SPRING / SEPTEMBER 2017
TOPICS IN OUR NEWSLETTER THIS QUARTER
ONLINE TRADING: A HOBBY OR YOUR BUSINESS?
If you regularly sell goods online, including on auction sites like Trade Me, you are “in trade”.
This means you have the same tax obligations as any other business — income tax and possibly GST. And you must also follow consumer laws, eg the Consumer Guarantees Act and product safety rules.
FREQUENCY IS KEY
If you’re occasionally selling your stuff on sites like Trade Me and eBay, you’re OK. There are no tax implications for private one-off sales.
If, however, you make money from regularly selling things online, you’re probably in business and your tax obligations are exactly the same as if you were selling goods in a shop.
Any money you make on these sales is treated like any other business income, and you’ll need to make sure that you’re paying proper business tax to stay out of trouble.
You’ll also need to register for GST if you have online sales of more than $60,000 a year.
NEW INFORMATION SHARING AGREEMENT BETWEEN IRD AND MSD
A new information sharing agreement between Inland Revenue and the Ministry of Social Development signed in July will come into effect later this month.
The new agreement brings together current information sharing arrangements into one agreement, and enables sharing of information for targeted housing assistance and verifying income for student allowance entitlements.
KEEP CASH CROWNED AS KING
If you want to succeed in business, understand that Cash is 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. 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.
FAIRER TAX RULES AFFECT CASHFLOW
A tax bill passed in May made changes that affect cashflow.
COMPANIES GET MORE CHOICE WITH RWT
From 2017-18, companies can choose to not deduct resident withholding tax on a fully imputed dividend paid to a corporate shareholder. A fully imputed dividend has a tax credit passed on because the company’s already paid tax.
A THIRD TAX OPTION FOR SOME SHAREHOLDER-EMPLOYEES
Shareholder-employees of close companies (with five or fewer participants) who receive regular salary or wages, and variable amounts of other employment income, now have a third option as to how they pay tax.
They can now split their income so the base salary is subject to PAYE and the variable amount is paid out before tax. Previously they had to choose either one or the other.
A shareholder-employee who decides to either apply provisional tax to all their earnings, or use the new split method, is committed to either choice for three years.
IT’S COMPLICATED – IMPUTATION CREDIT ANOMALY TACKLED
Companies owned in common, but not wholly owned, can now transfer imputation credits as part of what IRD calls “loss grouping”.
Owned-in-common companies with part-owned loss-making businesses have been able to transfer losses to profit-making companies, benefiting both – except for imputation credits. The more tax paid, the more imputation credits available.
However, when losses were transferred to the profit-making company, the latter’s tax bill shrank, meaning there were fewer imputation credits to be passed on.
The changes allow the “profit” company to pay a fully imputed dividend despite loss grouping, keeping the benefit of the loss transfer.
NOT SO COMPLICATED FOR LTCs, THOUGH
With the loss limitation rule being removed for most Look Through Companies, losses that were previously restricted and carried forward are now freed up from 2017-18 and available for offsetting against income. However, LTCs that carry on through a partnership or joint venture will still be subject to the loss limitation rule.
The loss limitation rule ensures the losses an owner can claim reflect their economic loss in the LTC. The deductions an owner can use are limited to the contribution the owner has made, or is liable for.
If you would like us to go over how this affects your business please contact us.
SEVERAL WAYS TAXPAYERS CAN GET CAUGHT OUT
Taxpayers who earn income from various sources may get caught short if they don’t plan ahead. This could come about in various ways:
• Airbnb
• Overseas investment
• Shares in an overseas company
AIRBNB INCOME
If you rent rooms or homes through Airbnb, you may not realise that the IRD considers you to be a landlord. Your rental income must be included in a tax return.
If you’re unsure of your tax obligations please consider seeking professional advice.
OVERSEAS RENTAL PROPERTY
You must declare any rental income you get from properties overseas. You can claim deductions for rental-related expenses, and you may also be able to claim a credit for tax paid in the other country on that income.
Complexities can arise when loans and mortgages are held overseas. Call us if this applies to you.
OVERSEAS TRUSTS
Under New Zealand law, trust matters are settlor-based. This means New Zealand tax treatment of the trust depends on where the settlor of the trust lives. As a trust does not have a legal personality, there is no concept of residency for trusts. However, a trust is recognised as a taxpayer, so New Zealand generally verifies the residency of the trustee to determine which income of the trust is subject to New Zealand tax.
IF YOU OWN SHARES IN A FOREIGN COMPANY
You will have to pay tax in New Zealand on foreign share dividends unless:
• You are a transitional resident, or
• The shares are subject to the foreign investment fund or controlled foreign company rules.
Dividends paid by overseas companies to transitional residents or non-New Zealand tax residents are not taxable in New Zealand for the transitional period.
The rules surrounding Foreign Investment Funds and Controlled Foreign Companies are complex and you should get professional advice on the taxation of offshore investments, whether from us or your financial advisor.
OVERSEAS-ISSUED CREDIT/DEBIT CARD
Having an offshore credit or debit card may or may not trigger New Zealand tax obligations. Note, though, that even if foreign withholding tax has been deducted on foreign income, that does not necessarily mean the income is no longer taxable in New Zealand.
It can be tricky to work out your tax position. Call us if you’re not sure.
Easier provisional tax is right around the corner for many small businesses, with the new Accounting Income Method (AIM) on track for delivery in April 2018.
AIM is a new option for managing provisional tax through your accounting software. It will be simple and easy to use and will remove a lot of the stress often associated with provisional tax.
There’ll be some great benefits to using AIM. You’ll only pay provisional tax on the profit you’re actually making.
If your business suffers a loss, you’ll be able to get a refund on the overpaid provisional tax you paid in earlier months. You won’t have to wait until the end of the year to get a refund.
As AIM users, as long as you pay what the software tells you to on time, you won’t be charged any penalties or interest.
BEWARE OF TAX RELATED SCAMS
Inland Revenue will never send you an email requesting you to confirm, update or disclose confidential details through an unsecure channel such as email.
You should always independently verify the source and the target url before taking any action. If you receive a suspicious communication of this nature, do not respond to it or follow any links. Forward it to phishing@ird.govt.nz
For more information about protecting your identity visit ird.govt.nz/identity-security/protect
IMPORTANT PAYMENT DATES TO REMEMBER
September 28th 2017
- GST returns and payments due for period ending August 2017
September 30th 2017
- Student loan repayments due for overseas based borrowers
October 28th 2017
- GST returns and payments due for period ending Sept 2017
- 2018 provisional payments due for taxpayers on 6 monthly GST
November 28th 2017
- GST returns and payment due for period ending Oct 2017
You miss 100% of the shots you don’t take.
Wayne Gretzky
Disclaimer – While all care has been taken, Johnston Associates Chartered Accountants Ltd and its staff accept no liability for the content of this newsletter; always see your professional advisor before taking any action that you are unsure about.