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Diane Myers Chartered Accountant, Sandra Rees Accountant and Megan Sharplin Accounting Clerk
Whether you're self-employed, a contractor, or you have staff, you'll likely receive an invoice from ACC between mid-July and mid-August.
If you're an employer with staff, your business will pay the:
If you're self-employed, a shareholder-employee or a contractor you'll pay three different levies:
The Classification Unit Rate is based on the actual cost of work-related injuries that occur within your classification unit. A classification unit is a group of businesses that operate within a similar industry.
The IRD provide ACC with relevant earnings data from employer monthly schedules. From this information, ACC calculates the total levies due.
For more information on ACC premiums just give us a call or visit the ACC website.
Depreciation allows for the wear and tear on a fixed asset and must be deducted from your income.
Generally, you must claim depreciation on fixed assets used in your business that have a lifespan of more than 12 months. However, in special circumstances you can elect not to depreciate an asset by applying to Inland Revenue.
Not all fixed assets can be depreciated. Land is a common example of a fixed asset that cannot be depreciated. From 1 April 2011, depreciation allowances on most building structures could no longer be claimed, although depreciation could still be claimed on a wide range of commercial and industrial building fit-out assets.
Changes in 2020 reintroduce depreciation deductions for non-residential buildings for the 2021 and subsequent income years. For more information, please click here.
Keep a fixed asset register to show assets you will be depreciating. This should show the depreciation claimed and adjusted tax value of each asset. The adjusted tax value is the asset's cost price, less all depreciation calculated since purchase.
To view the depreciation rates and the methods for calculating depreciation, please refer to the IRD Depreciation Guide.
To find out more on how to calculate depreciation on a business asset please give us a call or refer to the IRD Depreciation Rate Finder on the Inland Revenue website.
Entertainment expenditure is limited to a 50% deduction if it falls within the following:
There are a number of exemptions from these rules, please contact us if you are unsure, or see the IRD Entertainment Expenses (IR268) booklet for more information.
Fringe Benefit Tax (FBT) is a tax on benefits that employees receive as a result of their employment, including those benefits provided through someone other than an employer.
The four main groups of fringe benefits are:
Gifts, prizes and other goods are fringe benefits. If you pay for your employees' entertainment or club memberships, these benefits may also be liable for fringe benefit tax.
Fringe Benefit Tax is payable quarterly (however some employers may be able to elect payments filing on an annual basis).
Refer to the IRD website for more information on how fringe benefit tax is applied and calculated.
If you would like further information on whether FBT is payable in your situation and how this is calculated just give us a call.
GST is a tax on the supply of goods and services in New Zealand by a registered person on any taxable activity they carry out. The rate for GST is 15% although zero-rating will most likely apply for exports and land transactions.
Certain supplies of goods and services are 'exempt supplies' and exempt from GST. These include:
GST registration is required if the annual turnover of the business for a 12-month period exceeds or is expected to exceed $60,000.
GST returns can be filed monthly, bi-monthly or six monthly. There are certain requirements for who must file monthly returns and who can file six monthly returns.
There are three methods of accounting for GST:
If your turnover exceeds $2,000,000 per year you cannot use the Payments basis option.
If you are selling or are thinking of selling your products through your website please also refer to the section on GST and E-Commerce.
For more information on GST and how to register give us a call or visit the GST section of the Inland Revenue website.
Sale of Physical Goods via the Internet
If a GST-registered person sells goods via the internet and the goods are physically supplied to a customer in New Zealand, GST is chargeable at 15%.
If goods are sold via the internet and physically supplied to customers overseas the sales can be zero-rated for GST purposes. It is important to prove the goods have been exported (entered for export by the supplier) and sufficient evidence should be held to prove the export.
Sale of Digital Goods via the Internet
If a GST-registered person sells digital products via the internet which are downloaded, such as music, software, or digital books, to a New Zealand customer they must charge 15% GST. (These products are treated as services for GST purposes). Note overseas suppliers may be required to register for and charge NZ GST when providing these services (under the online remote services rules) to New Zealand customers.
