St Andrews Accounting

Small Business Accountant

IRD

Winter 2021

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Annual information

The 2021 financial year has finished and I am in the process of completing tax returns at the moment. If I haven’t already been in touch regarding your information don’t stress! I will contact you shortly to make sure I have everything I need to get your tax return done.

Latest From IRD

IRD often target different groups of taxpayers to investigate. At the moment they are targeting real estate agents and those in the construction industry. Here is the latest update from IRD:

“We have identified that real estate salespersons/agents are claiming a high level of expenses relative to their income. We believe that people are claiming private expenses but not keeping logbooks or other business records to support a deduction.”

“As a tax professional, we’re writing to let you know about our construction industry education campaign. The purpose of the campaign is to engage with those in the construction industry to ensure they’re ‘getting it right from the start’ and support them in understanding their tax obligations if they undertake cash transactions.”

If you know any real estate agents or builders, ask them if they’re doing anything dodgy tax-wise. If they are, they could be in real trouble with the IRD and give them my contact details if they need tax advice.

Regards – 

Andrew

Special Tax Update for Residential Rental

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This is a special tax update after the government recently made some major changes to the tax treatment of residential rental properties.

Rule change

The change will be that interest will no longer be claimable as an expense. IRD are planning on phasing this in over the next four years.

They have announced this change as a way to allow more kiwis to buy their own homes by making it less beneficial for those who own multiple properties. If you own a rental property and pay a mortgage this will affect you.

Here is a working example of how this could affect you:

Jordan earns $70k per year at his transport job and owns a rental property in Auckland. He has calculated the rental income he receives so that it will cover his mortgage and other expenses on the house.

In the most recent financial year his rental income was $500 per week ($26k for the year), loan interest was $18k and other expenses (rates, insurance, repairs) totalled 8k. This meant profit was nil so he had no tax to pay.

Assuming these figures stay unchanged over the next five years, I will outline approximately how much extra tax Jordan will have to pay each year.

Year% of Interest ClaimableRental ProfitTax to Pay
1100%$0$0
275%$4,500$1,500
350%$9,000$3,000
425%$13,500$4,500
50%$18,000$6,000

What can you do?

You have four options if you own a rental property.

  1. Do nothing and simply pay more in tax;
  2. Pay off your mortgage before the changes come into effect;
  3. Increase weekly rental to cover the increased tax;
  4. Sell your rental property and diversify your investments.

Under option 1, Jordan would pay a total of $15,000 in tax to IRD over the next five years and $6k every year after that. This is the simplest option for anyone owning a rental profit as they don’t need to do anything apart from paying more in tax.

Option 2 is not a viable option for Jordan because his mortgage is too high to pay off anytime soon. This may be an option for you if you are close to paying off your mortgage. However, you will need to be prepared to pay more in tax once it is fully paid off.

Under option 3, Jordan would need to increase rent by $75 per week every year for the next five years to have enough income to pay expenses and increased tax. The amount of rental increase needed will differ for each person depending on many factors. If you are considering this option, please get in touch with me and I can provide a specific calculation for your situation.

Option 4 may seem like a drastic step, but Jordan could sell his rental property and invest the cash another way to provide income. Other options can be as lucrative, if not more so than owning a rental property. I will outline some of these options in a future newsletter but feel free to get in touch if you would like to know some of these options sooner or have any questions.


Regards -Andrew

Autumn 2021

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Here is the latest update from the world of accounting:

New top tax rate

The government has recently announced a new top tax rate of 39% from 1 April 2021. This will only apply for individuals with total annual income over $180k. This new law is only expected to affect 2% of New Zealanders.

Income tax payments

For those who had a tax bill owing for the 2020 financial year and haven’t yet paid it, the final date for payment is 7 April 2021. If this affects you then I will email you directly to remind you of this.

2021 Tax returns

March 31 is not far away. After this date I will start to complete tax returns for the year ended 31 March 2021. I will be in touch directly to request the information needed. In the meantime, make sure any outstanding payments are made, cashbooks are up to date and all receipts are easily accessible.
If you have any questions please let me know.

Regards -Andrew

Spring 2020

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Spring is in the air. Trees are flowering, lambs are finding their feet and we are starting to feel some hints of warmer weather. In this newsletter I cover a new wage subsidy the government has announced as a result of the latest COVID breakout along with an old topic that people often get confused by.

Resurgence wage subsidy

With the re-emergence of the COVID virus, the government has announced a further wage subsidy. The resurgence wage subsidy is available nationally for employers, including self-employed people, who are financially impacted by the resurgence of COVID-19 and changes to COVID Alert Levels.

