Sponsorship: Tax, GST and Business
Author: Michael Levertoff
If you are in business and want to sponsor someone, is it tax deductible? And what about GST?
What is “sponsorship”?
For the purposes of this statement it is first necessary to identify what type of expenditure is being considered, i.e. what type of expenditure constitutes sponsorship expenditure. The term “sponsorship” is used to cover a wide range of situations, with the usage reflecting considerable overlap with the concepts of “advertising”, at one end of a continuum, and “donations” at the other end. At one extreme, the taxpayer’s sole purpose is to “advertise” / promote the business with the amount incurred reflecting market forces and what he or she considers will best achieve the purpose of business promotion. At the other extreme, the taxpayer’s “donation” is for the sole purpose of benefiting the donee and business promotion is not contemplated or is merely incidental to the philanthropic purpose.
In between these two extremes, the taxpayer intends to promote his or her business in some manner when incurring the expenditure, but the expenditure made also benefits the recipient (or some other person) in a manner unrelated to the ordinary receipt of income from his or her income-earning activities.
This statement does not consider expenditure at the extremes of the continuum, i.e. expenditure made to commercial advertising media, at one end of the continuum, and charitable donations where business promotion is not a purpose, at the other end of the continuum. Instead, the statement focuses on the deductibility of expenditure in the middle of the continuum (referred to in this statement as “sponsorship expenditure”), i.e. where the taxpayer making the expenditure intends that his or her business will be promoted in some way, but that the recipient, or some other person, will also be benefited in some manner other than by the receipt of ordinary income from business or income-earning activities.
There is no limit on sponsorships – spend away. However, sponsorship expenditure is only deductible under limb (b) of section BD 2(1) where a nexus exists between the expenditure and the taxpayer’s business or income-earning activity.
There must be a nexus or necessary relationship between the expenditure and the taxpayer’s business or income earning activity.
This requires a determination of the character of the advantage sought by the taxpayer in incurring the expenditure. This is a subjective matter, depending upon the taxpayer’s purpose when incurring the expenditure. The determination of the taxpayer’s purpose or purposes will require an objective analysis of surrounding circumstances, including the effect of the expenditure.
In order for the nexus test to be satisfied, the taxpayer needs to show that he or she intended that the business would be promoted by incurring the sponsorship expenditure. In this regard, the following objective factors will support a taxpayer’s contention that he or she intended that the business be promoted by the expenditure:
The specific terms of the sponsorship arrangement, e.g. Is there a specific requirement for the recipient to promote the taxpayer’s business? What is the extent and prominence of the business exposure specified in the agreement?
The place of the sponsorship arrangement in a coherent marketing strategy. For example, if a business’s market research has identified that potential customers frequently attend cultural events, then part of its marketing strategy may be to sponsor such events in return for its name and products being promoted during the event.
The relationship between the market or potential market exposure capable of being reached and the taxpayer’s business. For example, market exposure at a tennis tournament is directly related to the business of a sports equipment retailer.
The relationship between the expenditure and the resulting income derived, i.e. can it be shown that the expenditure resulted in income being derived? For example, the sale of 10 tractors at an agricultural field-day, by a tractor manufacturer sponsoring the event in return for being able to display the tractors, shows a direct relationship between the sponsorship expenditure and the derivation of income.
GST – if the organisation you are sponsoring is GST registered that is a claim for you. If not, the expense is exempt, just like any other business transaction.
As with any GST claim, make sure you get a tax invoice from the supplier as this is a legal requirement when seeking GST back on an expense you have incurred in business.
If you need further assistance please Ask a question.
source: http://www.ird.govt.nz/resources/e/2/e21900004bbe3fc98f14dfbc87554a30/is3229.pdf
Tuesday, 12 June 2012
Second Hand Goods: GST and Depreciation explained
Second Hand Goods: GST and Depreciation explained
Author: Michael Levertoff
Today we're exploring second hand goods introduced into your business and second hand goods purchased for use by your business.
Change of use in respect of second hand goods
Often in the course of business items that you own are used in the business activity. Bringing these assets onto the books is important.
1. Using assets not officially on the books is not a true reflection of your business. Your assets will wear out eventually - and at that point who will replace them? You or your business?
2. Expenses like depreciation can be claimed on assets on the books. This is a legitimate claim that you are missing out on if your assets are not on the books.
3. Repairs and maintenance to your asset cannot be accepted unless the asset is on the books. Again this is a legitimate business expense that you are missing out on if you don't have your assets on the books.
4. If you are GST registered, you are entitled to claim back GST on the asset you are introducing to the business.
Coming to a value of the second hand goods
When introducing second hand goods into your business, you'll need to establish a current market value. The easiest way to achieve this is to find three similar items that have sold recently. TradeMe is a good place to find this kind of information. The average of these three items is an acceptable method of valuing for Inland Revenue's purposes.
GST and change of use
Bringing your assets on the books is covered by rules issued by Inland Revenue. The tests that must be met before a registered person can make deductions from GST output tax for change from non-taxable to taxable use can be found under section 20(3)(e) of the Goods and Services Tax Act 1985 ("the GST Act").
Where a registered person acquires secondhand goods and changes the use of the goods from non-taxable to taxable, there are four requirements under section 21E(3) of the Goods and Services Tax Act 1985.
a. The second hand goods were supplied to the registered person by way of sale;
b. The second hand goods that were sold to the registered person have always been situated in New Zealand, or in the case of imported goods, have been subject to GST under section 12(1) when imported.
c. The supply to the registered person was not a taxable supply (that is, GST was not charged on that supply).
d. The goods have not been supplied to another GST registered person who is the importer of the goods.
Second hand goods purchased by your business
At times you may purchase a second hand item for the business. There are special rules that apply to second hand goods purchased.
For GST, second hand goods are goods previously used and paid for by someone else. It doesn't include:
new goods
primary produce (unless previously used)
goods supplied under a lease or rental agreement
livestock
second hand goods consisting of any fine metal of any degree of purity.
Land is considered to be second hand goods. However generally speaking land is exempt for GST.
The same rules for GST and tax invoices apply to secondhand goods as for all other goods liable for GST.
Second hand goods and GST
Secondhand goods if seller is not GST-registered
If the seller is not registered for GST or the goods are private (exempt), there will be no tax invoice or GST charged. However, if the purchaser is GST registered they can claim a credit for GST purposes.
Regardless of the accounting basis you use, you must make a payment before you can claim the credit for the purchase.
In these cases the purchaser must record:
the name and address of the supplier
the date of the purchase
a description of the goods
the quantity of the goods
the price paid.
You'll also need to keep details of the transaction if you are going to make a claim for income tax purposes.
Secondhand goods if seller is GST registered
The standard GST rules apply.
Second hand goods and depreciation
Depreciation allows for the wear and tear on a fixed asset and must be deducted from your income. You must claim depreciation on fixed assets used in your business that have a useful lifespan of more than 12 months. Not all fixed assets can be depreciated. Land is a common example of a fixed asset that cannot be depreciated.
Accounting for depreciation
In your income tax return, you must claim depreciation - or "wear and tear" - on most fixed assets (unless you elect not to depreciate). A fixed asset is something that your business owns and that you expect to use for business purposes for more than a year. There are some assets that do not depreciate, for example, land or trading stock.
You cannot claim the cost of an asset as a business expense against your income.
If you need further assistance please Ask a question.
source: http://www.ird.govt.nz/gst/additional-calcs/calc-spec-supplies/calc-special/special-supplies-r-v.html | http://www.ird.govt.nz/technical-tax/questions/questions-gst/qwba-deductions-gst.html |http://www.ird.govt.nz/business-income-tax/depreciation/
Author: Michael Levertoff
Today we're exploring second hand goods introduced into your business and second hand goods purchased for use by your business.
Change of use in respect of second hand goods
Often in the course of business items that you own are used in the business activity. Bringing these assets onto the books is important.
1. Using assets not officially on the books is not a true reflection of your business. Your assets will wear out eventually - and at that point who will replace them? You or your business?
2. Expenses like depreciation can be claimed on assets on the books. This is a legitimate claim that you are missing out on if your assets are not on the books.
3. Repairs and maintenance to your asset cannot be accepted unless the asset is on the books. Again this is a legitimate business expense that you are missing out on if you don't have your assets on the books.
4. If you are GST registered, you are entitled to claim back GST on the asset you are introducing to the business.
Coming to a value of the second hand goods
When introducing second hand goods into your business, you'll need to establish a current market value. The easiest way to achieve this is to find three similar items that have sold recently. TradeMe is a good place to find this kind of information. The average of these three items is an acceptable method of valuing for Inland Revenue's purposes.
GST and change of use
Bringing your assets on the books is covered by rules issued by Inland Revenue. The tests that must be met before a registered person can make deductions from GST output tax for change from non-taxable to taxable use can be found under section 20(3)(e) of the Goods and Services Tax Act 1985 ("the GST Act").
Where a registered person acquires secondhand goods and changes the use of the goods from non-taxable to taxable, there are four requirements under section 21E(3) of the Goods and Services Tax Act 1985.
a. The second hand goods were supplied to the registered person by way of sale;
b. The second hand goods that were sold to the registered person have always been situated in New Zealand, or in the case of imported goods, have been subject to GST under section 12(1) when imported.
c. The supply to the registered person was not a taxable supply (that is, GST was not charged on that supply).
d. The goods have not been supplied to another GST registered person who is the importer of the goods.
Second hand goods purchased by your business
At times you may purchase a second hand item for the business. There are special rules that apply to second hand goods purchased.
For GST, second hand goods are goods previously used and paid for by someone else. It doesn't include:
new goods
primary produce (unless previously used)
goods supplied under a lease or rental agreement
livestock
second hand goods consisting of any fine metal of any degree of purity.
Land is considered to be second hand goods. However generally speaking land is exempt for GST.
The same rules for GST and tax invoices apply to secondhand goods as for all other goods liable for GST.
Second hand goods and GST
Secondhand goods if seller is not GST-registered
If the seller is not registered for GST or the goods are private (exempt), there will be no tax invoice or GST charged. However, if the purchaser is GST registered they can claim a credit for GST purposes.
Regardless of the accounting basis you use, you must make a payment before you can claim the credit for the purchase.
In these cases the purchaser must record:
the name and address of the supplier
the date of the purchase
a description of the goods
the quantity of the goods
the price paid.
You'll also need to keep details of the transaction if you are going to make a claim for income tax purposes.
Secondhand goods if seller is GST registered
The standard GST rules apply.
Second hand goods and depreciation
Depreciation allows for the wear and tear on a fixed asset and must be deducted from your income. You must claim depreciation on fixed assets used in your business that have a useful lifespan of more than 12 months. Not all fixed assets can be depreciated. Land is a common example of a fixed asset that cannot be depreciated.
Accounting for depreciation
In your income tax return, you must claim depreciation - or "wear and tear" - on most fixed assets (unless you elect not to depreciate). A fixed asset is something that your business owns and that you expect to use for business purposes for more than a year. There are some assets that do not depreciate, for example, land or trading stock.
You cannot claim the cost of an asset as a business expense against your income.
If you need further assistance please Ask a question.
source: http://www.ird.govt.nz/gst/additional-calcs/calc-spec-supplies/calc-special/special-supplies-r-v.html | http://www.ird.govt.nz/technical-tax/questions/questions-gst/qwba-deductions-gst.html |http://www.ird.govt.nz/business-income-tax/depreciation/
Motor Vehicles: What is claimable and what is not
Motor Vehicles: What is claimable and what is not
Author: Michael Levertoff
Bringing a vehicle into your business
Whether you already have a vehicle that you use in the business that is not currently on the books, or purchase a new vehicle, NZ Accounting can assist you in the process of introducing that vehicle into the business and recovering the appropriate amount of GST back on the purchase price as well as the ongoing associated costs.
Calculating the business portion of vehicle running costs
If you are a sole trader or in a partnership and you use your own vehicle in the business, you can claim the running costs for income tax.
If you use the vehicle strictly for business, you can claim the full running costs, without making any adjustments.
If you use the vehicle to travel from home to work, or any personal travel, you will need to separate the running costs of your vehicle between business and private use. (Travel between home and work is not classed as business use.)
When a company owns a car, it claims all the expenses without making a private use adjustment. However, the company must pay fringe benefit tax if the vehicle is available for employees' or shareholder-employees' private use. The company will also have to calculate GST on the fringe benefit (see our fringe benefit tax (FBT) section under Businesses).
Working out adjustments
If your vehicle is shared between personal use and business use, you may claim up to 25% of the vehicle running costs as a business expense by default. However, you could be asked to substantiate the percentage claimed.
If you wish to claim more than 25% of all vehicle costs, you must keep a logbook for at least three months every three years. You will need to record the distance, date and reason for the trip in the logbook. You can use the difference between the odometer readings at the start and end of the three months to work out the percentage of vehicle expenses you can claim.
FBT
The following general principles apply to fringe benefit tax on motor vehicles:
If a company owns a vehicle, as long as a vehicle is available for private use (for example, travel between home and work) by your employees, including shareholder-employees, you must pay fringe benefit tax. Your liability does not depend on whether the employees actually use that vehicle.
Sole traders or partners in a partnership are not required to pay fringe benefit tax on a business vehicle they use privately. However, they usually record their business use of the vehicle, as they must make an appropriate adjustment in their income tax and GST returns.
