November Update - Last one for 2015!

Posted 2 years ago by Maggie Waine    0 comments

Hello everyone!

I can't believe this is the last newsletter for the 2015 year.  The year seems to have just flashed by in a blink.

This newsletter is a full one with aspects of tax, ACC, health and safety and staff changes to let you know about.

 

FLEXITAX - A NEW WAY TO PAY INCOME TAX

- tax management nz ltd - october 2015 email

As Inland Revenue (IRD) remains at the consultation phase of its Business Transformation project, Tax Management NZ (TMNZ) is a company that we have had dealings with to help clients with tax arrears.  TMNZ has created a new way to pay provisional and terminal tax which delivers greater flexibility to clients.

Flexitax works in conjunction with their Tax PURCHASE product to ease the burden large income tax payments can have on your cashflow.  It allows you to pay for tax purchases from TMNZ in monthly instalments, where you can pay what they can, when you can.

Like a regular Tax PURCHASE, Flexitax eliminates IRD late payment penalties and reduces interest costs for you.

 

ACC - ACTIVE VS PASSIVE INCOME

- The Small Business Institute Ltd Issue 1509

After 41 years ACC has discovered little old widows, who own a rental property, should be paying ACC on the income.  We know one who remarried.  Now, instead of getting up on a chair to change a ligth bulb or picking up her cheque book to pay for the power, the tenant does it.

The test for whether or not income is 'passive' is whether the income derived  by the person is dependent on the person's 'personal exertions'.

There have been a number of cases that have considered the definition of 'personal exertion'.  The judgements of Hadlee v CIR [1989] 2 NZLR 447 and Caverhill v ARCIC (AP93/97) confirm that "personal exertion" is not restricted to "physical exertion".

The interpretation of "personal exertion", adopted by ACC, is intended to cover all possibilities where the income of a self-employed person would cease, but for their continued personal exertion, whether by physical or mental means.  From an 'entitlement' perspective this is important because any form of compensation would be based on earnings not otherwise dervied by a self-employed person.  From a 'collection' perspective the definition is important because the self-employed person would only be liable on earnings otherwise derived.

'Physical exeriton' can be interpreted as the exercise of 'physical effort' by a self-employed person that contributes to, or otherwise maintains, their level of income.  'Mental exertion' on the other hand can be considered to be the 'mental effort' of a self-employed person that contributes to, or otherwise maintains, their level of income.  Eg Day to day decision making in relation to management, administration of a business would generally be caught under the 'mental effort' test of personal exertion.

Personal exertion does not necessarily involve manual or physical labour; exertion by the sweat of the brow.  Input or contribution to a business enterprise may be to management, administration, planning, strategy, structuring, etc, are envisaged by the term. Caverhill v ARCIC.

The exercise of physical or mental effort by a self-employed person that contributes to, or otherwise maintains, their level of income.

a. Has the self-employed person exervised 'physical effort'?

b. Has the self-employed person exercised 'mental effort'?

c. To what extent does the effort of 'a' or 'b' contribute to, or otherwise maintain the self-employed persons level of income?  There should be a clear connection between the effort and income derived by the self- employed person.

d. But for the effort would the income cease?

i. Identify what effort contributes to or maintains the self-employed person's income?

ii. Woudl the income continue in the absence of the effort of the self- employed person?

There is no 'black and white' test to determine if income is the result of personal exertions.  The principles demonstrated by the above cases show that each case must be considered on its merits.  In some circumstances a type of income will be liable and in another circumstance it will not be.

So if a self-employed person declares income from a rental property that is fully managed by a property management company, and the only involvement the self-employed person has with the property is to appoint the property manager, all other activities in relation to the property are carried out by the property manager.  The income from the property would continue even if the self-employed person were incapacitated.

The nature of the income in the scenario above is 'investment' - in other words, other than setting up effort no effort is required by the investor to earn the income.

However, if there is no property mangaer, ACC considers that rental income liable for levies.

If you believe that the income records are incorrect, you should re-file the tax return.  If an individual returns rental income correctly on their return, that income does not attract ACC levies as the rental income box details are not transferred to ACC.  The same applies with partnership income derived from rents, investments or overseas income.  If this income is declared in the partnership income box it will be levied.  If it is declared in the other income box it will not attract levies.

HEALTH AND SAFETY - ARE YOU SCARED?

If not, you should be.

Health and Safety legislation has gone through its final reading and now has been enacted at law and comes into place in April 2016.  The difference between the 1992 Act and the new legislation is over liability.  In effect, liability now rests with the directors and it rests as personal liability not company liability.  Having a limited liability company will no longer offer protection and nor can you insure out of it as any breach of Health and Safety is an illegal activity.

WorkSite Safety have given me an indication at a recent H & S course that they are about training and support rather than prosecution.  However, to ensure that you are fully compliant we would urge clients (particularly those in high risk industries) to engage a H & S advisor to undertake an audit of your business to rectify any deficiencies.

 

MOVING FROM BANKLINK TO XERO - YOU CAN DO IT

If you haven't considered this already, you should.  Conversion from Banklink to Xero is simple and although the cost is more upfront with Xero in comparison with Banklink, it will achieve savings in your annuals through efficiencies in processing with us. So in effect it is just shifting around the “slice” of the pie. 

Another reason that you may want to seriously consider moving to Xero is that Banklink fees appear to be steadily increasing each month.

 

WHAT ARE YOUR BUSINESS GOALS FOR 2016?

Now is the time to sit back over the end of year break to think about where you would like your business to go in the 2016 year.

Whether it be to grow, deal with cash flow, or to take advantage of the turning international economic tide, we can assist you and point you in the right direction.

If you are concerned about cost, we are able to bundle a set of services together under a Fixed Price which is paid in monthly installments.

 

CHANGES IN THE MATLEY TEAM

There are quite a few changes going on in the Matley team (for us!).

Ben now contracts back to our firm in and around his new job in the ANZ Bank.  His hours are reduced and sporadic, so if he used to be your "go to" guy, please email info@matley.co.nz in the first instance as a lot of his workload has been redistributed.  We wish him well in his new vocation and it is unusual not seeing him around the office as he was our very first employee and had been with us for 8.5 years!

To help with the increased workload with Ben's reduced hours we are taking on an interim intern in December.  Judit Dervadelin is a Hungarian student who is currently completing her Masters in Accounting at Waikato University.  She will be with us until the beginning of February.  She will be based in the Hamilton office.

The last bit of team news is that Maggie and David are expecting another baby in May 2016.  This will be a sibling to Heath (4) and Zara (2).

MATLEY'S CLOSING/OPENING DATES

Closed to the public from Monday 14th December 2015.

Reopening to the public on Monday 11th January 2016.

Have a Merry Christmas and Happy New Year.



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