Accountancy & Business Advice News

Personal Income Tax Rates and Independent Earner Tax Credit (IETC) eligibility changes

Tue, 04 Jun 2024 21:30:03 GMT

Personal Income Tax Rates and Independent Earner Tax Credit (IETC) eligibility changes from 31 July 2024

Prior to 31/07/2024 the Personal Income Tax Rates;

From $0 to $14,000 10.50%

From $14,000 to $48,000 17.50%

From $48,000 to $70,000 30%

From $70,000 to $18,000 33%

From $180,000 to over 39%

From 31/07/2024, the new personal tax rate changes;

From $0 to $15,600 10.50%

From $15,600 to $53,500 17.50%

From $53,500 to $78,100 30%

From $78,100 to $18,000 33%

From $180,000 to over 39%

Example 1.

Anna’s taxable income is $70,000, and prior to 31/07/24, her tax on $70,000 was;

From $0 to $14,000 10.50% $1,470

From $14,000 to $48,000 17.50% $5,950

From $48,000 to $70,000 30% $6,600

Total tax to pay $14,020

However, after 31/07/24 her tax liability will be reduced to

From $0 to $15,600 10.50% $1,638

From $15,600 to $53,500 17.50% $6,632.50

From $53,500 to $70,000 30% $4,950

Total tax to pay $13,220.50

Better off $799.50

From 31 July 2024, the IETC will be available to eligible individuals earning between $24,000 and $70,000 per annum.

The IETC is a tax credit of up to $20 per fortnight that is currently available to those earning between $24,000 and $48,000 per annum. Those eligible can receive the IETC during the year by using an appropriate tax code, or get it all at the end of the year.

To recognise the impact of wage growth, the upper limit of eligibility for the IETC is being extended from $48,000 to $70,000 per annum. Those earning $24,000 to $66,000 per annum receive the full credit, with entitlements gradually reducing as income increases, up to the limit of $70,000

For further assistance, please feel free to contact us.

The information contained within this website is provided for information purposes only and is not intended to substitute for obtaining accounting tax or financial advice from a professional accountant.

Changes to the Bright-line property rule

Mon, 27 May 2024 21:31:47 GMT

Changes to the Bright-line property rule

From on 1 July 2024, the bright-line property rule will change.

If you sell a property on or after 1 July 2024 the bright-line property rule will only apply if the property is sold within 2 years of purchasing it.

If you sell a property before 1 July 2024, the current bright-line periods still apply.

If you bought the property between 29 March 2018 and 26 March 2021, the bright-line property rule applies if you sell the property within 5 years of buying it.
If you bought the property on or after 27 March 2021, the bright-line property rule applies if you sell the property within 5 years for qualifying new builds or within 10 years for other residential property.

Example 1.

Maria purchased a rental property on 20 March 2021, and she sells the property before 30 June 2024; the 5-year bright-line rule applies; therefore, she will need to pay tax on the gain on disposal of the property.

If Maria sells the property a day later, 1 July 2024, the 2 years of bright-line rule applies and because she purchased the property longer than 3 years, she does not need to pay tax on the gain.

For further assistance, please feel free to contact us.

New Trustee tax rate

Wed, 22 May 2024 21:27:18 GMT

New Trustee Tax Rate

The Act amends the Income Tax Act 2007 to increase the trustee tax rate from 33% to 39% effective from 01/04/2024.

The new legislation also introduces measures to mitigate over and under taxation, including;

Retaining the 33% rate where trustee income for the income year does not exceed $10,000 after deductible expenses (De minimis trust)
39% trustee tax rate by taxing beneficiary income derived by certain close companies at the 39% trustee tax rate.
Deceased estates are excluded from the 39% trustee tax rate and remain subject to a 33% rate in the income year the estate was created, and the following three income years.

Example 1. (Old trustee tax rate vs New trustee tax rate)

In 2024 financial year, Shine trust generated taxable income $30,000 and retained the income in the trust. Tax on the $30,000 under old trustee tax rate the trust only needs to pay $9,900 but for under the new trustee tax rate, the trust has to pay $11,700.

Example 2. (De minimis trust)

In 2025 financial year, Shine trust earns $20,000 of income and have $2,000 of deductible expenditure and beneficiary distribution of $5,000. The trustee income of $13,000 will be taxed at the new trustee tax rate of 39% as it is greater than $10,000 de minimis trust threshold. If the trust distributed $8,000 to beneficiary, the trust is a de minimis trust and the trustee income is taxed at 33%.