Inland Revenue Mileage Rates
Alternatively, you may use your logbook records to claim back Inland Revenue mileage rates on your vehicle.
GST
All GST paid on the purchase price and running costs of vehicles is claimable.
Depreciation
A vehicle's purchase price cannot be claimed in one lump sum. Vehicles depreciate over a number of years according to standard Inland Revenue rates.
It is important that you take this into consideration when purchasing a vehicle - because you'll be paying tax on the money you use to buy a vehicle in the year of purchase and claiming that money back in depreciation over a number of years. Make sure you've taken the tax you'll have to pay on that sum into account.
Financing all or part of the purchase price of the vehicle may be a better option than paying cash for your business vehicle.
If you need further assistance please Ask a question.
sources: http://www.business.govt.nz/compliance/business-tax/business-income-tax/claim-business-expenses-for-the-use-of-a-private-vehicle | http://www.ird.govt.nz/business-income-tax/expenses/mileage-rates/ | http://www.ird.govt.nz/fbt/categories/motor-vehicles/
Author: Michael Levertoff
Bringing a vehicle into your business
Whether you already have a vehicle that you use in the business that is not currently on the books, or purchase a new vehicle, NZ Accounting can assist you in the process of introducing that vehicle into the business and recovering the appropriate amount of GST back on the purchase price as well as the ongoing associated costs.
Calculating the business portion of vehicle running costs
If you are a sole trader or in a partnership and you use your own vehicle in the business, you can claim the running costs for income tax.
If you use the vehicle strictly for business, you can claim the full running costs, without making any adjustments.
If you use the vehicle to travel from home to work, or any personal travel, you will need to separate the running costs of your vehicle between business and private use. (Travel between home and work is not classed as business use.)
When a company owns a car, it claims all the expenses without making a private use adjustment. However, the company must pay fringe benefit tax if the vehicle is available for employees' or shareholder-employees' private use. The company will also have to calculate GST on the fringe benefit (see our fringe benefit tax (FBT) section under Businesses).
Working out adjustments
If your vehicle is shared between personal use and business use, you may claim up to 25% of the vehicle running costs as a business expense by default. However, you could be asked to substantiate the percentage claimed.
If you wish to claim more than 25% of all vehicle costs, you must keep a logbook for at least three months every three years. You will need to record the distance, date and reason for the trip in the logbook. You can use the difference between the odometer readings at the start and end of the three months to work out the percentage of vehicle expenses you can claim.
FBT
The following general principles apply to fringe benefit tax on motor vehicles:
If a company owns a vehicle, as long as a vehicle is available for private use (for example, travel between home and work) by your employees, including shareholder-employees, you must pay fringe benefit tax. Your liability does not depend on whether the employees actually use that vehicle.
Sole traders or partners in a partnership are not required to pay fringe benefit tax on a business vehicle they use privately. However, they usually record their business use of the vehicle, as they must make an appropriate adjustment in their income tax and GST returns.
Inland Revenue Mileage Rates
Alternatively, you may use your logbook records to claim back Inland Revenue mileage rates on your vehicle.
GST
All GST paid on the purchase price and running costs of vehicles is claimable.
Depreciation
A vehicle's purchase price cannot be claimed in one lump sum. Vehicles depreciate over a number of years according to standard Inland Revenue rates.
It is important that you take this into consideration when purchasing a vehicle - because you'll be paying tax on the money you use to buy a vehicle in the year of purchase and claiming that money back in depreciation over a number of years. Make sure you've taken the tax you'll have to pay on that sum into account.
Financing all or part of the purchase price of the vehicle may be a better option than paying cash for your business vehicle.
If you need further assistance please Ask a question.
sources: http://www.business.govt.nz/compliance/business-tax/business-income-tax/claim-business-expenses-for-the-use-of-a-private-vehicle | http://www.ird.govt.nz/business-income-tax/expenses/mileage-rates/ | http://www.ird.govt.nz/fbt/categories/motor-vehicles/
Inland Revenue Compliance Focus 2011-2012: Aggressive Tax Planning and the "Cash Economy"
Inland Revenue Compliance Focus 2011-2012: Aggressive Tax Planning and the "Cash Economy"
Author: Michael Levertoff
Aggressive tax planning
Taxpayers are able to legitimately manage their affairs to minimise the amount of tax they pay. However, Inland Revenue take a very dim view on people who try to avoid paying what they owe by employing schemes and tax planning structures or who divert personal income to companies, trusts to claim more Working for Families Tax Credits (WfFTC), or to reduce child support liability.
Arrangements that create deductions for items that aren't real economic losses, schemes that use losses in contravention of the loss rules, or retained losses that should be forfeited are currently under the microscope.
Also large claims along with the use of losses from previously dormant companies that start to use their losses are being actively reviewed and targetted by Inland Revenue.
And from 1 April 2011 WfFTC recipients can no longer claim rental losses against their income.
Some years back we assisted a client who had to deal with a complicated array of structures put in place by their former accountant to reduce tax that our client didn't even understand. Their accounting fees were approximately $14,000 per annum at this point - for a business turning over less than $200,000 per annum.
Things had changed for this client as they were heading in a new direction and they wanted to dismantle the scheme. It took six months and quite a lot of money spent to unravel the mess - and, to boot, on the way out the client had to pay a large sum of money to Inland Revenue in GST clawbacks.
Not only did this cost them financially and create an immense amount of stress, it used up a considerable amount of their time which meant their focus was not on their business. This distraction led to a bad decision made which caused a loss of over $150,000.
Our view: It's not worth it. Often the tax you avoid in the good times is simply a deferral to be paid in another tax year - at a time when you may not be able to afford to pay an expensive tax bill. Simple setups are easy to manage and understand, easy to dismantle and keep you off the Inland Revenue radar - and keep your fees down with NZ Accounting.
Under-reporting and operating outside the tax system
Not declaring cash jobs, paying wages and salaries in cash, or not reporting the trade of goods and services? Be warned: Inland Revenue is watching.
Recently we completed a second hand goods claim for GST for a client who had not brought these assets on the books which brought about a routine GST audit. Unbeknown to us, their tax returns over the previous years were much lower than would be expected - which led to a wider audit of our client's tax affairs. It wasn't hard at all for the tax inspector involved to uncover thousands of dollars of cash pocketed and not declared. This client is now up for a tax bill of more than $50,000.
Our view: use simple structures that openly and clearly present what you have turned over less what you have spent. Aside from this, avoiding your tax obligations reduces our tax revenue, cheats all New Zealanders out of funding for the services that support our communities, and provides an unfair advantage over other businesses who do pay their fair share.
If you are concerned about where you stand and need further assistance please Ask a question.
Author: Michael Levertoff
Aggressive tax planning
Taxpayers are able to legitimately manage their affairs to minimise the amount of tax they pay. However, Inland Revenue take a very dim view on people who try to avoid paying what they owe by employing schemes and tax planning structures or who divert personal income to companies, trusts to claim more Working for Families Tax Credits (WfFTC), or to reduce child support liability.
Arrangements that create deductions for items that aren't real economic losses, schemes that use losses in contravention of the loss rules, or retained losses that should be forfeited are currently under the microscope.
Also large claims along with the use of losses from previously dormant companies that start to use their losses are being actively reviewed and targetted by Inland Revenue.
And from 1 April 2011 WfFTC recipients can no longer claim rental losses against their income.
Some years back we assisted a client who had to deal with a complicated array of structures put in place by their former accountant to reduce tax that our client didn't even understand. Their accounting fees were approximately $14,000 per annum at this point - for a business turning over less than $200,000 per annum.
Things had changed for this client as they were heading in a new direction and they wanted to dismantle the scheme. It took six months and quite a lot of money spent to unravel the mess - and, to boot, on the way out the client had to pay a large sum of money to Inland Revenue in GST clawbacks.
Not only did this cost them financially and create an immense amount of stress, it used up a considerable amount of their time which meant their focus was not on their business. This distraction led to a bad decision made which caused a loss of over $150,000.
Our view: It's not worth it. Often the tax you avoid in the good times is simply a deferral to be paid in another tax year - at a time when you may not be able to afford to pay an expensive tax bill. Simple setups are easy to manage and understand, easy to dismantle and keep you off the Inland Revenue radar - and keep your fees down with NZ Accounting.
Under-reporting and operating outside the tax system
Not declaring cash jobs, paying wages and salaries in cash, or not reporting the trade of goods and services? Be warned: Inland Revenue is watching.
Recently we completed a second hand goods claim for GST for a client who had not brought these assets on the books which brought about a routine GST audit. Unbeknown to us, their tax returns over the previous years were much lower than would be expected - which led to a wider audit of our client's tax affairs. It wasn't hard at all for the tax inspector involved to uncover thousands of dollars of cash pocketed and not declared. This client is now up for a tax bill of more than $50,000.
Our view: use simple structures that openly and clearly present what you have turned over less what you have spent. Aside from this, avoiding your tax obligations reduces our tax revenue, cheats all New Zealanders out of funding for the services that support our communities, and provides an unfair advantage over other businesses who do pay their fair share.
If you are concerned about where you stand and need further assistance please Ask a question.
Maximise your Rental Investment Property - Minimise your mortgage interest.
Maximise your Rental Investment Property - Minimise your mortgage interest.
Author: Michael Levertoff
With recent tax changes affecting depreciation claims, many property investors will find themselves paying tax for the first time in 2012.
Despite this change, interest is still the biggest cost to your residential investment property portfolio – and with a little bit of fine tuning you’ll get it paid off quicker, saving lots of interest.
Using this simple strategy will more than offset the tax benefits you’ve lost through the changes to the tax system.
APPLY THE RIGHT STRUCTURE
By far the most important aspect, the first step of structuring your mortgage should have already taken place. However if you have not employed the below structure talk to NZ Accounting to further advise you.
Your mortgage should be set up with a 100% financed interest only portion secured against the purchase price of the property.
For example, if you paid $500,000 for your rental, the fixed interest only portion of your mortgage (in the name of the entity that holds the property) should be set at $500,000.
The balance of the mortgage should be split into two parts and secured against your personal property.
One part should be a fixed interest only portion for two years.
The second part should be a revolving credit facility set at the amount you believe you can pay off your mortgage in that two year period that amortises over that two year period.
Example:
If the balance of the debt owing after securing the first mortgage over the rental property was $200,000;
And you believe you could pay off $20,000 over a two year period;
Part one of the mortgage would be a two-year fixed interest only loan of $180,000.
Part two of the mortgage would be $20,000 revolving credit amortising over two years.
At the end of the two year period, you would set up a new revolving credit facility of $20,000 and fix the remaining balance of $160,000 for a further two years. And so on… until the debt secured against your personal property was fully repaid.
DEPOSIT ALL INCOME TO THE REVOLVING CREDIT FACILITY
Rent from the investment property and your personal income would all be deposited in the revolving credit facility.
PAY ALL BILLS WITH A CREDIT CARD
Bills should be paid where possible using your credit card. Your credit card needs to be fully repaid each month so that you do not incur interest.
WHY ALL THE MUCKING AROUND?
Personal debt cannot be claimed back against your business but business debt can. So you should ensure you pay off personal debt before attacking the mortgage secured over the rental property.
Equally, the higher the debt owing on the rental property, the more you can claim back as an expense.
Revolving credit interest is calculated daily. The longer you leave money in your revolving credit facility, the more money you save on interest.
Depositing your wages and the rent from the rental property into the revolving credit facility means more funds in the facility, saving you interest.
Alongside this, paying bills by credit card uses the 55 days of free credit that credit cards provide you which again means you can keep money in your revolving credit facility for longer, which also means you’ll pay less interest.
FURTHER THOUGHTS
* Where possible, buy big assets with interest free terms and then pay them off before the interest portion kicks in rather than paying cash for them now – keeping more money in your revolving credit facility.
* Pay for everything you can with the credit card – including groceries, telephone bills, rates, insurance – you name it, throw it on the card. Just make sure you’re paying it off though on the day you need to, to avoid that high interest.
* Consider refinancing your credit card debt when low interest offers roll around – just as long as the interest charged is less than your mortgage, it’s worthwhile.
* This concept could save you hundreds of thousands of dollars in mortgage interest. Correctly applied, some people shave up to 15 years off their mortgage.
* The trick is: don’t spend the savings. Leave them in the revolving credit facility. Aim to pay it off quicker. If you do pay it off quicker, treat yourself with a mortgage holiday. But when it comes time to reset your revolving credit facility, try making it a bit bigger and challenge yourself all over again to get that facility clear.
If you need further assistance please Ask a question.
Author: Michael Levertoff
With recent tax changes affecting depreciation claims, many property investors will find themselves paying tax for the first time in 2012.
Despite this change, interest is still the biggest cost to your residential investment property portfolio – and with a little bit of fine tuning you’ll get it paid off quicker, saving lots of interest.
Using this simple strategy will more than offset the tax benefits you’ve lost through the changes to the tax system.
APPLY THE RIGHT STRUCTURE
By far the most important aspect, the first step of structuring your mortgage should have already taken place. However if you have not employed the below structure talk to NZ Accounting to further advise you.
Your mortgage should be set up with a 100% financed interest only portion secured against the purchase price of the property.
For example, if you paid $500,000 for your rental, the fixed interest only portion of your mortgage (in the name of the entity that holds the property) should be set at $500,000.
