AUTUMN 2020
TOPICS IN OUR NEWSLETTER THIS QUARTER
COVID-19: UPDATE FROM INLAND REVENUE
The IRD have released a statement yesterday in support of business customers who cannot pay the taxes due to Covid-19. The key messages from IRD are:
- If a business is unable to pay its taxes on time due to the impact of COVID-19, IR understands, you don’t need to contact us right now.
- Get in touch with us when you can, and IR will write-off any penalties and interest.
- It would help a lot if you continue to file returns however, as the information is used to make correct payments to people, and to help the Government continue to respond to what is happening in the economy.
COVID-19: WAGE SUBSIDY
1. For the Self–Employed trading as a “sole trader”, not using a company, or if you have a PAYE registered Partnership or Trust which doesn’t yet have an NZBN Number -There are two form options that you can apply under:
a. https://services.workandincome.govt.nz/ess/trader_applications/new – use this form only if you are a sole trader – self-employed/contractor on your own & have no employees (you don’t need an NZBN).
b. https://services.workandincome.govt.nz/ess/employer_applications/new – use this if you have any other type of business registered for PAYE and have employees – or if you are a PAYE registered wage payer i.e. Company, Sole Trader/ Trust or Partnership etc you will need to apply for a NZBN number if you don’t have one!
2. The Self-Employed and who have employees will need to use the Employer form (b) above – as this is the only form that has the section for employees, if you are not a company and don’t have an NZBN number go here to get one, using the link https://www.nzbn.govt.nz/, you will require an IRD number and proof of identity.
If you are trading via a company and are claiming as a PAYE employer with employees and or for yourself and others as a shareholder employees use this form,
https://services.workandincome.govt.nz/ess/employer_applications/new – follow the instructions and enter the company details and your own personal shareholder employee details with your other PAYE employees at the bottom
COVID-19: GOVERNMENT BACKED BANK BUSINESS LENDING AND MORTGAGE HOLIDAYS
The Government, banks and the Reserve Bank have set up a major financial support package for homeowners and businesses affected.
- It will provide short-term credit to reduce the financial distress on solvent small and medium-sized firms affected by Covid.
- It include a six-month principal and interest payment holiday for mortgage holders and SME customers whose incomes have been affected.
- It is limited to a maximum of $500k per loan subject to normal assessment, applies to firms with a turnover of between $250k and $80m per year.
- The loans are for a maximum of three years, to be provided by the banks at competitive, transparent interest rates.
- The Government will carry 80 per cent of the credit risk, with the other 20 per cent to be carried by the banks.
- Details are being finalised and agreed urgently and banks will make these public in the coming days.
- The Reserve Bank has agreed to reduce banks “core funding ratios” from 75 per cent to 50 percent, further helping banks to make credit available.
You are going to need to prepare a number of things to apply for any loan, a business plan, outlining what the funds are to be used for, supporting documents, Financial Statements, Cashflow, Budgets etc, if you need advice we have access to good brokers and banks to help you navigate, at the appropriate time.
COVID-19: FEES, CHARGES, BILLS AND STATEMENTS MOUNTING UP
These are probably going to keep coming from your suppliers, JACAL included, please try not to get frustrated, angry or irrational, many business have auto billing and statement systems and can’t just turn it off, or are under pressure and have not sorted that part, they can’t easily determine who can or can’t pay, they may send bills because there may be proof of service requirements, contractual reasons, GST, Tax (31 March cut off), Insurance or other liability reasons bills need to keep going out, don’t rush off and reply “I’m not getting the service I’m not paying” or ask for instant credits or refunds etc, don’t be abusive, be calm, be cool, let the dust settle and then work through the bills as you can appropriately, think long term, we are all in the same boat. If you have to send a message about not being able to pay right now do it politely, If you have major suppliers and landlords, work with them on the front foot proactively as a priority, and don’t forget the little guys.
PROVISIONAL TAX FLEXIBILITY WITH TAX POOLING
Tax pooling is an IRD-approved service which lets taxpayers make their provisional tax payments at a time that suits their business, without facing interest and late payment penalties from the taxman.
The interest saving is considerable compared to the 8.35 percent IRD charges if a payment is missed or underpaid, and the service can be an effective tool in terms of managing cashflow or freeing up funds to invest in your business.
Tax pooling involves paying provisional tax through an IRD-approved commercial provider such as Tax Management NZ (TMNZ) as opposed to IRD directly.
A taxpayer has the choice of deferring the entire payment to a date in the future that suits them or paying what they owe in instalments.
