Depreciation allows for the wear and tear on a fixed asset and must be deducted from your income.

Generally you must claim depreciation on fixed assets used in your business that have a lifespan of more than 12 months. However, in special circumstances you can elect not to depreciate an asset by applying to the IRD.

Depreciation allowances have been reinstated on non-residential buildings from the start of the 2020-21 financial year.  For the previous 9 years, depreciation has not been allowed for most buildings.

You will have to keep a fixed asset register to show assets you will be depreciating. This should show the depreciation claimed and adjusted tax value of each asset. The adjusted tax value is the asset's cost price, less all depreciation calculated since purchase.

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

To find out more on how to calculate depreciation on a business asset please give us a call or refer to the IRD Depreciation Rate Finder on the IRD Website.

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

• Corporate Boxes
• Holiday Accommodation
• Pleasure Craft
• Food & Beverages consumed at any of the above or in other specific circumstances, for example:
  • Incidentally at any of the three types of entertainment above, eg, alcohol and food provided in a corporate box away from the taxpayer's business premises, such as a business lunch at a restaurant, on the taxpayer's business premises at a party, reception, celebration meal, or other similar social function, such as a Christmas party for all staff, held on the business premises (excluding everyday meals provided at a staff cafeteria).
  • At any event or function, on or away from your business premises for the purpose of staff morale or goodwill, such as a Friday night 'shout' at the pub.
  • In an area of the business premises reserved for use at the time by senior staff and not open to other staff, such as an executive dining room used to entertain clients.

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.

The rules relating to FBT payments change on a regular basis. At The Accounting Room we keep up to date with the latest tax developments and are able to give accurate advice on the preparation of FBT returns.

We are also able to advise on the FBT consequences of proposals you intend to make, allowing you to make fully informed decisions.

Rather than paying excessive amounts of FBT, contact us today and find out how we can help you to develop a cost-effective employee plan.

Fringe Benefit Tax (FBT) is a tax on benefits that employees receive as a result of their employment, including those benefits provided through someone other than an employer.

The four main groups of fringe benefits are:

• Motor vehicles (refer to the IRD website for more information on how to calculate).
• Low-interest loans other than low-interest loans provided by life insurance companies.
• Free, subsidised or discounted goods and services, including subsidised transport for employers in the public transport business.
• Employer contributions to sick, accident or death benefit funds, superannuation schemes and specified insurance policies.

Gifts, prizes and other goods are fringe benefits. If you pay for your employees' entertainment or private telecommunications use, these benefits may also be liable for fringe benefit tax.

Fringe Benefit Tax is payable quarterly (however some employers may be able to elect payments filing on an annual basis).

If you would like further information on whether FBT is payable and how this is calculated just give us a call.

A gift is something given when:

• A gift is something given when:
• Something is received in return, but its value is less than the value of the property given.

If something of lesser value is given in return for a gift, the value of the gift is the difference between the two values.

In the context of trusts, these items can all be gifts:

• Transfers of any items (for example, company shares or land).
• Any form of payment.
• Creation of a trust.
• A forgiveness or reduction of debt.
• Allowing a debt to remain outstanding so that it can't be collected by normal legal action.

If you propose to make a gift to a trust, please contact us to discuss the implications. It is important to take into consideration what the trust, and the gifts to the trust are designed to achieve as part of a long-term strategy.

The government abolished gift duty for dispositions of property made on or after 1 October 2011.

For more information on gifting please give us a call.

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.

Certain supplies of goods and services are 'exempt supplies' and exempt from GST. These include:

• Certain financial services
• Sale or 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.

GST returns can be filed monthly, two monthly or six monthly. There are certain requirements for who must file monthly returns and who can file six monthly returns.

There are three methods of accounting for GST:

• Invoice Basis
• Payments Basis (only available if turnover is under 2 million)
• Hybrid 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.

For more information on GST and how to register give us a call or visit the GST section of the IRD website.

GST legislation is an area we know like the back of our hand. We are able to offer accurate, timely assistance in a number of areas. These include:

• Registration queries
• Preparation of GST returns
• Filing and adjusting GST returns
• IRD audit assistance
• Specialist events involving GST - eg sale or purchase of property

Sale of Physical Goods via the Internet

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%.