If digital products are sold via the internet and downloaded by an overseas customer, they can be zero-rated but it is important to prove that the products are "exported" otherwise GST must be charged.
Evidence required to prove products are exported
Physical goods are exported overseas by the supplier. The customer is located overseas.
Physical goods are exported overseas by the supplier. The customer is in New Zealand at the time of purchase.
Digital products are downloaded by a customer who is located overseas.
Note: In this scenario, as can be seen from the above list, it is unlikely that only one form of information will prove that the customer is overseas. It is expected that a reasonable attempt would be made to confirm the customer is overseas to support zero-rating.
For more information on GST, contact us or refer to the resources on the Inland Revenue website.
KiwiSaver is a voluntary savings scheme set up by the government to help New Zealanders to save for their retirement. All New Zealand residents and people entitled to live here permanently are eligible to join. All new eligible employees must be automatically enrolled in KiwiSaver. However, there are some employees who are exempt from automatic enrolment. These include:
Employees who are automatically enrolled can opt out but must do so within a specified time (from the end of week 2 of their employment to the end of week 8) by filing the prescribed from (KS10).
All eligible existing employees can join the scheme at any time they wish by notifying their employer.
Employees can choose to contribute at the rate of 3%, 4%, 6%, 8% or 10% of their salary. If an employee does not elect a rate, then the default rate of 3% will be used by the employer for contribution deductions made.
Compulsory Employer Contributions
It is compulsory for employers to contribute to their eligible employees' KiwiSaver scheme unless the employer is already paying into another registered superannuation scheme for the employee. The minimum compulsory employer contribution rate is 3%.
Employer contributions are subject to Employer Superannuation Contribution Tax (ESCT) on a progressive scale based on the employees' marginal tax rate.
The government also:
Prior to 21 May 2015, the government made a $1,000 'kick-start' contribution, however this has ceased..
Note: There is no Crown guarantee of KiwiSaver schemes or investment products of KiwiSaver schemes.
A list of KiwiSaver providers is available at www.ird.govt.nz/kiwisaver/
For more information on KiwiSaver and how this may apply to you give us a call or refer to the KiwiSaver for Employers information available on the Inland Revenue website.
Pay As You Earn (PAYE) is the basic tax taken out of your employees' salary or wages. The amount of PAYE you deduct depends on each employee's tax code.
PAYE employees must complete a Tax code declaration (IR 330) as soon as they start working for you. If an employee fails to complete the tax code declaration, you must deduct PAYE at the no-declaration rate.
Payday filing was introduced for the way businesses report payroll information and became compulsory in 2019.
If you are a 'small employer' with gross annual PAYE deductions of up to $500,000, you make payments to Inland Revenue on the 20th of the month following the deductions, although you can choose to pay more often.
If you are a 'large employer' with gross annual PAYE deductions over $500,000, you need to pay deductions twice a month although you can choose to pay more often.
For more information regarding PAYE or to register as an Employer either call us or visit the IRD website.
Provisional Tax is not a separate tax but a way of paying your income tax as income is received through the year. You pay instalments of income tax during the year, based on what you expect your tax bill to be. The amount of provisional tax you pay is then deducted from your tax bill at the end of the year.
From the 2020 income tax year, if your residual income tax (RIT) is $5,000 or more, you will have to pay provisional tax for the following income year. RIT is the tax you need to pay after subtracting any rebates you are eligible for and any tax credits (excluding provisional tax). RIT is clearly labelled in the tax calculation in your tax return.
There are several ways of working out your provisional tax. The two main ones are the standard option and the estimation option. If you are also registered for GST and meet the other eligibility criteria, the GST ratio option may be available to you. You may also be able to pay provisional tax using the Accounting Information Method (AIM).
The due date and number of instalments you need to make to pay your provisional tax each year depends on which option you use, your balance date, and how often you pay GST (if registered).
