Please feel free to use the resources we have gathered together in this section.
If you feel anything is missing, please email or call us and let us know what you would find useful – 09 415 0319.
If you have a particular gnarly accounting question, send it to our expert staff – we love a challenge. See if we can come up with the answer that gives you an ‘ah ha!’ moment.
Tax – an overview
We present an easy-to-understand overview of various tax subjects, courtesy of the Inland Revenue Department (IRD), and have provided links to more detailed information on their website.
Of course, personal circumstances always vary, so please ensure you contact us for specific advice.
What is depreciation:
Most of the payments you make for your business will be treated as expenses. However, some of the items you buy (like computers, cars and cell phones) will last longer than a year, and these items cannot be treated as an expense immediately. They are treated as Fixed Assets instead, and the depreciation rules are used to spread the cost of the item over the useful lifetime of the asset.
Another way to look at this is that depreciation allows for the wear and tear on a fixed asset (vehicle, computer, camera etc), letting you deduct a calculated portion of the cost from your income each year.
In general, you must claim depreciation on fixed assets used in your business that have a useful lifespan of more than 12 months.
Exceptions from the depreciation rules:
- Assets that cost less than the IRD approved threshold can be treated as expenses in the year that they are purchased. The thresholds have changed recently, as follows:
- Up to 16 March 2020: items costing less than $500 can be expensed immediately
- 17 March 2020 to 16 March 2021: the threshold was temporarily raised to $5,000
- From 17 March 2021: the threshold is now $1,000 per item
Note that the GST exclusive cost can be used for this test, and that if several items of the same type are purchased from the same supplier on the same day, then the combined total of the purchase must be compared to the threshold. For example, if a business purchased five $900 smart phones in April 2021, the combined cost will be $3,913 ($900 x 5, less GST). As this total is over $1,000 the smart phones must be treated as fixed assets and the depreciation rules applied to the cost.
- Land generally doesn’t decline in value, so depreciation cannot be claimed on the purchase price of land.
- Residential rental buildings also only very infrequently decline in value, so no depreciation can be claimed in relation to the building (although depreciation can be claimed on chattels like ovens and dishwashers)
- Commercial buildings had been excluded from the depreciation rules since April 2011. Recently the law has been changed to allow depreciation claims once again, as from the start of the 2020-21 tax year.
- Tax payers who prefer not to claim depreciation on a certain asset can elect to refrain from claiming. This might be desirable if the asset is expected to switch in and out of business use, or is more likely to increase in value rather than decline.
It is important to follow the correct protocol in regard to opting out of depreciation, as the depreciation recovery rules (see below) can apply even if no depreciation has been claimed for tax purposes.
You will need to advise the IRD if you are making an election not to claim depreciation. You do this by notifying them in your tax return (we will do that for you) for the income year when you purchase your asset, or for the year when you change the use of your asset from non-business to business. The election will apply until the asset is sold or stops being used for business.
The fixed asset register
This is a record maintained to show assets you will be depreciating. This should show the cost (excluding the GST you have claimed, if your business is GST registered), depreciation claimed, and adjusted tax value (also known as book value) of each asset.
The adjusted tax value is the asset’s cost price, less all depreciation calculated since purchase.
In most cases, your accountant will maintain a fixed asset register for you and will incorporate a copy of the schedule into your annual financial accounts.
Depreciation methods for fixed assets
The two main methods for calculating depreciation are Diminishing Value and Straight Line. You do not have to use the same depreciation method for all your assets, but once you have chosen a method for an asset you must continue to use that method until the asset is sold or otherwise disposed of.
The depreciation rate is not up for debate – these are set by Inland Revenue, and can be checked on their website. Refer to the links at the end of this page.
Diminishing value depreciation
The amount of depreciation is worked out on the adjusted tax value of the asset.
Example
A car purchased in April 20X4 has a depreciation rate of 30% diminishing value.
The cost (excluding GST) was $30,000.
In the first year of ownership the business would claim depreciation of $9,000. ($30,000 x 30% = $9,000)
In the second year of ownership the calculation is based on the adjusted tax value, which is $30,000 – $9,000 = $21,000. The depreciation is $21,000 x 30% = $6,300
As you can see, the amount of depreciation claimed diminishes over the years.
