New Zealand Tax Facts

Employer premiums

Employer invoicing by ACC takes place in July and is based on employee earnings for the year ended 31 March.

Inland Revenue provide ACC with relevant earnings data from employer monthly schedules. From this information, ACC calculates the total levies due.

Self employed persons and partners

Self Employed Invoicing is based on self-employment earnings included in your IR3 Income Tax return. The Levies are calculated after the return has been processed by Inland Revenue and the relevant information has been provided to ACC.

Shareholder employees

Non-PAYE Salaries paid to shareholder employees are required to be declared by the company in the IR4 Income Tax return. The Levies are calculated and charged to the company after the return has been processed by Inland Revenue and the relevant information has been provided to ACC.

Options available 

Self Employed Persons, Partners and Shareholder Employees can apply for ACC Cover Plus Extra which is an agreed value policy where you pay based on a level that is appropriate to your needs.

We have found that this cover option is beneficial in the following situations:

• When you have other insurances in place that provide assistance for any personal accidents or illness.
• When you have other sources of income such as investments that mean that you would not require the income if you are unable to work.
• For business where the profit can vary from year to year (such as farmers).
• To arrange cover for Partners using a split other than that required for income tax purposes.

The premium is slightly higher than the standard option but has the following additional advantages:

• The classification relates to the actual activity you are personally engaged in rather than based on the company/partnership activity.
• Being an agreed value policy, payment is automatic, that is, there is no requirement to provide detailed information regarding the company to ACC when making a claim.

The Classification Unit Rate is based on the actual cost of work-related injuries that occur within your classification unit. A classification unit is a group of businesses that operate within a similar industry.

For more information on ACC premiums visit the ACC website.

Accounting for depreciation

You cannot claim the cost of a tangible asset (costing more than $500) as a business expense against your income. Instead, you must depreciate the item – similar to allocating the cost of an item over its useful life, allowing for its wear and tear each year.

What should I depreciate?

For tax and accounting purposes, depreciation must be deducted from your income for all fixed assets that you expect to use for business purposes for a year or more.

Not all fixed assets can be depreciated. Land, for example, cannot be.

How do I calculate depreciation?

You will need to keep a fixed asset register, to show all the assets you will be depreciating – showing the depreciation claimed and the adjusted tax value of each asset.

The adjusted tax value is the asset’s cost price, minus all the depreciation you have calculated (year on year) since it was purchased.

There are two methods of depreciating assets – the diminishing value method and the straight-line method. You are able to choose what method you use to depreciate each asset, each financial year. Your accountant can advise the best method for each asset.

In special circumstances, you may also elect not to depreciate an asset by applying to Inland Revenue.

How much should I depreciate?

To view depreciation rates and the methods for calculating depreciation, please refer to the IRD Depreciation Guide.

Individuals 

Individuals can make a claim for rebates on an IR526 form for:

• Donations of $5 or more to an approved charity; or
• Payment of school donations (not school fees).

Individuals are able to claim a 33.33% rebate for donations made up to a total maximum equal to their annual taxable income.

Rebates can be claimed by individuals (not companies, trusts or partnerships) who:

• Earned taxable income during the period being claimed for; and
• Were in New Zealand at any time during the tax year (including non-residents).

If you claimed a rebate last year, Inland Revenue will automatically send you a rebate claim form in April. Otherwise, you can complete the IR526 form available on the Inland Revenue website print and sign it, attach your receipts and post it to Inland Revenue.

Companies

Companies can claim a deduction for donations up to their taxable income (before taking into account the donation deduction).

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

1. Corporate Boxes
2. Holiday Accommodation
3. Pleasure Craft
4. Food & Beverages consumed at any of the above or in other specific circumstances

There are a number of exemptions from these rules, please contact us if you are unsure, or see the IRD Entertainment Expenses (IR268) booklet for more information.