If you have a 31 March balance date and use the standard or estimation option, provisional tax payments are due on:
|First instalment||28 August|
|Second instalment||15 January|
|Third instalment||7 May|
If the provisional tax you have paid is less than your RIT, you will be charged interest in most circumstances. If the provisional tax you pay is more than your RIT, Inland Revenue may pay you interest on the difference.
Inland Revenue automatically charges provisional tax using the standard option unless you choose the estimation or ratio options.
The standard option takes your RIT for the previous year and makes an adjustment. The calculation for the adjustment from the current year is:
If you can estimate what your RIT is likely to be, this option may suit your business. When working out the tax, keep in mind:
The GST Ratio Option
If you are also registered for GST, you can pay your provisional tax at the same time as your GST. To use this option, you elect with Inland Revenue to use the option, then Inland Revenue calculates the ratio and advises you before your first provisional tax payment is due. You will be able to use the ratio option if:
The Accounting Information Method (AIM)
This option allows you to calculate and pay provisional tax using AIM-capable software which calculates provisional tax based on current year accounting income information. Payments are due in line with your GST filing dates. At present this option is only available if you have gross income under $5m.
Where payments have been made using the calculated amounts under the AIM-capable software, you will not be liable for any interest due if the actual year-end tax liability differs from the calculated tax liability.
It is important to choose an option that suits your business. Strategies such as tax pooling can also ease taxpayers' concerns and costs. We suggest that you discuss your options with us.
For further information on provisional tax give us a call or refer to the Inland Revenue website.
Resident Withholding Tax (RWT) is a tax deducted on interest earned from investments and bank accounts. The investment organisation or bank deducts this tax when they credit interest to you.
Companies may also deduct withholding tax from dividends paid to shareholders.
If you receive interest as income you need to:
The RWT tax rate used will vary for individuals and different types of business entity.
For more information on RWT and how this tax applies to interest and dividends refer to the IRD website
Tax credits for donations can be claimed by individuals (not companies, trusts or partnerships) who:
You may qualify for a tax credit for:
Tax credits for donations are limited to gifts of cash or cash equivalents such as payments made by bank transfers, credit card or cheques. It is not intended that donation tax credits or gift deductions should be available for gifts in kind or gifts made by way of debt forgiveness.
You can claim a tax credit of up to the lesser of 33.33% of the total donation or 33.33% of your taxable income (that is, where your donations are greater than your taxable income). You will require valid receipts to be able to do this.
For further information regarding tax credits, visit the tax credits section of the Inland Revenue website.
If you claimed a tax credit in the prior year, Inland Revenue will automatically send you a Tax credit claim form in April each year. Otherwise, click here for the latest version of the IR526 Tax credit claim form. The easiest way to submit a receipt for a donation is to use myIR. Inland Revenue will work out your tax credit without you having to file a claim when the tax year ends on 31 March.
This information relates solely to individuals and individual income tax. There are other types of tax credits. Please contact us for more information on these.
Taxpayers who do not meet their tax obligations may face penalty or interest charges. To avoid such charges, you should pay the full amount of tax you owe by the due date.
The main kinds of charges for failing to meet tax obligations are:
The non-payment penalty is 10% of the overdue amount. If you still do not pay, another 10% penalty will be added each month an amount remains unpaid. When you pay the unpaid amount or enter into an instalment arrangement, the last 10% penalty given will reduce to 5%.
Solutions such as tax pooling can also be used to manage tax and limit exposure to penalties and use of money interest.
The IRD has discretion to remit interest and penalties where COVID-19 has affected income and a remittance request has been made.
For more information about managing tax, give us a call. For more information about tax penalties refer to the IRD's Penalties and interest guide.
Working for Families tax credits are payments for families with dependent children aged 18 or under.
There are four different Working for Families Tax Credits:
Inland Revenue administer the Working for Families tax credits, however taxpayers who receive an income-tested benefit will receive payments from Work and Income.
For more information just give us a call or visit the IRD website.
Disclaimer: Whilst every effort has been made to ensure the accuracy of this calculator, the results should be used as an indication only.