Mid Year Already! June Update.

Posted 1 year, 5 months ago by Maggie Waine    0 comments

Hello everyone!  Happy middle of 2016!

We are moving to monthly newsletters as there is more information that is coming about which we want you as our valued clients to be kept abreast of.

This month's newsletter covers:

- Changes to Use of Money Interest

- AIM (Accounting Income Method)

- The latest Company's Office Scam letter making the rounds

- Paying yourself from your business

 

Firstly however, David and Maggie are delighted to announce the safe arrival of their baby.  Grace Waine was born on 4 June 2016 8lb8oz - by "eviction" as she was 8 days overdue and Mum and Dad had things to do!  Both are doing well. 

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CHANGES TO USE OF MONEY INTEREST (UOMI)

- SMALL BUSINESS INSTITUTE TAX-E-MAIL ISSUE 1604

From 1 April 2018 UOMI will change as follows:

  • Safe Harbour for individuals goes up to $60,000 = income of $209,333.
  • Safe Harbour for trusts and compies up from $2,500 to $60,000 = income of $181,815
  • No UOMI on P1 and P2
  • UOMI is to be retained for P3 because IRD thinks the bigger earners have more sophisticated accounting systems and will be able to work out their tax liability by P3.
  • If you switch from standard to estimation, UOMI will apply from P1
  • Taxpayers who under pay their provisional tax (calculated on the safe harbour basis) will be liable for both UOMI and penalties
  • Where provisional tax has been over paid, the taxpayer may switch to estimation so UOMI can be claimed from P1.  However, this must be done before P2 is due.
  • Where there is a re-assessment, UOMI on short paid tax will run from P3 until payment is made.
  • Where there is a re-assessment and the taxpayer qualifies for safe harbour, UOMI will run from the terminal tax date because that is when the balance of tax would have been due.
  • Companies could be allowed to pay tax for both themselves and their shareholder/employees.  Election required by P1.  If the tax allocated to the shareholder is insufficient, UOMI could apply.
  • Some cloud based accounting software can produce accurate accounts for caluclating provisional tax  Taxpayers using approved systems like Xero will not be liable to UOMI.  They will pay provisional tax with GST.  There will be more freedom to chose balance dates.
  • Related parties, will not be abble to choose which uses the standard method and which estimates provisional tax.  They will all have to use the same.  This is to stop people dodging provisional tax.

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AIM (ACCOUNTING INCOME METHOD)

- SMALL BUSINESS INSTITUTE TAX-E-MAIL ISSUE 1604

IRD proposes allowing businesses to pay income tax on the basis of income derived each GST period.  When you pay GST you pay income tax.  How do you calculate the taxable income?  It will be based on a blend of the current year's figures and adjustments made last year.  For example, you may use last year's figures for adjusting the claim for use of your home for business.  IRD thinks it may be possible to get acceptably accurate accounts for calculating provisional tax, without too much work every GST period.  Payments and IRD forms will be generated by the software.

The AIM method is initially proposed for businesses having up to $5 million turnover but may be able to be extended to bigger businesses.

AIM users will pay income tax at least 6 time a year.

Some businesses have seasonal income.  If their biggest income occurs early in the year, they could have losses in later periods resulting in tax refunds.

AIM could be used manually but minmum accounting requirements would be needed.

Shareholder salaries could only be claimed as a deduction in any period where the payments are made.

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OTHER TAX CHANGES

- SMALL BUSINESS INSTITUTE TAX-E-MAIL ISSUE 1604

  • Salary payments made within 63 of the year end for service provided in the previous year should be accrued as an expense in the earlier year.  This requirement is to become optional.
  • No longer needed to renew resident withholding tax exemption certificates every year.
  • Annual FBT returns will be available where PAYE/ESCT deductions are less than $1m - up from $500k.
  • Use of home - IRD will set a rate for utilities per square meter.  Taxpayer will add an adjustment for rent, rate and interest.  Taxpayers may opt out of the IRD calculation.  A requirement for there to be a separately identifiable part of the house used primarily for business is proposed.
  • The 5000km limit on claiming car expenses for sole traders using the mileage basis is to be improved.  Mileage in excess of 5000 will be claimable at a reduced rate.  eg 74 cents up to 5000 km and 20 cents per km over 5000km.  There may be a restriction to prevent taxpayers from switching from actual to mileage and vice versa too often.  Taxpayers may use a 3 months test period as a basis for calculating the mileage. 
  • Minor error threshold for self-correction is to increase from $500 of tax to $1,000 of tax.
  • Details of serious tax debt to be supplied to credit reporting agencies.

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COMPANIES OFFICE SCAM LETTER

We have had a client hand a letter to us purporting to be from the Companies Office and asking you to submit a form disclosing personal information.

