March Newsletter

Posted 1 year, 6 months ago by Maggie Waine    0 comments

Wow - we are approaching the end of Financial Year for 2016 already! I'm sure that I was only just recovering from the New Year and Christmas rush last week....

This newsletter covers the following topics:

- Fixed Pricing Agreements with Matley Financial Services

- Explaining the TPP - without the use of sex toys.

- Proposed tax legislation changes for the 2018 year.

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FIXED PRICING AGREEMENTS

 Last year in June we gave an opportunity to clients to have their accounting fees paid under a fixed pricing agreement (FPA).  The Fixed Pricing Agreement is an averaging out of the last three years paid for compliance accounting and is set as being the fee and is paid off over a 12 month period.  Under a FPA the pricing to complete the compliance of your business requirements is set at the agreed fee with a 5% adjustment each year to reflect the rising costs of business.

 What this means is that you know for certain what your compliance costs are going to be and allows for better cash flow with paying it over a 12 month period.

 As we move into the 1 April being the beginning of the new financial year for a number of clients, we are making this opportunity available to those clients who did not take up the FPA option last year.  If you are interested in this, please notify the office and on the 1 April 2016 we will enter into a FPA for you for the 2016/2017 financial year.

 Please contact the office if you are interest in taking up this opportunity.

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THE TPPA EXPLAINED - (the sex toy absent version.....)

- source Institute of Directors

Tariffs

Tariffs on New Zealand exports to TPP countries will be eliminated, apart from beef exports to Japan (which will reduce from 38.5% to 9%) and a number of dairy exports to the US, Japan, Mexico and Canada.

Once fully implemented the TPP is expected to save $259 million a year in tariffs for New Zealan exporters.

Medicines

The Government says consumers will no pay more for subsidised medicines as a result of TPP.

The PHARMAC medican-buying model has been preserved by with some administrative changes, eg setting a timeframe for considering funding applications and establishing a review process for funding applications declined by PHARMAC.

Intellectual Property

The TPP harmonises intellectual property rules across the member countries.  New Zealand has a 50-year copyright period but half the TPP countries (and almost all OECD countries) have a 70-year period.  Under the TPP New Zealand will have to move to a 70-year period - but can do this gradually over 20 years.  Over the long term the change is expected to cost New Zealand around $55 million a year.

Overseas Investment

The TPP includes protections for New Zealand parties investing offshore and for foreign investors in New Zealand.

It increases the threshold for approval from $100 million to $200 million in relation to the business experience and good character test for foreign investors investing in significant business assets.

Carve outs include continued screening of foreign purchases of sensitive land, including farmland through the Overseas Investment Office and require that these meet a 'benefit to New Zealand' test.

Investment Disputes

It contains provisions to protect private investor rights in member countries so they are not violated by state action.  It allows private parties to go to arbitration and seek compensation for a breach of a TPP investment obligation.  MFAT says this is a high hurdle and unlikely to be breached if governments act in good faith, for legitimate public policy reasons, follow a proper process and don't discriminate on the basis of natiionality.

New Zealand has similar provisions in other international agreements, including the China FTA.  To date, no cases of arbitration have been taken pursuant to these agreements.

The reason behind the throwing of inappropriate objects.....

As a trading nation supporters of the agreement say New Zealand cannot simply afford to be 'outside the tent' in such a deal.  Opponents claim it will restrict our sovereignty and ability to look after our environment and other areas of public interest as some provisions are seen as restricting New Zealand's ability to take decisions in the national interest.

The implications for Maori interests have been a concern about the TPP.  According to MFAT, nothing in TPP will prevent the Crown from taking measure that it deems necessary to meet its obligations to Maori, including under the Treaty of Waitangi.

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PROPOSED TAX LEGISLATION CHANGES FROM THE 2018 TAX YEAR.

Thankfully the IRD have imposed some common sense when they have put out an official issues paper recently.  It proposes that from the 2018 tax year (1 April 2017 to 31 March 2018) there will be changes in the legislation that allows for:

  • Shareholders that can be paid both provisional tax and PAYE salaries.  Up to about 4 years ago there was a view that the PAYE deducted shareholding could represent two thirds as a minimum of the total income.  Therefore if you received $40,000 on PAYE the top up under shareholder salary would need to be at least one third of that - ie $20,000 or greater.  The rule changed that if you were on PAYE deducted salary you were not able to do any further shareholder salaries that would make you subject to the provisional tax regime.  It appears that IRD have now seen sense and recognised that for a lot of clients, putting working shareholders on PAYE is to allow for the calculation of tax on an even basis and with the odd top up depending on the profitability of the company during that financial year.  However we should note that the way that Kiwisaver is written that any additional salaries would likely result in a further 3% Kiwisaver payment to be made.

 

  • One of the difficulties when we are dealing with companies is that if any income is retained it is taxed at 28%.  However dividends are required to have imputation credits of 33% on them which means that there has been a 5% dividend withholding payment.  There is an option in the discussion paper to remove the DWT when interest and dividends are paid to shareholders.  What this means is that if you have a $100,000 profit for the company, and pay tax of $28,000 a dividend can be paid to the taxpayers with the imputation credits at 28% removing the necessity and put the extra $5,000 DWT on the dividend.  This will reduce down the compliance moving forward of small to medium sized companies where there is a requirement to pay DWT on individual dividends as it is effectively the owners receiving that income.

 

  • The third amendment to the issues paper is the deduct DWT on fully imputed dividends between companies.  This is in effect passing the dividend from company A to company B which is involved with a holding company then there is no DWT required in that transaction.


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