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RING FENCING LOSSES

RING FENCING LOSSES

The Labour party's pre-election promise was to look into a fairer tax system and attempt to improve the quality of housing & affordability.

To 'level the playing field' and make the 'tax system fairer' , the Inland Revenue on 29 March 2018 released an officials  issue paper "Ring-fencing rental losses" outlining proposals to introduce loss ring-fencing on residential properties held by "speculators and investors"; however, this will affect everyone that owns residential rental property.

The Taxation (Annual rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill introduced to Parliament in December 2018 sets out the initial statutory framework designed to implement this policy.

This bill is still before parliament expected to be signed & passed shortly.  If the bill passes through Parliament unchanged it will then become legislation which will come into effect from 1 April 2019 and hence will apply for the 2019 -2020 and later income years

What are the Changes?

This new legislation will mean that investors will no longer be able to offset tax losses from their residential investment properties against their other income to reduce their tax liability. Residential rental properties are often "negatively" geared mainly as a result of high interest payments (debt).  In the future, if expenditure exceeds income, losses will be "Ringfenced".

What are the Main Features?

The Ringfencing bill's default position is to ring fence on a portfolio basis but there will be an "opt out" option if you wish to have your loss ring fenced on a property by property basis.

A taxpayer can choose to make an election for each individual property meaning they may choose to have some properties treated under property by property approach, and others on a portfolio basis.

However, once the choice / election has been made there is no ability to move any individual property between the two methods while that taxpayer retains ownership of it.

The point to note is that Ring fencing on a portfolio basis means that if the overall property portfolio is profitable, there will be no ring fencing just because some of the properties in that portfolio may make losses which will be offset against those making a profit.

This is a huge issue with the effectiveness of this legislation since an investor with a profitable portfolio can add a loss-making property to it and still gain a tax advantage provided the portfolio overall is still profitable. But an investor buying the same property who does not have other rental income to offset the loss against is ring fenced and can't gain the same tax benefits.

Ring fenced losses carried forward will be able to be used to offset against future income from residential land or taxable gains from the sale of residential land.

What is the Exemption?

The Ringfencing rules will NOT apply to

-a taxpayer's main home

- business premises (which is not residential rental property), commercial property or farmland,

-residential property that is used for employee accommodation where the remoteness of location of the business forces it to provide accommodation to employees.

 -holiday homes that are subject to the mixed-use asset rules where they are used both as short-term rentals and for private use by owners.

-ring fencing will not apply to revenue account property where the proceeds of sale are definitely taxable i.e. developers.

Losses from overseas residential properties will also be ring fenced and will be subject to the double taxation rules, if applicable.

Serviced apartments are specifically included as residential rental property.

Who does it affect?

The rules will apply to individuals as well as trusts, partnerships and companies (including LTCs). LTC Losses will be allocated to the shareholders to be used only against future profits from residential properties.

The above information is based entirely on the current proposed bill / legislation and is subject to change. We will advise you of any major amendments once the bill is signed and passed by parliament.

If you have any queries please contact Advisory Accountants Ltd Ph: (04)2376825 of Ph: (04)499 6824, email: info@advisoryaccountants.co.nz

IRD is transforming!!

IRD is Transforming

In the last couple of year, IRD has invested a lot of money in developing their system. They have slowly been changing their system overtime. However from 01 April 2019, they will be implementing some major changes.

The benefit of these changes will be to individuals whose only income is derived from employment, investments (such as interest from bank deposits and savings), or a benefit under an employee share scheme.

If your only income is from employment, investments (such as interest from bank deposits and savings) or a benefit under an employee share scheme, we'll send you an income tax assessment to finalise your end-of-year tax information.

Under the new changes, IRD will no longer issue personal tax summaries (PTS) for the 2019 and future income years. 

IRD will also make filing tax returns online easier to access and understand.

From 26 April 2019, you have the option to upload your donation receipts online through myIR at any time during the year. This will help avoid a situation where you miss out on a refund for donations if, for example, you cannot find all your donation receipts at the end of the year.

Automatic Refund

In March 2019, Parliament passed a bill to make tax refund processing more straightforward for individuals' is automating the tax refunds process for most individuals. If you're due a tax refund, it will be directly deposited into your bank account when your end of year account is finalised.

IR3 (self employed) tax filers will still need to submit IR3 forms before any potential tax refund is identified.

Working for Families payment dates

Working for Families Tax Credits (WFTC) needs to be updated, meaning your payments will be based on more up-to-date information. This change is to make sure your WFTC payments are as accurate as possible.