The balance of the mortgage should be split into two parts and secured against your personal property.
One part should be a fixed interest only portion for two years.
The second part should be a revolving credit facility set at the amount you believe you can pay off your mortgage in that two year period that amortises over that two year period.
Example:
If the balance of the debt owing after securing the first mortgage over the rental property was $200,000;
And you believe you could pay off $20,000 over a two year period;
Part one of the mortgage would be a two-year fixed interest only loan of $180,000.
Part two of the mortgage would be $20,000 revolving credit amortising over two years.
At the end of the two year period, you would set up a new revolving credit facility of $20,000 and fix the remaining balance of $160,000 for a further two years. And so on… until the debt secured against your personal property was fully repaid.
DEPOSIT ALL INCOME TO THE REVOLVING CREDIT FACILITY
Rent from the investment property and your personal income would all be deposited in the revolving credit facility.
PAY ALL BILLS WITH A CREDIT CARD
Bills should be paid where possible using your credit card. Your credit card needs to be fully repaid each month so that you do not incur interest.
WHY ALL THE MUCKING AROUND?
Personal debt cannot be claimed back against your business but business debt can. So you should ensure you pay off personal debt before attacking the mortgage secured over the rental property.
Equally, the higher the debt owing on the rental property, the more you can claim back as an expense.
Revolving credit interest is calculated daily. The longer you leave money in your revolving credit facility, the more money you save on interest.
Depositing your wages and the rent from the rental property into the revolving credit facility means more funds in the facility, saving you interest.
Alongside this, paying bills by credit card uses the 55 days of free credit that credit cards provide you which again means you can keep money in your revolving credit facility for longer, which also means you’ll pay less interest.
FURTHER THOUGHTS
* Where possible, buy big assets with interest free terms and then pay them off before the interest portion kicks in rather than paying cash for them now – keeping more money in your revolving credit facility.
* Pay for everything you can with the credit card – including groceries, telephone bills, rates, insurance – you name it, throw it on the card. Just make sure you’re paying it off though on the day you need to, to avoid that high interest.
* Consider refinancing your credit card debt when low interest offers roll around – just as long as the interest charged is less than your mortgage, it’s worthwhile.
* This concept could save you hundreds of thousands of dollars in mortgage interest. Correctly applied, some people shave up to 15 years off their mortgage.
* The trick is: don’t spend the savings. Leave them in the revolving credit facility. Aim to pay it off quicker. If you do pay it off quicker, treat yourself with a mortgage holiday. But when it comes time to reset your revolving credit facility, try making it a bit bigger and challenge yourself all over again to get that facility clear.
If you need further assistance please Ask a question.
Using your home for the business
Using your home for the business
Author: Michael Levertoff
Many people who run a small business use an area set aside in the family home for work purposes. If you are doing this, you can make a claim for the area set aside so long as:
it is used principally for business use (such as an office or storage area), and
you keep a full record of all expenses you wish to claim.
The responsibility for keeping invoices and records for a home office is the same as for any other business expenses you are claiming. You can claim a portion of the household expenses, such as the rates, insurance, power, mortgage interest and depreciation (if you own the house). You must keep invoices for these expenses.
You can only claim the expenses that relate to the area set aside for business. Work out the percentage of the work area, compared to the total floor area of the house. Then apply this percentage to the total house expenses.
Example
In a house of 100 square metres Mereana sets aside 10 square metres as an office (10% of the total floor area). GST-inclusive house expenses for the full year were:
Rates
$1,200.00
Insurance (house)
$ 400.00
Power
$ 960.00
Total costs (including GST)
$2,560.00
Divide total costs by nine to get the GST content
$ 284.44
Total costs (excluding GST)
$2,275.56
If Mereana is not registered for GST the amount to claim is 10% of the total costs including GST:
$2,560 x 10% = $256
If Mereana is registered for GST the amount to claim is 10% of the total costs excluding GST:
$2,275.56 x 10% = $227.56 Mereana can also claim 10% of the GST content of these items in her GST return, she can claim this either annually or on a period-by-period basis.
Claims on mortgage interest and household depreciation
You may also claim a proportion of the mortgage interest (not principal) paid during the year, and depreciation on the house itself. There is no GST involved in these two items, so it is easier to work them out separately. Use the same method of the business floor area percentage to work out what to claim.
Example
The business floor area is 10%.
House cost (not including land)
$100,000
Depreciation @ 3%
$3,000
Add mortgage interest paid
(not principal repayments)
$2,340
$5,340
The amount to claim is:
$5,340 x 10% = $534
Note
If you claim depreciation on your home, you must include the depreciation recovered in your tax return when you cease using your home for business purposes, or when you sell your home.
You can claim the depreciation on capital items such as a computer, office furniture and fittings, or shelving, used for business purposes in your home.
Telephone costs
You may claim a deduction for telephone rental if you run your business or organisation from your home. If your home is the centre of operations or management for the business, you may claim a deduction of 50% of the telephone rental. Identify those toll calls that are business-related. It is a good idea to use a highlighter on your phone bill to mark the business toll calls. If you have a separate commercial and domestic line rental, you can claim the full cost of the commercial line for both income tax and GST, but none of the domestic rental. If you make any private calls on the business line, you will have to make an adjustment for them.
Source: http://www.ird.govt.nz/business-income-tax/expenses/homebus-exp/
_________________________________________________________________________
Shared / common areas
When considering shared areas, there is a well-known case where a solicitor did claim a percentage of his dining room table even though it was clearly shared useage (I.R.C. v Castle (1971) 2 A.T.R. 481).
In some circumstances common areas like toilets and entry ways are used in the course of your business activity if you meet with your clients at your home.
The bottom line is weigh this up carefully before deciding on this - ask the question: what is reasonable - how often do I have clients in my home? If Inland Revenue ever come knocking, will you be able to justify your claim?
If you're not sure, take some professional advice. It's a better option to take advice from us now - than from the tax inspector later!
If you need further assistance please Ask a question.
Author: Michael Levertoff
Many people who run a small business use an area set aside in the family home for work purposes. If you are doing this, you can make a claim for the area set aside so long as:
it is used principally for business use (such as an office or storage area), and
you keep a full record of all expenses you wish to claim.
The responsibility for keeping invoices and records for a home office is the same as for any other business expenses you are claiming. You can claim a portion of the household expenses, such as the rates, insurance, power, mortgage interest and depreciation (if you own the house). You must keep invoices for these expenses.
You can only claim the expenses that relate to the area set aside for business. Work out the percentage of the work area, compared to the total floor area of the house. Then apply this percentage to the total house expenses.
Example
In a house of 100 square metres Mereana sets aside 10 square metres as an office (10% of the total floor area). GST-inclusive house expenses for the full year were:
Rates
$1,200.00
Insurance (house)
$ 400.00
Power
$ 960.00
Total costs (including GST)
$2,560.00
Divide total costs by nine to get the GST content
$ 284.44
Total costs (excluding GST)
$2,275.56
If Mereana is not registered for GST the amount to claim is 10% of the total costs including GST:
$2,560 x 10% = $256
If Mereana is registered for GST the amount to claim is 10% of the total costs excluding GST:
$2,275.56 x 10% = $227.56 Mereana can also claim 10% of the GST content of these items in her GST return, she can claim this either annually or on a period-by-period basis.
Claims on mortgage interest and household depreciation
You may also claim a proportion of the mortgage interest (not principal) paid during the year, and depreciation on the house itself. There is no GST involved in these two items, so it is easier to work them out separately. Use the same method of the business floor area percentage to work out what to claim.
Example
The business floor area is 10%.
House cost (not including land)
$100,000
Depreciation @ 3%
$3,000
Add mortgage interest paid
(not principal repayments)
$2,340
$5,340
The amount to claim is:
$5,340 x 10% = $534
Note
If you claim depreciation on your home, you must include the depreciation recovered in your tax return when you cease using your home for business purposes, or when you sell your home.
You can claim the depreciation on capital items such as a computer, office furniture and fittings, or shelving, used for business purposes in your home.
Telephone costs
You may claim a deduction for telephone rental if you run your business or organisation from your home. If your home is the centre of operations or management for the business, you may claim a deduction of 50% of the telephone rental. Identify those toll calls that are business-related. It is a good idea to use a highlighter on your phone bill to mark the business toll calls. If you have a separate commercial and domestic line rental, you can claim the full cost of the commercial line for both income tax and GST, but none of the domestic rental. If you make any private calls on the business line, you will have to make an adjustment for them.
Source: http://www.ird.govt.nz/business-income-tax/expenses/homebus-exp/
_________________________________________________________________________
Shared / common areas
When considering shared areas, there is a well-known case where a solicitor did claim a percentage of his dining room table even though it was clearly shared useage (I.R.C. v Castle (1971) 2 A.T.R. 481).
In some circumstances common areas like toilets and entry ways are used in the course of your business activity if you meet with your clients at your home.
The bottom line is weigh this up carefully before deciding on this - ask the question: what is reasonable - how often do I have clients in my home? If Inland Revenue ever come knocking, will you be able to justify your claim?
If you're not sure, take some professional advice. It's a better option to take advice from us now - than from the tax inspector later!
If you need further assistance please Ask a question.
Claiming expenses for GST: What information must a tax invoice show?
Claiming expenses for GST: What information must a tax invoice show?
Author: Michael Levertoff
What information must a tax invoice show?
If you want to claim an expense, make sure the business you are purchasing from issues you with a valid tax invoice - or it can't be claimed.
EFTPOS receipts are not generally acceptable unless they follow the guidelines below. It is always good practice to get in the habit of asking the supplier for a valid tax invoice.
A tax invoice:
shows the GST on the goods and services provided
must be in New Zealand currency, and
must be original. The GST registered supplier can only issue one original tax invoice for each taxable supply. If the purchaser loses the invoice, the supplier may issue a copy. It must be clearly marked "copy only".
Important
If you supply goods and services to another GST-registered person, you must provide a tax invoice within 28 days of the purchaser asking for one. It is an offence if you don't supply one after such a request and you may be charged penalties.
The information a tax invoice must show depends on the value of the goods and services supplied. We refer to the required information as "standards". Different standards are required for different tax invoices:
For supplies worth:
more than $1,000
between $50 and $1,000, and
$50 or less.
Tax invoice for supplies worth more than $1,000
For supplies worth more than $1,000 (including GST), the tax invoice must clearly show:
the words "tax invoice" in a prominent place
the name (or trade name) and GST number of the supplier
the name and address of the recipient of the supply
the date the invoice was issued
a description of the goods and/or services supplied
the quantity or volume of the goods and/or services supplied.
Examples: litres of petrol, hours of labour, kilos of potatoes etc.
It must also have either:
the amount, excluding tax, charged for the supply
the GST and the total amount payable for the supply, or
a statement that GST is included in the final price if it has been.
Important
If the invoice covers a number of supplies which add up to more than $1,000, all the details listed above are needed.
Additional information
An example of a tax invoice for supplies worth more than $1,000
Tax invoice for supplies worth between $50 and $1,000
For supplies worth between $50 and $1,000 (including GST), a simplified tax invoice is acceptable. It must clearly show:
the words "tax invoice" in a prominent place
the name and GST number of the supplier
the date the tax invoice was issued
a description of the goods and/or services supplied
the total amount payable for the supply, and
a statement that GST is included.
Note
If you don't have a tax invoice, you can't claim a credit on supplies over $50.
Supplies of $50 or less
A tax invoice is not needed for supplies of $50 or less (including GST). However, it is best practice to keep records for these purchases, such as invoices, vouchers or receipts. At a minimum, record the date, description, cost and supplier of all purchases.
Note
You'll also need these details if you are going to make a claim for income tax purposes.
If you need further assistance please Ask a question.
Author: Michael Levertoff
What information must a tax invoice show?
If you want to claim an expense, make sure the business you are purchasing from issues you with a valid tax invoice - or it can't be claimed.
EFTPOS receipts are not generally acceptable unless they follow the guidelines below. It is always good practice to get in the habit of asking the supplier for a valid tax invoice.
A tax invoice:
shows the GST on the goods and services provided
must be in New Zealand currency, and
must be original. The GST registered supplier can only issue one original tax invoice for each taxable supply. If the purchaser loses the invoice, the supplier may issue a copy. It must be clearly marked "copy only".
Important
If you supply goods and services to another GST-registered person, you must provide a tax invoice within 28 days of the purchaser asking for one. It is an offence if you don't supply one after such a request and you may be charged penalties.
The information a tax invoice must show depends on the value of the goods and services supplied. We refer to the required information as "standards". Different standards are required for different tax invoices:
For supplies worth:
more than $1,000
between $50 and $1,000, and
$50 or less.
Tax invoice for supplies worth more than $1,000
For supplies worth more than $1,000 (including GST), the tax invoice must clearly show:
the words "tax invoice" in a prominent place
the name (or trade name) and GST number of the supplier
the name and address of the recipient of the supply
the date the invoice was issued
a description of the goods and/or services supplied
the quantity or volume of the goods and/or services supplied.
Examples: litres of petrol, hours of labour, kilos of potatoes etc.
It must also have either:
the amount, excluding tax, charged for the supply
the GST and the total amount payable for the supply, or
a statement that GST is included in the final price if it has been.
Important
If the invoice covers a number of supplies which add up to more than $1,000, all the details listed above are needed.
