weeks) this article will highlight all your necessary tax commitments, as well as all the new property rules which might come into effect this financial year. Highlights: If your tax due at...

Stay Up to Date With The Latest News & Updates

Join Our Newsletter

Stay up to date with all of the latest news and insights related to your business. Sign up below and we promise to only send you content 

REMINDER: Rental losses ring- fenced from 2019/2020 tax year

REMINDER: Rental losses ring- fenced from 2019/2020 tax year

The new law on ring-fencing rental losses is now in force, which means:

  • In most cases ring-fenced deductions will be carried forward and can only be used against residential rental or sale of property income in future years.
  • Property investors will, in most cases, no longer be able to reduce their tax liability by offsetting residential rental property deductions against their other income, such as salary or wages, or business income.

What does this mean? Here’s an example to guide you through: 
Tony owns a three bedroom rental property in Pakuranga, which he lets out at $570 per week. After paying the interest on his mortgage, property management fees, rates and other outgoings, he ends up with a $3,000 tax loss. Tony also works as an IT Manager for the Big Company Limited and receives a $100,000 annual salary.

Before the rule change, Tony would have been able to offset his $3,000 tax loss against his $100,000 annual salary, so that his total taxable income would be $97,000 ($100,000 – $3,000 = $97,000). This way, Tony would most likely have been able to claim a tax refund at the end of the year, because Big Company Limited would have deducted taxes from his salary at an assumed taxable income of $100,000 (rather than the actual taxable
income of $97,000).

The new rules stops that from happening. Instead, the $3,000 tax loss would be carried over to the next tax year, where it can only be offset against any rental profits / taxable property gains.

The new rules apply from the start of the 2019-2020 income year and apply to:

  • Mainly rental properties but can also include other residential land.
  • Individuals, partnerships, trusts, look-through companies and close companies.

Own a rental property? We’re happy to talk you through your tax implications so you don’t get caught out.

Written by Gordon Tian

January 14, 2020

Related Articles

A Summary of all the Tax Changes and Support Schemes for COVID-19

The year 2020 and the world’s current economic status has taken a battering with the outbreak of COVID-19. With governments racing to create relief and incentive schemes for local businesses, the purpose of this article is to simply outline all the key tax changes and...

COVID-19 Resurgence Wage Subsidy Scheme: Everything You Need To Know

A new Resurgence Wage Subsidy Scheme payment has been announced by the government for employers and self-employed people who have been impacted by the recent resurgence of COVID-19.  What Is The Eligibility Criteria? All New Zealand employers who have had or expect to...

What’s New for Property Owners: Airbnb to Boarders

If you own a property which is being rented out for short stays (up to four weeks) this article will highlight all your necessary tax commitments, as well as all the new property rules which might come into effect this financial year. Highlights: If your tax due at...

Stay Up to Date With The Latest News & Updates

Join Our Newsletter

Stay up to date with all of the latest news and insights related to your business. Sign up below and we promise to only send you content 

Partnership with Tax Management New Zealand Limited

Partnership with Tax Management New Zealand Limited

Tax pooling: Provisional tax payment flexibility

JZR Accountants & Consultants is pleased to announce a partnership with Tax Management NZ that will enable our clients to pay provisional tax when it suits them, not when IRD says so.  

Having to pay on dates set by the taxman can be problematic for some as these do not always align with when a taxpayer earns their income, nor do they recognise the state of their cashflow.

If a taxpayer fails to pay on time, IRD charges interest (currently 8.35 percent) and late payment penalties.

As an IRD-approved provider of a service called tax pooling – which has been operating in New Zealand since 2003 – Tax Management NZ remedies this problem by offering JZR’s clients more payment flexibility, at a reduced interest cost and without having to worry late payment penalties.

We feel tax pooling will help clients who wish to manage their cashflow or want to free up working capital.

 

How does it work?

Your account manager at JZR Accountants & Consultants can help you to access tax pooling via Tax Management NZ, who makes payments into its account at IRD on every provisional tax date on behalf of taxpayers wanting the option to pay an upcoming payment in instalments or at a time that suits them.  

These payments are date stamped as at the provisional tax date on which they are made (for example, 28 August 2019).  

Taxpayers then can deposit funds into JZR Accountants & Consultants trust bank account, after which we can forward this payment onto Tax Management NZ through one of two products: Flexitax® and Tax Finance.

Flexitax® enables a taxpayer to pay off what they owe as and when it suits their cashflow, with interest being recalculated on the core tax still owing at the end of each month.

With Tax Finance, a taxpayer pays a fixed interest cost upfront because they are agreeing to pay the full tax amount at a future date of their choosing. The upfront interest cost is based on the amount of tax required and when the taxpayer wishes to pay.

Whatever payment plan is used, Tax Management NZ will transfer the tax the taxpayer requires from its tax pool to the taxpayer’s own IRD account upon receiving payments.