When you provide an employee with some kind of employment-based benefit (including a benefit that is actually provided through a third party), a fringe benefit tax is imposed on the business.
There are 4 main groups of fringe benefits:

1. Motor vehicles
2. Low-interest loans (not including low-interest loans provided by life insurance companies or loans for certain employee share schemes)
3. Free, subsidised or discounted goods and services (including gifts and prizes)
4. Employer contributions to superannuation schemes, sick, accident or death benefit funds, and specific insurance policies

For more information on what is considered a fringe benefit, and how FBT is calculated on these 4 main groups, visit Inland Revenue website by clicking the links below.

• Motor vehicles
• Low interest loans
• Goods & Services
• Employer contributions

Fringe Benefit Tax on motor vehicles can be a significant cost. For assistance in managing this cost, contact your Baker Tilly Staples Rodway tax advisor.

GST is a tax on the supply of goods and services in New Zealand by a registered person on any taxable activity they carry out. The rate for GST is 15%, although it can be zero-rated for exports and other specific goods and services.

Certain supplies of goods and services are “exempt supplies”. These include:

• Certain financial services
• Lease of residential properties
• Wages/Salaries and most Directors Fees

GST registration is required if the annual turnover of the business for a 12 month period exceeds or is expected to exceed $60,000.

Voluntary registration for GST is available even if your business turnover is less than $60,000.

If your business turnover exceeds $500,000 per annum you must file your GST returns either monthly or two-monthly. If your turnover exceeds $24 million per annum then you must file one-monthly GST returns.

There are three methods of accounting for GST:

1. Invoice Basis
2. Payments Basis
3. Hybrid Basis

If your business turnover exceeds $2 million per annum you cannot use the payments basis.

If you are selling or are thinking of selling your products through your website please also refer to the section on GST and E-Commerce.

Non-resident business who have paid GST on New Zealand expenses may be entitled to recover this.  Please contact a Staples Rodway tax specialist for more details.

For more information on GST see the GST section of the Inland Revenue website or contact your Baker Tilly Staples Rodway advisor.

Sale of physical goods via the interne

Overseas purchaser

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.

New Zealand purchaser

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%.

Where an overseas entity (for example, Amazon) sells goods via the internet and the goods are physically supplied to a customer in New Zealand, then the customer will need to pay GST (and duties) to New Zealand Customs, but only where the total GST and duties due exceeds NZ$60. Where goods do not attract duties, this means that goods up to NZ$400 in value can be imported GST free.

Sale of remote services via the internet 

From 1 October 2016, new rules apply to the sale of remote services via the Internet to New Zealand non-GST registered customers. Remote services include e-books, music, videos and software. GST will generally be charged on these services even when the supplier is non-resident.

Overseas seller

Overseas sellers that would be required to account for GST if they were New Zealand based will be required to account for GST on a quarterly basis for remote services provided to non-GST registered New Zealand customers. The overseas seller will be required to determine whether a customer is New Zealand resident based on two non-conflicting pieces of evidence. Indicators that can be used include:

• The person’s billing address
• The person’s IP address
• The person’s bank details
• The mobile country code on the person’s SIM card
• The location of the person’s fixed landline

Where the New Zealand customer is not GST registered, then GST at 15% must be charged. Where the New Zealand customer is GST registered, then the overseas seller will not be required to charge GST. Unless the customer provides their GST registration number, their New Zealand Business Number or notified the supplier of their status as a GST registered business, the overseas seller must assume that a New Zealand resident customer is not GST registered.

For more information refer to the E-Commerce and GST section on the Inland Revenue website or contact your Staples Rodway advisor.

All New Zealand residents and people entitled to live in New Zealand permanently up to the age of 65 are eligible for KiwiSaver.  While enrolment on the commencement of employment is automatic, employees have 56 days to opt out of KiwiSaver.  If they do not opt out in this period, then they remain enrolled except for when contribution holidays are taken.

Government:

• Pays annual member tax credit (for those 18 and over) of 50 cents for every dollar contributed up to a maximum of $521.
• Funds first home deposit subsidy through Housing NZ if criteria met.