The covering letter of this document has statements used in an odd manner (which sparked our concern) and the return address is in Hamburg.  It also infers that this is connected with the Ministry of Business, Innovation and Employment, when it is not.

Please ensure that any documents you receive that purport to state they are from a NEW ZEALAND Government Agency have at least a New Zealand return address.  Below is a sample of the wording that was included with this letter - it had all the clients company details (which is easily obtainable from the Companies Office by anyone anyway) which gave the aura of authenticity.

Dear Sir/Madam,

In order to avoid the removal of your incomplete company details, please revise and approve your information promptly

Should the information provided not be correct or be incomplete, you have the opportunity to correct your information as a basic data entry (Name, Trade, City - Postcode, Interest Address) in www.portal-nz.org; Menu item: Update.  You will not be charged for this!

If you require the publication of further company details which exceed the scope of the basic data entry, please make sue of the attached form and return it to us.  As our company is not affiliated with a public authority or any official entity, this entry is subject to a charge.  In this case, please ensure that all information is signed by the entrepreneur of by an authorised signatory.  The application for an entry in the Corporate Portal is targeted at companies, self- employed person, intstitutions and authoirties - and not at private persons.

If you have received an document that sparks your concern, please do not hesitate to contact our office so that we can validate its authenticity before you hand out any personal information or credit card details.

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PAYING YOURSELF FROM YOUR BUSINESS, 16 MAY 2016

- INTELLICONNECT TRACKER

Inland Revenue has released information on "Paying yourself from your business" to assist people in business who pay themselves to meet personal living costs.  How this is done depends on the business structure a person is operating under.

Sole Trader

As a sole trader, a business does not exist as a separate entity.  All business income and expenses are included in the Individual income tax return (IR3) at the end of the tax year.

Regular cash drawings can be taken from business profits for personal use, such as day-to-day living costs.

The following are key points about drawings:

  • Drawings are still included in overall profits and income tax must be paid on them at the end of the year.  Do not include drawings as a deductible business expense.
  • It is easier to reconcile accounts if regular cash drawings are taken weekly, fortnightly or monthly (like a regular salary or wage).
  • Drawings should be recorded in a cash book or using accounting software to see what has been taken for personal use.
  • Ensure there is enough money in the business to cover any bills owing after drawings have been taken.

Partnership

To pay yourself out of a partnership, regular drawings can be taken from the business profits just like a sole trader.  However, these drawings cannot be included as a deductible expense in the end-of-year partnership return.  The split of profits to the partners at the end of the year does not take into account any drawings taken from the profits.

A partner who works for the partnership can be paid a salary or wage if there is a written contract of service.  The salary or wage would have PAYE deducte like a regular employee.  This salary or wage would then be claimed as a deductible expense in the partnership's end-of-year tax return.

Companies

A company is a business that is a legal entity in its own right, separate from its shareholders.  In a company structure shareholder-employees can:

  • periodically draw money from the company during the year.  The amounts taken out are recorded i the shareholder current account as a loan to them.  At the end of the tax year, the company credits the current account with a salary amount calculated from the company profits which the shareholder will have to pay income tax on.  This salary is declared on their Individual income tax return (IR3), and is not a deductible expense for the company.
  • be paid a regular salary (at least monthly) with PAYE deducted like a regular employee if an individual employment contract exists between the shareholder and the company.  This salary or wage can be claimed as a deductible expense in the company's end-of-year return, and
  • receive dividends from the company profits, once the tax on those profits has been paid.

Directors and management fees are also paid from the company profits.  These can generally be included as a deductible expense in the company's end-of-year tax return.

Record keeping

To prove deductions are legitimate, all records must be kept for at least seven years and they must be in English (unless the Commissioner has approved otherwise).  Although not an exhaustive list, the following records must be kept:

  • all income received (copies of invoices issued, etc)
  • all tax invoices and receipts for purchases, insurance, power, phone and all other costs incurred
  • credit and debt notes
  • bank statements
  • cash books or computerised accounting records
  • wage records for any employees
  • interest and dividend payments
  • a list of business assets and liabilities
  • depreciation schedules
  • statements of year end trading stock, and stocktake records
  • motor-vehicle log books
  • details of entertainment expenses for clients, staff or suppliers, and
  • final profit and loss statements and balance sheets

Current income tax rates for the 2016 income year

Individuals

0 - $14,000 10.5%

$14,001 - $48,000 17.5%

$48,001 - $70,000 30%

$70,001 or more 33%

Other entities

Companies 28%

Complying trusts 33%

Resident Withholding Tax

  • The RWT rate on dividends is 33%
  • The company RWT rate on interest is 28%
  • Individuals can elect to have RWT on interest deducted at 10.5%, 17.5%, 30% or 33%
  • The non-declaration rate is 33%

Source www.ird.govt.nz



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