Withers & Co Ltd

Withers & Co Ltd Chartered Accountants

23 Neville Street P O Box 113 WARKWORTH Ph: (O9) 425 8599 Fax: (09) 425 7565 Email: [email protected] Website: www.withersco.co.nz NewsletterNewsletter February 2015

Income tax rates required is required. Weekly compensation will be paid even when the business These remain unchanged from the 2014 tax year. continues generating

income Taxable Income Rate Minimums and maximums Minimums and maximums Up to $14,000 10.5% apply apply $14,001 - $48,000 17.5% $48,001 - $70,000 30% CoverPlus Extra does cost a little more than $70,001 and over 33% CoverPlus. For self-employed and non-PAYE IRD number not supplied 45% shareholder-employees comparing CoverPlus and CoverPlus Extra, the cost of CoverPlus Extra is not Companies 28% prohibitive compared to the advantages. The Trusts 33% principal advantage is that CPX is based on 100 per cent of the agreed amount until the person is eligible Mileage Rate to return to work full time. Thus, if a person is in The IRD mileage rate remains at 77 cents per receipt of CPX their weekly compensation will not kilometre for both petrol and diesel fuel vehicles. reduce if the person’s business continues to generate income or the person returns to work in a part-time Use of Money Interest rates capacity.  Underpayment rate 8.40%  Overpayment rate 1.75% With CoverPlus, weekly compensation will be reduced if the business continues to generate income Donation Rebates or when there is a partial return to work. This is Tax credit 33% of donations made because CoverPlus is based on actual loss of earnings. This also means that if a person is off work Casual Agricultural rate 18.95% PAYE beyond the end of their financial year, then an end-of- year wash up is undertaken to ensure that ACC has not overpaid weekly compensation to the person. In ACC levies – CoverPlus and some cases then, CoverPlus weekly compensation CoverPlus Extra explained can be seen as an interim payment with a year-end overpayment or underpayment adjustment required. At a broad level the key differences between CoverPlus and CoverPlus Extra (CPX) are illustrated Changes below: Workers and employers will pay $387 million less in ACC levies in 2014/15 (subject to the regulation CoverPlus CoverPlus Extra being passed). The cuts affect the Earners Account Up to 80 per cent of 100 per cent of the weekly (paid by workers) and the Work Account (paid by previous year’s earnings compensation as agreed employers). with ACC Seven-day wait period Seven-day wait period Work Account Earners’ Account before compensation starts before compensation starts Average levy (per levy (per $100 of Weekly compensation is Weekly compensation $100 of liable liable earnings, ex reduced as hours of work remains at 100 per cent earnings, ex GST) GST) increase until fully fit to return to 2014/15 $0.95 $1.26 work 2013/14 $1.15 $1.48 Proof of loss of income is No proof of loss of income The Health and Safety in Employment (HSE) Levy is changing to a flat rate of $8.08 per $100 liable earning. Look for more news on this later in the year.

Motor Vehicle Account levies, incorporated into car registration and petrol prices, will remain the same. With every tax case, there is a client and his The Government expects to introduce cuts for motor accountant, defending, and it’s fair to say that even vehicle owners from 1 July 2015. where the cases are won, the cost of getting the tax claim settled direct, or through the courts will have In other news, there have been some minor changes been eye watering. to classification unit codes, affecting second-hand booksellers and people working in digital effects This is the risk that Audit Shield insures you against. industries. If you wish to receive this cover – call Davina at Are you managing ACC on your own? We could help reception. you with that, with our ACC Administration and Advisory service. Talk to us about how the service might save you time and money. Recent developments with Inland Revenue Department Audit Shield – cover to protect Revenue you for IRD audit costs Associated persons It is becoming more commonplace for individuals in The trust and a person are not associated persons business or those who are selfemployed to consider where the person holds the power as a provider of tax audit insurance. A particular type of tax audit professional services, the person is a member of an insurance that we utilise is Audit Shield. Audit Sheild “approved organisation” for providers of professional covers business or individual returns which are services, and the person has neither benefited from subjected to a random audit, enquiry, investigation or the trust nor is eligible to benefit from the trust review by Inland Revenue or other New Zealand government body. For the purposes of the tripartite test, a limited partnership is treated as a company. Without this cover, you are responsible for the professional fees involved in providing the required Commissioner’s powers information, and to final negotiations with IRD. Due The Commissioner has released an operational to the time involved, these can be $5,000 - $20,000 statement, OS 13/01, setting out how the over 2-5 years. Commissioner’s search powers will be exercised. The operational statement is published in TIB vol Audit Shield has extensive coverage available. The 25.8 (September 2013). following are some they cover: Depreciation The definition of “depreciable property” has been  Income Tax amended to clarify that it includes depreciable intangible property that is land or an excepted  GST financial arrangement.