Additional information
An example of a tax invoice for supplies worth more than $1,000
Tax invoice for supplies worth between $50 and $1,000
For supplies worth between $50 and $1,000 (including GST), a simplified tax invoice is acceptable. It must clearly show:
the words "tax invoice" in a prominent place
the name and GST number of the supplier
the date the tax invoice was issued
a description of the goods and/or services supplied
the total amount payable for the supply, and
a statement that GST is included.
Note
If you don't have a tax invoice, you can't claim a credit on supplies over $50.
Supplies of $50 or less
A tax invoice is not needed for supplies of $50 or less (including GST). However, it is best practice to keep records for these purchases, such as invoices, vouchers or receipts. At a minimum, record the date, description, cost and supplier of all purchases.
Note
You'll also need these details if you are going to make a claim for income tax purposes.
If you need further assistance please Ask a question.
Residential Investment Property and Depreciation: What is claimable and what is not.
Residential Investment Property and Depreciation: What is claimable and what is not.
Author: Michael Levertoff
Inland Revenue have made changes in the 2011-2012 income year to the way property is depreciated - so what does this mean for you as the owner of a rental?
In the 2010-2011 income year, you can claim depreciation on buildings – but not all fit-out costs previously claimed are claimable.
Sometimes different approaches have been taken in respect of the depreciation treatment of some items within a residential rental property. For example, plumbing and piping, electrical wiring, internal walls, and doors. Inland Revenue considers that it is not correct to break down a residential rental property into such separate items for depreciation purposes. The approach to determine whether a particular item is part of or separate from the building, is to apply the following three-step test:
Step 1: Determine whether the item is in some way attached or connected to the building. If the item is completely unattached, then it will not form a part of the building. An item will not be considered attached for these purposes, if its only means of attachment is being plugged or wired into an electrical outlet (such as a freestanding oven), or attached to a water or gas outlet. If the item is attached to the building, go to step 2.
Step 2: Determine whether the item is an integral part of the residential rental property such that a residential rental property would be considered incomplete or unable to function without the item. If the item is an integral part of the residential rental property, then the item will be a part of the building. If the item is not an integral part of the residential rental property, go to step 3.
Step 3: Determine whether the item is built-in or attached or connected to the building in such a way that it is part of the “fabric” of the building. Consider factors such as the nature and degree of attachment, the difficulty involved in the item’s removal, and whether there would be any significant damage to the item or the building if the item were removed. If the item is part of the fabric of the building, then it is part of the building for depreciation purposes.
It is best to seek advice if you think some of your fit-out costs not in the list below should be depreciated separately – we’ll look into this for you on a case-by-case basis.
However the following list is the approved list of depreciable items. Anything not on this list that you have claimed previously may need to be incorporated into the building cost and depreciated in accordance with building depreciation rates.
Appliances (small)
Bedding
Blinds
Carpets (modular nylon tile construction)
Carpets (other than modular nylon tile construction)
Compact disc players
Compact discs
Crockery
Curtains
Cutlery
Digital versatile disc players (DVD players)
Digital versatile discs (DVDs)
Dishwashers
Drapes
Dryers (clothes; domestic type)
Freezers (domestic type)
Furniture (fitted)
Furniture (loose)
Glassware
Heaters (electric)
Heaters (gas; fitted)
Heaters (gas; portable)
Integrated silk flower arrangements
Lawnmowers
Light fittings
Linen
Microwave ovens (domestic type)
Ovens (domestic type)
Paintings and drawings - in either case being property the value of which might reasonably be expected in normal circumstances to decline in value
Prints (including limited edition prints)
Refrigerators (domestic type)
Residential rental property chattels (default class)
Stereos
Stoves (domestic type)
Televisions
Utensils (including pots and pans)
Vacuum cleaners (domestic type)
Video game discs
Video game players
Video recorders
Vinyl flooring
Washing machines (domestic type)
Water heaters
In the 2011-2012 income year, the depreciation rate for buildings with an estimated useful life of 50 years or more reduces to 0%.
The above chattels can still be depreciated in accordance with Inland Revenue’s published rates.
What does this mean?
Because some of the items you have depreciated in the past are no longer allowable, your property may not be negatively geared – you may have a tax bill to pay at the end of the tax year. Certainly, losses will be diminished. This is important to consider if you are relying on tax refunds generated through losses in previous tax years.
If you’re concerned, contact the office and we’ll do a quick assessment for you for a one-off fee of $125+GST per property which will guide you in the likely tax position of each of your properties. This will help your decision making process – including considering selling up or restructuring if necessary.
If you need further assistance please Ask a question.
Author: Michael Levertoff
Inland Revenue have made changes in the 2011-2012 income year to the way property is depreciated - so what does this mean for you as the owner of a rental?
In the 2010-2011 income year, you can claim depreciation on buildings – but not all fit-out costs previously claimed are claimable.
Sometimes different approaches have been taken in respect of the depreciation treatment of some items within a residential rental property. For example, plumbing and piping, electrical wiring, internal walls, and doors. Inland Revenue considers that it is not correct to break down a residential rental property into such separate items for depreciation purposes. The approach to determine whether a particular item is part of or separate from the building, is to apply the following three-step test:
Step 1: Determine whether the item is in some way attached or connected to the building. If the item is completely unattached, then it will not form a part of the building. An item will not be considered attached for these purposes, if its only means of attachment is being plugged or wired into an electrical outlet (such as a freestanding oven), or attached to a water or gas outlet. If the item is attached to the building, go to step 2.
Step 2: Determine whether the item is an integral part of the residential rental property such that a residential rental property would be considered incomplete or unable to function without the item. If the item is an integral part of the residential rental property, then the item will be a part of the building. If the item is not an integral part of the residential rental property, go to step 3.
Step 3: Determine whether the item is built-in or attached or connected to the building in such a way that it is part of the “fabric” of the building. Consider factors such as the nature and degree of attachment, the difficulty involved in the item’s removal, and whether there would be any significant damage to the item or the building if the item were removed. If the item is part of the fabric of the building, then it is part of the building for depreciation purposes.
It is best to seek advice if you think some of your fit-out costs not in the list below should be depreciated separately – we’ll look into this for you on a case-by-case basis.
However the following list is the approved list of depreciable items. Anything not on this list that you have claimed previously may need to be incorporated into the building cost and depreciated in accordance with building depreciation rates.
Appliances (small)
Bedding
Blinds
Carpets (modular nylon tile construction)
Carpets (other than modular nylon tile construction)
Compact disc players
Compact discs
Crockery
Curtains
Cutlery
Digital versatile disc players (DVD players)
Digital versatile discs (DVDs)
Dishwashers
Drapes
Dryers (clothes; domestic type)
Freezers (domestic type)
Furniture (fitted)
Furniture (loose)
Glassware
Heaters (electric)
Heaters (gas; fitted)
Heaters (gas; portable)
Integrated silk flower arrangements
Lawnmowers
Light fittings
Linen
Microwave ovens (domestic type)
Ovens (domestic type)
Paintings and drawings - in either case being property the value of which might reasonably be expected in normal circumstances to decline in value
Prints (including limited edition prints)
Refrigerators (domestic type)
Residential rental property chattels (default class)
Stereos
Stoves (domestic type)
Televisions
Utensils (including pots and pans)
Vacuum cleaners (domestic type)
Video game discs
Video game players
Video recorders
Vinyl flooring
Washing machines (domestic type)
Water heaters
In the 2011-2012 income year, the depreciation rate for buildings with an estimated useful life of 50 years or more reduces to 0%.
The above chattels can still be depreciated in accordance with Inland Revenue’s published rates.
What does this mean?
Because some of the items you have depreciated in the past are no longer allowable, your property may not be negatively geared – you may have a tax bill to pay at the end of the tax year. Certainly, losses will be diminished. This is important to consider if you are relying on tax refunds generated through losses in previous tax years.
If you’re concerned, contact the office and we’ll do a quick assessment for you for a one-off fee of $125+GST per property which will guide you in the likely tax position of each of your properties. This will help your decision making process – including considering selling up or restructuring if necessary.
If you need further assistance please Ask a question.
What do I need to know if I am looking to go into business?
What do I need to know if I am looking to go into business?
Author: Michael Levertoff
Kicking off a business brings with it a myriad of questions you'll need answered about your business, the Inland Revenue department and your tax obligations. This article will provide answers to many of the questions we get asked on a regular basis.
About Inland Revenue
Inland Revenue have changed for the better over the last few years - you can get access to your personal information faster, tax processing is becoming easier, and their staff are competently trained to manage most questions uniformly. And in another five years expect the process to be just like "internet banking".
Having an online account with Inland Revenue will help you keep an eye on your tax affairs with ease. You can go online now to create your online account with Inland Revenue. Click for more.
Naming your business
You can decide what to call yourself - this is called your "trading name", and can be different from the name of your company, partnership or trading trust.
What structure is right for you?
If you are a one-man-band, a property investor or a mum-and-dad business, and you will be turning over less than $500,000 per annum, consider the following options before deciding on the structure that is right for you.
Sole Trader. If you are just starting out on your own, sole trading is the simple way to kick off your business. Remembering you can always change things later if you need to.
As a sole trader, you'll be trading under your personal IRD number, and it's OK to use the money you collect any way you wish. You don't need to pay yourself a taxable salary - you can take "drawings" as and when needed.
NZAG recommend you retain 20% of your gross turnover to cover tax and GST. At the end of the year NZAG will work out your taxable income.
Calculating wages will mean PAYE, which you hold on behalf of the taxpayer and pass onto the Crown each month. Make sure you set aside PAYE as you could be prosecuted if you spend it.
Just be aware that because you are trading as an individual, you're responsible for all the bills and any damage you do to a client's property. Consider getting some advice on public indemnity (or public liability) insurance, and watch your outgoings so that you can always pay your bills when they fall due - as your credtiors can seize your personal assets if you can't pay.
Partnerships. A partnership between two business partners or a couple is simple but both partners are jointly and severally liable for the debts incurred; it doesn't matter which partner incurs the debt - both partners are 100% liable. And if one partner wants to exit the partnership it cannot be transferred, it must be wound up.
On the flip side, partnerships can be useful particularly for mum-and-dad business owners because income or losses can be split equally between the partners. This is useful for tax efficiency and for maximising working for families tax credits for many property investors.
As with sole trading, both partners can take drawings as and when needed and NZAG recommend you retain 20% of your gross turnover to cover tax and GST for the end of the year when NZAG will work out your taxable income.
Companies. Companies are popular business entities - it is simple to set up a company, and move ownership around. Company debts are limited to the value of the assets of the business, which means shareholders are not personally responsible for debts incurred. But directors can be held to account, and must ensure the company is trading in accordance with the Companies Act, or face convictions including imprisonment for up to seven years for certain breeches of the Act. The most important principal is that a company must be able to pay its debts as they fall due, and if they are not able to do so, should immediately seek professional advice from NZAG.
Inland Revenue business basics
Income. It is a legal requirement to issue an invoice for any income you intend to collect. In the invoice you must provide;
The trading name of your business
The date
The client's name
A description of the goods or services
The amount billable.
If you are GST registered you must issue invoices that comply with GST rules, which means you must also;
Use the words "Tax Invoice"
Provide your GST number on the tax invoice
Income should be banked and any cash not banked should be declared.
Expenses. Any expense you intend to claim must be accompanied by a valid invoice laid out properly, as above.
If you operate from home, a portion of your expenses can be claimed. Ensure you ask NZAG for a house plan form to calculate this correctly.
Vehicle expenses can be claimed either as a full claim of all expenses if you use a vehicle solely for business or as a km claim using a logbook. NZAG provide an online logbook. Click for more.
If you need further assistance please Ask a question.
Author: Michael Levertoff
Kicking off a business brings with it a myriad of questions you'll need answered about your business, the Inland Revenue department and your tax obligations. This article will provide answers to many of the questions we get asked on a regular basis.
About Inland Revenue
Inland Revenue have changed for the better over the last few years - you can get access to your personal information faster, tax processing is becoming easier, and their staff are competently trained to manage most questions uniformly. And in another five years expect the process to be just like "internet banking".
Having an online account with Inland Revenue will help you keep an eye on your tax affairs with ease. You can go online now to create your online account with Inland Revenue. Click for more.
Naming your business
You can decide what to call yourself - this is called your "trading name", and can be different from the name of your company, partnership or trading trust.
What structure is right for you?
If you are a one-man-band, a property investor or a mum-and-dad business, and you will be turning over less than $500,000 per annum, consider the following options before deciding on the structure that is right for you.
Sole Trader. If you are just starting out on your own, sole trading is the simple way to kick off your business. Remembering you can always change things later if you need to.
As a sole trader, you'll be trading under your personal IRD number, and it's OK to use the money you collect any way you wish. You don't need to pay yourself a taxable salary - you can take "drawings" as and when needed.
NZAG recommend you retain 20% of your gross turnover to cover tax and GST. At the end of the year NZAG will work out your taxable income.
Calculating wages will mean PAYE, which you hold on behalf of the taxpayer and pass onto the Crown each month. Make sure you set aside PAYE as you could be prosecuted if you spend it.
Just be aware that because you are trading as an individual, you're responsible for all the bills and any damage you do to a client's property. Consider getting some advice on public indemnity (or public liability) insurance, and watch your outgoings so that you can always pay your bills when they fall due - as your credtiors can seize your personal assets if you can't pay.