As the tax they are transferring to a taxpayer’s IRD account has been paid and date stamped as at the original due date, IRD treats it as if the taxpayer paid their provisional tax on time when it processes this transfer. This eliminates any IRD interest and late payment penalties incurred.

 

 

“by offering taxpayers more payment flexibility, at a reduced interest cost and without having to worry late payment penalties.”

Tax types tax pooling can assist with 

Tax pooling can help JZR’s clients to make provisional or terminal tax payments for the current tax year or one just completed.

It can also assist with historic income tax as well as other tax types such as GST, PAYE, FBT RWT and NRWT in situations when IRD issues a notice of reassessment.

 

Please do not hesitate to get in touch with us if you wish to know more about how JZR Accountants & Consultants can help you with tax pooling. 

Related Articles

A Summary of all the Tax Changes and Support Schemes for COVID-19

The year 2020 and the world’s current economic status has taken a battering with the outbreak of COVID-19. With governments racing to create relief and incentive schemes for local businesses, the purpose of this article is to simply outline all the key tax changes and...

COVID-19 Resurgence Wage Subsidy Scheme: Everything You Need To Know

A new Resurgence Wage Subsidy Scheme payment has been announced by the government for employers and self-employed people who have been impacted by the recent resurgence of COVID-19.  What Is The Eligibility Criteria? All New Zealand employers who have had or expect to...

What’s New for Property Owners: Airbnb to Boarders

If you own a property which is being rented out for short stays (up to four weeks) this article will highlight all your necessary tax commitments, as well as all the new property rules which might come into effect this financial year. Highlights: If your tax due at...

Stay Up to Date With The Latest News & Updates

Join Our Newsletter

Stay up to date with all of the latest news and insights related to your business. Sign up below and we promise to only send you content 

Payday filing for all employers

Payday filing for all employers

Payday filing for all employers

Written by Gordon Tian

March 11, 2019

From 1 April 2019, payday filing will be compulsory for all employers.

Payday filing means you need to:
 
File employment information every payday instead of an Employer monthly schedule (IR348) at the 20th of the following month.

(1) Provide new and departing employees’ address information, as well as their date of birth – if they have provided it to you. 

(2) File electronically (from payday compatible software or through myIR) if your annual PAYE/ESCT is $50,000 or more.
 
Remember, the due date for payment remains the same at the 20th of the month (or 5th and 20th of the month for twice-monthly filers), but the PAYE return date will be due within 2 days of when you pay your employee. You will need to file this electronically, not by paper. 
 

“From 1 April 2019, payday filing will be compulsory for all employers. This change means that all employers should be using a payroll software, as any manual calculation and processing of payroll becomes increasingly impossible to do.” 

How do I payday file?
 
There are three ways to file electronically – direct from payroll software, such as Smartpayroll, file upload from myIR or onscreen via myIR.
 
Please visit this link if you need more information. 

https://www.ird.govt.nz/campaigns/2018/campaign-payday-filing.html 

What does this mean for my business

If you’re currently using Smartpayroll through our firm, then you will have nothing more to do, as Smartpayroll will handle everything for you. 

However, if you’re still filing PAYE returns using the paper form, then you will need to switch to a payroll software such as Smartpayroll. On a practical level, this change means that all employers should be using a payroll software, as any manual calculation and processing of payroll becomes increasingly impossible to do. 

Related Articles

A Summary of all the Tax Changes and Support Schemes for COVID-19

The year 2020 and the world’s current economic status has taken a battering with the outbreak of COVID-19. With governments racing to create relief and incentive schemes for local businesses, the purpose of this article is to simply outline all the key tax changes and...

COVID-19 Resurgence Wage Subsidy Scheme: Everything You Need To Know

A new Resurgence Wage Subsidy Scheme payment has been announced by the government for employers and self-employed people who have been impacted by the recent resurgence of COVID-19.  What Is The Eligibility Criteria? All New Zealand employers who have had or expect to...

What’s New for Property Owners: Airbnb to Boarders

If you own a property which is being rented out for short stays (up to four weeks) this article will highlight all your necessary tax commitments, as well as all the new property rules which might come into effect this financial year. Highlights: If your tax due at...

Stay Up to Date With The Latest News & Updates

Join Our Newsletter

Stay up to date with all of the latest news and insights related to your business. Sign up below and we promise to only send you content 

Ring-fencing of rental losses

Ring-fencing of rental losses

Ring-fencing of rental losses

Written by Gordon Tian

March 11, 2019

Tax

Residential Rental Properties: Tax Changes The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill was introduced into parliament late last year and is currently in the select committee stage.  
 
The Bill introduces the ring-fencing of losses on residential rental properties from the start of the 2019-20 income year, i.e., from 1 April 2019 for 31 March balance dates. What this means is these tax losses will no longer be able to be set off against other income and the key features are:
 
(1) The rules are proposed to apply to “residential land” which does not include farmland, main home, mixed-use property, property that will be taxed on sale, property owned by widely-held companies, (certain) employee accommodation.
 