 Recordkeeping Taxpayers who receive insurance or compensation for depreciable property damaged by the  Fringe Benefits Tax Christchurch earthquakes are now able to defer the recognition of depreciation recovery income until as  Employer Returns late as the end of the 2019-20 income year.

 PAYE Employee allowances The CIR issued a statement on the income tax  Computer Tax Audits treatment of accommodation payments, employer- provided accommodation and accommodation  Imputation Credit Account allowances paid to employees on 6 December 2012.

 Resident Withholding Tax The market value of accommodation provided by an employer to an employee and the market value of an  Dividend Withholding Tax accommodation allowance paid by an employer to an employee are income of the employee and subject to The bottom line is that IRD auditing is becoming PAYE, increasingly targeted and sophisticated with digital data matching of properties, and online facilities available. The mixed-use asset rules have been introduced to counter the taking by taxpayers of excess deductions Accommodation payments made by an employer that in relation to such things as holiday home relate to expenditure on accommodation incurred by accommodation, water-craft and aeroplanes. The an employee (expenditure on account) are usually rules provide a set of rules for apportionment of income of the employee and PAYE should be expenses relating to mixed-use assets, including deducted. interest. Different rules for interest apply to assets held by companies and those held by non-corporate The provision of accommodation, the payment of an entities. accommodation allowance, or accommodation payments that are expenditure on account, will not be Primary industries taxable when they relate to overnight or other short- The immediate deductibility of riparian planting by term stays by an employee in a location other than farmers has been confirmed in legislation. their home base. Similarly, these types of benefits may not be taxable when they relate to a temporary The depreciation loading has been removed from shift by an employee to another location. capital expenditure that is amortised under the rules relating to the various primary industries. When an employee works away from home on temporary assignment, the employer may provide or Student loans pay for accommodation for the period of the From 1 April 2013: assignment. While the employee is physically absent The base interest rate for interest on student loans from their residence or home base on a temporary dropped from 6.4 per cent to 5.9 per cent. assignment, they have not usually relocated. While it The minimum unpaid amount on which interest is is a matter of fact in each case, it is expected that the charged has increased from $334 to $500. place where they “live” for all practical purposes remains their home base. In the CIR’s view, for the Tax credits purposes of determining the tax treatment of The definition of “charitable or other public benefit accommodation, where a person lives is not gift”, for the purposes of the charitable donations tax determined solely by the location of the house or credit, has been amended to ensure that it applies dwelling that they live in on any particular day. only to monetary gifts. Rather it is determined on the basis of the person’s circumstances.

Leases Future developments From 1 April 2013, lease surrender payments are Child support taxable to the recipient. Provided that the general The formula for calculating child support will change permission is satisfied, lease surrender payments are from 1 April 2015 to: also deductible to the payer. This is regardless of whether the payment is made by the tenant to the  Recognise a shared care situation if a parent landlord or by the landlord to the tenant. The rules cares for a child for at least 28 per cent also apply where a payment is made by a tenant to a (currently 40 per cent) of the nights in a year. sub-tenant or from a sub-tenant to a tenant.  Take account of both parents’ incomes when assessing the amount of child support payable, New rules provide that lease inducement payments so that the costs of raising children will be are taxable to the recipient and deductible to the apportioned according to each parent’s share of payer. Spreading provisions govern the income combined net income; and years to which the income or deduction is allocated. The new rules apply to amounts that are derived or  Use a new scale of costs based on more incurred on or after 1 April 2013 in relation to a lease realistic information on the expenditure involved or licence that is entered into, renewed, extended or in raising children. transferred on or after that 1 April 2013. Other changes will apply from 1 April 2016 to the Livestock operation of the child support scheme, and to the If the herd scheme has been elected and that rules relating to the payment of child support, election has not been revoked before 18 August penalties and debt write-off. 2011, it cannot subsequently be revoked unless all female breeding stock cease being intended to be Tax credits used for breeding. From 2014-15 tax year, there is a four-year time limit for applying for a refund of the charitable donations With effect from the start of the 2012-13 income year, tax credit – for back donations paid. Rate remains at use of the herd scheme is compulsory where 33%. livestock is transferred between associated persons. There are some limited exclusions.