Tax pooling providers are registered with IRD and operate under legislation found in the Income Tax Act 2007 and Tax Administration Act 1994.
The bank accounts into which you make your payment(s) are overseen by an independent trustee. The independent trustee also oversees the tax pooling provider’s account at IRD.
The service can be used for upcoming or missed provisional and terminal tax payments for the current tax year (2020) or one just completed (2019). It can also assist with historic income tax and other tax types such as GST and PAYE if a taxpayer has received a notice of reassessment from IRD.
It has been operating since 2003.
How it works
Ahead of an upcoming provisional tax payment, you enter an arrangement with a tax pooling provider and the provider makes a deposit into its IRD account on your behalf. This payment is date stamped as at the date it is made (e.g. 7 May 2020).
You then pay the tax pooling provider as and when it suits your cashflow.
If choosing to pay the full amount in one payment, you will pay the core tax plus the tax pooling provider’s interest.
Upon receiving your payment, the tax pooling provider transfers the date-stamped tax deposit it is holding in its IRD account on your behalf to your IRD account.
As the tax being transferred was paid and date stamped as at the provisional tax date it was originally due, IRD recognises that you paid on time once it processes this transfer. Any interest and late payment penalties incurred will be wiped.
You can also pay the arrangement in instalments to align with your cashflow.
Financing tax
Those wanting to secure a fixed interest rate can choose to finance their provisional tax.
You would pay an upfront fee to the tax pooling provider when entering your arrangement. The upfront fee is based on the amount of tax you require and the agreed upon future date you wish to pay.
Please feel free to contact us for more information about tax pooling.
IRD CHANGES COMING THIS APRIL
Employer account
From April your payroll account in myIR will look a bit different. All your employer accounts will be combined into a single place to manage transactions and obligations. This means that your employer related assessments and correspondence will be grouped so you can see more employer information in one place, and we won’t have to write to you as often.
Here’s a summary of some of the other proposed changes coming up:
- The IRD may collect hours paid as part of your employment information.
- The IRD will notify you when an employee’s student loan is almost repaid – telling you the final deduction amount and their new tax code.
- The IRD will help ensure you’re making the right KiwiSaver deductions and that eligible employees are enrolled.
- When on-boarding new employees, the new employee details (IR346) and KiwiSaver (KS1) information will be combined to be just one form.
For more information on these changes for employers visit ird.govt.nz/payroll
CHANGE IN DEFAULT BANK RWT RATE FOR NO IRD NUMBER ENTITIES
If you have not given your IRD number to your interest payer, or if you have given them your IRD number but did not choose a resident withholding tax rate, tax will be deducted from your interest payments at 33%.
From April 2020, if you have not given your IRD number to your interest payer, resident withholding tax will be deducted at the ‘non-declaration’ rate of 45%. If you have given your IRD number to your interest payer but have not chosen a resident withholding tax rate, tax will be deducted at the ‘default’ rate of 33%.
If you have given your interest payer your IRD number, you may use the 10.5%, 17.5%, 30% or 33% rate. This is the amount of tax to be deducted during the year. It should match your income tax rate. If the resident withholding tax rate you choose does not match your income tax rate you may receive an end of year tax bill.
| Your total taxable income | Resident withholding tax (RWT) rate |
| Up to $14,000 | 10.50% |
| $14,001 to $48,000 | 17.50% |
| $48,001 to $70,000 | 30% |
| Over $70,000 | 33% |
NEW ZEALAND MINIMUM WAGE INCREASE: EVERYTHING YOU NEED TO KNOW
The New Zealand Government has announced that it will increase the national adult minimum wage to $18.90 an hour, effective from April 1 2020.
The increase means that workers will receive an extra $1.20 per hour, or $48 per week before tax for an employee who works 40 hours a week.
The increase continues the Government’s plan to achieve a $20 adult minimum wage by 2021.
Minimum Wage Rates, Effective from 1 April 2020
Adult Minimum Wage – $18.90 Per Hour.
This wage is the most commonly used by Kiwi businesses and applies to all the employees who are 16 years of age or older, unless they are on the starting-out or training minimum wage.
Starting-Out Wage – $15.12 Per Hour
Workers aged 16-19 who are entering the workforce for the first time and who satisfy certain conditions.
Training Minimum Wage – $15.12 Per Hour
This category of wage applies to employees aged 20 years or over who are completing recognised industry training involving at least 60 credits per year in order to become qualified.