Partnerships. A partnership between two business partners or a couple is simple but both partners are jointly and severally liable for the debts incurred; it doesn't matter which partner incurs the debt - both partners are 100% liable. And if one partner wants to exit the partnership it cannot be transferred, it must be wound up.
On the flip side, partnerships can be useful particularly for mum-and-dad business owners because income or losses can be split equally between the partners. This is useful for tax efficiency and for maximising working for families tax credits for many property investors.
As with sole trading, both partners can take drawings as and when needed and NZAG recommend you retain 20% of your gross turnover to cover tax and GST for the end of the year when NZAG will work out your taxable income.
Companies. Companies are popular business entities - it is simple to set up a company, and move ownership around. Company debts are limited to the value of the assets of the business, which means shareholders are not personally responsible for debts incurred. But directors can be held to account, and must ensure the company is trading in accordance with the Companies Act, or face convictions including imprisonment for up to seven years for certain breeches of the Act. The most important principal is that a company must be able to pay its debts as they fall due, and if they are not able to do so, should immediately seek professional advice from NZAG.
Inland Revenue business basics
Income. It is a legal requirement to issue an invoice for any income you intend to collect. In the invoice you must provide;
The trading name of your business
The date
The client's name
A description of the goods or services
The amount billable.
If you are GST registered you must issue invoices that comply with GST rules, which means you must also;
Use the words "Tax Invoice"
Provide your GST number on the tax invoice
Income should be banked and any cash not banked should be declared.
Expenses. Any expense you intend to claim must be accompanied by a valid invoice laid out properly, as above.
If you operate from home, a portion of your expenses can be claimed. Ensure you ask NZAG for a house plan form to calculate this correctly.
Vehicle expenses can be claimed either as a full claim of all expenses if you use a vehicle solely for business or as a km claim using a logbook. NZAG provide an online logbook. Click for more.
If you need further assistance please Ask a question.
Is now the right time to consider going into business?
Is now the right time to consider going into business?
Author: Michael Levertoff
While it is true that in a recession people spend less, it also costs a lot less to buy and run a business, which means setting up in business now could be the smartest move to make.
In our view the recession has turned and we’re on the way out, but it’s still going to be another 3 - 5 years before we’re back to business as usual.
Setting up shop now, if done right, is smart business. It is about employing the right strategies today for the future – and it’s a simple formula.
Simple, efficient, low-cost businesses will survive this next phase well – and if you’re setting up now with that in mind, you’ll be ahead of the game.
Focus on fixed overheads, wages, and set up costs – all of which are easy to manage.
Simply, it’s a buyer’s market.The hardest part for new business owners will be to take a firm line when it comes to managing costs and to be prepared to go elsewhere to get the best deal – but failing to watch the pennies now will mean risk longer term.
Now is the time when the squeeze really comes on, and businesses that are too close to the line are either reinventing, selling up or going under. So take your time, buy right, hunker down and wait for the wind to change. After all, what goes down, must go up, right?
If you need further assistance please Ask a question.
Author: Michael Levertoff
While it is true that in a recession people spend less, it also costs a lot less to buy and run a business, which means setting up in business now could be the smartest move to make.
In our view the recession has turned and we’re on the way out, but it’s still going to be another 3 - 5 years before we’re back to business as usual.
Setting up shop now, if done right, is smart business. It is about employing the right strategies today for the future – and it’s a simple formula.
Simple, efficient, low-cost businesses will survive this next phase well – and if you’re setting up now with that in mind, you’ll be ahead of the game.
Focus on fixed overheads, wages, and set up costs – all of which are easy to manage.
Simply, it’s a buyer’s market.The hardest part for new business owners will be to take a firm line when it comes to managing costs and to be prepared to go elsewhere to get the best deal – but failing to watch the pennies now will mean risk longer term.
Now is the time when the squeeze really comes on, and businesses that are too close to the line are either reinventing, selling up or going under. So take your time, buy right, hunker down and wait for the wind to change. After all, what goes down, must go up, right?
If you need further assistance please Ask a question.
How will the budget affect your business?
Author: Michael Levertoff
Small business people right across New Zealand want to know what the impact of the budget will be on their bottom line.
Taking it purely on the numbers, unemployment will remain high for now while consumers remain focussed on the government’s message to save and pay down debt – and business owners should fully capitalise on this.
It seems economic recovery is slower than the government anticipated – and the budget seems to reflect that on a whole for small business owners.
There will be additional compliance costs because kiwisaver goes up, but in real terms, the government is just returning things to how they were before the recession.
And since these changes don’t kick in until 2013, he believes business owners should relax and just focus on core activity, control overheads and consider growth strategies leading into 2013.
The economy is heading in the right direction – and although we have high unemployment, that means more competition for jobs, which means wages on offer now can be set at levels in preparation for higher wage costs related to kiwisaver in 2013.
Now is also a great time to consider other fixed costs, taking into account property prices, low interest, and available retail and commercial space.
It’s certainly the right time to consider moving from leasing to owning – prices are reasonable and landlords are looking to exit, given the change in government policy towards property investment.
Equally, landlords are more negotiable than ever, with mortgages to pay on empty space. So now is also a good time to consider relocating to better premises for the same money.
And even variable costs like telephone, power and stationery should be analysed. Consider a full review of all of your costs while business is quiet – examine all of the options, and if there is a better price on offer, take full advantage. It might be little pennies, but a dollar saved is still a dollar earned.
If you need further assistance please Ask a question.
Author: Michael Levertoff
Small business people right across New Zealand want to know what the impact of the budget will be on their bottom line.
Taking it purely on the numbers, unemployment will remain high for now while consumers remain focussed on the government’s message to save and pay down debt – and business owners should fully capitalise on this.
It seems economic recovery is slower than the government anticipated – and the budget seems to reflect that on a whole for small business owners.
There will be additional compliance costs because kiwisaver goes up, but in real terms, the government is just returning things to how they were before the recession.
And since these changes don’t kick in until 2013, he believes business owners should relax and just focus on core activity, control overheads and consider growth strategies leading into 2013.
The economy is heading in the right direction – and although we have high unemployment, that means more competition for jobs, which means wages on offer now can be set at levels in preparation for higher wage costs related to kiwisaver in 2013.
Now is also a great time to consider other fixed costs, taking into account property prices, low interest, and available retail and commercial space.
It’s certainly the right time to consider moving from leasing to owning – prices are reasonable and landlords are looking to exit, given the change in government policy towards property investment.
Equally, landlords are more negotiable than ever, with mortgages to pay on empty space. So now is also a good time to consider relocating to better premises for the same money.
And even variable costs like telephone, power and stationery should be analysed. Consider a full review of all of your costs while business is quiet – examine all of the options, and if there is a better price on offer, take full advantage. It might be little pennies, but a dollar saved is still a dollar earned.
If you need further assistance please Ask a question.
NZ Accounting: What to do if the ex won’t pay you child support
Author: Michael Levertoff
Going through a relationship break-up is hard enough without the added pressures of ex-partners who shirk their child support obligations – but what can you do about it?
To start with, make sure your ex-partner is being assessed at the correct level – and to find that out, consider using the Inland Revenue Administrative Review process.
This free service involves an independent review officer who is contracted by Inland Revenue to consider the capacity of the paying parent.
The review officer will examine what the paying parent should be able to earn when compared to others with similar qualifications or experience – and, if that is found, may increase the amount of child support payable.
The next step is collection of child support debt. Inland Revenue will charge hefty penalties to encourage paying parents to meet their obligations on time, and discounts if the paying parent enters into a payment arrangement to repay overdue child support debt.
Often the paying parent sees the mounting debt and doesn’t know what to do – so end up doing nothing.
Knowing penalties can be remitted by up to 10% by negotiation can sometimes be all it takes to encourage the paying parent to deal with it.
Failing that, talk to NZ Accounting – where other methods are employed to get child support debt sorted.
NZ Accounting provide advice on administrative reviews, offer child support attorney services, negotiate on behalf of both custodial and paying parents, and recover outstanding child support debt owing.
If you need further assistance please Ask a question.
Author: Michael Levertoff
Going through a relationship break-up is hard enough without the added pressures of ex-partners who shirk their child support obligations – but what can you do about it?
To start with, make sure your ex-partner is being assessed at the correct level – and to find that out, consider using the Inland Revenue Administrative Review process.
This free service involves an independent review officer who is contracted by Inland Revenue to consider the capacity of the paying parent.
The review officer will examine what the paying parent should be able to earn when compared to others with similar qualifications or experience – and, if that is found, may increase the amount of child support payable.
The next step is collection of child support debt. Inland Revenue will charge hefty penalties to encourage paying parents to meet their obligations on time, and discounts if the paying parent enters into a payment arrangement to repay overdue child support debt.
Often the paying parent sees the mounting debt and doesn’t know what to do – so end up doing nothing.
Knowing penalties can be remitted by up to 10% by negotiation can sometimes be all it takes to encourage the paying parent to deal with it.
Failing that, talk to NZ Accounting – where other methods are employed to get child support debt sorted.
NZ Accounting provide advice on administrative reviews, offer child support attorney services, negotiate on behalf of both custodial and paying parents, and recover outstanding child support debt owing.
If you need further assistance please Ask a question.
NZ Accounting: Claimable non-cash business expenses vs. taxable non-cash income.
NZ Accounting: Claimable non-cash business expenses vs. taxable non-cash income.
Author: Michael Levertoff
There are some non-cash expenses all businesses should be claiming – and some non-cash income that could cost business owners big-time.
Income can be goods you use personally (even spoiled goods), gains on assets sold – these are the usual suspects. But be aware that with the changes to Inland Revenue building depreciation rules, you may well be up for an increase in provisional tax to pay.
This will have quite an impact on many New Zealand businesses.
Also business owners suffering hard times are not aware of the rules around discounts or negotiated full and final settlements.
For those people in business negotiating cents in the dollar creditor petitions, be aware, you’re up for the tax on that gain, and this tax to pay needs to be built into the repayment proposal.
On the flip side, business owners need to make sure they are getting the maximum benefit from non-cash expenses they can claim that are sometimes overlooked.
Using your home for the business (including rest room facilities) means you can claim a portion of the household expenses, and this can amount to quite a good tax saving.
Also it can be more beneficial to claim vehicle expenses through a log book system over incorporating the asset into the business – but keep an eye on assets personally owned that are being used in the business.
These assets can be introduced into the business – which means a GST claim back now on the second-hand value of the asset, and over the long-term, a non-cash depreciation expense claim.
If you need further assistance please Ask a question.
Author: Michael Levertoff
There are some non-cash expenses all businesses should be claiming – and some non-cash income that could cost business owners big-time.
Income can be goods you use personally (even spoiled goods), gains on assets sold – these are the usual suspects. But be aware that with the changes to Inland Revenue building depreciation rules, you may well be up for an increase in provisional tax to pay.
This will have quite an impact on many New Zealand businesses.
Also business owners suffering hard times are not aware of the rules around discounts or negotiated full and final settlements.
For those people in business negotiating cents in the dollar creditor petitions, be aware, you’re up for the tax on that gain, and this tax to pay needs to be built into the repayment proposal.
On the flip side, business owners need to make sure they are getting the maximum benefit from non-cash expenses they can claim that are sometimes overlooked.
Using your home for the business (including rest room facilities) means you can claim a portion of the household expenses, and this can amount to quite a good tax saving.
Also it can be more beneficial to claim vehicle expenses through a log book system over incorporating the asset into the business – but keep an eye on assets personally owned that are being used in the business.
These assets can be introduced into the business – which means a GST claim back now on the second-hand value of the asset, and over the long-term, a non-cash depreciation expense claim.
If you need further assistance please Ask a question.
Monday, 11 June 2012
Tax Changes: For richer or for poorer?
Tax Changes: For richer or for poorer?
Author: Michael Levertoff
While we hear loud and clear from most senior politicians with regular frequency, it is Revenue Minister Peter Dunne who has been quietly squirreling away in the background rewriting the tax system faster than you can say “it’s our job to be fair”.
It’s a financial revolution, a coup of unprecedented changes that will alter our landscape forever. Depreciation, property, companies and GST will never be the same again.
Mr Dunne agrees there have been quite substantial changes over the last six years that have reshaped the face of personal and company taxes, and tidied up various anomalies within the tax system.
He says this sets New Zealand’s tax system up to be one of the sharpest tax administrations in the world – and he’s not finished yet.
“The big focus from here is reorganising the way we collect taxes, in line with today’s electronic age, and the ultimate is to get something akin to electronic banking, online.
In terms of efficiency and competitiveness it is the way forward,” Mr Dunne says.
But are these changes going to be good or bad for the backbone of our nation – will farmers become richer, or poorer?
The depreciation rate for buildings, which reduces the current 2% straight line expense allowance to 0%, will reduce non-cash expense claims by the average farmer by at least $7,000 per annum if your buildings are valued at $350,000.
With the removal of depreciation on buildings, many companies that own properties will now make the transition from loss to profit.
This will increase tax to pay and directly affects farmers who invested in property for the benefit of the losses.
And assets purchased after 20 May 2010 are affected by a 20% change in loading, which means an average cost increase of $11,000 on the purchase of $250,000 worth of new farm equipment.