Working for Families Mixed-use assets The Taxation (Annual Rates, Foreign where the application is not lodged, is withdrawn or is Superannuation, and Remedial Matters) Act 2014 refused. A claw-back rule is to apply where the introduces a number of changes to the Working for application property is later sold or used in another Families tax credit rules to simplify the rules and application. ensure they operate as intended. These changes apply from 1 April 2014: Community housing entities Tax-exempt status and donee organisation status is  The formula for calculating the family credit to be conferred on community housing entities that abatement is being amended to ensure that it meet certain criteria. produces the correct result in all cases when it relates to a family that receives a parental tax Financial arrangement rules credit in a lump sum for a child born within 56 Retirement village occupation rights are to be days of the end of the tax year. excluded from the financial arrangement rules.

 The formula for calculating the amount to be Land easements included in family scheme income of a person Payments for permanent easements over land are to who is a major shareholder in a close company be non-taxable. is being expanded to include, in the person’s family scheme income, the share of the close company income of any dependent child who holds shares in the company. Provisional Tax Finance (PTF) – how it works  The formula for allocating the income of a trust to the settlors when calculating family scheme Tax FINANCE is fast and simple to arrange. Visit the income is being amended so that it takes into website or download the free mobile app Pay My account only settlors who are alive at any time Tax. during the income year. Step 1 – You pay PTF a one-off, tax-deductible  The definition of family scheme income is being interest amount and choose when yo want to pay clarified to emphasise that a person’s your provisional tax. entitlement to a WFF tax credit is based on a person’s family scheme income, and that family Step 2 – PTF pay the required tax into an IRD scheme income is based on a person’s net account held by the Guardian Trust. income and adjusted as provided in sub-pt MB. Step 3 – you then pay PTF on the agreed date in the future or extend the finance if your financial position  The circumstances in which income from fringe changes. Late payment penalties and UOMI will be benefits is included in family scheme income are reversed once transfers are processed. being amended to clarify that the 50 per cent or greater voting interest held by the person in the Tax FINANCE allows you to defer provisional tax company must be held on the last day of the payments to a time that suits you – without incurring income year, and to remove reference to voting IRD late payment penalties and use of money interests. interest (UOMI).  The circumstances in which income from It’s perfect if you want to better manage your deposits in main income equalisation accounts cashflow. is included in family scheme income are being amended to clarify that the 50 per cent or Tax FINANCE is cheaper than many other traditional greater voting interest held by the person in the financing options and does not affect existing credit company must be held on the last day of the lines or banking covenants. No credit approval or income year, and to remove reference to voting security is required. interests.

Taxation (Annual Rates, Employee Allowances, It is flexible, as you can extend your finance and Remedial Matters) Bill arrangement easily. Should you not need all the tax The Taxation (Annual Rates, Employee Allowances, you have financed, you don’t need to pay for it. and Remedial Matters) Bill 2013 (176-1) introduces amendments to the Income Tax Act 2007, Tax Using Tax FINANCE means you can use the money Administration Act 1994, Income Tax Act 2004, you would have otherwise paid to the IRD to free up Goods and Services Tax Act 1985 and the Child your working capital for more important things. Support Act 1991. We use this alternative when high provisional tax is Black hole expenditure payable and you have real difficulty paying each An immediate deduction is to be allowed for instalment on time. expenditure incurred for the purposes of applying for a resource consent, patent or plant variety rights Making payments to IRD – what’s changed 100% taxable or 100% non-taxable use when IRD changed some of your options to make usage has previously been split between private payments to them as of 1 October 2014. and commercial use. Depending on the change, there may be output tax to pay back Paying at Westpac If you’re used to paying your tax through Westpac,  Residential units in retirement villages or rest you won’t be able to pay by cheque any more or drop homes where occupants live independently now off returns and forms. You will still be able to pay come under GST-exempt supplies through Westpac by:  The backdating effect of the tax residency rules  cash and Eftpos payments has been removed for GST purposes