Straight line depreciation
Depreciation is calculated on the original cost price of the asset, and the same amount is claimed each year
Example
If the car in the example above is depreciated using the straight line method, the IRD approved rate is 21%.
The depreciation claim in the first year is $30,000 x 21% = $6,300
For the second year, the claim is still calculated based on the GST exclusive cost, so the claim is again $30,000 x 21% = $6,300
Depreciation recovery
When an asset is sold, the sale price is compared to the adjusted tax value.
- If the sale price is lower, there is a loss on sale. If you were entitled to claim depreciation on the asset, the loss on sale will be tax deductible.
- If the sale price is higher than the adjusted tax value there is a gain on the sale. What this means is that the asset didn’t really decline in value quite as much as indicated by the depreciation claim. In this case some of the depreciation claimed must be “added back” or treated as taxable income in the year of sale.
Useful links:
If you provide entertainment for staff or clients, the cost of this business expense is generally tax deductible. There are tax rules which apply specifically to entertainment expenditure, restricting the claim to only 50% of the cost.
Regardless of whether the cost is 100% or 50% deductible, you do need to keep invoices and receipts to support your claims for business entertainment expenses.
Some examples of fully deductible entertainment expenses are:
- Meals while traveling on business (but only if you are not entertaining a client in which case the 50% rule will apply)
- Food and drink at promotions open to the public
- Food and drink at training conferences that are longer than 4 hours
- Tea, coffee and light refreshments in the workplace
- Light meals provided and consumed as part of the employees duties (such as sandwiches provided during a board meeting)
Expenses that are 50% deductible include
- Corporate boxes (including any food and beverages consumed at this venue)
- Holiday accommodation, with associated incidental costs
- Hiring a boat, and providing food and drink to people on it
- Meals away from the taxpayer’s business premises, such as a business lunch at a restaurant
- A party, reception, celebration meal, or other similar social function, such as a Christmas party for all staff, held on the business premises (excluding everyday meals provided at a staff cafeteria)
- Events or functions (on or away from your business premises) for the purposes of staff morale or goodwill, such as a Friday night ‘shout’ at the pub
- Gifts of food and drink that benefit your business and are enjoyed privately by the person who receives them (for example, if you give a bottle of wine or a gift basket to a customer)
In addition to a wage or salary, employers may agree to provide additional benefits to their employees. These are known as Fringe Benefits. Instead of being taxed through the PAYE system, the benefit is subject to Fringe Benefit Tax (FBT).
If, as an employer you provide fringe benefits (perks) to your employees (including shareholder-employees and their partners) generally you must pay fringe benefit tax on the value of these benefits.
What are Fringe Benefits:
- a motor vehicle that the employee is allowed to use privately
- subsidised staff transport
- discounted goods and services (at favourable rates that are not available to non-employees)
- gifts and prizes
- a loan that the employee pays little or no interest on
- contributions to certain insurance policies, superannuation schemes and funds
- private telecommunications use
There are some exemptions:
In relation to gifts and subsidised or discounted goods there is an exemption of $300 per employee per quarter or $1,200 per employee per year. The maximum exemption is $22,500 per annum for all employees.
For subsidised transport, FBT is only payable if the transport is supplied for free or very low cost. If the employee makes a contribution to the cost of the service, paying at least 25% of the highest rate that the general public would pay, the benefit is exempt from FBT.
In relation to motor vehicles, a vehicle that meets all of the work related vehicle requirements can be excluded from the FBT return.
A telephone that is supplied for work calls only is not subject to FBT. Only a phone that is supplied for private use is caught by these rules.
Employee loans are exempt from FBT if the employee pays interest at the IRD approved rate. The rate is reviewed and updated each quarter. The current rate can be found here. The contribution doesn’t always need to be made in cash. We, as your accountant, can process a journal when we prepare your annual accounts. This journal (the FBT Contribution Journal) will reduce the motor vehicle running costs claim.
Contributions to staff KiwiSaver funds are subject to Employer Superannuation Contribution Tax (ESCT), and so FBT does not apply.