Also some of these changes will apply retrospectively – property financing often relied on the previous tax structure to work, so it might be wise to do some cash flow forecasting now, with a focus on provisional tax to pay in 2011/2012.
Speaking of tax, watch out if your partner forgets to pay the PAYE tax bill if you are a shareholder in one of the thousands of LAQC companies owned by farmers being converted to an LTC – as shareholders become jointly and severally liable for LTC PAYE tax debt, just like a partnership. GST on property is now zero rated – which may cause a drop in farm values, where purchasers are looking to finance properties for up to 15% less than purchasing a farm pre-March 2011.
So far, not so good.
But at least there’s reduced tax and the abolishment of gifting – right?
The changes to personal tax rates to a top rate of 33% and company tax rates to 28% means companies pay less tax and individuals pay less tax – plain and simple.
This is the lowest company tax rate since 1989 and is 2% less than Australia.
Great news.
And on October 1 2011, gift duty will be abolished, which will save farmers who have to deal with gifting an average of $294 per annum in administrative costs and make it easier to comply with new trust law changes.
There’s a lot more to know – even Mr Dunne acknowledges there is still a measure of confusion and uncertainty about what Inland Revenue are doing, but he says this is part of a slow and carefully organised transition.
“If people are not too sure, the best thing they can do is talk to their tax advisor or Inland Revenue.” Mr Dunne said.
If you need further assistance please Ask a question.
Author: Michael Levertoff
While we hear loud and clear from most senior politicians with regular frequency, it is Revenue Minister Peter Dunne who has been quietly squirreling away in the background rewriting the tax system faster than you can say “it’s our job to be fair”.
It’s a financial revolution, a coup of unprecedented changes that will alter our landscape forever. Depreciation, property, companies and GST will never be the same again.
Mr Dunne agrees there have been quite substantial changes over the last six years that have reshaped the face of personal and company taxes, and tidied up various anomalies within the tax system.
He says this sets New Zealand’s tax system up to be one of the sharpest tax administrations in the world – and he’s not finished yet.
“The big focus from here is reorganising the way we collect taxes, in line with today’s electronic age, and the ultimate is to get something akin to electronic banking, online.
In terms of efficiency and competitiveness it is the way forward,” Mr Dunne says.
But are these changes going to be good or bad for the backbone of our nation – will farmers become richer, or poorer?
The depreciation rate for buildings, which reduces the current 2% straight line expense allowance to 0%, will reduce non-cash expense claims by the average farmer by at least $7,000 per annum if your buildings are valued at $350,000.
With the removal of depreciation on buildings, many companies that own properties will now make the transition from loss to profit.
This will increase tax to pay and directly affects farmers who invested in property for the benefit of the losses.
And assets purchased after 20 May 2010 are affected by a 20% change in loading, which means an average cost increase of $11,000 on the purchase of $250,000 worth of new farm equipment.
Also some of these changes will apply retrospectively – property financing often relied on the previous tax structure to work, so it might be wise to do some cash flow forecasting now, with a focus on provisional tax to pay in 2011/2012.
Speaking of tax, watch out if your partner forgets to pay the PAYE tax bill if you are a shareholder in one of the thousands of LAQC companies owned by farmers being converted to an LTC – as shareholders become jointly and severally liable for LTC PAYE tax debt, just like a partnership. GST on property is now zero rated – which may cause a drop in farm values, where purchasers are looking to finance properties for up to 15% less than purchasing a farm pre-March 2011.
So far, not so good.
But at least there’s reduced tax and the abolishment of gifting – right?
The changes to personal tax rates to a top rate of 33% and company tax rates to 28% means companies pay less tax and individuals pay less tax – plain and simple.
This is the lowest company tax rate since 1989 and is 2% less than Australia.
Great news.
And on October 1 2011, gift duty will be abolished, which will save farmers who have to deal with gifting an average of $294 per annum in administrative costs and make it easier to comply with new trust law changes.
There’s a lot more to know – even Mr Dunne acknowledges there is still a measure of confusion and uncertainty about what Inland Revenue are doing, but he says this is part of a slow and carefully organised transition.
“If people are not too sure, the best thing they can do is talk to their tax advisor or Inland Revenue.” Mr Dunne said.
If you need further assistance please Ask a question.
NZ Accounting: LAQC’s to LTC’s, QC’s partnerships – what is best for you?
Author: Michael Levertoff
With the recent changes to Inland Revenue policy, if you have an LAQC, you have just under six months to decide what new structure you will use now that LAQC’s are gone, and avoid tax costs like depreciation recovered. So: what is best for you?
First and foremost, an LTC means profits flow through to shareholders and are charged at your nominal tax rate – but losses are limited to the investment you have personally made in the company – or any loans you have guaranteed (like a mortgage). This means if you are a shareholder in an LAQC that owns a property, but you are not the guarantor for the mortgage on that property, the losses that currently flow through to you will no longer flow through.
But guess what: if you make a profit you’ll have to pay tax in proportion to your shareholding. This could be an easy fix – selling the property to a new LTC company, and becoming a guarantor on the loan alongside your business partner will mean you can benefit from any flow through losses.
Although be aware of depreciation recovered – this could end up being a tax bill (remembering you’ll pay tax in proportion to your shareholding).
Another option is to move your LAQC to a limited partnership; if done inside the six month window, there will be no depreciation recovered, and you can restructure the debt to ensure you are an equal guarantor of the loan attached to the property.
If you need further assistance please Ask a question.
Author: Michael Levertoff
With the recent changes to Inland Revenue policy, if you have an LAQC, you have just under six months to decide what new structure you will use now that LAQC’s are gone, and avoid tax costs like depreciation recovered. So: what is best for you?
First and foremost, an LTC means profits flow through to shareholders and are charged at your nominal tax rate – but losses are limited to the investment you have personally made in the company – or any loans you have guaranteed (like a mortgage). This means if you are a shareholder in an LAQC that owns a property, but you are not the guarantor for the mortgage on that property, the losses that currently flow through to you will no longer flow through.
But guess what: if you make a profit you’ll have to pay tax in proportion to your shareholding. This could be an easy fix – selling the property to a new LTC company, and becoming a guarantor on the loan alongside your business partner will mean you can benefit from any flow through losses.
Although be aware of depreciation recovered – this could end up being a tax bill (remembering you’ll pay tax in proportion to your shareholding).
Another option is to move your LAQC to a limited partnership; if done inside the six month window, there will be no depreciation recovered, and you can restructure the debt to ensure you are an equal guarantor of the loan attached to the property.
If you need further assistance please Ask a question.
Child Support: Is it possible to enter into a private child support arrangement with a beneficiary?
Author: Michael Levertoff
Quite often, clients come to NZ Accounting and complain that they are paying out large amounts of child support for a child where their ex-partner is on a benefit.
In these cases, the money the paying parent pays goes directly to the crown and does not benefit the child/ren of the paying parent.
So can a paying parent form a private arrangement with a custodial parent who is on a benefit, which ensures their child/ren benefit financially from their contributions?
When a Custodial Parent of a child applies for a sole parent benefit they have a legal obligation to apply for Child Support under the Child Support Act 1991.
They must;
• apply for Child Support for each dependent child and
• identify all paying parents and
• attend a departure or appeal hearing and give evidence against paying parent(s) in accordance with section 122 Child Support Act 1991 if required.
If the Custodial Parent fails to do so they will have their benefit reduced, unless an exemption to a reduction applies, where;
• there is not enough evidence to establish the paying parent in law
• the client is taking active steps to legally identify the paying parent
• the client or their child(ren) would be at risk of violence if carried out or took steps to meet their Child Support obligations
• there are compelling circumstances for not meeting their Child Support obligations and there is no real likelihood of Child Support being collected
• the child is conceived as a result of incest or sexual violation (Note the exemptions apply to the reduction, not to a client's Child Support obligations.)
If the Custodial Parent hasn't legally identified the paying parent or refuses to apply for child support for any other reason, they will be encouraged to do so.
WINZ will discuss the advantages of identifying other parent in law.
Examples of advantages raised;
• they will receive the full rate of benefit
• the other parents will be financially contributing to the care of the child
• they can receive the Child Support payments directly if they don't receive a benefit and
• the child's rights to know the identity of, and have contact with, both parents
Nonetheless, where the Custodial Parent;
• fails or refuses to apply for Child Support for each dependent child
• fails or refuses to identify the paying parent(s) in law of each dependent child or
• fails or refuses to attend a departure or appeal hearing and give evidence against paying parent in accordance with section 122 Child Support Act 1991 or
• refuses to apply for Child Support as they have a private arrangement with the paying parent
WINZ will:
• impose a section 70A reduction
• charge the private arrangement as income (Note: Be aware that Inland Revenue - Child Support will contact The Custodial Parent to discuss their failure to apply for Child Support.)
The Custodial Parent's benefit is reduced by $22.00 for each dependent child for whom the custodian refuses or fails to meet their Child Support obligations.
Example
Tom is the custodian of four dependent children and refuses to apply for Child Support for only one of his children. Tom's benefit is reduced by $22.00 per week.
When a client has had a section 70A reduction imposed for at least 13 weeks (and during this time they have been given a reasonable opportunity to reconsider their decision that led to the section 70A reduction being imposed) they will have their benefit further reduced by an additional $6 per week.
This further $6 reduction can only be applied once per client regardless of how many children they have.
Example
Nicole has had 2 section 70A reductions imposed on her benefit for more than 13 weeks as she refused to apply for Child Support for both her children. She was given a reasonable opportunity to reconsider her decision not to apply. Nicole's benefit is now reduced by the 2 section 70A reductions ($22 x 2 children = $44 per week) and the additional reduction ($6 per week). The total amount her benefit is reduced by is $50 per week. (Note that a reminder letter is automatically sent to client's 4 weeks before an additional reduction is imposed.)
Although this is all very good in theory, custodial parents want to know: what if the paying parent fails to meet their private child support arrangements with the custodial parent?
In these cases, the custodial parent can remove the reduction for a particular child and increase their benefit from the date they:
• meet all their Child Support obligations or
• qualify for an exemption
To meet all their Child Support obligations for a particular child they must:
• apply for Child Support for that dependent child and
• identify all paying parents and
• attend a hearing under section 122 of the Child Support Act 1991 if required All of the above is outlined in legislation in section 70A Social Security Act 1964.
NZ Accounting writes agreements between parties where the paying parent and the custodial parent enter into a private arrangement.
This can benefit both the paying parent, the custodial parent and the child/ren.
NZ Accounting also assists in the negotiation process. NZ Accounting also form trusts for children where funds can be allocated specifically to the needs of the child/ren - which is not applied against the custodial parent's income, as it is money provided in trust for the child/ren.
If you need further assistance please Ask a question.
Author: Michael Levertoff
Quite often, clients come to NZ Accounting and complain that they are paying out large amounts of child support for a child where their ex-partner is on a benefit.
In these cases, the money the paying parent pays goes directly to the crown and does not benefit the child/ren of the paying parent.
So can a paying parent form a private arrangement with a custodial parent who is on a benefit, which ensures their child/ren benefit financially from their contributions?
When a Custodial Parent of a child applies for a sole parent benefit they have a legal obligation to apply for Child Support under the Child Support Act 1991.
They must;
• apply for Child Support for each dependent child and
• identify all paying parents and
• attend a departure or appeal hearing and give evidence against paying parent(s) in accordance with section 122 Child Support Act 1991 if required.
If the Custodial Parent fails to do so they will have their benefit reduced, unless an exemption to a reduction applies, where;
• there is not enough evidence to establish the paying parent in law
• the client is taking active steps to legally identify the paying parent
• the client or their child(ren) would be at risk of violence if carried out or took steps to meet their Child Support obligations
• there are compelling circumstances for not meeting their Child Support obligations and there is no real likelihood of Child Support being collected
• the child is conceived as a result of incest or sexual violation (Note the exemptions apply to the reduction, not to a client's Child Support obligations.)
If the Custodial Parent hasn't legally identified the paying parent or refuses to apply for child support for any other reason, they will be encouraged to do so.
WINZ will discuss the advantages of identifying other parent in law.
Examples of advantages raised;
• they will receive the full rate of benefit
• the other parents will be financially contributing to the care of the child
• they can receive the Child Support payments directly if they don't receive a benefit and
• the child's rights to know the identity of, and have contact with, both parents
Nonetheless, where the Custodial Parent;
• fails or refuses to apply for Child Support for each dependent child
• fails or refuses to identify the paying parent(s) in law of each dependent child or
• fails or refuses to attend a departure or appeal hearing and give evidence against paying parent in accordance with section 122 Child Support Act 1991 or
• refuses to apply for Child Support as they have a private arrangement with the paying parent
WINZ will:
• impose a section 70A reduction
• charge the private arrangement as income (Note: Be aware that Inland Revenue - Child Support will contact The Custodial Parent to discuss their failure to apply for Child Support.)
The Custodial Parent's benefit is reduced by $22.00 for each dependent child for whom the custodian refuses or fails to meet their Child Support obligations.
Example
Tom is the custodian of four dependent children and refuses to apply for Child Support for only one of his children. Tom's benefit is reduced by $22.00 per week.
When a client has had a section 70A reduction imposed for at least 13 weeks (and during this time they have been given a reasonable opportunity to reconsider their decision that led to the section 70A reduction being imposed) they will have their benefit further reduced by an additional $6 per week.
This further $6 reduction can only be applied once per client regardless of how many children they have.
