CHARTERED ACCOUNTANT'S NEWS & VIEWS
An accounting knowledge database
While not meaning to imply that you are no longer capable of climbing our stairs, please feel free to phone and request an alternative arrangement. We can come out to you, or meet you downstairs if you wish.
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Invoices & statements
In recent times we have emailed out to clients our quarterly newsletter, and annual questionnaires. If you wish to receive these documents by email, and you have not already received them electronically, please give us a call to arrange.
The next stage in this electronic process is , we intent to start emailing fee invoices and statements to all clients. We will shortly be sending a notice via email to confirm this change. Hard printed copies of the documents will still be available.
Your co-operation in this matter is appreciated.
Making tax simpler
In April, the Government announced proposals to simplify business tax, with legislation to be passed in August this year. They asked for feedback by end May on the best way to implement these proposals. The earliest of the changes would take effect from April 2017, with more coming online in 2018. At the moment, this would change the tax landscape to look something like this:
From 1 April 2017
Use of money interest
Hundreds of thousands of taxpayers will be better off following the government’s proposed revamp of business tax, as they will be removed from Inland Revenue’s use of money interest regime, says Tax Management NZ chief executive Chris Cunniffe.
Taxpayers using the standard uplift method (paying 105% of last year’s tax bill) will no longer be charged interest if they underpay at their first and second provisional tax dates, provided they pay the income tax they owe at their last provisional tax date.
Businesses and individuals who have residual income tax below $60,000 will also not be subjected to interest. It is expected that 67,000 taxpayers will benefit from this.
Incremental late payment penalties will be removed from new debt for goods and services tax, income tax and working for families tax credits.
Credit reporting of tax debt
Inland Revenue can disclose significant tax debts to credit reporting agencies, so that other businesses considering extending credit can make more informed commercial decisions.
Inland Revenue can share information with the Registrar of Companies to help enforce company law requirements. This will help weed out non-compliant companies continuing to trade with an unfair commercial advantage over compliant businesses.
Withholding tax and schedular payments
Contractors will be able to elect their own withholding tax rate.
Contractors working for labour-hire firms can be covered by withholding tax.
Contractors and their payers can forge voluntary withholding agreements so that contractors can have tax withheld on a payday basis, reducing the impact of provisional tax.
From 1 April 2018
A new way to calculate and pay provisional tax
The accounting income method (AIM), which will be available to taxpayers with turnover of $5 million or less, will allow those who have IRD-approved accounting software to pay income tax on a two-monthly basis. Up to 110,000 taxpayers will be eligible.
Companies can pay tax as agents for shareholder-employees in respect of their shareholder-employee salary. This will reduce the impact of provisional tax for shareholder-employees.
Taxpayers who are forced to use the estimate method due to volatility or seasonality may find tax pooling a useful option to manage income tax payments, as they will be subjected to IRD interest.
Tax pooling would also provide businesses with cashflow constraints greater flexibility around when and how they pay their provisional tax payments.
But what will it mean for me?
The outcome of the consultation phase on tax simplification may still change how or whether some aspects are implemented but it seems certain that the broad outline of the changes will go through.
Best case scenario for small businesses: this should reduce complexity and make it easier to pay tax. You’ll pay tax more frequently based on your business’ actual income. You may end up paying less in tax, penalties, and interest. However paying tax more frequently may require you to keep a closer eye on cashflow to keep money coming in to pay the bills.
Worst case scenario for small businesses: you may end up paying more tax if you don’t stay aware of your tax obligations and ensure the accuracy of the data input into your business software. We can assist you with regular monitoring and checking your systems are accurate and fit for purpose.
Underpaid income tax?
Underpaid provisional tax can cause a few headaches.
Maybe you did not keep up with your provisional tax payments throughout the year? (oops) Perhaps you did not end up paying enough because you had a better-than-expected financial year (yay! but damn, an increased tax liability). It could be that seasonality or volatility make it difficult to forecast your provisional tax payments.
Whatever the case, owing the taxman additional income tax can put pressure on your business’ cashflow. With Inland Revenue’s interest clock continuously ticking at 8.27 per cent (and at 9.21% for tax debt incurred up until 8 May 2016) while that tax remains unpaid, the cost can quickly add up.
An option we have discussed before is tax pooling. It is a service designed to reduce interest costs and provide payment options for provisional taxpayers.
How does it work?
For underpaid income tax, you can settle what you owe IRD by paying through a tax pooling intermediary such as Tax Management NZ (TMNZ) at an interest cost lower than the interest IRD charges on underpaid tax.
The payment you make is essentially a purchase of tax that TMNZ paid to IRD on the original date the provisional tax was due.
As this payment is date-stamped, IRD treats the tax as paid on time once it has processed the transfer from the tax pool to your IRD account. Any late payment penalties and interest showing on your account will be reversed once this happens.
When might this be useful?
Tax pooling can be used if you have underpaid income tax for the current tax year (2016) or the one just completed (2015).
Is tax pooling secure?
Tax pooling intermediaries are registered with IRD and operate under legislation set out in Income Tax Act 2007 and Tax Administration Act 1994.
The system was proposed by IRD so private markets could provide ways for provisional taxpayers to manage their income tax obligations and reduce their compliance costs.
The tax pool accounts operated by tax pooling intermediaries are held at IRD and managed by an independent trustee. The independent trustee also oversees the bank accounts in which your payments are made.
Timeframes for using tax pooling
Tax pooling gives you an extra 75 days past your terminal tax date to pay what you owe IRD. So, if you have a 7 April terminal tax date, you have until 15 June to settle underpaid provisional or terminal tax liabilities for the 2015 tax year. For underpaid income tax relating to the 2016 tax year, you have until mid-June 2017.
What to do next
Contact us if you would like to discuss tax pooling as an option to clear up your underpaid provisional tax debt.
We are very pleased to announce the new arrivals with the birth of Mia and Lukah.
Discussion paper for investors
Good investment advice should always consider an investor’s tax situation as part of any strategic plan designed to help them achieve their investment goals.
When it comes to investment portfolios, tax planning is about enhancing investors’ after tax returns without incurring any additional risk.
There are seven key ways we seek to add value in relation to tax:
We recognise that none of the above tax planning items are exceptional, however, in our view, great advice is not found in doing the exceptional, but in doing the obvious exceptionally well.
If you want a copy of our discussion paper, please contact Marc or Shaun on 06-8433058.
Times are changing in the accounting world and we feel our responsibility as Accountants has widened. It is becoming much more important that we advise on such issues as protecting your business and future proofing your circumstances.
ACC is an inevitable cost to any business and every business is required to pay ACC levies. These can be reduced in many instances and we recommend Christine Hay of Financial Sense Limited to look into this for our clients. Christine is an independent adviser who specialises in helping our clients with shareholder protection, key person protection and ACC implications.
The structure of an insurance adviser working closely with the accountant has proven to be very successful and a point of difference. Just having the correct policies is not enough, the ownership needs to be correct for your business or trust. We often find there are ACC savings to be made and benefits added and these savings are ongoing each year.
Christine has the unique advantage of being able to discuss the most tax and cost effective way of structuring your insurances for your individual circumstances, working alongside your accountant to incorporate your insurances with ACC to gain the best advantage.
Christine offers all of our clients a free, no-obligation review of their current business and individual protection and can advise any changes that may need to be made and areas where savings could be made. Please feel free to contact our office if you would like to take up this offer and we can organise it for you.
Here you'll find all the news from the Oldershaw office plus our take on relevant accounting talking points.