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Inland Revenue has made some updates that we thought you might like to know about, these Tax Tips have been outlined below:

Interest rates

Effective 29 August 2019, IRD has changed the use of money interest rates as follows:

• An increase for taxpayer’s paying rate of interest on the unpaid tax from 8.22% to 8.35% per annum, and
• A decrease of the Commissioner’s paying rate of interest on the overpaid tax from 1.02% to 0.81% per annum.

IRD Payment Changes

From 1 March 2020, IRD will no longer accept cheques if customers have alternative payment options available (this includes any post-dated cheques after 1 March 2020). Suggested ways to pay are as follows:

• myIR: You can pay by direct debit and make debit card and credit card payments securely through myIR online services.
• Online banking: You may be able to make payments using online banking.
• Credit or debit card via IRD website: Use your credit or debit card to make online payments through the IRD website. Visit ird.govt.nz/pay.
• In person at Westpac: Pay by EFTPOS or cash at a Westpac branch or Smart ATM.
• Money transfer: If you are overseas you can pay us using a money transfer service. Search for “make a payment” on the IRD website for more information.

GST Changes

New GST rules on low-value goods being imported will come into effect from 1 December 2019. Non-resident suppliers (including electronic marketplaces) need to register for and charge GST if the turnover from those supplies exceeds $60,000 in a 12-month period and if they are:

• resupplying any goods that are supplied by a non-resident,
• are outside of NZ at the time of supply or are delivered to a place in NZ by the supplier and has entry value of $1,000 or less.

The rules are not intended to apply to supplies made to GST registered businesses, or to supplies valued over $1,000, but to reduce compliance costs and subject to certain thresholds. The non-resident supplier can be permitted to also charge GST on those supplies.

The $1,000 threshold applies per item instead of per invoice/transaction. High-value items will continue to be taxed at the border as they come into New Zealand except for fine metal, alcohol and tobacco products.

Resident Withholding Tax (RWT) Changes

From April 2020, the new non-declaration rate for RWT on interest income will be 45%. If you will be receiving interest income we recommend your correct tax rate is provided to your investment provider or organisation.

If you have any queries about the above rate changes, please contact Sheral Reddy or your GECA advisor.

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For many business owners, owning their business premises allows them to keep the rental that would be otherwise paid to a landlord and over time build equity in a substantial asset. Often this forms a key part of a business owners overall wealth generation strategy. Indeed with the rapid rate of property inflation in New Zealand over the last five years, the property can often be worth more than the business.

Of course, as with any property investment, it is important that the ownership structure is optimised for funding and tax purposes and there are a number of issues that should be considered prior to purchase.

Limited Liability Company

If the business is run through a limited liability company, we generally recommend the property purchase is not made in the same entity.  The better approach is to keep the property separate from the trading business as to avoid exposure to business risk such as creditor claims. Owning the property separately also facilitates payment of any capital gains to the owner as this can require liquidation of the company which is problematic when the entity is holds the trading business as well.

You could therefore buy the commercial property through a family trust or in a separate trading company.

The Family Trust or Company

The benefits of owning the property through a company include grouping of losses and interest free loans with the trading company. To do this requires the commonality of shareholding to be greater than 66% for both entities. A typical structure would be for the business owners to hold one share each to allow payment of the shareholder salaries and for a family trust to hold the remaining shares. This structure allows flexibility and asset protection.

The family trust can own the property directly, however, the trustees may not want debt / risk in the family trust associated with the purchase of the commercial property so a separate company may be preferable.

However, owning through a separate company will incur additional administration and compliance costs that need to be taken into consideration.

GST on commercial properties is complex and getting it wrong can be costly. The purchasing entity needs to register for GST prior to purchase.  As the new company or the trust will be using the commercial property for making taxable supplies (i.e. leasing to the trading company at a market rate), the purchase will be zero rated for GST.  The sale and purchase agreement should say “inclusive of GST (if any)” and the GST clauses should be discussed with your solicitor and accountant prior to signing.

If the trading company has funds available, these can be loaned interest free to the property company.

Finally, be aware if you decide to own your property through a company, it can take a couple of days for the IRD/GST number to come through following application.

At GECA we can help you put in place the structure you need to achieve your goals. Call us now on 0800 758 766 for a complimentary no obligation discussion of your needs.

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