Example
Nicole has had 2 section 70A reductions imposed on her benefit for more than 13 weeks as she refused to apply for Child Support for both her children. She was given a reasonable opportunity to reconsider her decision not to apply. Nicole's benefit is now reduced by the 2 section 70A reductions ($22 x 2 children = $44 per week) and the additional reduction ($6 per week). The total amount her benefit is reduced by is $50 per week. (Note that a reminder letter is automatically sent to client's 4 weeks before an additional reduction is imposed.)
Although this is all very good in theory, custodial parents want to know: what if the paying parent fails to meet their private child support arrangements with the custodial parent?
In these cases, the custodial parent can remove the reduction for a particular child and increase their benefit from the date they:
• meet all their Child Support obligations or
• qualify for an exemption
To meet all their Child Support obligations for a particular child they must:
• apply for Child Support for that dependent child and
• identify all paying parents and
• attend a hearing under section 122 of the Child Support Act 1991 if required All of the above is outlined in legislation in section 70A Social Security Act 1964.
NZ Accounting writes agreements between parties where the paying parent and the custodial parent enter into a private arrangement.
This can benefit both the paying parent, the custodial parent and the child/ren.
NZ Accounting also assists in the negotiation process. NZ Accounting also form trusts for children where funds can be allocated specifically to the needs of the child/ren - which is not applied against the custodial parent's income, as it is money provided in trust for the child/ren.
If you need further assistance please Ask a question.
After the Relationship Ends: What to do when your ex-partner is making life difficult.
Author: Michael Levertoff
After separation, ex-partners often struggle to communicate effectively – and sometimes can be downright difficult.
Too often this impacts on children, new partners and finances.
So how can you turn it around?
The following suggestions may not be easiest to hear, or to implement, but take a moment to consider these three key steps that will help you to develop the right kind of relationship with your ex-partner.
Step One: Decide now that you will work to create an amicable relationship where possible with your ex-partner.
It is important to prepare for the fact that ending a relationship does not mean you’ll never have to deal with your ex-partner again – it just means the terms on which you’ll be communicating has changed.
This is an important foundation. Consider this – if you and your ex-partner both want a relationship with your children, you’ll be bumping into each other (or managing how NOT to) for a large part of the rest of your life at birthdays, weddings, and funerals at a minimum.
This can be uncomfortable but must be managed – otherwise you, your children and your new partner will not enjoy these important milestones.
And if you hold relationship property assets together, like a family home or a business, it is vital to ensure you benefit from the hard work you have put in over the years, even if that means you’ll end up giving over certain things you don’t agree with to the ex-partner – because let me assure you, the vultures who prey on relationship property disputes are watching – and waiting.
In respect of your children, it may help to think of yourself as being in a parenting relationship, where both you and your ex-partner have the best interests of the children at heart.
When it comes to relationship property, try to consider yourself and your ex-partner as the “managers” of your combined relationship property estate – where both you and your ex-partner look to protect what you have achieved as a couple, both for you and for your children’s future.
Above all, don’t be in a rush. Remember how long it took you to get here – and consider that it is worth taking at least a couple of years to resolve.
Don’t allow yourself to be railroaded – step back, consider the options, and take your time. Try and think: how would I deal with this situation if we were still together?
In the situation where it is simply not possible to communicate effectively with your ex-partner right now, create the distance you need to and use intermediaries for now.
Things may change in the future, and often do. Stay safe but stay open. And do everything you can to keep the channels of communication open. Because every breath you utter through others will likely cost you both personally and financially.
Step Two: Deal with your issues.
There is no doubt that relationship failure hurts. In addition, similar to the loss of a family member, some people experience feelings of shock and disbelief, sadness, anger and sometimes depression.
For some people the process is relatively quick and for others it takes longer – there is no ‘norm’; Some say it takes half the time you were in a relationship to get over the relationship – but as a guideline, consider that you may experience these feelings regularly for up to two years.
Knowing in advance and being able to identify your feelings will help you self-manage. So be prepared for these feelings and decide now what you will do to get through those moments.
The most important thing to remember is that the way you’re feeling right now will pass – it’s normal what you’re going through – and keep functioning.
Although it is not easy, try not to allow your emotions to cloud your decision-making process. Stay focussed on common-sense outcomes. Keep people close to you that you can call on to remind you of this.
Step Three: Move on.
The biggest threat to your happiness and the success of your children and your future – is you. People who get bogged down in issues about who is right and who is wrong and get stuck there do not create healthy outcomes for themselves or their families.
Letting go, forgiving and moving on is not something you do for your ex-partner – it’s something you’re doing for yourself and the ones you love.
Because for as long as you choose to be stuck, your ex-partner has power over you. Difficult ex-partners may make things challenging – try applying these three steps to your situation for a better outcome for your family and your finances.
And only where necessary, use the right professionals to assist you in issues related to care of children and in the analysing and distribution of relationship property assets.
If you need further assistance please Ask a question.
Author: Michael Levertoff
After separation, ex-partners often struggle to communicate effectively – and sometimes can be downright difficult.
Too often this impacts on children, new partners and finances.
So how can you turn it around?
The following suggestions may not be easiest to hear, or to implement, but take a moment to consider these three key steps that will help you to develop the right kind of relationship with your ex-partner.
Step One: Decide now that you will work to create an amicable relationship where possible with your ex-partner.
It is important to prepare for the fact that ending a relationship does not mean you’ll never have to deal with your ex-partner again – it just means the terms on which you’ll be communicating has changed.
This is an important foundation. Consider this – if you and your ex-partner both want a relationship with your children, you’ll be bumping into each other (or managing how NOT to) for a large part of the rest of your life at birthdays, weddings, and funerals at a minimum.
This can be uncomfortable but must be managed – otherwise you, your children and your new partner will not enjoy these important milestones.
And if you hold relationship property assets together, like a family home or a business, it is vital to ensure you benefit from the hard work you have put in over the years, even if that means you’ll end up giving over certain things you don’t agree with to the ex-partner – because let me assure you, the vultures who prey on relationship property disputes are watching – and waiting.
In respect of your children, it may help to think of yourself as being in a parenting relationship, where both you and your ex-partner have the best interests of the children at heart.
When it comes to relationship property, try to consider yourself and your ex-partner as the “managers” of your combined relationship property estate – where both you and your ex-partner look to protect what you have achieved as a couple, both for you and for your children’s future.
Above all, don’t be in a rush. Remember how long it took you to get here – and consider that it is worth taking at least a couple of years to resolve.
Don’t allow yourself to be railroaded – step back, consider the options, and take your time. Try and think: how would I deal with this situation if we were still together?
In the situation where it is simply not possible to communicate effectively with your ex-partner right now, create the distance you need to and use intermediaries for now.
Things may change in the future, and often do. Stay safe but stay open. And do everything you can to keep the channels of communication open. Because every breath you utter through others will likely cost you both personally and financially.
Step Two: Deal with your issues.
There is no doubt that relationship failure hurts. In addition, similar to the loss of a family member, some people experience feelings of shock and disbelief, sadness, anger and sometimes depression.
For some people the process is relatively quick and for others it takes longer – there is no ‘norm’; Some say it takes half the time you were in a relationship to get over the relationship – but as a guideline, consider that you may experience these feelings regularly for up to two years.
Knowing in advance and being able to identify your feelings will help you self-manage. So be prepared for these feelings and decide now what you will do to get through those moments.
The most important thing to remember is that the way you’re feeling right now will pass – it’s normal what you’re going through – and keep functioning.
Although it is not easy, try not to allow your emotions to cloud your decision-making process. Stay focussed on common-sense outcomes. Keep people close to you that you can call on to remind you of this.
Step Three: Move on.
The biggest threat to your happiness and the success of your children and your future – is you. People who get bogged down in issues about who is right and who is wrong and get stuck there do not create healthy outcomes for themselves or their families.
Letting go, forgiving and moving on is not something you do for your ex-partner – it’s something you’re doing for yourself and the ones you love.
Because for as long as you choose to be stuck, your ex-partner has power over you. Difficult ex-partners may make things challenging – try applying these three steps to your situation for a better outcome for your family and your finances.
And only where necessary, use the right professionals to assist you in issues related to care of children and in the analysing and distribution of relationship property assets.
If you need further assistance please Ask a question.
Limited Liability Companies: Do they REALLY protect you?
Limited Liability Companies: Do they REALLY protect you?
Author: Michael Levertoff
NZ Accounting is about to suggest something radical to you: Believe it or not, we usually recommend that clients don't trade through a limited liability company (there are some exceptions to this rule - which is why we're here to advise you).
But hang on, what about limited liability, I hear you say? What happens if I get sued by an employee? What about income splitting - won't I pay more tax? Well, I have some bad news for you.
These days, limited liability companies don’t really protect you from anything – other than debts that your company would owe if your business should fail, that you have not personally guaranteed. And even in this situation you can be held accountable if it is shown that your company incurred debt that it could not repay (this is called “trading while insolvent”).
Suprised? But wait, there's more bad news.
These days, if your employee damages something, you can be held liable as a director. And if your employee takes you to court for unfair dismissal, you can be held liable. In fact just about every protection that a company offers has been eroded and stripped away over the last decade - with personal guarantees on the rise, and courts making decisions that make directors personally liable for company debts.
Add to that the compliance costs related to companies (which are excessive for any business turning over less than $500,000 per annum), and that income splitting between you and your partner can be done in other ways, and suddenly the idea of using a limited liability company as a vehicle for your business seems a bit of a waste of time.
How did this happen?
Consider this: you can form a company online for $160 in about 20 minutes. In fact it is so quick and easy that NZ Accounting does it for $210+GST for our clients.
Because it is so easy, New Zealanders formed 47,897 companies in the 2008/2009 period and there are a staggering 519,835 companies as at 31/03/2009. Compared to Australia, where in the same period Australians formed 26,950 companies and there are 344,063 companies in total (population adjusted), it is clear that we have an addiction to companies. Given the proliferation of companies formed in New Zealand, it's no suprise that their value and status has been attacked.
But here's the good news: we inform our clients that companies don’t protect you - public indemnity insurance does.
That's why we recommend you invest in a good public indemnity insurance policy – for real protection of your business and family assets.
Public indemnity insurance covers:
- Accidental damage to anything anywhere
- Workplace accidents / ACC disputes
- Employer/employee disputes
- Legal fees
Are all covered under a Public Indemnity policy that most likely won’t cost you more than what you’re paying to an accountant for company compliance.
When it comes to personal assets, we advise our clients to ensure they have a family trust. It makes sense to use a trust because trusts protect assets from business failure almost all the time (there are exceptions to that rule - we're here to advise you when it is not appropriate to form a trust.
Where a limited liability company is required we recommend that a trading trust owns the shares - because in this case, a director of a company owned by the trust is acting as trustee for the trust. Although the usual provisions in respect of financial responsibility are upheld in all cases, in the case of a trustee, the liability stops with the trust.
So before you consider going online and forming a company, think again about what you are really trying to achieve – it might save you plenty.
If you need further assistance please Ask a question.
Author: Michael Levertoff
NZ Accounting is about to suggest something radical to you: Believe it or not, we usually recommend that clients don't trade through a limited liability company (there are some exceptions to this rule - which is why we're here to advise you).
But hang on, what about limited liability, I hear you say? What happens if I get sued by an employee? What about income splitting - won't I pay more tax? Well, I have some bad news for you.
These days, limited liability companies don’t really protect you from anything – other than debts that your company would owe if your business should fail, that you have not personally guaranteed. And even in this situation you can be held accountable if it is shown that your company incurred debt that it could not repay (this is called “trading while insolvent”).
Suprised? But wait, there's more bad news.
These days, if your employee damages something, you can be held liable as a director. And if your employee takes you to court for unfair dismissal, you can be held liable. In fact just about every protection that a company offers has been eroded and stripped away over the last decade - with personal guarantees on the rise, and courts making decisions that make directors personally liable for company debts.
Add to that the compliance costs related to companies (which are excessive for any business turning over less than $500,000 per annum), and that income splitting between you and your partner can be done in other ways, and suddenly the idea of using a limited liability company as a vehicle for your business seems a bit of a waste of time.
How did this happen?
Consider this: you can form a company online for $160 in about 20 minutes. In fact it is so quick and easy that NZ Accounting does it for $210+GST for our clients.
Because it is so easy, New Zealanders formed 47,897 companies in the 2008/2009 period and there are a staggering 519,835 companies as at 31/03/2009. Compared to Australia, where in the same period Australians formed 26,950 companies and there are 344,063 companies in total (population adjusted), it is clear that we have an addiction to companies. Given the proliferation of companies formed in New Zealand, it's no suprise that their value and status has been attacked.
But here's the good news: we inform our clients that companies don’t protect you - public indemnity insurance does.
That's why we recommend you invest in a good public indemnity insurance policy – for real protection of your business and family assets.
Public indemnity insurance covers:
- Accidental damage to anything anywhere
- Workplace accidents / ACC disputes
- Employer/employee disputes
- Legal fees
Are all covered under a Public Indemnity policy that most likely won’t cost you more than what you’re paying to an accountant for company compliance.
When it comes to personal assets, we advise our clients to ensure they have a family trust. It makes sense to use a trust because trusts protect assets from business failure almost all the time (there are exceptions to that rule - we're here to advise you when it is not appropriate to form a trust.
