IRD have recently announced some changes to the tax laws which come into effect from 1 April 2020. They are as follows:
- The provisional tax rate increases from $2,500 to $5,000
- The threshold for a small asset increases from $500 to $1,000
- 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.