Note: There is no Crown guarantee of KiwiSaver schemes or investment products of KiwiSaver schemes.

Employers must:

• Give new employees and other staff who are interested an Employee information pack (KS3).
• Pass employee’s details to Inland Revenue to enable them to be enrolled.
• Deduct contributions from employee’s gross salary and pay these to IRD through the PAYE system.

Employers must contribute at least 3% of the employee’s gross salary or wages to their employee’s KiwiSaver scheme unless the member is on a contribution holiday. Employer Superannuation Contribution Tax must be withheld from this amount.

Employees must contribute either 3%, 4% or 8% of their earnings unless they are on a contribution holiday.

More details on the Employer’s role are available on the Inland Revenue website.

Applies to real estate, watercraft and aircraft costing more than $50,000, where the asset is used for both private use and income-earning use and is unused for 62 days or more per year. Where an asset earns gross income of less than $4,000 per annum, the owner can opt out of the regime and income does not need to be declared and deductions are denied. Where mixed use assets are in the regime, expenditure not specifically related to income-earning use must be apportioned, using the formula:

(Income-earning days) / (Income-earning days + counted days)

Where gross income is less than 2% of the asset’s value, and a loss is made, then losses are quarantined and a deduction may only be claimed when the asset earns income. Special rules apply to the treatment of interest deductions where a mixed use asset is held by a close company.

If you have a mixed use asset, it is recommended that you speak to your Baker Tilly Staples Rodway advisor due to the complexities of the rules as well as the opportunities that exist.

Where a payment of interest, dividends and/or royalties are made to an offshore person, some of that payment must be withheld and paid to Inland Revenue as non-resident withholding tax (NRWT).

The default rates of NRWT are 15% on interest, 30% on dividends and 15% on royalties. Lower rates of NRWT may be available under a double tax agreement. Inland Revenue provides a high level list of the relevant rates of NRWT applicable to payments made to these countries (refer here). These only cover the most common scenarios, and each double tax agreement has its own rules which can provide even more favourable NRWT treatment.

NRWT has many risks and opportunities, and because each scenario is different, a one size fits all approach should not be taken. Baker Tilly Staples Rodway tax specialists can look at your unique circumstances and help you manage your NRWT obligations and can recommend appropriate opportunities.

Pay As You Earn (PAYE) is the basic tax taken out of employees’ salary or wages. The amount of PAYE deducedt depends on the employee’s tax code.

PAYE employees must complete a Tax code declaration (IR 330) as soon as they start working for you. If an employee fails to complete the tax code declaration, the employer must deduct PAYE at the no-declaration rate.

Every month the employer must file an employer monthly schedule detailing each worker’s gross earnings and deductions.

If they are a small employer with gross annual PAYE deductions of less than $500,000, the schedule and payment are made on the 20th of the month following the deductions.

If they are a large employer with gross annual PAYE deductions of $500,000 or more, the deductions made from payments made to workers between the:

• 1st and the 15th of the month are paid by the 20th of the same month.
• 16th and the end of the month are paid by the 5th of the following month (except for December payment is to be made by 15 January).  The employer monthly schedule is filed along with this payment.

Employers with gross annual PAYE deductions of $100,000 or more must file the employer monthly schedule electronically.

Taxpayers who do not meet their tax obligations may face penalty or interest charges. To avoid such charges, taxpayers should pay the full amount of tax you owe by the due date.

The main kinds of charges for failing to meet tax obligations are:

• A shortfall penalty where the correct amount of tax is higher than the amount you paid (for instance, because of an understatement of tax, or where the amount of a refund or loss is reduced).
• A late payment penalty if Inland Revenue receive a payment to us after the date it was due.
• A late filing penalty if you do not file a return by the due date.
• Interest on the amount of tax you owe if you have underpaid your tax. The interest rates charged are based on market rates.
• EMS non-payment penalties where you file an employer monthly schedule but do not pay the full amount payable on that schedule.  These penalties are in addition to any of the other penalties that may also then be payable.