Conditions for work related vehicles:
To be exempt from FBT, a vehicle supplied to an employee must meet all of the following conditions:
- it is drawn or propelled by mechanical power (this includes trailers)
- it has a gross laden weight of 3,500 kg or less
- the vehicle is mainly designed to carry goods (like a van or ute) or goods and passengers equally (such as double cab utes). A sedan or station wagon won’t meet this condition unless the rear seats have been removed, bolted down, or covered with a built in tool box
- it has prominent company branding that cannot easily be removed. Signwriting is acceptable, but magnetic signs and rear wheel covers are removable and won’t be sufficient on their own
- you advise your employee in writing that the vehicle is not available for private use except for travel between home and work, and for travel related to the business. You must give employees a separate letter explaining this restriction rather than mentioning it in their employment contract. This can sometimes lead to a circumstance where you (as director of your company) write a letter to yourself (as the shareholder who drives the car) explaining that the vehicle mustn’t be used privately
- regular checks must be done to prove that the vehicle is not being used privately
What is an FBT contribution journal?
When an employee (and in particular a shareholder-employee) makes a contribution towards the cost of a benefit, the value of the benefit is reduced and therefore the FBT payable is also reduced. If that contribution is the same as the value of the benefit, there is no FBT to pay at all.
The contribution doesn’t always need to be made in cash. We, as your accountant, can process a journal when we prepare your annual accounts. This journal (the FBT Contribution Journal) will reduce the motor vehicle running costs claim.
There is no difference in the total tax paid. You are in the same position whether your business pays FBT, or reduces the vehicle running costs by way of a Fringe Benefit contribution journal. The main advantage is that you are not having to deal with the paperwork and compliance cost of filing a quarterly or annual FBT return.
Do note that this is book entry is available only to a business that trades as a company, and it relates specifically to a business vehicle that is used by a shareholder. For businesses that are not companies, a private use adjustment (based on a vehicle log book) will be necessary instead.
For further information:
Please contact us, or refer to the IRD website for more information on how fringe benefit tax is applied and calculated.
A gift is something given when nothing is received in return; or when something of lesser value is received in return.
These items can all be gifts:
- Transfers of any items (for example, company shares or land).
- Any form of payment.
- Creation of a trust.
- A forgiveness or reduction of debt.
- Allowing a debt to remain outstanding so that it can’t be collected by normal legal action.
The government abolished gift duty for dispositions of property made on or after 1 October 2011.
Despite this, understanding the nature of gifts is still important. Some means-tested benefits and entitlements are affected by gifts received. In addition, gifts made by a taxpayer will be taken into account when judging entitlement to certain benefits such as rest home care subsidies.
For more information on gifting or gift duty please give us a call.
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).
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
Scenario 1:
Physical goods are exported overseas by the supplier. The customer is located overseas.
- Delivery evidence, for example, bill of lading showing export by sea, air waybill for export via air, packing list or delivery note showing overseas delivery address, insurance documents.
- Purchase order showing overseas delivery address.
Scenario 2:
Physical goods are exported overseas by the supplier. The customer is located in New Zealand at the time of purchase.
- Delivery evidence, for example, bill of lading showing export by sea, air way-bill for export via air, packing list or delivery note showing overseas delivery address, insurance documents.
- Purchase order showing overseas delivery address.
Scenario 3:
Digital products are downloaded by a customer who is located overseas.
- The customer should make a declaration at the time of the transaction that they are located overseas and that the products will be used outside New Zealand. For example, “I declare that I am not in New Zealand at this time and will not be making use of this supply in New Zealand” and provide their name and full address.
- Evidence of payment received from overseas customer. Credit card information may be a guide as certain credit card number series may only be issued in New Zealand. However, this process is not entirely reliable.
- Email address may suggest that the customer is overseas but is not final proof as a New Zealand resident can obtain an overseas email address.
- Internet Protocol (IP) address of the customer – although this is not final proof that the customer is 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 refer to the E-Commerce and GST section on the IRD website
What is GST?
Goods and services tax (GST) is a tax on most goods and services in New Zealand, most imported goods, and certain imported services. GST is added to the price of taxable goods and services at a rate of 15%, but can be zero-rated for exports.
What are taxable goods and services?
- Goods include all types of personal and real property, except money.