Example 3. (Corporate beneficiary rule)

The corporate beneficiary rule applies if a close company earns an amount of beneficiary income from a trust (Trust A) and any voting interest or market value interest, directly or indirectly, in the company is held by at least one of the following:

Criteria 1: a settlor of Trust A,
Criteria 2: the trustees of Trust A,
Criteria 3: a person for whom a settlor of Trust A has “natural love and affection”, or
Criteria 4: the trustees of another trust (Trust B), if a settlor of trust A has “natural love and affection” for a settlor or a beneficiary of Trust B.

Su and John have natural love and affection for each other and are each separately the settlors of the Shine Trust and the Darken Trust, respectively. Darken Trust is the sole shareholder of a close company, Darken Ltd. Since Su has natural love and affection for John, if the trustees of the Shine make Darken Ltd a beneficiary of the trust, then the company will satisfy Criteria 4. Any beneficiary income paid by the trustees of the Shine Trust to Darken Ltd will be subject to the corporate beneficiary rule and taxed at 39%. Darken Ltd is a close company and is not a registered charity, Māori authority, or the beneficiary of a securitisation trust, so is not excluded from the corporate beneficiary rule.

Example 4. (Deceased estate)

Josh died in August 2023, so his deceased estate was formed in the 2023–24 income year. Josh’s estate earns income from a commercial rental income and taxable income was $20,000 each year. However, the trustee of his estate cannot distribute this income for many years after his death. This is because it is unclear who the beneficiaries of his estate are due to an ongoing dispute between his siblings, John and Lucy.

Josh’s estate was created in the income year before new section HC 8B came into effect, when the trustee tax rate was 33%. Josh’s estate is also eligible to apply the 33% tax rate for deceased estates on trustee income for the 2024–25 to 2026–27 income years, inclusive.

In the 2027–28 income year (the fourth income year after the year during which the estate was created), Josh’s estate no longer qualifies for the 33% tax rate for deceased estates. This means that trustee income earned by Josh’s estate is subject to the 39% trustee tax rate (unless the deceased estate is a de minimis trust for that income year).

For further assistance, please feel free to contact us.

Changes to the interest limitation rules

Sat, 18 May 2024 21:33:46 GMT

Changes to the interest limitation rules

From 1 April 2024, you can claim 80% of the interest incurred for funds borrowed for residential property. This is regardless of when the property was acquired or when the loan was drawn down.

From 1 April 2025 interest deductibility will be fully restored, and you will be able to claim 100% of the interest incurred.

However, Interest deductions that were previously disallowed between 1 October 2021 and 31 March 2024 will remain disallowed unless the property is sold and subject to tax. This means, if the sale of a property is taxable under the bright-line property rule or 1 of the other land sale rules, the amount of the previously disallowed interest can be treated as if it were part of the cost of the property in the year you sell it.

Example 1.

Under the old rule, interest cannot be claimed for residential property acquired on or after 27 March 2021 unless the property is a new build.

John purchased a residential rental property of $1m with a mortgage of $500k and the settlement made on 31 March 2021. The property wasn’t a new build.

Soon after the settlement the property was rented out and total rent received during the 2022 financial year was $60,000 and other costs $10,000 (Rates, Insurance, and other repair & maintenance etc) and $25,000 mortgage interest.

Under the old rule, the interest costs were disallowed therefore John’s taxable income was $60,000 - $10,000 = $50,000 X 33% (his marginal tax rate) = $16,500 tax to pay.

Under the new rule, if the income and expenses are the remain the same for 2025 and 2026 financial year, John’s tax liability will be reduced;

2025 Financial year $50,000 – ($25,000 X 80%) = $30,000 X 33% = $9,900 tax to pay.

2026 Financial year $50,000 - $25,000 = $25,000 X 33% = $8,250 tax to pay.

For further assistance, please feel free to contact us.

Bright-line Property Tax

Mon, 12 Jun 2023 22:14:21 GMT

Bright-line Property Tax

Limited scope quasi capital gains tax introduced by the National Government in 2015.It has since been expanded by subsequent governments and now applies to property purchases and sales within 10 years commencing 27 March 2021.

This date specific capital gains tax applies to residential property which is not your main home. The tax also applies to bare land where a residential property may be constructed and property which might not derive income such as a second holiday home. The tax does not apply to commercial property.