Due to these updates and the way banks process payments, there will be a change to the day you receive your WFTC payments from 29 April.

For most customers:

·         If you receive your payments weekly, the first payment affected will be Monday 29 April. It will be in your account Tuesday 30 April.

·         If you receive your payments fortnightly, the first payment affected will be Monday 6 May. It will now be in your account Tuesday 7 May.

Changes to Payday Filing and Reporting 

In 2018 Legislation was passed to streamline the payroll process to make the payroll system & requirements up to date using current technology. The Payday filing legislation means the IRD receives more timely and accurate information to better calculate employee's tax obligations and entitlements. Payday filing is an electronic / on line option for submitting employment information after every payday.

From 1 April 2019 all employers must:

 

·         file employment information every payday

·         provide more information on all new and departing employees

·         file electronically (from payday compatible software or through myIR) if your annual PAYE/ESCT is $50,000 or more. These larger employers will need to file payroll information within 2 working days after each payday.

However, If PAYE/ESCT is less than $50,000, you can file payday details electronically or by paper. For those who chose to file by paper have 10 working days after the payday to file this information.

 

Note: The due date for payment remains the same at the 20th of the month (or 5th and 20th of the month for twice-monthly filers).

 

Payday Filing encourages the use of modern payroll software. 

 

Employers can switch to payday filing now. Review their payroll processes, plan and schedule when to make the switch.  Let IRD know you're making the switch through myIR.  Remember Payday filing is mandatory from 1 April 2019.

 

If you need any assistance or advice to comply with the new legislation, please feel free to contact us.

 

Tax Reminders and Updates

Welcome to 2019! Some Tax Reminders & Update.

Here are some important dates to remember for this month:

7 February: Income tax payments, student loan repayments and Working for Families Tax Credit are due for clients with extension of time or if you do not have a tax agent.

9 February:  Clients with standard balance dates should file their returns.

28 February: Provisional tax payments are due for ratio option clients who have a March balance date. January GST returns and payments are also due.

Note: If a due date falls on a weekend, public holiday or provincial anniversary day, IRD can receive your return and payment on the next working day without a penalty being applied.

Another important change at IRD ,PAYE filing through the MYIR filing will cease and be discontinued.  Please see below note from IRD.

The ir-File service in myIR will be discontinued on 11 March. Anyone still filing monthly schedules must use the 'payroll returns' account in the Business tab section of myIR to file EMS and employer deductions. The payroll returns account will automatically become available in myIR from 28 February 2019 for you to bring into your workspace.

Check out ird.govt.nz/payday for information and tools, such as printable guides and how-to videos to help you make the switch before 1 April.

Automatic tax refunds are coming in to effect in 2019. So beware scammers are already alert and in action.  Below is some important information you need to know to protect yourself.

IRD will never:

-       Email you with the tax refund, knock on your door or phone promising you a refund.

-       Ask for payment to release the refund.

-       Send email with hyperlink to a webpage and ask your personal information.

-       Demand payment through NZ post or a gift card

If you ever receive a text scam message or fraudulent call, please email IRD on phishing@ird.govt.nz

What is cryptocurrency?

Cryptocurrency is token/money that exists virtually and digitally. Cryptocurrencies aren't just future technology. They're being used today and are doing things that were never imagined just a few years ago.

Bitcoin is the most well-known and used cryptocurrency. However, there are thousands of cryptocurrencies available in the digital market nowadays e.g. Ethereum, ripple and Litecoin to name a few.

Cryptocurrency uses encryption techniques and blockchain technology to both regulate its generation and verify fund transfers. They can be transferred between people without using an intermediary i.e. bank. And, they can be bought peer to peer, through online exchanges or by participating in Initial Coin Offerings

 

What are the Tax implication ?

Any Cryptocurrency received as payment for goods or services is business income and is taxable. This is seen as a barter transaction and you'll need to calculate the value of the cryptocurrency in New Zealand Dollars (NZD) at the time it's received

The IRD treats cryptocurrency for tax purposes as personal property, not actual currencies.  To be a currency it needs to be centralised by a government.

Any proceeds made from selling property acquired with the purpose or intention of disposal is taxable, that includes cryptocurrencies.  According to the IRD - Bitcoin or any similar cryptocurrencies generally don't produce an income stream or provide any benefits (i.e. interest or dividends), except when they're sold or exchanged which suggests that cryptocurrencies are generally acquired with the purpose to sell or exchange them. Hence, proceeds made from selling cryptocurrency are taxable, and losses deductible.

