All About Tax

CoverPlus:

CoverPlus Extra:

CoverPlus Extra uses your nominated level of cover instead of your liable income.

Employers:

Employers pay levies on an individual’s earnings up to a maximum level. If an employee earns more than the maximum, ACC will only levy for the maximum.

Economic depreciation rates apply to the purchase of assets. Assets may be depreciated on a straight line (fixed amount each year) or diminishing value (calculated on the cost less accumulated depreciation, resulting in  higher initial claim that reduces over time).

Assets can be divided into two groups:

• Low value assets

Assets that cost as $1,000 or less can be depreciated completely (subject to normal deductibility criteria) in the year they are acquired.

Previous thresholds were $5,000 between 17 March 2020 and 15 March 2019, and $500 or less prior to that.

Importantly you’re not able to divide a purchase in to smaller invoices or payments; the whole asset is counted.

• Other assets

These must be depreciated over time using Inland Revenue’s specified rates. A sample of these are:

Depreciation on buildings

If your business is eligible you’ll be able to claim depreciation deductions for non-residential buildings. The depreciation rate for non-residential buildings is 2% diminishing value or 1.5% straight line.

This applies from the 2021 income year. Depreciation on buildings was not claimable in the 2012 to 2020 tax years.

For individuals, a rebate of 33.33% for voluntary school fees and qualifying donations of $5.00 or more may be claimed.

For companies, qualifying donations are treated as business expenses with no GST.

For both individuals and companies the donations eligible for rebate or expense claims are limited to their net taxable income for the year.

Some important points to note:

• If you are getting anything in return, it is not a donation. This includes raffles and advertising such as a mention in a brochure.
• Some donation receipts are part donation, part something else – you can only include the donation portion in your calculation.
• You must retain your donation receipts in order to claim for them.
• Not all charitable organisations are eligible for donation rebates; check your donee organisation appears in the Charities Services Register before making a claim.

Entertainment expenditure is limited to a 50% deduction if it falls within the following:

• Corporate boxes
• Holiday accommodation within NZ
• Pleasure craft
• Food and beverages consumed at any of the above, or in other specific circumstances (e.g. business lunches, social functions)
• Friday drinks for staff

There are a number of exemptions from these rules allowing a full deduction, such as entertainment outside New Zealand, promotions to the public, samples, morning and afternoon teas, food and beverages consumed while travelling in the course of business (exceptions apply).

Benefits provided to employees outside of their wage or salary earnings are “Fringe Benefits”, and are subject to FBT.

Employees include wage and salary earners, as well as shareholder employees. Low value benefits of up to $300 per employee per quarter may be exempted for goods and services.

Common Fringe Benefits and their values:

Motor vehicles: FBT value is 5% of the original cost (including GST) per quarter or, in certain circumstances, 9% of the book value per quarter.

Low/zero interest loans: FBT is charged on any loans from the company where the interest rate is under 4.5%. This rate is reviewed by Inland Revenue and can be changed during the year.

Employee insurances and others: The cost of the insurance is generally the value for FBT purposes, and has GST if the benefit included GST.

Employers can pay FBT at either a single-rate of 63.93% or use an alternate rate method (whereby benefits are attributed to employees). If the 63.93% single-rate is used in the first three quarters, the employer may use an alternate rate calculation in the fourth quarter or continue to pay FBT at 63.93%.

Fringe Benefit Tax has a number of special rules and exemptions – please contact us for more details.

GST-exempt supplies:

• Certain financial services
• Domestic rentals
• Interest received
• Donations sold by non-profit body

Threshold for registration is $60,000 turnover (gross income) or more per annum from taxable activities.

If turnover exceeds $500,000 you cannot file six-monthly. If annual turnover exceeds $24 million you must file monthly,

If turnover exceeds $2 million you must use invoice basis.

Home Office Options

You may use a proportion of your actual expenses, or the Square Metre Rate.

If your utility outgoings are higher than typical, the actual expenses option may be beneficial. Otherwise the Square Metre Rate option offers a simple calculation and adequate benefit.