- Services covers everything other than goods or money, e.g. TV repairs, doctor’s services and gardening services.
- Taxable goods and services are part of the business or taxable activity. This means you supply or receive taxable goods and services for a consideration (money, compensation, reward) but not necessarily for profit. Taxable goods and services are referred to as “taxable supplies”.
Taxable goods and services don’t include:
- goods and services supplied by businesses that aren’t registered for GST, and
- exempt supplies such as:
-
- letting or renting a residential property
- interest income
- donated goods and services sold by a non-profit body
- certain financial services
- wages and salaries
GST registration is required if the annual turnover of the business for a 12-month period exceeds or is expected to exceed $60,000. You can choose to register for GST even if your annual turnover is less than $60,000. This is referred to as voluntary registration.
Exception: You are not obliged to register for GST if your turnover exceeds $60,000 due to the sale of plant or other capital assets when you are:
- ceasing any taxable activity
- substantially or permanently reducing the scale of any taxable activity, or
- replacing the plant or assets.
GST returns can be filed monthly, two 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:
Payments basis
This method involves accounting for GST on a transaction in the period in which you make or receive payment.
- Suitable for small businesses with a turnover of less than $2 million. As soon as you exceed this level of turnover you have to transfer over to Invoice Basis.
- You can keep track of your sales and purchases with a simple cashbook.
Invoice basis
This method involves accounting for GST on a transaction in the period in which the invoice is issued, regardless of whether you have received or made the payment yet.
Hybrid basis
This method combines both the payments and invoice bases. It uses the invoice basis to account for GST on sales while using the payments basis to account for your purchases. This method is used less frequently due to its complexity.
If you are selling or are thinking of selling your products through your website please also refer to Inland Revenue’s section on GST and E-Commerce.
Please also read the section on our website on GST and E-commerce on this page. Select from the accordion options.
For more information on GST and how to register give us a call or visit the GST section of the IRD website.
KiwiSaver is a voluntary long-term savings scheme. It is a government initiative involving employers, employees and KiwiSaver fund providers.
KiwiSaver is governed by various Acts including the KiwiSaver Act, which was passed in September 2006. Although the scheme is promoted by the government, it is important to note that the funds themselves are not government guaranteed.
For employers
Each employer is responsible for deducting KiwiSaver contributions from the wages of each enrolled employee. These contributions, together with the employer contributions, are sent to Inland Revenue along with the other payroll deductions.
All new employees who are eligible must be automatically enrolled in KiwiSaver, and each employer is obliged to provide their employees with a KS3 information pack which explains how the KiwiSaver system applies to them.
All New Zealand residents and people entitled to live here permanently (up to the age of 65) are eligible for KiwiSaver. However, there are some employees who are exempt from automatic enrolment. These include:
- Those under 18 years of age
- Casual agricultural workers
- Election Day workers
- Private domestic workers
- Casual and temporary employees employed under a contract of service that is 28 days or less
Employees who are automatically enrolled can opt out by supplying the employer with a KS10 opt-out form. This must be done within the first eight weeks of starting the new job. A copy of the KS10 form should be passed on to Inland Revenue with the employer’s usual pay-day filing submission.
It is also possible for an employee to stop having KiwiSaver deducted from their wages after this initial opt-out window. Instead of simply opting out, the employee must now apply to IRD for a Savings Suspension. This is done through their personal MyIR login portal. Once the application is approved, IRD will write to the employee and to the employer to confirm the suspension of deductions.
Existing employees who are eligible but not currently enrolled can join the scheme at any time they wish by notifying their employer.
Deduction rates
Once enrolled, each employee will have a portion of their gross wage deducted from their earnings, to be sent to their KiwiSaver fund provider through the payroll taxes system.
There are three standard contribution rates: 3%, 4% and 8%. Employees can chose which of these three rates suit them best. If the employee does not select a rate, the default rate of 3% will apply.
Employees can change between the three contribution rates by advising the employer of their new contribution rate. The contribution rate cannot be changed more frequently than every three months unless the employer agrees.
Compulsory Employer Contributions
It is compulsory for employers to contribute to their eligible employees’ KiwiSaver scheme. The minimum compulsory contribution is now 3%, but the employer can opt to contribute more.