Where a limited liability company is required we recommend that a trading trust owns the shares - because in this case, a director of a company owned by the trust is acting as trustee for the trust. Although the usual provisions in respect of financial responsibility are upheld in all cases, in the case of a trustee, the liability stops with the trust.
So before you consider going online and forming a company, think again about what you are really trying to achieve – it might save you plenty.
If you need further assistance please Ask a question.
Self Employed Overtaxed
Self Employed Overtaxed
Less than 40% of people paying self employed schedular tax are claiming expenses which means since 2005 this group has been overtaxed at least $230 million.
Information from the Inland Revenue Department (IRD) shows that for the year to March 2008 94,576 taxpayers were making schedular payments and only 37, 171 people claimed expenses against their income, leaving 61% who claimed no expenses. The figures from 2005 to 2007 are similar.
NZ Accounting director Michael Levertoff took these figures and estimated how much people were being overtaxed.
"Working off my client's records that are at a similar level of turnover to the IRD average of $21,226, I estimated that those people could be paying an average $975 per person more in tax than they should be a year."
He estimates that this equates to overtaxing of at least $233 million since 2005, given 239,310 people did not claim expenses.
The figure could be a lot higher given that rates for tax on scheduler payments can go as high as 48% if no tax code declaration form has been filled out.
With a tax code declaration the rate ranges from 15% to 33%.
Fresnel says this overtaxing is really unfortunate for the group of people who pay schedular tax as they are often working harder than most for less than minimum wage at times.
A wide range of people pay schedular tax including freelancers, entertainers, models, gardeners, cleaners, salespeople, telemarketers and agricultural workers.
"Sure these are not all glamorous industries but as individuals these people are contributing taxpayers and a part of the national economy, like anyone else."
Levertoff says the group of people making schedular payments needs to be better informed so they know the full picture, even if it's a simple measure like a brochure or booklet sent out.
"In my opinion the IRD are not doing anywhere near enough to inform this large group of almost 100,000 people."
The IRD says information for people regarding schedular payments, their entitlements and obligations is readily available on its website and through a variety of channels, including tax agents, articles in publications and through peak season advertising.
Levertoff however says he tried to search the IRD website using schedular payments as a search term and found it hard to come upon anything useful as a taxpayer.
"The only info readily available is for the benefit of the employer who deducts schedular payments."
An IRD spokesperson says it is not currently reviewing its policy in relation to schedular payments.
By Jenha White, netprophet
http://www.netprophet.co.nz/news/tax/self-employed-overtaxed.html
Less than 40% of people paying self employed schedular tax are claiming expenses which means since 2005 this group has been overtaxed at least $230 million.
Information from the Inland Revenue Department (IRD) shows that for the year to March 2008 94,576 taxpayers were making schedular payments and only 37, 171 people claimed expenses against their income, leaving 61% who claimed no expenses. The figures from 2005 to 2007 are similar.
NZ Accounting director Michael Levertoff took these figures and estimated how much people were being overtaxed.
"Working off my client's records that are at a similar level of turnover to the IRD average of $21,226, I estimated that those people could be paying an average $975 per person more in tax than they should be a year."
He estimates that this equates to overtaxing of at least $233 million since 2005, given 239,310 people did not claim expenses.
The figure could be a lot higher given that rates for tax on scheduler payments can go as high as 48% if no tax code declaration form has been filled out.
With a tax code declaration the rate ranges from 15% to 33%.
Fresnel says this overtaxing is really unfortunate for the group of people who pay schedular tax as they are often working harder than most for less than minimum wage at times.
A wide range of people pay schedular tax including freelancers, entertainers, models, gardeners, cleaners, salespeople, telemarketers and agricultural workers.
"Sure these are not all glamorous industries but as individuals these people are contributing taxpayers and a part of the national economy, like anyone else."
Levertoff says the group of people making schedular payments needs to be better informed so they know the full picture, even if it's a simple measure like a brochure or booklet sent out.
"In my opinion the IRD are not doing anywhere near enough to inform this large group of almost 100,000 people."
The IRD says information for people regarding schedular payments, their entitlements and obligations is readily available on its website and through a variety of channels, including tax agents, articles in publications and through peak season advertising.
Levertoff however says he tried to search the IRD website using schedular payments as a search term and found it hard to come upon anything useful as a taxpayer.
"The only info readily available is for the benefit of the employer who deducts schedular payments."
An IRD spokesperson says it is not currently reviewing its policy in relation to schedular payments.
By Jenha White, netprophet
http://www.netprophet.co.nz/news/tax/self-employed-overtaxed.html
Do Your Own Tax Refund
Do Your Own Tax Refund
A business accountant says people are misled by tax refund websites which charge percentage fees for a service which people can do just as easily themselves.
NZ Accounting proprietor Michael Levertoff says people who want a tax refund can go directly to the Inland Revenue Department (IRD) website to fill out a form and get their tax refund.
However a lot of people are going to the well advertised tax refund websites which get people to give them their details which they pass onto the IRD - something people can directly do themselves.
"The sites make money by charging a percentage fee, so if you get a $900 refund, you might be paying $200 to the tax refund site when you could have done it for free in five minutes by yourself," he says.
Many people use tax refund websites because of the commonly held belief that if you approach the IRD you may also have to pay tax that you owe.
However the IRD has an electronic calculator online where people can work out whether they’re due a tax refund for a certain year, or whether they owe the IRD money, and it is the individual’s choice whether they let the IRD know either way.
“Individuals can go online, make the calculation and walk away if they want to. We do not have a system whereby we’re tracking the individual and their activity on the website,” the IRD says.
It also strongly advises that people using tax refund companies read the small print before they hand over any personal details to a company.
For example www.taxrefunds.co.nz and www.mytax.co.nz charge 12.5% of the tax refund to a maximum of $500 and myrefund.co.nz charges on a sliding fee scale with a maximum of $500.
The success of these tax refund companies is displayed on their websites.
mytax.co.nz says "our average tax refund is around $478 dollars, but often people receive thousands. Around 76% of our applicants receive tax refunds".
myrefund.co.nz even says that the IRD suggests you speak to an accountant or tax agent such as themselves.
Chief executive of taxrefund.co.nz Adair Craik says the main difference between its website and the IRD is that it provides a free estimate of the tax refund.
"One of the incentives for people is that we're not the IRD. Some people are apprehensive about dealing with the IRD and we help with that stress."
Craik says taxrefund.co.nz has 430,000 people on its database and the average refund is $250 which they get $25 from.
She says many people are not sure about what they should include in their application, what expenses they should claim and whether certain income should be included.
However the IRD annual report says it has made it easier for customers to self-manage their tax affairs.
"We have stepped up the promotion of online services while developing new services for families, individuals, businesses and intermediaries that make it easier for them to access and manage their tax affairs online."
The IRD says people just need to go to its website, www.ird.govt.nz, where they are guided through the process from the front page.
Levertoff agrees that the IRD has a very good system anyone could use and the only time people should get help is if they hit a snag trying to do it themselves.
"I'm making an instruction manual that can be downloaded to help encourage people do it themselves," he says.
By Jenha White, netprophet
http://www.netprophet.co.nz/news/tax/do-your-own-tax-refund.html
A business accountant says people are misled by tax refund websites which charge percentage fees for a service which people can do just as easily themselves.
NZ Accounting proprietor Michael Levertoff says people who want a tax refund can go directly to the Inland Revenue Department (IRD) website to fill out a form and get their tax refund.
However a lot of people are going to the well advertised tax refund websites which get people to give them their details which they pass onto the IRD - something people can directly do themselves.
"The sites make money by charging a percentage fee, so if you get a $900 refund, you might be paying $200 to the tax refund site when you could have done it for free in five minutes by yourself," he says.
Many people use tax refund websites because of the commonly held belief that if you approach the IRD you may also have to pay tax that you owe.
However the IRD has an electronic calculator online where people can work out whether they’re due a tax refund for a certain year, or whether they owe the IRD money, and it is the individual’s choice whether they let the IRD know either way.
“Individuals can go online, make the calculation and walk away if they want to. We do not have a system whereby we’re tracking the individual and their activity on the website,” the IRD says.
It also strongly advises that people using tax refund companies read the small print before they hand over any personal details to a company.
For example www.taxrefunds.co.nz and www.mytax.co.nz charge 12.5% of the tax refund to a maximum of $500 and myrefund.co.nz charges on a sliding fee scale with a maximum of $500.
The success of these tax refund companies is displayed on their websites.
mytax.co.nz says "our average tax refund is around $478 dollars, but often people receive thousands. Around 76% of our applicants receive tax refunds".
myrefund.co.nz even says that the IRD suggests you speak to an accountant or tax agent such as themselves.
Chief executive of taxrefund.co.nz Adair Craik says the main difference between its website and the IRD is that it provides a free estimate of the tax refund.
"One of the incentives for people is that we're not the IRD. Some people are apprehensive about dealing with the IRD and we help with that stress."
Craik says taxrefund.co.nz has 430,000 people on its database and the average refund is $250 which they get $25 from.
She says many people are not sure about what they should include in their application, what expenses they should claim and whether certain income should be included.
However the IRD annual report says it has made it easier for customers to self-manage their tax affairs.
"We have stepped up the promotion of online services while developing new services for families, individuals, businesses and intermediaries that make it easier for them to access and manage their tax affairs online."
The IRD says people just need to go to its website, www.ird.govt.nz, where they are guided through the process from the front page.
Levertoff agrees that the IRD has a very good system anyone could use and the only time people should get help is if they hit a snag trying to do it themselves.
"I'm making an instruction manual that can be downloaded to help encourage people do it themselves," he says.
By Jenha White, netprophet
http://www.netprophet.co.nz/news/tax/do-your-own-tax-refund.html
Thousands still being overtaxed by IRD
Thousands still being overtaxed by IRD
Thousands of taxpayers are still being overtaxed despite the 2bn claimed back in tax refunds last year says Michael Levertoff, of NZ Accounting.
He believes the increase has to do with the many businesses selling the service of communicating with the IRD to assist the taxpayer to get a refund rather than the proactive attitude of the IRD.
“For a number of months I have been trying to get the IRD to tell me how many people who pay witholding tax, or shedular payments, are being overtaxed. They have not been forthcoming,” says Mr Levertoff.
He believes there are thousands of people being overtaxed in that category of taxpayer, because they are not aware they can claim expenses against their income.
“Many people who pay witholding tax or schedular payments incur legitimate business expenses, including people who are fishermen, salespeople, and agricultural, horticultural or construction workers.”
In addition to not claiming expenses, Mr Levertoff says there are some people who are also breaking the law by not being GST registered - but he questions whether the IRD are doing enough to inform this group.
“The IRD know exactly how much people who pay witholding tax or shedular payments are turning over. Do they contact those taxpayers concerned, or will it catch up with them later?”
Author: Michael Levertoff
Thousands of taxpayers are still being overtaxed despite the 2bn claimed back in tax refunds last year says Michael Levertoff, of NZ Accounting.
He believes the increase has to do with the many businesses selling the service of communicating with the IRD to assist the taxpayer to get a refund rather than the proactive attitude of the IRD.
“For a number of months I have been trying to get the IRD to tell me how many people who pay witholding tax, or shedular payments, are being overtaxed. They have not been forthcoming,” says Mr Levertoff.
He believes there are thousands of people being overtaxed in that category of taxpayer, because they are not aware they can claim expenses against their income.
“Many people who pay witholding tax or schedular payments incur legitimate business expenses, including people who are fishermen, salespeople, and agricultural, horticultural or construction workers.”
In addition to not claiming expenses, Mr Levertoff says there are some people who are also breaking the law by not being GST registered - but he questions whether the IRD are doing enough to inform this group.
“The IRD know exactly how much people who pay witholding tax or shedular payments are turning over. Do they contact those taxpayers concerned, or will it catch up with them later?”
Launch of Free Company Formation Service
Launch of Free Company Formation Service
Author: Michael Levertoff
NZ Accounting is first to launch a free company formation service that anyone can access nationwide, which is good news for business, says Michael Levertoff, of NZ Accounting.
“This is a first from a New Zealand accounting firm. It says a lot about NZ Accounting’s innovative approach to accounting for small and medium sized businesses starting out or restructuring,” says Mr Levertoff.
The new service is aimed at new business owners / property investors looking to get started right, and current business owners / property investors who need help taking the next step.
NZ Accounting launched in July 2009 with the claim that they provide the fastest and cheapest accounting service in New Zealand.
Their latest offering will further enhance their position in the marketplace by ensuring businesses are provided with quality advice on structuring prior to stepping out or when restructuring, says Mr Levertoff.
“The World Bank’s Doing Business Survey ranks New Zealand as the easiest place in the world to start a business – but only 39% are profitable and more than 56% of them fail due to poor financial planning. NZ Accounting’s mission is to change that statistic.”
To do that, NZ Accounting actively supports new business start-ups by providing a range of innovations to get them off the ground for less and stay in business for longer, Levertoff says.
“Removing the barrier to accessing independent professional accounting and business advice leads to the right structure being put in place from day one – and that’s just the beginning of NZ Accounting’s more-for-less approach to business.”
Anyone can access the service, even if they are not clients of NZ Accounting, by visiting here to download a free company formation service voucher.
Although the advice is free, company formation fees of $160 are payable directly to the Companies Office.
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