Well this feels like its turning into a challenging start to 2021! Just when we're back for the much-anticipated New Year and our world has been turned on its head again! Here in Auckland our staff moved back to our home offices briefly, and now we're back again, in level 1, while a relief that lockdown level 3 only lasted 3 days, its still disruptive for all businesses, including ours. We've learnt how to be more adaptable & reinvent the ways we work. As advisers to New Zealand businesses, we feel concerned for many of the small and mid-sized businesses we look after. Both the financial & mental health impacts of this ongoing uncertainty continue to be significant.
We're pleased the government has chosen to offer their latest Covid support package
Resurgence support payment – This will be available to businesses who are impacted when Govt announces Covid alert level changes (at alert level 2 or higher, for over a week) and can prove their revenue has dropped by over 30%, read on for full details here: RESURGENCE
This is not the same as the wages subsidy offered last year and applications will be via IRD and we expect that there will be significant audit activity undertaken. Documents evidencing the $ decline in your revenue should be kept.
We can't emphasise strongly enough how much we want you and your business to rely on our team to help support you with practical advice to navigate these subsidies, tax changes & your other business challenges. Please don't hesitate to reach out by email or phone to us. We want to hear from you so that we can help!
We've been seeing clients facing various challenging situations, not only covid related, but also:
- Retired super-annuitants struggling to live off the current low returns on their investments.
- Landlords facing increased outgoings to meet Healthy-homes upgrades & new tenancy regulations, while rental losses can no longer generate tax refunds. Tenancy law-changes
- The heated property market & low interest rates offering both opportunities & frustrations REINZ LINK
- Taxpayers with cashflow situations unable or unwilling to meet their tax payments & needing to explore alternative arrangements.
In our office we have been challenged in the past year keeping abreast of the constant legislative changes, especially in covid tax relief packages; and tax administration, as well as other legislation that has a significant impact for many of our clients, such as:
· The new Trusts Act 2019 –effective from 31 January 2021
· The new Privacy Act - changes from 1 December 2020
· Revisions to the Holidays Act 2003 at parliament currently
· Residential Tenancies Act reforms
We were also frustrated with the total disarray at Inland Revenue following the IRD's computer upgrades at Easter 2020. They are still now attempting to fix system faults and many of their frontline staff had not been adequately trained in the new systems.
At the same time our MYOB Accountants Office software has been upgrading to a new platform, so we are continually retraining in our systems, with the next being a major new tax system in April. We mention this here so that you can understand the extra loads we've faced!
Its little wonder Diane turned grey along the way last year!!
We understand your frustrations at the longer delays faced this year - we acknowledge we have not been meeting our preferred timeframes on jobs and we do apologise for this, but we do really appreciate your patience while we have faced challenges times & navigated training in these evolving legislative and system changes. We will not be compromised on the quality of the work we produce, so the significant time spent in our professional development, while frustratingly non-productive, remains essential to maintain our high professional standards.
THE FOLLOWING ARE BRIEFS ON TAX CHANGES:
ASSETS up to $5000 deductible, an opportunity exists if purchased prior to 16 March 2021
One of IRD's covid concessions was to temporarily lift the low-value assets threshold, from $500 to $5000. This means that any business assets purchased for < $5k (excl GST) this year will be able to be claimed in full as an expense in your 2021 accounts, rather than the need to depreciate over a few years. IRD's intensions with this are to create incentives to get businesses spending again.
Please provide us with copies of purchase invoices with your 2021 documents.
From 17 March 2021 the low-value assets threshold will be $1,000 in future.
The Small Business Cashflow Scheme changes – effective 28 Jan 2021
This scheme has been extended, and now has a 2-year interest-free period, as long as its fully repaid in that time. Principal can be repaid within 5 years, in which case interest is backdated from the loan start date. Loans can now be used for other purposes like capital expenditure & no longer restricted to core operating costs. But please read the terms of the loans carefully as personal benefit restrictions still apply.
THE MINIMUM WAGE RATE increases from $18.90 to $20 per hour from 1 April 2021. The Starting out/Training rate will become $16.00.