The exceptions to this rule are:
- if the employer is already paying sufficient contributions into another approved superannuation scheme for the employee
- the employee is under 18 or over 65 years of age
- the employee is not required to have deductions made from their pay (eg, if they have opted out, are on a savings suspension, or on leave without pay)
Employer contributions are subject to Employer Superannuation Contribution Tax (ESCT). This means that most of the 3% contribution goes to the KiwiSaver fund, but a portion goes to IRD as ESCT tax. The rate of ESCT depends on the employee’s own marginal tax rate.
Government Contribution
Each year, the government makes a contribution into the KiwiSaver fund of each eligible member. The government pays $0.50 for every dollar that the member contributes for the year, up to a maximum of $521.43. This is done automatically: neither the employer nor the employee needs to do anything in order to receive this government contribution.
For self-employed
You are not excluded from the KiwiSaver scheme just because you are not earning a PAYE wage. Most of the advantages that employees are entitled to are also available to self-employed people The only exception is the 3% employer contribution, which is not available when there is no employer.
A self employed person will make their payments directly to their fund provider instead of through Inland Revenue.
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 IRD website.
PAYE (Pay As You Earn) is deducted from your employees’ salary or wages, and paid to the IRD on their behalf. It includes income tax and ACC earners’ levy. The amount of PAYE deducted depends on the employee’s tax code.
Employees must complete a Tax code declaration (IR 330) as soon as they start working for their employer. If an employee fails to complete the tax code declaration, the PAYE must be deducted at the non-declaration rate of 45%.
If you use payroll software, your software provider will ensure that the correct amount of tax is deducted from each employee’s wage. There is nothing to prevent you from using a manual system, but you will need to use one of Inland Revenue’s tools to help you calculate the correct tax amount.
The Weekly and fortnightly PAYE deduction tables (IR340) and Four-weekly and monthly PAYE deduction tables (IR341) are available online. These show you how much to deduct from each employee’s pay based on your employee’s tax code. There is an on-line PAYE calculator, which is also very helpful.
Payday filing
As the employer you must file an employment information declaration each time you pay your employees. This is based on the date you pay the employees (the pay day) and can be weekly, fortnightly, monthly or more often if you have multiple pay days.
When you file your employment information form, you must include the pay day and pay period your employee worked. The pay period start and end date may be different for each employee, and can be recorded in myIR when you file Employment Information using the on screen method or in your payroll software. When you click on their IRD number, you can put in the pay period of the time worked. For each new employee you will need to add their details, which should be pre-populated by Inland Revenue when you next file your Employment Information. Similarly, when an employee departs, you need to put in their end date, which will remove them off your list.
We know that filing Employment Information each payday may be challenging for employers at times, however filing Employment Information on time (even if you are struggling to pay the deductions), ensures employee information is up to date and accurate. This helps ensure your employees are having the right deductions made and entitlements paid.
It will also help support any application for the Government’s wage subsidy.
For more information regarding PAYE or to register as an Employer either contact us or visit the IRD website.
Provisional tax is not a separate tax but a way of paying your income tax as the 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, leaving you with a top-up to pay or a refund.
Meeting your income tax obligations during the tax year
- The number of instalments you are required to make depends on the way you choose to calculate your provisional tax instalments. If you’re GST-registered, how often you file GST returns also determines how many provisional tax instalments you’re required to make.
- The amount of provisional tax you need to pay is based on your expected income for the year or your GST taxable supplies (sales) and depends on the way you choose to work out your provisional tax instalments.
At the end of the year, you either pay more or are refunded the difference between the amount of provisional tax you paid and the amount you should have paid, based on your actual income for the year.
When are you liable for provisional tax
If the residual income tax is $5,000 or more you will have to pay provisional tax for the following year.
Residual income tax is basically the tax to pay after subtracting the Independent Earner Tax Credit (if you are eligible) and credits for taxes paid at source (like PAYE on wages or RWT on interest) Residual income tax is clearly labelled in the tax calculation in your tax return.
Provisional Tax Payments
The most common method of paying provisional tax is to pay a total amount based on last year’s tax return, with payments made in three instalments (August, January and May) during the tax year. There are a number of possible variations to both parts of this standard format.