The IRD considers cryptocurrency mining to generally be an activity aimed at making a profit, not a hobby. Any mining-related fees or rewards are taxable income.

A cryptocurrency miner is a person who validates cryptocurrency transactions and maintains the ledger. In exchange for this service, they receive cryptocurrency.

 

Keeping Records

Every tax payer regardless of income source must keep sufficient records to be able to determine your income and deductions. Standard seven year record keeping requirements apply.

For cryptocurrencies -  If mobile and desktop wallets and exchanges are used then access to the transaction history, i.e. deposits, normal transactions and withdrawals ,  should  be able to exported in a commonly used file format like CSV. Bank statements and digital cryptocurrency wallet addresses also should be kept for verification purposes.

 

GST implication 

The Inland Revenue has not referred to GST in its Q & A issued in March 2018. However, It is assumed that GST would need to be accounted for on cryptocurrencies transactions, if you are GST registered , since  cryptocurrencies  will be treated as personal property assets.  Non-GST registered persons who are trading in cryptocurrencies would need to register for GST if they are making taxable supplies over the $60,000 annual threshold.

There will possibly be Law reforms, particularly around the GST treatment of cryptocurrencies. Australia has amended its GST legislation so as to exclude cryptocurrencies from the GST net. New Zealand may follow suit.

 

If you have cryptocurrencies or would like to discuss the tax treatment please contact Advisory Accountants.

 

 

Tax Debt Management Blog

Tax Debt Management Blog

 

Many people love the idea of starting their own business, however, turning such a dream into a successful enterprise isn't always smooth sailing. In fact, soon after starting a business, many new business owners realize that they are in over their heads. They see that there are a number of obstacles that need to be overcome, as well as knowledge that needs to be gained. Knowledge regarding company taxes and tax payment penalties is critical because for a company, understanding payment requirements will help to avoid potential penalties, tax debt and possible liquidation proceedings.

 

Taxation Filing Knowledge

Tax filing and payments in companies mostly consist of GST and Income Tax, however, if you employ staff members, it can include PAYE obligations too. Many businesses hire the services of an accountant to deal with their tax obligations and help them understand business owner obligations / keep the right records. In New Zealand GST can be 2 monthly or 6 monthly, PAYE filing is required every month and income tax returns are due annually.

If you file late on any of these – or do not pay in full, IRD might well apply a penalty for failing to lodge or pay your tax return on time.

 

How to Avoid Late Filing/Payment Penalties

No matter who manages the company bookkeeping or accounting, the Director is responsible for ensuring compliance with IRD.

There are a number of things companies need to do to avoid having to pay a penalty. A few of the most important aspects are:

keeping accurate records of activities

declaring all their income

making sure the business is registered for all taxes

ensuring taxes are paid on time and the right amount

 

Make Sure you Pay Enough and On Time

The way to avoid tax payment penalties is to be sure you've paid enough tax and at the right time. In New Zealand there are penalties for late filing, penalties for late payment and penalties for failing to file. Criminal prosecutions are New Zealand's harshest strategy for dealing with those taxpayers who deliberately seek to evade their lawful obligations to the tax office, particularly around PAYE.

Failing to submit tax returns may also result in tax payment penalties, but not only that, as a business, failing to comply with your tax obligations may also jeopardize your chances to claim the deductions that your company may be entitled to. There are companies who knowingly breach a tax obligation and they actually provide false or incomplete information. Extensions for income taxes also don't entitle a business to pay their taxes later, and in fact the extension only grants an extension of time for filing tax returns, and businesses are required to estimate their income taxes and pay them when filing tax extensions.

What to do if you have Fallen Behind

Companies such as Tax Debt Management can help you to catch up on your filing and make an arrangement to pay the arrears over time or obtain a full or partial write off of tax, based on your circumstances.

However, this will only be practical once, as IRD will expect you to have learned new processes and put measures in place to ensure your compliance going forward. Tax Debt Management can also assist with this. These measures may be; implementing a payroll system to deduct PAYE before your staff are paid, creating a tax savings account to provide for GST in advance and/or installing and training you on Xero or MYOB accounting software to better manage your business needs.

The most important thing is not to leave an IRD problem too long. Interest and penalties compound daily and a small debt can spiral into something unmanageable.

Should you require assistance for Tax Debt please check our Tax Debt Management websites.

Extension of the bright-line test for residential property


From the 29 March 2018, the bright-line test that is used to determine if tax is paid on the sale of residential property has increased to 5 years.