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.

Sale of Digital Goods via the Internet

If a GST-registered person sells digital products via the internet which are downloaded such as music, software or digital books, to a New Zealand customer they must charge 15% GST. (These products are treated as services for GST purposes).

If digital products are sold via the internet and downloaded by an overseas customer they can be zero-rated but it is important to prove that the products are "exported" otherwise GST must be charged.

Evidence required to prove products are exported.

Scenario 1:

Physical goods are exported overseas by the supplier. The customer is located overseas.

• Delivery evidence, for example, bill of landing showing export by sea, air waybill for export via air, packing list or delivery note showing overseas delivery address, insurance documents.
• Purchase order showing overseas delivery address.

Scenario 2:

Physical goods are exported overseas by the supplier. The customer is located in New Zealand at the time of purchase.

• Delivery evidence, for example, bill of lading showing export by sea, air waybill for export via air, packing list or delivery note showing overseas delivery address, insurance documents.
• Purchase order showing overseas delivery address.

Scenario 3:

Digital products are downloaded by a customer who is located overseas.

• The customer should make a declaration at the time of the transaction that they are located overseas and that the products will be used outside New Zealand. For example, "I declare that I am not in New Zealand at this time and will not be making use of this supply in New Zealand" and provide their name and full address.
• Evidence of payment received from overseas customer. Credit card information may be a guide as certain credit card number series may only be issued in New Zealand. However, this process is changing and is not entirely reliable.
• Evidence of payment received from overseas customer. Credit card information may be a guide as certain credit card number series may only be issued in New Zealand. However, this process is changing and is not entirely reliable.
• Internet Protocol (IP) address of the customer - although this is not final proof that the customer is overseas.

Note: In this scenario, as can be seen from the above list, it is unlikely that only one form of information will prove that the customer is overseas. It is expected that a reasonable attempt would be made to confirm the customer is overseas to support zero-rating.

For more information refer to the E-Commerce and GST section on the IRD website.

Our specialised tax experts can help you with all your tax needs. We understand that tax is sometimes tricky to navigate can can be a major cost to your business. That's why our experts will work in partnership with you to minimise your tax bills and help you achieve your key objectives.

We can help you with all your tax needs including:

• Preparing personal, company & trust tax returns
• Giving you advice on tax payments so you know what you need to pay when
• Making sure you're meeting your GST/FBT/ACC obligations
• Giving you advise on implementation of tax effective trust structures for assets
• Managing IRD Audits or disputes
• Helping you to minimise your tax payments

Pay As You Earn (PAYE) is the basic tax taken out of your employees' salary or wages. The amount of PAYE you deduct depends on each 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, you must deduct PAYE at the no-declaration rate.

Employers must also file payroll information with IRD after each payday. This must be completed within two days after the payday if employers are filing electronically with IRD. If filing paper forms, employers must file within 10 days of each payday or twice a month.  Employers with gross annual PAYE of $50,000 or more must file this schedule electronically with IRD.

If you are a 'small employer' with gross annual PAYE deductions of up to $500,000, payments are made to IRD on the 20th of the month following the deductions.

• The employer monthly schedule must also be filed by the 20th of that month.  

If you are a 'large employer' with gross annual PAYE deductions over $500,000, the deductions made from payments made to employees 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 to be made by 15 January).
• The employer monthly schedule must also be filed by the 5th of that month.

For more information regarding PAYE or to register as an Employer either call us or visit the IRD website.

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 $5,000 or more you will have to pay provisional tax for the following year ($2,500 prior to the 2020 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 four ways to calculate provisional tax:

• The standard option
• The estimation option
• The ratio method
• The Accounting Income Method (AIM)

There are two ways of working out your provisional tax. One is the standard option and the other one is the estimation option. If you are also registered for GST and meet the other eligibility criteria, the ratio option may be available to you as well (see below for more on the GST Ratio option).

Standard option

The IRD automatically charges provisional tax using the standard option unless you choose the estimation or ratio options.