Total amount payable
There are several ways of working out your provisional tax. The standard option is to calculate your provisional tax bill based on your latest tax return. The alternatives (subject to meeting eligibility criteria) include estimation, the GST Ratio Option, and the Accounting Income Method (AIM).
Standard option
The IRD automatically charges provisional tax using the standard option unless you choose an alternate method.
The standard option takes your Residual Income Tax (RIT) for the previous year and makes an adjustment. The calculation for the adjustment is:
- your previous year’s residual income tax with an uplift of 5% added
- if the previous year’s income tax return has not been filed, it will be the year prior to the previous year with an uplift of 10% added
Estimation option
If you think that the standard option will not fairly reflect your tax bill for the upcoming tax year, you are entitled to provide an estimate to Inland Revenue. You would then pay that estimated amount of tax in instalments during the year, on the usual instalment dates.
To work out your provisional tax, you need to estimate your Residual Income Tax (RIT) for the tax year. When working out your income tax, please note that you will only be liable for provisional tax if this figure is greater than $5,000.
To get the right tax rate:
- add up all your estimated income
- work out the tax on the total using the correct tax rate, or using IRD’s Tax on Annual Income calculator (both available here
- then subtract any credits for tax paid at source (like PAYE on wages and RWT on interest)
If your estimate (and therefore the provisional tax paid) is lower than your actual RIT for that year, you will be liable for interest on the underpaid amount.
You can estimate your provisional tax as many times as necessary up to and including your last instalment date. Each estimate must be fair and reasonable. As you can see, this is quite involved, and we suggest you really first have a chat with us if you seek to formally estimate your provisional tax.
Ratio Option
If you are also registered for GST you are able to pay your provisional tax at the same time as your GST payments. This method is handy if your income is seasonal, as the payment amount is closely linked to your actual sales figures. You are not paying large lumps of provisional tax during your quiet season, for example.
You will be able to use the ratio option if:
- You’ve been in business and GST-registered for all of the previous tax year, and at least part of the tax year prior to that
- Your residual income tax for the previous year is greater than $5,000 but less than $150,000
- You are trading as a sole trader
- You are liable to file your GST returns every two months
- Your ratio percentage that IRD calculates for you is between 0% and 100%
This method doesn’t work very well if you file GST returns as a company but pay provisional tax as a shareholder, and is not available at all if the business you’re operating is a partnership.
You need to apply in writing or via MyIR with the IRD before the start of the tax year in order to be able to use the ratio option.
Accounting Income Method (AIM)
This method is available to individuals and companies with a yearly turnover less than $5 million.
Using AIM may suit your business if the standard method is not a good match. For example, it may be the better option if:
- your business is growing
- you are new to business
- your income has reduced significantly since last year and is hard to estimate
- you have irregular or seasonal income
- it is hard to forecast your income accurately
As with the Ratio Method, your provisional tax is calculated and paid alongside your two-monthly GST returns. You’ll only pay provisional tax in periods when your business makes a profit.
If you make your payments in full and on time, the IRD will not charge use of money interest.
You can sign up to use AIM any time during the year. You have to choose this for every year, it does not automatically roll over to the following tax year.
The alternative methods of paying provisional tax may not suit everyone. Solutions such as tax pooling, and delaying the filing of tax returns(within reason) can also be used to ease taxpayers’ concerns and costs in calculating provisional tax. We suggest that you discuss your options with us.
Due dates
The due date and amount of instalments you need to make for payment of your provisional tax each year depends on your balance date, which of the above options you use and how often you pay GST (if registered).
If you have a 31 March balance date, use the standard or estimation option, and either are not GST registered, or do not file six-monthly GST returns, your provisional tax payments are due on:
| First instalment | 28 August |
| Second instalment | 15 January |
| Third instalment | 7 May |
If you are filing six-monthly GST returns (and the returns and the provisional tax payments are made in the same name) then there are two payment dates:
| First instalment | 28 October |
| Second instalment | 7 May |
If you use AIM or the Ratio method, there are six provisional tax payments each year, aligned with the GST return due dates.
If you have a non-standard balance date (that is, your tax year ends on a day other than 31 March) you may wish to check the provisional tax dates with us.