This means that If you entered into an agreement to purchase residential property on, or after, 29 March 2018 and sell it within 5 years, you'll need to consider if it is taxable under the bright-line test. If a property was purchased on or after 1 October 2015 through to 28 March 2018, the old bright-line rules will apply and will look at whether the property was sold within 2-year period.

The bright-line test doesn't apply if the property was:

  • your main home
  • transferred as part of an inheritance
  • transferred to you as an executor/ administrator of a deceased estate.

The rule only applies to residential land, being; land which has a dwelling on it, land for which the owner has an arrangement that relates to erecting a dwelling, or bare land that may be used for erecting a dwelling under the rules in the relevant operative district plan.

The start of the five-year period is as follows (although there are also variations on the rule to cover different scenarios):

  • The date on which the instrument to transfer the land to the person was registered under the Land Transfers Act 1952; or
  • The date of acquisition of the land, if an instrument to transfer the land to the person is not registered prior to disposal.  

The end of the bright-line period will generally be the date that the person enters into an agreement for the disposal of the residential land, or the date the residential property is disposed of if there is no agreement, i.e. electronic transfer date.  

 Are there any exemptions?

Like any good rule, there are exemptions, the most important of which is the "main home" exclusion. The "main home" exclusion applies so that the bright-line test does not apply if the residential property has been used predominantly, for most of the time the person owns the land, for a dwelling that was the "main home" of the person. If a person has more than one home, their "main home" is the one with which the person has the greatest connection.

Cloud Accounting – What is it and is it right for your business?

Demystifying Cloud Accounting. 

Cloud computing is the use of computer hardware and software applications delivered as a service over the Internet. It allows you to store files and use applications using different devices and from different locations in a simple way. 

Cloud accounting, also referred to as "online accounting", serves the same function as accounting software, (such as MYOB or Xero,) that you would install on your computer, except that it runs on servers and you access it using your web browser, over the Internet. Your data is securely stored and processed on servers-or "in the cloud". This means you are able to access your business financials from anywhere and using any device, as long as you are connected to the internet. 

Benefits:
Your business is no longer answerable to time or geography. You could be open 24 hours a day, 7 days a week. Your office can now be where and when you want it to be – on the road, at home or overseas. 

Access:
If you have teams in multiple locations or a remote bookkeeper or accountant they can (with your permission) work on your accounting data, saving time and increasing efficiency. 

Security:
Your data is much safer in the Cloud than on your computer. Your computer could be lost, stolen or corrupted quite easily – but Cloud software providers spend millions of dollars to ensure the safety of your data. 

Come and talk to our team today to find out how we can help your business enter and utilise 'Cloud' accounting – we provide all the training you will need – the sky is no longer the limit for your business!

Social media savvy and fiscally adept? That'll be us!

If you like what you read here in our blog; why not check out our Advisory Accountants website, Facebook page and Twitter account! As if that isn't a big enough social media presence for you – wait…There's more! 

Our Tax Debt Management website has been joined by our TDM Facebook page which is now LIVE! 

You already knew about our LinkedIn - right?! 

Every 100th person based in NZ to like our Advisory Accountants Facebook page wins a $100 petrol voucher! What are you waiting for? 'Like' us and be in to win!

Overseas 'Student Loan' debtors face tougher measures and higher repayments

Tougher rules for overseas-based borrowers

The Student Loan Scheme Amendment Bill (No. 3), introduced in August 2013, passed its final stages in Parliament today. 

The new legislation includes tougher measures to deal with student loan borrowers who persistently refuse to make repayments and introduces higher repayment obligations for overseas-based borrowers to assist them to pay off their loans sooner. 

Overseas-based borrowers are responsible for 80 per cent of all overdue loan repayments.

"The reality is that a minority of borrowers, who are mainly overseas-based, do not accept the responsibility to repay their loan, despite having the financial ability to do so," Revenue Minister Todd McClay says. 

"The new rules will give Inland Revenue the ability to seek an arrest warrant to deal with the most serious cases when all other efforts to persuade the borrower to make repayments have failed." 

Overseas-based borrowers with loan balances over $45,000 will also have their repayment rates increased. This brings them into line with the repayment obligations for New Zealand-based borrowers. 

The new rules will apply from 1 April this year for the 2014–15 tax year. 

If you have Student Debt that is weighing you down, don't panic! 

Tax Debt Management is here to help. Simply call 0800 829 277 now to get your repayments sorted in a way YOU can afford.

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