To be eligible for this you need to have a revenue drop of at least 40% because of COVID-19, for a 14-day period between 12 August to 10 September 2020, compared to a similar period in 2019

You can potentially receive $585.80 per week for two weeks if you are eligible.

You can apply for this on the work and income website and applications close at 11.59pm on 3 September 2020. You’ve only got a few days if you want to apply for this so you’d better get in quick. If you’re unsure how to apply or whether you are eligible, give me a yell and I’ll be happy to help you out.

Home office claim

One of the most common questions I get asked from people starting out in business is in regard to using an area of your home for work. The most common example is if you use one of the rooms in your home as an office for all your admin work. If so, a portion of your home costs can be included in your business tax return.

To calculate this, the first thing to do is measure the dimensions of the office space you are using. This simply involves getting out a tape measure and measuring from one side of the room to the other.

You will then need to know the total floor area of your house. Normally this will be shown on your insurance invoice. If not, you will need to get out the measuring tape once again and measure your whole house.

Once you have these, you have a percentage of claimable house costs which you can then apply to your overall house costs.

There are certain costs you can claim and others you can’t (putting in a new spa won’t be included!)

If you are not already claiming this expense, or are thinking about doing more work from home, feel free to discuss with me whether you are eligible for this. I can walk you through the steps needed.

Regards –Andrew    

Lockdown Tax Changes

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Here are the latest tax updates which may affect you:

Wage Subsidy Extension

A lot of you will have been adversely affected by the lockdown. I hope you took advantage of the wage subsidy while it was available. The government has now announced an extension to the wage subsidy. The amount they will pay out will be 8 weeks at the same rate as you received the wage subsidy. To be eligible for this, you must be able to prove that your business income for 11 May 2020 – 10 June 2020 was at least 40% less than the previous year (11 May 2019 – 10 June 2019). Applications start on 10 June. If you are unsure whether you are eligible for this, flick me a message and I’ll have a look for you.

Small Business Loan

The government has also announced a small business loan available for businesses affected by the lockdown. If you were eligible for the wage subsidy then you will be eligible for this. It is a government loan up from $10,000 to a maximum of $100,000 depending on how many employees you have. It is repayable at an interest rate of 3% over 5 years. You only have until 12 June 2020 to apply for this so get in quick! Again, let me know if you want me to have a look into your eligibility for you.

New Way of Paying Tax

The IRD have announced a new way of paying tax for those who don’t use internet banking. If you are paying tax by EFTPOS or cash at Westpac then you will need to take a barcode with you. If you are planning on paying this way, please let me know and I will produce the relevant barcode for you when I complete your tax return.

New Tax Laws

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IRD have recently announced some changes to the tax laws which come into effect from 1 April 2020. They are as follows:

  1. The provisional tax rate increases from $2,500 to $5,000
  2. The threshold for a small asset increases from $500 to $1,000
  3. Depreciation on commercial and industrial buildings will now be allowed.

Here are a couple of examples to show how it could work practically.
Bob owns 2 rental properties. He collects rent of $1,000 per week annually and has expenses of $30,000 each year. His profit is $22,000 with tax being $2,870. For 2020 his tax bill is over $2,500 so he needs to make 3 provisional tax payments during the year in August, January and May. In 2021 the provisional tax rate increases to $5,000 so he can wait until the end of the year to pay the whole lot off.

Jane also owns a rental property. She buys a lawnmower for $800 for the property on 1 March 2020. She is only able to claim a deduction of $33 for 2020 under current depreciation rules. If she buys the same lawnmower on 1 May 2020 (when the small asset threshold increases) she will be able to claim the full $800 as a deduction.

What this means for you is if you need to buy an asset for your business that costs between $500 and $1,000, do it after 1 April for the best possible tax effect. Let me know if you need more clarification or if you have any other questions.

IRD targeting tradies

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I regularly receive e-mails from IRD outlining which areas of tax crime they are currently focusing on. Here is a passage from a recent e-mail I received from IRD:

We’re looking hard at tax crime in the construction industry.

We’ll be contacting tradies to encourage them to declare all of their income through their GST and income tax returns. While most people in the construction industry are doing the right thing, we’re reminding your clients that undeclared cash jobs can have negative consequences. They can result in tax penalties, a criminal conviction that could affect their ability to contract for work, and even prison time.

This is a serious warning to tradies in the construction industry that any cash jobs they are doing may be found out by IRD and punished. If this wasn’t enough of a warning, I received another e-mail from IRD one week later:

We’re emailing you again to let you know we’re looking hard at tax crime in the construction industry.

IRD mean business with this so if you have any friends or family members who are tradies and you know they are not declaring all their income, please make them aware that the IRD are targeting them. If they need help completing their tax returns, feel free to pass on my details to them and I can help them file all the relevant returns.