Taxable consideration dates are:

Property acquired between 1 October 2015 and 28 March 2018 and sold within 2 years
Property acquired between 29 March 2018 and 26 March 2021 and sold within 5 years
Property acquired from 27 March 2021 and sold within 10 years.

There are a number of exclusions, such as from 27 March 2021 sold within 5 years for new builds. Various legal definitions for when a property is acquired and sold. Also rules to follow to determine what is your main home. Further, the National Party have undertaken to remove the 10-year extension should they form the next government.

The amount of tax payable is calculated by working out the capital gain on a property sale and applying the gain to your marginal rate of taxation. Capital gain is calculated by net sales proceeds less cost basis.

Currently, taxable income above $70,000 pa is taxed at 33% and then 39% above $180,000 pa. As property transactions can be profitable it will be easy to start at the 33% rate and move into the 39% rate for any taxable capital gain.

In summary, the Brightline tax is a wide-ranging tax which is subject to arbitrary change and strict legal definitions. If you get it wrong it can be a very expensive mistake. If you have any concerns or questions please get in contact.

Further assistance please feel free to contact us .

The information contained within this website is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant.

Filing an individual tax return

Mon, 12 Jun 2023 22:10:10 GMT

Filing an individual tax return

Individuals are required to return income and any losses to the Inland Revenue Department. The return period for most people runs from 1 April to 31 March. It is possible to apply to IRD to change the balance date of 31 March to another date. This is common for seasonal income earners or those who wish to match the balance dates of their trading entities.

An individual files an IR3 with IRD which is now almost entirely electronic. Individuals can register online with IRD. Although it is still possible to prepare a paper IR3 and post to the IRD.

With a 31 March balance date, the required filing date is 7 July. Although if you make a request with the IRD they will usually grant another 2 to 4 months to file a tax return. If you are on a tax agency list and have previously made timely filings you are automatically granted one year to file your tax return.

Income which does not require an IR3 return includes earnings only from employment, interest, dividends and Maori authority distributions. These types of income should have been reported to IRD and tax already deducted. Usually, the IRD will automatically issue a tax assessment notice based on records they hold which allows you to confirm or update IRD records.

There are limited expenses you can claim against IRD automatic tax assessments. They include any use of money interest paid to IRD, some loss of earnings insurance premiums and some financial planning fees such as portfolio fees.

All other types of income must be declared and filed on an IR3. This includes any interest or dividends over $200 which has not been reported to IRD. The list of reportable income is exhaustive and wide ranging. If you are unsure if you are required to file a tax return please get in contact.

Further assistance please feel free to contact us .

Fringe Benefit Tax on Motor vehicles

Mon, 12 Jun 2023 22:06:16 GMT

Fringe Benefit Tax on Motor vehicles

Generally, fringe benefit tax is tax levied on employees’ possible or available use of a business asset for private purposes. This is common with motor vehicles. This is because use of business assets privately by an employee is considered a form of employee remuneration and accordingly should be taxed.

For the purposes of FBT the definition of employee includes their associated persons and shareholder employees.

Set out below is quarterly formulas of FBT on a motor vehicle made available for the private use of an employee.

1) Cost price option

Cost price (GST inclusive) X Number of available days / number of days in quarter X 5%

2) Tax value option

Tax value (GST inclusive) X Number of available days / number of days in quarter X 9%

Further assistance please feel free to contact us .

GST Registration

Mon, 12 Jun 2023 22:03:17 GMT

GST Registration

If you are carrying out a “taxable activity” and if your annual sales are $60,000 or you expect your annual sales to more than this amount then you are liable to register for GST.

Under Section 6 of the GST Act taxable activity means:

any activity which is carried on continuously or regularly by any person, whether or not for a pecuniary profit, and involves or is intended to involve, in whole or in part, the supply of goods and services to any other person for a consideration; and includes any such activity carried on in the form of a business, trade, manufacture, profession, vocation, association, or club:

There a very limited number of exceptions which include long-term residential rents usually via a tenancy agreement and financial services. If you earn short term residential rents such as from Airbnb and your annual turnover from all taxable activities is over $60,000 then you are liable to register for GST covering all taxable activities. The issue here is the property that generates short term residential rents is also captured for GST.

GST is charged to your customers at a rate of 15% to of the value of your goods or services. Filing periods with IRD are usually either two months or six months.

Further assistance please feel free to contact us .