For both options you can calculate your home office as the areas set aside strictly for business, and the house as a whole. Where a room is used for mixed purposes you can use a fair method such as hours used to decide what sub-proportion to count.

As an example:

Office (dedicated): 10m2

Dining room (used 2 hours per day): 15m2

House: 120m2

Business proportion: (office + (dining room * 2 hours / 24 hours)) / house

We recommend getting in touch with us to get the best out of your home office.

Square Metre Rate Option

Inland Revenue set a rate each year based on the average cost of utilities per square metre of housing for the average New Zealand household. This method includes all utilities, including your mobile phone.

This rate does not include premises costs of mortgage interest, rates or rent. You can claim a portion of these based on the percentage of floor area used for the business.

The equation for the square metre rate option is: (a x b) + (c x d)

• a is the total amount of mortgage interest, rates and rent you have paid during the year
• b is the area calculated by c divided by the total floor area of your home
• c is the total area (in square metres) of your home that is separately identifiable and used primarily for the business
• d is the square metre rate that is published by Inland Revenue.

Not GST registered, or GST registered and filing 1 or 2 monthly returns:

GST registered and filing 6 monthly returns:

Note: the above terminal tax dates assume the tax payer is linked to a tax agent.

Standard penalties apply to income tax returns which are filed late. The amount depends on net income:

Penalties and interest applies to all taxes paid late. An initial late payment penalty of 1% is applied the day after the payment due date. A 4% penalty on outstanding tax (including penalties) is calculated on day seven after payment due date. Further 1% penalties are incurred for each month the tax remains outstanding.

Interest (Use of money) is charged on balances of $100 or more at 10.39%. Overpayments earn interest at 3.53%.

We recommend talking to us about any tax timing issues or plans you may have so we can find the best option. We can get much better interest earned on deposits or paid on late payments with Tax Traders.

Employee contribution options are 3%, 4%, 6%, 8% or 10% of their gross earnings.

Compulsory employer contribution is 3% of employee’s gross salary or wage.

The Government pays .50 cents for every dollar a member contributes, capped at a maximum of $521.43 per annum. Therefore to receive the maximum annual member tax credit, a member needs to contribute at least $1,042.86 by 30 June of each year.

The minimum wage rates applicable from 1 April 2024 are:

Refer to Employment NZ’s website for definitions of the three rates.

Take care that if your employment contracts use salary sacrifice for Kiwisaver contributions that the minimum wage is still being paid after that contribution.

Payroll and PAYE information

Payroll information is required to be filed electronically at Inland Revenue by the second working day after each payday (“payday” is defined as the day on which an employer makes a payment of PAYE income to employees) if they fall above the electronic filing threshold. The electronic filing threshold for PAYE/ESCT (employer superannuation contribution tax) is $50,000 or more a year. If an employer is below this threshold, they can file on paper within seven working days after each payday.

Payroll and PAYE payments

Large employers: PAYE from the 1st to the 15th of each month are due for payment to Inland Revenue by the 20th of the same month. Deductions from the 16th to the last day of the month are due on the 5th of the following month.

Small employers: For employers with gross annual PAYE (including ESCT) of less than $500,000 for the previous year (or first year employing) PAYE payments are due monthly on the 20th of the following month.

Employee KiwiSaver deductions, student loan repayments, child support deductions and ACC earner premiums are to be included in the monthly or twice-monthly payment of PAYE to Inland Revenue.

Resident individuals:

To calculate your PIE rate, you need to look at your income (including PIE income) for each of the last two years. You chan choose the lower PIR for the current year.

Other investors: Taxable income more than $48,000 – if your taxable income was more than $48,000 in both of the previous two income years, your PIR is 28%.

Note: if for the two previous income years you qualify for two rates, your PIR is the lower rate.

If that all looks confusing you can use Inland Revenue’s PIE Tax Rate Tool

If you have a residual income tax (RIT) of $5,000 or more in one year, you are required to pay provisional tax towards the following year’s tax liability.

Under the standard (and most common) method of calculating your provisional tax, the amount you are required to pay is calculated by taking your RIT plus 5%.

Provisional tax is due in 2 or 3 instalments throughout the year. Instalment dates are dependent on GST registration and balance date. The most common instalment dates are 28 August, 15 January and 7 May.

