The 39% tax rate – Your questions answered

The 39% tax rate – Your questions answered

New Zealanders earning over $180,000 a year will now pay a 39% tax rate, which came into effect on 1 April 2021. If this includes you, are you aware of how your tax obligations change when it comes to shares, property, FBT, superannuation tax, or trusts?

The 39% tax rate and trusts

From now on, you’ll need to disclose a lot more information to Inland Revenue in your annual trust tax returns. The additional information will provide the Government with information on how trusts are being used, particularly with the introduction of the new 39% tax rate. As part of their annual income tax return, trustees will now have to disclose:

  • Financial accounting information, including profit and loss statements and
  • balance sheet items
  • Loans to related parties
  • Information on distributions and settlements made during the income year
  • Names and details of settlors from prior years
  • Names and details of each person who, under a trust deed, has the power to appoint/dismiss a trustee, to add/remove a beneficiary, or to amend the trust deed.

The 39% tax rate and beneficiary income from a trust

If you receive beneficiary income from a trust, let us know if you’d like to know more about your tax position.

The 39% tax rate and property or shares

If you are looking to purchase assets such as property or shares, or already have such investments, it would be prudent to assess your overall investment strategy so that it meets your commercial and personal goals, including your tax profile. Such investments are able to be held in companies or a trust, which have tax rates of 28% and 33% respectively, however on distribution to individuals in most cases the individual’s tax rate will effectively be applied. A strong note of caution – the main reason for any restructuring should not be due to any perceived tax benefits arising out of the restructure. Any restructuring should be focused on achieving key objectives such as successful commercial, risk, succession, and asset protection outcomes. We can review and assist you with planning to meet your objectives.

The 39% tax rate and superannuation contribution tax

Time to check whether you have employees whose Employer Superannuation Contribution Tax (ESCT) and Retirement Savings Contribution Tax (RSCT) rate threshold exceeds $216,000. The tax rate for these have risen to 39% (as of 1 April 2021).

The 39% tax rate and fringe benefit tax

A new Fringe Benefit Tax (FBT) rate of 63.93% will apply for all-inclusive pay above $129,681 and the single rate and pooling of non-attributed fringe benefit calculations. The 42.86% rate for non-attributed benefits will no longer apply. Talk to us about your current FBT profile and we can review it together.

The 39% tax rate and additional employment income

The tax change applies to all employment income over $180,000 a year, including bonuses, back pay, redundancy, and retirement payments. As an employer, take account of when additional remuneration to employees may affect their tax obligations and make sure tax is deducted correctly.

The 39% tax rate and RWT and RLWT

  • If you earn interest, this will be taxed at 39% (RWT) from 1 October 2021.
  • If you’re selling property covered by the bright-line test, residential land withholding tax (RLWT) will increase from 1 April 2021 to 39% (except where the vendor is a company).

6 things you should know before filing your EOY tax – post COVID-19

6 things you should know before filing your EOY tax – post COVID-19

Ticking items off your end-of-year tax checklist this month?

Make sure you consider the business support and tax relief measures introduced because of COVID-19 so you can sail as smoothly as possible into the new financial year.

There are some things you may not be used to thinking about when you prep for end of tax year:

  1. New rules to keep cash flowing – If money is a bit tight as the financial year draws to a close, here are four tax measures focused on providing and enabling cashflow that you might like to consider:
    • The tax loss carry-back rule, which means if you’re expecting a tax loss for the year ended 31 March 2021, you might be eligible for a refund of provisional tax previously paid for the 2020 year.
    • If your cashflow has been significantly impacted by the economic effects of COVID-19, you may be able to apply for relief from use of money interest and penalties, or enter into an instalment arrangement for payments due to Inland Revenue. Inland Revenue’s ability to remit use of money interest in such circumstances applies to tax payments due up until 25 March 2022.
    • Keeping an eye on tax losses, as the Government have announced plans to introduce a same or similar business test that allows tax losses to be carried forward. This will become useful if you’re wanting to raise capital for your business in the future.
    • Consider the Small Business Cashflow (Loan) Scheme being offered by the Government through Inland Revenue where certain conditions are met. This provides loans of up to $10,000 (dependent on the number of employees) with an interest rate of 3%, with no interest applying if the loan is repaid within 2 years.
  2. Asset threshold lowering – Put aside time to review your asset expenditure. Identify any assets (valued up to $5,000) that you need and buy them before 17 March 2021. This way, you’ll be able to claim an immediate deduction for these assets under the low-value asset write-off as the threshold drops from $5,000 to $1,000 on 17 March 2021. The temporary $5,000 threshold was a concession as a result of the COVID-19 relief measures introduced, and from the 17 March 2021 the $1,000 threshold is an increase from the $500 amount that was previously in place prior to 2020. It’s also a good time to ensure records are up to date on any commercial buildings as depreciation for tax purposes is available on commercial buildings for the year ended 31 March 2021.
  3. Earn over $180,000 a year? – If you’re one of the 75,000 Kiwis impacted by the new 39% tax rate, review your business and investment structure with us before 1 April 2021. The marginal tax change, rushed through last December to help pay for the COVID-19 recovery, applies to all employment income over $180,000 a year. It includes extra pay earned in the course of employment, such as bonuses, back pay, redundancy, and retirement payments. It is timely to consider such payments in relation to the 2021 year, as well as reviewing dividend payments.
  4. Keeping subsidy records crucial – While COVID-19 related wage and leave subsidies are non-taxable, keep accurate records of any subsidy you received and which staff member it was paid to, in case the Ministry of Social Development asks to review your records down the track.
  5. R&D loss tax credit – Start-up companies are able to cash-out their tax losses arising from eligible research and development (R&D) expenditure, and avoid carrying the losses through to the next income year. The credit can only be for:
    • eligible R&D business expenditure
    • up to 28% of your tax losses from R&D activity
    • companies that are tax residents in New Zealand
    • dates on or after 1 April 2015. The rules around R&D expenditure are detailed and eligible R&D expenditure will require approval from Inland Revenue. So if you’re looking to claim under these rules, you will need to start looking at this sooner rather than later, and keeping records of such expenditure as it occurs.
  6. Staff reimbursements and allowances – Make sure you have a good record of any reimbursements and allowances paid to employees for expenditures – generally and in account of new COVID-19 related Working from Home (WFM) tax changes. Remember:
    • For telecommunications devices and plans, staff reimbursements are tax exempt up to $5 per week. If reimbursement is above this amount, the exempt amount is 25% if the device or plan is used partly, 75% if used mainly, or 100% if used exclusively for employment purposes.
    • WFH payments claimed between 17 March and 17 September 2021 allow an additional $15 per week, per employee, to be exempt income for other WFH expenditure.
    • A tax-exempt payment for use of furniture or equipment when WFH to reimburse the depreciation of the item. The payment will typically be for the cost of the asset and the payment will still be deductible to the employer. Note the low-value asset threshold of $5,000 applying between 17 March 2020 to 17 March 2021 will apply here.

Leveraging Your Technology

Leveraging Your Technology

The decisions you make in your business are only as good as the data you use to make them. The more accurate and up to date your data is, the better your decisions will be. Leveraging your technology will provide you with accurate real-time data to make more informed decisions in your business.

Processes and systems drive your business, so it’s important to ask yourself if all of yours are clearly documented and up to date? Some processes may be followed simply because they always have been. Although other processes may have evolved over time, your documentation might not necessarily reflect this.

Using technology to streamline your processes and systems increases efficiency in your business, saving time, money, and reducing stress. You’ll also prepare your business for the future, making it more sustainable, scalable, and saleable.

Leveraging your technology can help you to:

  1. Make your data accessible from the cloud, allowing you to view real-time data and make decisions on the go.
  2. Reduce human error and increase productivity by automating repetitive tasks and workflows.
  3. Track your expenses and load them directly to your accounting software simply by taking a photo.
  4. Minimise double handling and increase efficiency by integrating your apps.
  5. Collaborate with your team regardless of where they are.
  6. Save the time and money needed to travel by using online meetings.
  7. Induct new team members seamlessly with clearly documented processes.
  8. Monitor your inventory in real-time, reducing inventory days and freeing up cash.
  9. Store customer preferences to personalise customer experience, increasing customer satisfaction and retention.
  10. Make your business becomes scalable, with systems in place to allow the business to grow without the wheels falling off.

Using technology to its maximum advantage will help to improve your business. However, implementing these changes can often be overwhelming. Let us know if we can help you leverage your technology!

What Covid taught us…

Things were certainly thrown up in the air when COVID-19’s lockdown happened in March. For many businesses, the first, most visible effects of the pandemic quickly created a challenge to their operating and business models. A lot of things came into question, from how and where employees worked, to how they engaged with customers and how their business accounts and compliance were managed.

COVID-19 kicked GoFi8ure’s agility and response plan into place, allowing us to become more agile in how our GoFi8urine’s worked together and how we worked with our clients. Thanks to the amazing cloud online tools and software available, our team of superheroes were able to continue consistent service delivery without any impact on our clients.

