This post is by Sheral Reddy, an experienced Associate Director at GECA Chartered Accountants
IRD have rolled out a number of changes in the last couple of years that could have a significant impact on your business. We take a look at five of them below and hope they prove useful. If you have any further questions, just let us know.
1. Home Office Calculations
A new method will be available for calculating your home office expenses from 2017-2018. This method will use rates determined by Inland Revenue, based on the average cost of utilities per square meter of housing. This will exclude mortgage interest, rates and rent. You will still be able to claim a portion of the mortgage interest, rates and rental costs for the year based on the percentage of floor area used for business purposes.
You need to keep invoices and records for your home office expenses just like the other business expense records that you will be claiming. The premises must be separately identifiable as part of the house used primarily for business purposes- this can also include your garage.
You will still have the option to calculate your home office expenses the usual way.
2. Foreign Trust Disclosures
IRD has made changes to Foreign Trust disclosures, although a Foreign Trust generating foreign income will still not be subject to New Zealand tax obligations. The new requirements are as follows:
- Registration of Foreign Trusts disclosing details for the settlor, trustees and beneficiaries.
- An Annual return is required to be filed with IRD including details of any distributions and financial statements. This information will be available to the tax departments of other countries.
3. PAYE Salary
If you are a company shareholder or a provisional taxpayer, then you have the option to elect to be paid a PAYE salary throughout the financial year. Although you will still have tax to pay at the end of the year, the amounts are likely to be less due to the PAYE contributions made during the year.
The limitations and risks associated with this option are as follows:
- Electing to be a PAYE Salary Earner means that you will have to choose this option for as long as the company continues. You do have the option to reduce your salary.
- There is potential for clients to pay themselves more salary than what the company is generating as profit if they are not monitoring the company performance regularly, or not maintaining proper records.
- You will be required to estimate your provisional income for the year and if the provisional tax is underpaid for the year, the amount of tax underpaid will be subject to use of money interest rate of more than 8% per year.
4. Changes to Safe Harbour Rules
As part of the changes to provisional tax rules, the current safe harbour threshold for which use of money applies, has increased from $50,000 to $60,000. This also now applies to companies as well as individuals.
This means that if the tax due is less than $60,000 based on the standard uplift, there will be no use of money interest applicable. \ Use of money interest may apply from the third provisional tax instalment date if the provisional tax payments haven’t been made based on the standard uplift.
5. Mileage Rates for Motor Vehicles
From the 2016-2017 income year, the mileage rates have increased from 72 cents per kilometre to 73 cents for both petrol and diesel fuel vehicles. IRD has further provided two different rates for hybrid and electric vehicles as follows:
- Hybrid – 73 cents per kilometre
- Electric – 81 cents per kilometre