For more information refer to the Inland Revenue’s Penalties and Interest Guide.

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.

If your residual income tax is $2,500 or more you will have to pay provisional tax for the following year. Residual income tax is basically the tax to pay after subtracting any rebates you are eligible for and any tax credits (excluding provisional tax). Residual income tax is clearly labelled in the tax calculation in your tax return.

There are three options for working out your provisional tax: standard, estimation, and ratio.

Standard option

Inland Revenue automatically charges provisional tax using the standard option unless you choose the estimation or ratio options. Under this option:

• Your provisional tax payable is your previous year’s residual income tax plus 5%
• Changes in tax rates may have an effect on the calculation of your provisional tax

Estimation option

The other way to work out your provisional tax is to estimate what your residual income tax will be. When working out the tax, keep the following points in mind:

• To get the right tax rate –
  • Add up all your estimated income
  • Work out the tax on the total
  • Subtract any tax credits (like PAYE, RWT and Imputation Credits)
• Using the estimation option, if your estimated residual income tax is lower than your actual residual income tax for that year, you may be liable for interest on the underpaid amount
• You can estimate your provisional tax as many times as necessary up until your last instalment date. Each estimate must be fair and reasonable

Ratio option

You can base your provisional tax instalments on a percentage of your GST taxable supplies. 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 the tax year prior to that
• Your residual income tax for the previous year is greater than $2,500 and up to $150,000
• You file your GST returns every month or every two months
• The business you’re operating is not a partnership
• Your ratio percentage that Inland Revenue calculates for you is between 0% and 100%

The ratio will be calculated by applying the following rule:

Ratio Percentage = Residual Income Tax from previous year/GST Taxable Supplies from previous year x 100/1

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 and use the standard or estimation option or are also GST Registered on a 1 or 2 monthly basis, the provisional tax payments are due on:

*If you are on a six monthly GST basis, the second instalment is not required, and the first instalment is due on 28 October.

Use of money interest

Interest is payable by all Companies and Trusts that are provisional taxpayers, and may be payable by individuals if they have estimated their provisional tax or in other specific circumstances.

In some circumstances you may be charged interest if the provisional tax you paid is less than your residual income tax.  If the provisional tax you pay is more than your residual income tax, Inland Revenue may pay you interest on the difference.

For further information on provisional tax, due dates and changes made by Inland Revenue refer to the Inland Revenue Website.

Resident Withholding Tax (RWT) is a tax deducted on interest earned from investments and bank accounts.  The investment organisation or bank deducts this tax when they credit interest to you.

Companies may also deduct RWT from dividends paid to New Zealand resident shareholders.

If you receive interest as income you need to:

• Provide the interest payer with your IRD number, and
• Elect the tax rate at which this is to be deducted by them

The RWT rate used will vary for individuals and different types of business entity.

For more information on RWT, the tax rate and how this tax applies to interest and dividends refer to the Inland Revenue website

Residential Land Withholding Tax (RLWT) is a tax deducted when specific persons (primarily foreigners, but also certain New Zealand entities) sell residential property that would be taxable under the two year “bright-line test”. The vendor’s conveyancer or solicitor typically deducts this tax when they sell a property.

RLWT is the lesser of these three calculations:

• 33% (28% if the vendor is a company) of the current purchase price less the vendor’s acquisition cost
• 10% of the current purchase price
• the greater of zero and, the current purchase price less outstanding local body rates less amounts due under a mortgage on the property (this calculation is only available in certain circumstances)

RLWT is not a final tax. As such, if RLWT is withheld on a property that you have sold, you will need to file an income tax return for the year. You can make an interim claim on the RLWT withheld.

Part of the RLWT rules requires that a “tax statement” be provided by both parties to a property transaction. If you claim that you are not an offshore person, then you will need to provide evidence to show this – for instance, a New Zealand passport or residence class visa.

For more information about RLWT and how this applies to residential property refer to the Inland Revenue website.