Interest
In most circumstances, you will not be charged interest if the provisional tax you paid is less than your residual income tax. Interest will apply if you choose to estimate your provisional tax, or if you pay late or less than the expected amount.
If the provisional tax you pay is more than your residual income tax, the IRD may pay you interest on the difference. Currently, Inland Revenue is paying interest at 0% but this is subject to change.
For further information on provisional tax give us a call or refer to the IRD Website.
For certain types of passive income (such as interest and dividends) tax is paid at source. This means that the person paying the income will deduct resident withholding tax (RWT) before paying the remaining (net) income.
Interest and Penalties
If you have money in an interest bearing bank account you’ll earn interest income on your investment. When paying the interest, your bank or other institution will deduct RWT and send it to the IRD. IRD keeps a record of the interest income earned and RWT deducted in your name, which can be seen by using your MyIR log in.
More information can be found at Tax Management New Zealand.
New Zealand dividends
Dividends are the part of a company’s profits that it passes on to its shareholders.
Dividends are taxed at an RWT rate of 33%. Part of this 33% can be made up of Imputation credits (credits that acknowledge the tax the company has already paid on its profits) with RWT deducted to make up the balance.
PIE Income
Portfolio Investment Entities (PIEs) are subject to special concessionary tax rules, which ensure that the highest rate of tax paid will be limited to 28%. There are two main types of PIE investments:
Multi-rate PIEs – where the investor can choose the appropriate rate of tax to be deducted from their income. Depending on a taxpayer’s gross income for the previous two years, the appropriate rate maybe 10.5%, 17.5% or 28%
Listed PIEs – where the income earned either has full 28% imputation tax credits attached or is exempt from tax
Inclusion in the tax return
Although these types of income have all been taxed at source, they do still need to be acknowledged in the recipient’s income tax return. The tax paid (as RWT, imputation credits or PIE tax credits) is also included in the return, as a partial payment of the tax charge for the year.
Your responsibilities
As the recipient of these types of income, you must
- Provide the payer with your IRD number, and
- Elect the appropriate tax rate for the payer to apply
For more information on RWT, and choosing the correct the tax rate for your circumstances, please give us a call.
You may apply for a tax credit if you earn a taxable income and:
- have donated money to a charitable organisation, and/or
- have donated money to a church or religious organisation, and/or
- have paid school fees.
There are some limits and provisos, as follows:
- Charitable Donations are only claimable if they are paid to an IRD approved donee organisation
- School Donations can only be claimed if they are made to state schools and state integrated schools. Do note that donations do not include tuition fees, payment for voluntary school activities, payments for classes where there is a take-home component or payments for transport to or from school activities.
- each donation must be of $5 or more
- you must hold a genuine receipt for each donation
- you cannot claim a rebate for donations in excess of your taxable income for the year
- for any donations were made through your employer’s payroll giving scheme you cannot claim a tax credit. This is because you have already received the tax credits for these at the time of your donation.
You can file the tax credit claim for yourself if you wish, either by
- sending all your receipts to Inland Revenue together with an IR526 form
- using myIR to upload your receipts and request the tax credit
Please note that if you are required to file an IR3 for your self-employed or shareholders income the IRD will not process your tax credit until that return has been processed by the IRD, hence we suggest that it may be easier if you provide the tax credit details to us at the same time as your other income information and we can prepare the tax credit claim form at the same time.
You’ll get a refund unless you have arrears or have asked for the credit to be transferred to another account.
For further information regarding tax credits, visit the tax credits section of the IRD website.
This information relates solely to individuals and individual income tax. In certain circumstances companies (but not sole traders, partnerships or trusts) may claim a donation to an Approved Donee Organisation as a business expense instead.
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.
There are various types of penalties and charges imposed by the IRD, as follows:
Interest
Interest rules are generic across all taxes and duties. Two-way interest rules mean that IRD pays interest on overpayments and you are charged interest on tax that is underpaid. However, from 8 May 2020 the IRD’s credit interest rate was set at zero.
Late Filing Penalties
The law requires you to file your tax returns by their due dates. If you don’t, you may have to pay a late filing penalty. If you receive a reminder to file your return or an account for a late filing penalty, file the outstanding return right away or let us know if you are not required to file a return.
