Questions.
Do I need an accountant?
No, you can prepare your own financial statements and tax returns. However many business owners like to seek the advice of an accountant to ensure that they are doing things right and maximizing their profits.
Do I have to file my tax return to the IRD by 7 July?
No, with us as your tax agent you get an extension of time for filing until 31st March. You also get an extension on tax payment from 7th February to 7th April.
Do I have to pay tax in the first year of business?
You may have heard that you don’t need to pay provisional tax in your first (financial) year of business. This only applies in some cases. If you are a sole trader or shareholder/employee and your tax bill for your first financial year will be less than $50,000 then you don’t need to pay provisional tax during the year. You still need to pay the tax due at the end of the financial year (i.e. it’s deferred tax rather than no tax). If your tax bill will be more than $50,000 OR you are trading as a company or a trust you should pay provisional tax as you go based on your expected income for the year. In either case, if your tax bill for the year ends up being more than $50,000 and you haven’t been paying the provisional tax you will be charged penalties by IRD.
What is provisional tax?
Provisional tax is a method of paying tax as you go during the year but if you don’t use the PAYE system. If you are earning income as a sole trader or as a shareholder-employee then you are not required to deduct & pay wages and PAYE from your earnings. Instead, you can pay provisional tax 3 times a year with a “wash-up” at year-end. The amount of provisional tax you need to pay is the same as the tax you paid on last year’s actual earnings plus 5% if your tax for the year is $50,000 or less. If your tax for the year is likely to be more than $50,000 then you are required to estimate your tax each year and pay it in equal installments during the year. If at year-end your tax was more than you had estimated then you will pay interest on any shortfall. If you paid more tax than was required then IRD will pay you interest as well as refund you any overpayment.
What is the best entity structure for my business?
It is simplest and easiest is to operate in your own name as a sole trader. There is also company entity structure that can appear more commercially professional. A company structure also provides opportunities to sell your business by selling the shares in the company and to expand or obtain further investment in the company by selling shares to new investors. A partnership is another entity where there are 2 or more business owners. There are also Trading trusts and Family Trusts. It is best to discuss this with us so we can advise the best type of entity for your business.
Do I need to register for GST?
If you have earned or will earn more than $60,000 in a 12 month period then you need to register for GST. The exception to this is if you are only exceeding this threshold because you are selling capital items to replace existing assets, or selling capital items because you are winding down or ceasing business activity.
What Entertainment expenses can I claim?
Usually, entertainment expenses (meals and drinks consumed off the office premises) are 50% deductible. If you bring food or drinks into your office (e.g. because people are working late) then it is usually fully deductible. If you are traveling for work any of your accommodation and associated costs (meals etc;) are fully deductible. However if while traveling you are paying for meals for work-related guests then the cost of the meal is only 50% deductible.
What are the rules for claiming motor vehicle expenses?
If you are a business and you are using a vehicle then you must keep a logbook for 3 months to record the percentage of usage that is work-related. You can then claim that percentage of the associated vehicle costs e.g. depreciation, petrol, registration, insurance, warrants of fitness, repairs, tyres etc. Your three-month log book will last for 3 years but needs to be redone if your usage changes by more than 20%. Therefore you should not do your logbook over the Christmas break when your business travel is likely to be low! If you are only doing a small amount of travel you may prefer to keep track of the actual trips completed and the kms traveled and claim these back at IRD rates. If you are using a company then it depends who owns the vehicle. If you personally own the vehicle you can be reimbursed for the actual costs based on a logbook of private vs business use or you can be reimbursed for the business km’s traveled using IRD mileage rates. If the company owns the vehicle you can claim 100% of vehicle costs and have unlimited private use if you pay FBT on the value of the fringe benefits provided from the vehicle use – we can calculate this for you. If the vehicle is not available for private use (100% used for work) then there is no FBT but this is hard to prove and usually only applies to vehicles that are obviously only used for work such as vans and trucks.
Do I have to pay ACC - accident compensation levies?
ACC Levies are based on information shared from Inland Revenue after we file annual tax returns. We are able to act on your behalf with ACC and make sure you are on the right code and rate.
What are the new rules for deducting interest on a rental property?
The rules are graduated depending on when the property is acquired:
for residential property acquired on or after 27 March 2021, taxpayers won’t be able to claim deductions for interest from 1 October 2021
for properties acquired before 27 March 2021, interest on loans can still be claimed as an expense. From 1 October 2021 – 31 March 2023, the amount claimable will be reduced to 75%, reducing by 25% each following income year, until it is phased out completely from 1 April 2025.
Property developers and builders who build properties to sell will still be able to claim their interest expenses.
What is the Bright Line test & what are the new rules?
The Bright-line Test means if someone sells a residential property within a set period after acquiring it, they may be required to pay income tax on any profit made through the property increasing in value. The main exemption is your main home.
Different rules apply for different scenarios:
For properties purchased from 27 March 2021, the bright-line test period is 10 years.
If you already own a rental, and, the old rules apply:
a 5-year bright-line test if you purchased the property on or after 29 March 2018, or
a 2-year bright-line if you purchased the property from 1 October 2015.
If it’s a new build, the proposal is that it will be subject to a 5 year bright-line test.