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

January 14, 2020

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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. 

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Payday filing for all employers

Payday filing for all employers

Payday filing for all employers

Written by Gordon

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. 

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Ring-fencing of rental losses

Ring-fencing of rental losses

Ring-fencing of rental losses

Written by Gordon

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.

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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

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.

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Capital Gains Tax Update

Capital Gains Tax Update

Capital Gains Tax Update

Written by Gordon

February 20, 2019

 

The Tax Working Group in its final report released today is recommending a broad extension of taxing capital gains, and consideration of environmental taxes, changes to personal income tax thresholds, retirement savings, and charities.

A capital gains tax is a tax on the profit from the sale of an asset. 

“Tax the capital gain on sale of land, shares, business assets, intangible assets such as intellectual property. Tax to be imposed when the asset is sold, and levied at the seller’s marginal tax rate. Assets to be valued from when the tax is imposed.”

Among its main recommendations are:

  • Tax the capital gain on sale of land, shares, business assets, intangible assets such as intellectual property. Tax to be imposed when the asset is sold, and levied at the seller’s marginal tax rate. Assets to be valued from when the tax is imposed. 
  • The tax would NOT apply to the family home, and personal assets such as cars, paintings, jewellery, and household appliances. However, a holiday home WOULD be taxed on sale.
  • The capital gain on shares in companies would be taxed but in some circumstances capital losses would also be able to be offset against other income. 
  • The capital gain on the sale of a business would be taxed, including the goodwill. 
  • Exemptions from capital gains to be granted for some “life events” such as relationship breakup, death. A family farm passed on to a family member would be covered by a rollover and there would be no tax on the capital gain. But if the family member then sells to a third party the capital gain would be taxed. 
  • No changes to income tax rates, but a recommendation to raise the income threshold for low and middle income groups, i.e they would earn more at a low or lower tax rate. 
  • No change to GST and no exemptions for certain types of products, such as food and drink. 
  • Environmental taxes: changes to the emissions trading scheme to be more like a carbon tax. Dirty taxes on solid waste to reduce volumes to landfills. Taxes on water pollution and water extraction. Tax deductions to encourage conservation. 
  • Taxation of fertiliser use. Consider congestion charges to tackle traffic issues. 
  • Recommends government take steps to encourage retirement saving for low and middle income groups through possible refunds of employer’s super tax, reduce tax rate on some KiwiSaver investments. 
  • Review taxation of charities to ensure the income from commercial activities are being used for the charitable causes they are being raised for. 
  • Give Inland Revenue extra resources for administration and enforcement. 

 

Our Thoughts

The government is currently considering the Tax Working Group’s final report and will make a decision in April. So whilst there has been no confirmation that a comprehensive capital gains tax ( “CGT” ) will be brought right now, the government has signaled very strongly that a form of capital gains tax will likely to implemented. 

What is clear is that similar to other CGT regimes around the world, it is very likely that the family home will be exempted from being taxed on capital gains. 

Furthermore, the tax working group has recommended a valuation requirement for all capital assets on the date a CGT is introduced into law. This recommendation would mean that any gains made since purchase, up until the date of CGT introduction, shouldn’t be affected by the new CGT rules.

It is also useful to keep in mind that this new tax will only ever be on capital profits. A profit, even reduced by a tax, is never a bad thing so don’t pass up on a good investment opportunity just to avoid paying tax!

We think that it’s highly likely a CGT will be introduced in NZ, and once brought in, will not likely be repealed. However, we would be very surprised if it was introduced in full in its current format, as suggested by the Tax Working Group. We will be keeping a close eye on any further developments and will be informing clients of any matters that they should be aware of. 

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