The standard option takes your residual income tax for the previous year and makes an adjustment. The calculation for the adjustment from the current year is:

• Your previous year's residual income tax with an uplift of 5% added.
• If the previous year's income tax return has not been filed, it will be the year prior to the previous year with an uplift of 10% added.

Estimation Option

The next 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)

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.

GST Ratio Option

If you are also registered for GST you are able to pay your provisional tax at the same time as your GST payments.  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 $5,000 and up to $150,000
• You are liable to file your GST returns every month or every two months
• The business you're operating is not a partnership
• Your ratio percentage that IRD calculates for you is between 0% and 100%
• This method of paying provisional tax may not suit everyone.  Solutions such as tax pooling can also be used to ease the taxpayers' concerns and costs in calculating provisional tax. We suggest that you discuss your options with your accountant.

Accounting Income Method (AIM)

This is the least common provisional tax calculation method but can be particularly helpful for a business with irregular income and excellent record keeping.  Provisional tax is paid in three instalments, but it is paid in proportion to the calculated net profit of the business at each stage of the income tax year.  If you consider this method to be attractive for your business, then see us for further details.

Interest

Interest is charged in some circumstances when provisional tax paid for a year is less than the actual income tax payable.  The two main instances when an interest charge will occur are firstly when the estimation option is used and secondly when residual income tax due for the year exceeds $60,000.

If the provisional tax you pay is more than your residual income tax, the IRD may pay you interest on the difference.

Due dates

The due date and number  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, provisional tax payments are due on:

• First instalment 28 August
• Second instalment 15 January
• Third instalment 7 May

For further information on provisional tax give us a call or refer to the IRD Website.

Tax credits 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)

You may qualify for a tax credit for:

• Donations made of $5 or more to an approved charity
• Donations made of $5 or more to state and state integrated schools (note donations do not include tuition fees, payment for voluntary school activities, payments for classes where there is a take-home component or payments for transport to or from school activities).

The tax credit able to be claimed is up to the lesser of 33.33% of the total donation or 33.33% of your taxable income and will require valid receipts.

If you claimed a tax credit in the prior year, the IRD will automatically send you a Tax Credit Claim Form in April each year. If we prepare your income tax return we will automatically apply for you tax credits also. Otherwise for further information regarding tax credits, visit the tax credits section of the IRD website.

This information relates solely to individuals and individual income tax. There are other tax credits which have been introduced.

Please contact our office for more information on these.

Taxpayers who do not meet their tax obligations may face penalty or interest charges. To avoid such charges, you 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:

• Interest on the amount of tax you owe if you have underpaid your tax. The interest rates charged are based on market rates.
• A late filing penalty if you do not file a return by the due date.
• A late payment penalty if your payment is received by the IRD after the date it was due (previously the IRD accepted the date it was postmarked but this is no longer the case).
• A shortfall penalty where the correct amount of tax is higher than the amount you paid (eg, because of an understatement of tax, or where the amount of a refund or loss is reduced). These penalties can be as high as 150% (for evasion) and may include imprisonment for serious instances of evasion.
• 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.

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 about tax pooling and your exposure to tax penalties, give us a call. For more information about tax penalties refer to the IRD's Obligations, Interest & Penalties Guide.

Working for Families tax credits are available to families with dependent children aged 18 years or younger. These are refundable, meaning that if the credits exceed the person's income tax liability they are able to be refunded to the taxpayer.

The Working for Families tax credits are made up of the following:

• Family Tax Credit – credits of tax paid for each dependent child
• In-work Tax Credit – available to couples who work at least 30 hours a week between them and to sole parents who work at least 20 hours a week
• Best Start Tax Credit is payable to parents from the child's birth until he or she turns three. Unlike the other credits this is not income tested in the child's first year.
• Minimum Family Tax Credit – this credit ensures a minimum annual family income for those families falling below the threshold

Inland Revenue administer the Working for Families tax credits, however taxpayers who receive an income-tested benefit will receive payments from Work and Income.

For more information just give us a call or visit the IRD website.