Our success in working remotely during this time, whilst meeting client deadlines and requirements, was thanks to our tested systems and processes which allowed us to work with agility and resilience without disruption. It is because this experience, that we made the decision to not renew our Upper Hutt Headquarters lease.

Making the decision to not renew our Upper Hutt premise was hard to make because we love our Hutt Valley community and poured our heart and soul into branding and creating the Hutt office, however, it gave us an opportunity to offer more flexibility, versatility and remote working to our GoFi8urines. We would like to assure all our clients that the upcoming changes will not cause any disruption to our workflow or delivery of services. In fact, it will allow us to work closer as a team and continue to provide superlative accounting services for our clients nationwide.

Like the sound of being more agile in your business? GoFi8ure offers a range of services that can help ensure your business is agile and responsive, so you can remain competitive. Get a quote today or contact us to find out more.

If you ever need anything, our GoFi8urine’s are just a call or email away!

Kind regards

Your dedicated GoFi8urines

 

The importance of Tax planning for Shareholders

The importance of Tax planning for Shareholders

calendar-plannerPaying Tax is something you are likely to see as a necessary (but not hugely enjoyable) part of running your business. But are you doing enough to plan your own personal Tax liabilities?

As a Shareholder, you will pay your income Tax annually on a self-assessment basis. But there are plenty of ways to make this a less costly and onerous task to complete.

Planning ahead when it comes to Tax

By taking a forward-looking approach to your own personal finances, and working with an experienced Advisor, you can start to minimise your Tax costs and maximise the value you enjoy from your own earnings and company profits.

Working closely with us helps you:

  • Know your future Tax liabilities – by looking at factors like expected dividend payments, pension provision and additional income to determine what you will owe.
  • Set up an annual Tax plan – with provision for when payments should be made and when to set aside the funds needed to pay your income Tax bill.
  • Make use of any Tax reliefs – so you can claim the relevant reliefs and Tax initiatives that are available, to bring down the amount of your overall Tax bill
  • Maximise your earnings – by taking your earnings in the most efficient ways and managing your own personal wealth in a proactive manner.

Talk to us about your personal Tax planning

If you are a Shareholder looking to achieve the best results from your earnings, come and talk to us. We can review your Tax situation, create a robust Tax plan, and make sure you are getting the maximum value from your business earnings,

Cash is not profit and vice versa

The purpose of a business is to make money, and that means you have to know the difference between profit and cashflow

Net profit is what you have left after you deduct all your business expenses from all your revenue. You change net profit only by changing the things that affect revenue and expenses.

For example, if:

  • You renegotiate with your suppliers, you may get stock cheaper, or carry less inventory
  • Your staff engage with customers better, you can learn more about what they do and don’t like – and get more business
  • You can roster staff differently, you may be able to run your business more efficiently.

Cashflow comes from various sources. However, it also covers operating expenses, taxes, equipment purchases, repayments, distribution, and so on.

Note that a profitable business does not always have good cashflow. And a business with good cashflow is not always profitable. For example, you can have good cashflow, and loss-making expenses.

To work out how fast you can grow your business, you need to look at your projected cashflow. We can advise you on this.

Keeping cash crowned as King

Your business can’t survive without cash.

The following six takeaways are essential for business success:

  1. Protect your cash position, by knowing what it is. Build a cashflow statement and always keep it up-to-date. If you foresee a shortfall, start at once to fix it.
  2. Create a cash buffer as an insurance against unexpected difficulties.
  3. Protect your cash position against revenue shocks, by maintaining a balance equivalent to at least two months of operating expenses.
  4. Be realistic with revenue expectations. Take action now if it looks like sales are not going to get you to breakeven.
  5. Credit checking up front will reduce the risk of customer non-payment. Make sure you follow up with clear payment terms agreed in writing. Communicate regularly with customers and automate where possible.
  6. Every dollar you spend reduces cash reserves. The best way to protect your cash is to create a budget for the spend you know you need, and stick to it.

Looking to improve cashflow? Make a time to talk to us. We are here to help.

Provisional Tax explained

Provisional Tax explained 

If you are employed, your employer deducts income tax from your regular pay and pays it to the IRD.

But if you get your income from other sources such as self-employment, rental income or shareholder income, then you need to pay your income tax to the IRD in other ways.

Generally, after your first year in business, your accountant will finalise your accounts and determine your tax position. If your business has made a profit you will have income tax to pay on that profit. This is also called terminal tax or residual income tax. You have until the end of the following financial year to pay it.

