A summary of the latest tax changes for April/May 2017 relating to individuals and businesses.
- On 1st April 2017, the IRD introduced the ability for New Zealand contractors to choose the rate at which tax is deducted from their pay, from 10% – 100%. This may be particularly useful for contractors who want to even out their cash flow through the year. Contractors can change the tax rate twice in a year, and standard tax rates will apply by default if no other rate is specified.
- The IRD has provided additional information regarding how to tax holiday pay. Holiday and statutory holiday pay are included as earnings in the period that the employers actually pay them to their employees. The Commissioner’s operational position on calculating PAYE on holiday pay helps to clarify the previous uncertainty in this area. Where applicable, the PAYE calculator can be used to calculate the PAYE, student loan repayment and KiwiSaver deductions, and any KiwiSaver employer contributions and ESCT. The Commissioner’s interim operational position on calculating PAYE on non-resident seasonal workers’ holiday pay explains the appropriate tax treatment for this situation.
- The rules for claiming expenses when using your home to run a business are changing in 2018. The definition specifies that the premises have to be a separately identifiable part of the house, which is used primarily for business purposes. While this usually means a room within the house, it can also include a garage if it is used primarily for business. However, this can be difficult to show if it is a double garage with dual purpose, such as housing a private car as well as a business vehicle. There will be a choice of methods for calculating a claim for use of home:
1. Continue to make your calculations in the current way.
2. Determine the percentage of mortgage interest and rates or rents used for business. IRD will then provide a per square metre rate to use to cover the other costs.
- Costs incurred in starting up a business are not deductible for tax purposes until a business has begun operating. Determining between start-up costs and tax-deductible costs can require an experienced eye. For example, market research in determining the feasibility of a business is certainly classed as pre-commencement. For retailers, the business commences operating when they have purchased goods and begin trying to sell them, and the costs from that point on are tax-deductible.
- Be aware that the responsibility for meeting tax obligations and keeping business records for the required seven years still remains with the tax payer, even if using a cloud accounting software provider.
Please contact us if you have questions regarding any of these tax areas.