Late payment penalties
If your taxes and duties are not paid by the due dates, you may have to pay a late payment penalty. If you’re not in a position to make payment in full, you can contact the IRD to arrange to pay your tax in instalments. You can do this before or after the due date.
Non-payment penalty on employer monthly schedules (EMS)
If you file your employer monthly schedule but don’t pay the amount calculated, you may have to pay a non-payment penalty as well as late payment penalties and interest.
How are the penalties calculated?
The non-payment penalty is 10% of the amount outstanding. If you do not pay, a further 10% penalty will be added each month an amount remains outstanding.
When you pay the amount outstanding or enter into an instalment arrangement, the last 10% penalty imposed will reduce to 5%.
Shortfall penalties
A shortfall penalty is applied when the correct amount of tax payable is higher than the amount showing in the tax return that was filed. These penalties are designed to encourage taxpayers to be careful with their tax returns rather than being careless or reckless. The penalties start at 20% of the shortfall but can be as high as 150% (for evasion) and may include imprisonment for serious instances of evasion.
Instalment arrangements
If you miss or short-pay your agreed monthly instalment amount, a 10% penalty will be charged.
If your ability to make a tax payment on time has been affected by COVID-19, the IRD may be able to write off use-of-money interest.
Solutions
Tax pooling through companies such as Tax Management NZ are available to ease the provisional tax cash-flow burden and reduce use of money interest.
For more information about tax pooling and your exposure to tax penalties, give us a call.
For more information about tax penalties refer to the IRD’s Obligations, Interest & Penalties Guide
Working for Families tax credits are available to families with dependent children aged 18 years or younger. It includes four different types of payments (tax credits).
The types of payment and the amounts you can get depend on:
- how many dependent children you care for
- your total family income
- where your family income comes from
- the age of the children in your care, and
- any children you share care for.
All payments are made to an eligible parent to help with the family’s day to day living costs.
Who pays it
Work and Income generally pays your family tax credit if you receive an income-tested benefit as your main income.
Inland Revenue pays Working for Families Tax Credits if your main income is from working, a student allowance, NZ Super or ACC.
If you receive an income-tested benefit you can choose to receive your family tax credit from either Work and Income or Inland Revenue.
The Working for Families tax credits are made up of the following:
- Family tax credit – credits of tax paid for each dependent child
- In-work tax credit – available to families who have some income from paid work each week, no longer is there a minimum hours worked level. You are not eligible if you are receiving an income-tested benefit or student allowance, but you can receive it if you are being paid by ACC or paid parental leave
- Best Start tax credit – available to working families with a new-born child who do not receive paid parental leave or income-tested benefits
- Minimum family tax credit – this credit ensures a minimum annual family income for those families falling below the threshold
(note – you may be entitled to more than one of these payments)
Receiving and managing your payments
You can receive Working for Families Tax Credits payments weekly, fortnightly or by annual lump sum. Ensure you regularly update your income earnings and circumstances, to ensure you do not end being overpaid.
For more information just give us a call or visit the IRD website.
Newsletters
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Vision Accounting Newsletter – Sept 2021
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Calculators
There are many calculators available on the Internet. Here are several recommended ones to provide you with some instant feedback on your thoughts and plans.
When it comes to making an important decision we are here to help make sure you have considered all of the relevant financial information.
Key tax dates
Depending on your individual circumstances the tax due dates that apply to you will be different. The IRD has a range of calendars available that will help you plan ahead in meeting your obligations.
Questionnaires
These questionnaires include the key questions we ask our clients in order to ensure we include all the expenses and claims they are entitled to.
Please click on the appropriate button followed by the relevant file to open a pdf which can be printed out, completed and returned to us.
If you have any queries, please do not hesitate to contact us.
Links
Trying to find high-quality and useful sites on the Internet can often be a time-consuming experience. To save you the trouble, Vision Accounting has compiled a list of websites that we have found to be valuable sources of information.
Business planning
Business software
Funding
Grants & Other Financial Assistance
Financial institutions
Inland Revenue (IRD)
Human Resources
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Vision Accounting
T: (09) 415 0319
17-19 Constellation Drive, Rosedale