MOTOR VEHICLE per kilometre rates
in December 2020 IRD rather belatedly released new rates for reimbursements to employees, or claims for business running of cars. These are intended to apply to the 2020 year, so we will look to calculate adjustments.
Tier 1 = .82c / km - for up to 14,000km.
Then - tier 2 = .28c for petrol / diesel cars, .19c for hybrid, or .09c for electric cars.
TAX RATE CHANGES– high earners will face a new 39% tax on income over $180,000 from 1 April 2021.
We will be revising provisional tax obligations in light of these increases. IRD have already made clear their intentions to monitor tax avoidance arrangements.
The lowest tax bracket is to be extended to tax the first $17,000 income at 10.5% - this will put an extra $210 in your pocket.
LOSS CARRY BACK SCHEME – a temporary (covid) initiative for businesses that will face a trading loss in the current year, and can carry back that loss to offset against their previous year's profits. However there are eligibility rules including company's maintaining continuity of shareholding and holding credits in their imputation credit account. Applies to 2019-2021 years.
BUSINESS DEBT HIBERNATION SCHEME – another covid initiative which has also been extended till October 2021, allowing relief from creditors for 7 months, if both parties agree.
PROVISIONAL TAX THRESHOLDS have now increased to $5000 residual income tax, we welcome this permanent concession. If R.I.T. is < $5k then the income tax is payable as terminal tax on the 7th April following the tax year.
PROVISIONAL TAX ESTIMATES & IRD ARRANGEMENTS
In 2020 IRD made declarations in the media that they would be generous in considering write off's of penalties and interest when businesses were struggling and couldn't pay taxes due to covid restrictions. The reality of what we see now is that their focus is largely set on the viability of the business. They want to view future profit projections & cashflow forecasts that prove the business will be achieving profits & be able to meet future tax obligations on time. This overriding view also appears in the rules for the Small Business Cashflow Loan Scheme & the new Resurgence Payment Scheme, which are subject to immediate repayment if obtained without holding evidence of viability. Please document your position well.
BRIGHTLINE property tax –watch out for Inland Revenue activity cracking down on property speculators. Residential properties sold within 5 years are now subject to the bright-line test, which will tax capital gains on sale of investment properties, this relates to properties bought after 30 March 2018. Your own home is exempt. IRD monitor all property sales & are now sending out fishing letters.
DEPRECIATION ON COMMERCIAL BUILDINGS has been reintroduced, at 2% diminishing value, or 1.5% straight line, and claims will recommence in the 2021 year.
RING-FENCED RENTAL LOSSES – negatively-geared rental property owners are feeling the sting with their rental losses now required to be carried forward for offset against future property profits. This also applies to residential rentals owned in Look-Through-Companies, where the loss allocation will become trapped in the individuals own return. Note that these ring-fencing rules do not apply to commercial investment properties, which are currently a more attractive option.
HOLIDAY & SICK LEAVE PROVISIONS - are currently being reviewed and awaiting new legislation, intending to increase sick leave from 5 to 10 days per year. Look to Employment NZ for information & updates.
STUDENT LOAN THRESHOLDS from 1 April 2021 will be set at $20,280, above which 12% of gross income must be paid. IRD have introduced hardship concessions, upon application.
PAID PARENTAL LEAVE – IRD's system upgrades planned for April 2021 include the addition of your PPL account that will be able to be managed in your myIR records in future.
TAX DATES coming up soon – we will forward tax payment notices via email
Terminal tax for the 2020 year – due 7 April 2021
Provisional tax for 2021 year – due 7 May 2021
31 March 2021 - End of the financial year
Please plan to count a stock-take for year-end to value your trading stock.
If you have any bad debts that are uncollectible, these should be recorded in your Debtor ledger before year-end.
OFFICE MOVE - we do still intend to be moving offices, however we still don't know when! Our new landlord is currently still working through council requirements...
DIANE MYERS firstname.lastname@example.org office phone 09 2929 470
if Covid lockdowns require us to relocate to home offices again, Diane's phone contact is 021 2929 029