XERO – CHANGES TO STARTER, STANDARD AND PREMIUM PLAN PRICING
From 1st July 2020, the price of the Xero Starter plan is increasing by $2.50 a month, and Xero Standard and Xero Premium plans are increasing by $2 a month, for new and existing customers in New Zealand. There’s no change to the prices of Xero Ledger and Xero Cashbook.
| PLAN | PRICE |
| STARTER | now $30 NZD / MONTH |
| STANDARD | now $62 NZD / MONTH |
| PREMIUM | now $77 NZD / MONTH |
YOUR FOUR-WEEK CHECKLIST TO KEEP TAX TIME LOW-STRESS
Week 1: First things first
Talk to your accountant or bookkeeper. They’ll tell you what you need to do before 31 March including what you can claim for and what you can’t. Remember, tax time is busy for them too, so the more prepared you are, the smoother the process, and the better the result.
File your return on time. Don’t waste your hard-earned cash on unnecessary interest and penalties. Get your accounts up to date, tidy up loose ends and file on time.
Week 2: Your assets and stock
Review your inventory. The value of your stock affects your business’s taxable profit. Do a meticulous stocktake before year-end. Get rid of any out-of-date or damaged items and write them off.
Extra assets on board? Year-end is the time to ditch surplus assets. If you can sell them, great, otherwise write them off.
Week 3: Your spending
Sooner rather than later. If you’re planning to buy any new equipment or assets, do it on or before 31 March (rather than 1 April) to reduce your taxable income and gain a full month’s depreciation.
Got invoices and receipts for your expenses? It can be tricky to keep track of everything so if you’re not already, go digital. Scanning receipts and saving electronic invoices in the cloud saves time and space.
Week 4: Your staff
Payroll up to date? Now’s the time to check your payroll system only includes current staff and that all their details are correct. Ensure former staff don’t have access to company systems.
Remember tax on bonuses: Special bonuses this time of year can be a great way to reward and motivate staff, just remember to get the tax right on any lump sums made. Also keep in mind any bonuses for the current year, and holiday pay or long service leave paid out within 63 days after 31 March can be deducted against your current year income.
ARE YOU A LANDLORD? KEEP UP WITH THE CHANGES
With a third of New Zealanders renting homes, and some for a lifetime, it’s key to have clear, fair rules for tenancies. The Government’s tenancy law reforms announced late last year aim to improve tenants’ security and stability while protecting landlords’ interests. The Residential Tenancies Amendment Bill is now making its way through Parliament, with the Select Committee due to report on it in June this year. We’ll keep you posted on the changes.
What landlords need to know:
- You will only be able to increase the rent once every 12 months (instead of six).
- You won’t be able to get rid of tenants without a reason. Currently, periodic tenancy agreements can be terminated without cause as long as the landlord gives 90 days’ notice. The RTA will now have a list of reasons you have to choose from.
- Tenants will be able to add minor fittings such as brackets to secure furniture against earthquake risk, to baby proof the property, install visual fire alarms and doorbells, and hang pictures.
- Rental “bidding wars” will be banned.
The Tenancy Tribunal will be able to award compensation or order work to be done up to a value of $100,000 (instead of $50,000). - New tools will be available to help you take direct action against tenants breaking the rules.
Changes relating to damage, methamphetamine, and unlawful rental premises:
- If tenants (or their guests) damage your rental property because of careless behaviour, they’ll be liable. They can be charged up to a maximum of four weeks’ rent or your insurance excess, whichever is lower.
- If you have insurance, you need to include this (and the excess) in any new tenancy agreement. You must also note that a copy of the policy is available to the tenant on request.
- You can now test for methamphetamine while your tenants are living there. You need to give tenants at least 48 hours’ notice (but not more than 14 days’ notice). You need to give boarding house tenants 24 hours’ notice.
- You have to meet all legal requirements relating to buildings, health, and safety that apply to your rental property. You also have to ensure your property can legally be lived in at the start of the tenancy.
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IMPORTANT PAYMENT DATES TO REMEMBER
APRIL 6th 2020
- PAYE: Large employers’ payment due. File employment information within two working days after payday.
APRIL 7th 2020
- FBT return and payment due if payable on an income year basis. *
- Terminal tax for the year ended 31 March 2019. *
APRIL 20th 2020
- PAYE: Small and large employers’ payment due. File employment information within two working days after payday.
- RWT return and payment due for deductions from dividends and deductions of $500 or more from interest paid during March.
- NRWT / Approved Issuer Levy: Payment and return for March.
* The terminal tax and FBT date apply for businesses with a March balance date and for clients for whom we prepare accounts and tax returns. Different dates will apply for clients who have different balance dates.
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.