 online banking  The definition of ‘hire purchase agreement’ now includes any contract with an option to purchase  credit/debit cards  Where an employee is engaged by a third party  international money transfers to be a director or board member, and required to remit fees from the third party to their Posting cheques and returns – get the timing employer, there is a new flow-through rule which right means the employer will be treated as supplying You can post cheque payments and returns direct to services to the third party IRD. From 1 October all cheques must reach IRD on or before the due date to avoid interest and late  Non-profit bodies can claim all GST input payment penalties. Until now, it’s been enough that deductions other than those relating to the the postmark shows you posted the cheque on or making of exempt supplies. before the due date – but not any more. Please contact us if you’d like to run through whether Online payments the changes affect you. IRD is encouraging taxpayers to make their payments online. You can make payments online, up to and including the due date. If you haven’t done Record keeping – with home this before but want to start, we can talk you through it. computer

We encourage all our clients to keep their records of Parental leave income, payments themselves. At year-end print a GST exclusive trial balance of totals – instead of us using the year’s bank statements and invoices to get On 1 July, the rates for paid parental leave increased. this information. If you’re self-employed or an employee and eligible for paid parental leave, you may receive up to a The added advantages to you are: maximum of $504.10 a week before tax. If you’re self-employed and make a loss or learn less than the 1 You keep a much closer control of costs. minimum wage, for at least 10 hours work a week, the payment is $142.50 each week before tax 2 Ideal for budgeting. The costs, income to date (equivalent to 10 hours each week at the current are compared with the year’s budget. If higher minimum wage rate). income – you can spend more before balance date – if less income defer planned costs. Being If you’d like a fact sheet on your obligations as an able to budget, and rebudget as the year employer or on paid parental leave for self-employed progresses is key for control of finances. Ideal people, please contact us. for farming clients – you spend with confidence before the income is banked, and before Latest changes to GST balance date. We use Cash Manager Rural Online, supply the list A raft of amendments to GST came through in June, of codes for income/expenses and check carefully clarifying grey areas and closing loopholes from your first year, for any corrections. They also have a some of the major changes of the last few years. In good help line. Your GST returns are also supplied, broad brush, these include: monthly, two monthly, or six months. A time saving advantage.

Cash Manager contact is 0800 888 708, [email protected].

MYOB for Business accounts (which we use) 0800 949 699.  A new wash-up rule in the GST apportionment rules applies when use of an asset changes to Borrowing costs Review of your wills/property

For property purchasers, the situation is that there ownership are lower interest rates with no sign of increases. Floating rate is now just above long term fixed rates. When did you last review your will? Here is an advantageous situation – for long term borrowers, lock finance in for 3–5 years at these Are you fully aware what changes to your asset rates, leave floating only the portion you can likely ownership there will be when you decease? repay in 1–3 years. Is there any improvement to be made now to ownership of your assets for tax saving, inheritance, family future ownership? Rest home care/subsidies Are you aware of the GST position with your inclusive We are often asked what planning is required to be assets owned at your death? able to successfully apply if full care is needed. We have been successful in improving vastly clients’ For the full subsidy, the present rule is – the assets wills, assets, often jointly with their Solicitor. you can jointly own are: If you would like our advice on any aspect, now is an (a) your own home, jointly/personally ideal time before the real busy tax time starts in early (b) your car April. (c) up to $120,000 of investment funds.

The Government support available is very valuable – for long term care. The present cost per year is $48,000  $52,000. Do not consider changing your home to a trust ownership – this prevents you being eligible for this subsidy. Gifts filed in the last ten We expect 2015 to be an exciting year, with many years are added back to assets. opportunities for property purchase, value increase, and business profits, assisted by low interest rates, There are increasing numbers needing rest home and a lower NZ dollar value. care so plan early, obtain the best advice from us (and your Solicitor) to dispose of assets to your family. The ideal situation is to control these assets – but not be the owner. Public companies who are retirement village providers, are among the best WITHERS & CO LTD shares to own for value increase in the last five years – due to demand, pricing, for their services. February 2015

Disclaimer

This newsletter is of a general nature only and should not be used as a substitute for detailed professional advice.