(2) The rules will apply on a portfolio basis, that is, taxpayers would be able to offset deductions for one residential property against income from other properties
 

What this means is these tax losses will no longer be able to be set off against other income

(3) Ring-fenced residential property deductions will be able to be offset against future residential rental income and taxable income on the sale of residential land. Any remaining unused deductions will generally continue to be ring-fenced
 
(4) A rule is proposed to prevent interposed entities being used to circumvent the deduction ring-fencing rules
 
What this practically means is that any losses resulting from residential rental activity will not be able to be used to offset against other income, and for some people this will mean that they will no longer receive tax refunds.

Related Articles

A Summary of all the Tax Changes and Support Schemes for COVID-19

The year 2020 and the world’s current economic status has taken a battering with the outbreak of COVID-19. With governments racing to create relief and incentive schemes for local businesses, the purpose of this article is to simply outline all the key tax changes and...

COVID-19 Resurgence Wage Subsidy Scheme: Everything You Need To Know

A new Resurgence Wage Subsidy Scheme payment has been announced by the government for employers and self-employed people who have been impacted by the recent resurgence of COVID-19.  What Is The Eligibility Criteria? All New Zealand employers who have had or expect to...

What’s New for Property Owners: Airbnb to Boarders

If you own a property which is being rented out for short stays (up to four weeks) this article will highlight all your necessary tax commitments, as well as all the new property rules which might come into effect this financial year. Highlights: If your tax due at...

Stay Up to Date With The Latest News & Updates

Join Our Newsletter

Stay up to date with all of the latest news and insights related to your business. Sign up below and we promise to only send you content 

Airbnb usually a tax case on its own

Airbnb usually a tax case on its own

Airbnb usually a tax case on its own

Written by Gordon Tian

February 21, 2019

 

If you use Airbnb to provide short-term accommodation in your house in which you also live, the IRD’s “mixed-use asset (holiday home)” rules don’t apply and guests are not classed as boarders. Except when you list a whole house which is vacant for 62 days each year, mixed-use asset rules do apply and calculations differ from those for homes where the hosts also live.

 Claimable expenses

Anything you spend as an Airbnb service provider may be claimed as an expense. For shared expenses, like power and Internet, claims need to be fair and reasonable.

You can claim some home utilities, rates, insurance, and interest – and all food and other consumables that guests use. You can also claim depreciation on chattels and appliances used by guests only. You can claim some depreciation on other shared chattels and appliances, like claiming a portion of utilities.

If you spend money to keep your property attractive for guests, you can claim some of those costs.

You’ll have to apportion expenses and, to do that, you need to know:

  • The floor area used exclusively by Airbnb guests (say, 25m2)
  • The shared area used by you and Airbnb guests (say, 90m2)
  • Total of guests plus you and your family

“once you have registered for GST or deemed to be registered for GST, and for whatever reason decide to stop your Air BnB rental activity, then you will be required to de-register for GST and then pay GST on the market value of your property at the time of de-registration.”

Your apportionment calculation then is:

Guest floor area + (total shared floor area x [one divided by total guests plus family] x percentage of year you have guests). Then you divide that product by total floor area,
and the resulting figure is the apportionment percentage you use for expenses.

If your room or home was unavailable for part of the year, your calculations must reflect that.

Unlike residential rent, GST applies to Airbnb. You must register for and file GST if your turnover is $60,000 or more in the past 12 months, or will be $60,000 or more in the next 12 months.

Another very important thing to note is that once you have registered for GST or deemed to be registered for GST, and for whatever reason decide to stop your Air BnB rental activity, then you will be required to de-register for GST and then pay GST on the market value of your property at the time of de-registration.

There’s a lot to this, so we recommend that you get contact us to receive some professional tax advice.

Related Articles

A Summary of all the Tax Changes and Support Schemes for COVID-19

The year 2020 and the world’s current economic status has taken a battering with the outbreak of COVID-19. With governments racing to create relief and incentive schemes for local businesses, the purpose of this article is to simply outline all the key tax changes and...

COVID-19 Resurgence Wage Subsidy Scheme: Everything You Need To Know

A new Resurgence Wage Subsidy Scheme payment has been announced by the government for employers and self-employed people who have been impacted by the recent resurgence of COVID-19.  What Is The Eligibility Criteria? All New Zealand employers who have had or expect to...

What’s New for Property Owners: Airbnb to Boarders

If you own a property which is being rented out for short stays (up to four weeks) this article will highlight all your necessary tax commitments, as well as all the new property rules which might come into effect this financial year. Highlights: If your tax due at...

Stay Up to Date With The Latest News & Updates

Join Our Newsletter

Stay up to date with all of the latest news and insights related to your business. Sign up below and we promise to only send you content