Tax payers with an RIT of $60,000 or higher will attract use of money interest on any under paid provisional instalments. We encourage taxpayers with an RIT of $60,000 or more to talk to us about mitigating interest charges by using tax pooling. It will result in significant savings.

If your RIT is less than $60,000 and you use the standard method of calculating your provisional amount, you won’t be charged use of money interest as long as you pay the right amount at the right time. This is referred to as “safe harbour”.

Tax payers who use the accounting income method (AIM) method of paying provisional tax will not be subject to use of money interest – assuming they make their AIM payments on time.

Tax payers who estimate their provisional tax, whose RIT is $5,000.00 or more will be subject to interest from the day after their 1st instalment date on any under-payments of the tax due. Tax payers who estimate their provisional tax also subject themselves and any associated entities to a loss of and “safe harbour” benefits. Please get in contact with us before lodging a formal estimate with Inland Revenue.

Companies

Provided a company supplies their IRD number and company status, their RWT rate will be 28% unless they choose the 33% rate. If no IRD number is supplied, RWT is deducted at the rate of 33%.

Exceptions:

• Trustees are not required to notify their company status. They may use 17.5%, 30% or 33% rate. Trustees of a testamentary trust also have the option to use the 10.5% rate.
• Maori authorities are not required to notify their company status. They may use the 17.5%, 30% or 33% rate.

All others

An IRD number must be supplied to the interest payer, and the RWT rate matching the income tax rate should be chosen. Using the wrong rate may mean an end-of-year tax bill.

If no IRD number is supplied to the interest payer*, or an IRD number is supplied but no RWT rate chosen, RWT will be deducted from interest payments at 33%.

Standard balance date tax payers linked to a tax agent have until 31 March the following year to file their income tax returns under the extension of time arrangements.

Tax payers failing to file returns by the due date may lose their extension of time, resulting in earlier return and terminal tax payment dates for subsequent income years.

Repayment of student loans begins once a student’s assessable income exceeds the specified repayment threshold.

These thresholds are:

1 April 2024 – $24,128

1 April 2023 – $22,828

1 April 2022 – $21,268

1 April 2021 – $20,280

The repayment amount is 12% for each dollar above the threshold.

If you earn any income other than salary and wages, you may need to make your own student loan repayments. The amount of your repayments depends on your salary and wage income plus any adjusted net income.

Vehicles used exclusively for business purposes can have their full running costs claimed as a business expense. Entities that aren’t companies will need to keep a log book for three months to prove this. This log book is valid for 3 years.

If the vehicle used for both business and personal travel there are two options for calculating the business portion: using a log book (if not a company) to find your business use proportion, and applying this to your actual costs for the cost method, or keeping a logbook for the kilometre rate method (with rates set by Inland Revenue).

Kilometre rate: Use the Tier One rate for the business portion of the first 14,000 km’s (total, including private-use) traveled by the vehicle in a year. Then use the Tier Two rate for the business portion of any travel over 14,000 km’s in a year.

Kilometre rates include depreciation.

The kilometre rates set by Inland Revenue for the 2024 income year are:

Cost method: Involves keeping track of actual running costs, including details of private and work-related expenses. A claim can also be made for depreciation loss for the business use of the vehicle. Use a log-book for three months to measure your proportion of business travel to personal travel, and apportion your costs at the resulting rate for the next three years.

You need to continue using the same elected method for as long as you own the vehicle.

If your family income before tax is less than the amounts shown in the table, you may qualify for payment.

Pre-tax annual family income  – 1 April 2023 to 31 March 2024

Best Start Tax Credit (BSTC) is a payment for the first three years of a child’s life. You can receive up to $73 per week (up to $3,838 per year) per child. You cannot get BSTC if you are on paid parental leave. All qualifying families with a newborn child will have an entitlement in their child’s first year. Best Start Tax Credits are income tested in the child’s second and third year. Payments will reduce by 21 cents in every dollar over $79,000 of family income earned.

Minimum family tax credit (MFTC) tops up a family’s after-tax income to $35,204 a year.