Provisional tax can come into play at this point because if you have more than $2,500 in residual income tax to pay, you will have to start paying provisional tax. Provisional tax is income tax paid in advance of the end of the financial year, or paid as you go (not in arrears).

As a default, provisional tax is generally calculated at 105% of last year’s end-of-year tax (standard option) and usually paid in three instalments over the year (28 August, 15 January, and 7 May).

Talk to us if you think that your income is going to be substantially more or less than last year and we can help estimate a more accurate figure.

Other ways to pay provisional tax are by using the ratio option, where you pay a percentage of your GST return – this can be good for people with fluctuating or seasonal income – or by the AIM (Accounting Income) option, which uses your accounting software to calculate your provisional tax based on your profit (or loss) for the period. You generally pay in line with your GST periods for both of these methods.

It’s important to get provisional tax right. If you under pay or don’t pay on time, the IRD may charge you interest.

Get in touch to make sure you’re paying the correct amount, or to see if there’s a better option for paying provisional tax.

10 steps to achieving balance this holiday break

10 steps to achieving balance this holiday break

It’s that time of year again when most of us are winding down and heading off for a well deserved break.

Here’s our daily top 10 things to help you maximise your holiday!

Every day strive for:
1 hour of exercise.
2 litres of water.
3 cups of tea (may be substituted for wine or beer).
4 colours on the plate.
5 minutes of meditation.
6 songs to motivate you.
7 minutes of laughter.
8 hours of sleep.
9 pages of a book.
10 reasons to be thankful.

It’s a great time to make new habits! End this year and start the new one with your best foot forward… the flow on for you family and business life could surprise you.

“One day or Day One – you decide.”

 

What’s in the forecast?

What’s in the forecast?

You do not go fishing without checking the forecast, nor should you run your business without an annual forecast!

When we set out on a fishing trip or hike, we always check the weather forecast.

It’s no different in business. The forecast tells us if there’s bad weather (poor cashflow) in store based on the direction we’re heading.

Your forecast will tell you:

  1. Whether you have enough sales in the pipeline to give you the desired level of profit you want for the year.
  2. Whether your margins are appropriate.
  3. If you need to review your pricing or production processes.
  4. If your business is running as efficiently as it could be.
  5. Where savings can be made.
  6. Whether you should invest more to get a better return.
  7. How much money you need to set aside for tax.
  8. How much money you can draw out of the business each month without running short.
  9. How much debt you’ll be able to pay off.
  10. Whether or not you will be able to meet all of the bank’s requirements.

The difference between a business forecast and a weather forecast is that, when the business forecast is showing bad weather, you can do something about it to make the sun come out. The forecast will tell you what’s going well and what’s not, so you can make adjustments to reduce the impact of bad weather.

Just as you wouldn’t go fishing without checking the forecast, you shouldn’t run your business without an annual forecast. So, don’t live in your raincoat, waiting to get soaked – take control and talk to us about getting your forecast done so you know what to expect.

“Planning is bringing the future into the present so that you can do something about it now.” – Alan Lakein

GoFi8ure Helps Businesses File Tax Returns for 2019

GoFi8ure Helps Businesses File Tax Returns for 2019  

The 2019 tax return season began in May, meaning there’s only five months left to get tax returns taken care of with GoFi8ure. During tax season, businesses need to consolidate accounts, transactions, and look into their tax returns to make sure data is accurate, and filing is completed.

Filing business tax returns is mandatory as it provides government agencies with a platform to assess a given business’ claims for tax refunds. Filing tax returns on time is also a sign that the business is performing well. Failing to pay taxes only results in penalties later on, but unfortunately, there are still some small to medium scale businesses who struggle with managing to file tax returns on time.

GoFi8ure is more than happy to help business owners with their tax returns and reporting. As the company has worked with multiple SMEs, GoFi8ure has a clear understanding of how these tasks can be challenging and time-consuming for small enterprises who manage everything on their own, and therefore have a lot of plates to spin. GoFi8ure offers their professional services so that businesses have peace of mind when it comes to knowing their tax obligations are met, and up-to-date.

As a registered tax agent, GoFi8ure makes filing tax returns simple and easy. They offer small business clients an opportunity to have all accounts managed by one provider. As a tax agent, GoFi8ure goes beyond just number crunching; they also provide friendly, professional accounting and tax return services at a competitive price point.

Additionally, GoFi8ure offers affordable business and personal tax returns for sole traders, contractors, investment property owners, and simple-structure small businesses.

GoFi8ure is a registered tax agent with Inland Revenue with offices in Wellington, Hutt Valley, Auckland, and Dunedin.