Finance Archives - BDS Chartered Accountants

With political changes and an economic slowdown to contend with, we’re in pretty unpredictable waters. Here are some tips on managing your team in times of uncertainty:

Support staff wellbeing

Talk to staff about wellbeing regularly and openly. Let your team know it’s okay to feel stress or anxiety.

Regularly remind your people where to find support, whether it’s through free counselling or mental health resources, or through company health plans.

Put wellbeing practices in place

Ask your team what could help their wellbeing and balance. Consider team activities, on-the-job skill sharing and learning, and charity events.

Be clear about cost-cutting

Change on the cards? Communicate openly and frequently, using information that is easy to understand, relevant, and factual. Don’t offer false hope or reassurances.

Let people know if there is nothing new to communicate or if you are still working out your plans. Consulting effectively with staff can reduce the stress of uncertainty as you look to make changes in your business.

New Zealand has a new system of employment bargaining with the passage of the Fair Pay Agreements (FPA) Act which took effect from 1 December last year.

Fair Pay Agreements bring unions and employer associations together to bargain for minimum employment terms for all covered employees within a sector or occupation.

Visit Employment New Zealand’s website to find out what the new law means for you.

An outright stake sale might not be the best fit for your company. Here are three different paths you could take:

Asset finance:

A loan to pay for a particular business asset, such as a vehicle or piece of machinery.

Pros

Interest rates can be competitive if you are able to go through a mainstream bank, and you won’t need a huge down payment.
You may be able to own the asset outright at the end of the loan term, upgrade the asset, or return it.

Cons

Due to interest payments, it can be expensive to use asset finance rather than cash.
The whole asset isn’t tax deductible while you’re paying for it — only the payments in the liabilities column on your balance sheet.

Crowdfunding:

Reward-based crowdfunding through websites such as Kickstarter or Pledgeme.

Pros

Can be useful for market validation.
Appeals can be launched by early stage growth companies, and those working off prototypes.

Cons

Potential intellectual property concerns if an idea is made public.
Compelling public offerings can be time-consuming.

Peer-to-peer lending:

Websites including Lending Crowd link borrowers with people willing to lend small amounts. Peer-to-peer lending platforms are relatively new and you should do your research before considering this option, including checking the latest guidance on the Financial Markets Authority website.

Pros

Lending process is less time-consuming than a bank loan, with interest rates occasionally lower.
Loans are unsecured — you don’t need to put up collateral.
You are unlikely to be asked to give up equity in your business.

Cons

Costs in addition to interest payments may apply, such as setup or platform fees
High default interest rates (in addition to the agreed interest rates) likely apply
Missed payments can affect your credit score.
If you have a low credit rating, borrowing costs can be high.

Like to talk through your options? Give us a call today.

While getting a business loan from a bank can be painful (with reams of red tape to wade through), it’s not impossible.

Here’s what banks are looking for.

Motivation: Why are you in business, and what is your vision for the future? You should be able to explain this in a few short sentences.
Capability: What skills do you and your staff have? What technology and equipment do you use, and are there any gaps?
Financial position and forecasts: Are you in good financial health? What’s the state of your balance sheet? You will need to answer these questions and provide forward-looking statements.
Personal spending: The bank will want to know information about your personal spending. Are you a risky splurger, or someone who runs a tight ship at home?

If you run an innovative company offering the world something new, a partnership with an angel could be right for you.

Angel investors are a great match for fast-growing businesses who want funding and are willing to hand over a slice of equity. In most cases, there are no collateral obligations to angel investors if the company fails.

Angels are usually experienced and successful entrepreneurs with a network of connections (picture the TV show Dragon’s Den). They provide vital assistance, contacts, and know-how.

Not every angel investor wants to take equity in a business. Some are happy to provide conditional loans. For more information, speak to your local Regional Business Partner Network.

There are many tax implications when investing in residential property in New Zealand. Property investment and understanding the impact of current tax laws and their application is rather complex now, Please seek professional advice when you are unsure of the implications, as mistakes can be costly!

The Brightline test

For sale and purchase agreements that become unconditional on or before 27 March 2021, the “old” Brightline test is applied.

All other properties with a settlement date on or after 28 March 2021 will be subject to the revised Brightline test.

Interest deductibility

Property purchased on or after 27 March 2021 – interest can be claimed up to and including 30 September 2021. After that, no interest can be claimed.
Property purchased on or before 26 March 2021 can claim the percentages outlined below.

Ringfencing Rules

Previously, losses from rental properties can be offset against other sources of income (wages, salary, business income), thereby reducing an individual’s tax liability.

From 1 April 2019 any loss made from a rental property will be ring-fenced. It will be contained within the rental itself and used on a ‘portfolio basis’. The two types of property income losses can be offset against are:

Future residential rental income from across your portfolio; or
Any taxable income on the sale of residential land.

Any losses left over will stay ring-fenced to be used in the future against this type of income, ie future residential rental income only and cannot be offset against other personally derived income to lower your overall tax payable, potentially giving rise to a refund

What Expenses can be Claimed

Income from residential property rental should not be declared for GST, and any costs shouldn’t be claimed for GST, either.

Property-related expenses

Rates
Insurance
Property management fees
Repairs and maintenance
Travel to and from your property for inspections and repairs

Financing expenses

Mortgage repayment insurance
Loan fees
Interest on mortgage*

Legal and consulting fees

Legal fees incurred when buying a rental property (if less than $10,000)
Legal action to recover unpaid rent
Costs for evicting a tenant
Preparation of a tenancy agreement
Accountancy fees
Valuation fee to obtain a mortgage (but not insurance valuations)
Legal fees for selling the rental property (if your total legal fees are less than $10,000)

Non-deductible costs

Mortgage repayments (except interest*)
Interest subject to the new interest deductibility rules announced 23 March 2021
Repairs and maintenance, if it increases the value of the asset
Insurance valuations
Legal fees for selling the rental property (if your total legal fees exceed $10,000)**
Advertising the sale of a rental property**
Real estate commission**

With the government’s new housing plan announced on 23 March 2021, claiming interest against residential rental income has become severely restricted. If you’re purchasing a rental property, assume that interest cannot be claimed.

For properties acquired on or after 27 March 2021:

Legislation has passed that extends the bright-line test from five years to 10 years on residential property.
The Government intends for the bright-line test to remain at five years for new builds and will be consulting on what a new build is soon.
Legislation has passed that introduced a ‘change of use’ rule. If the sale of your property is subject to the bright-line test, and you don’t use a property as your main home for 12 months or more, you will be required to pay income tax on a proportion of the profit made through the property increasing in value.
The Government has proposed that residential property investors will not be able to offset the costs of the interest they pay on loans to purchase residential property as an expense against their taxable income. A consultation will be held about this, with any law expected to come into effect from 1 October 2021.

Sick leave entitlement changes

The recent passing of the Holidays (Increasing Sick Leave) Amendment Act increased the employee sick leave entitlement from 5 to 10 days per year. The change comes into effect on 24 July 2021. The day in which the employee’s sick leave increases is based on their next entitlement date and not automatically from 24 July.

Median wage increase

The median wage increased from $25.50 to $27 gross per hour from 19 July 2021. This has implications for employers who may be intending to employ staff on an essential skills visa or residence visa

Covid-19 travel policy

The current pause in the trans-Tasman bubble and Wellington’s recent alert level change serves as a timely reminder that businesses need to plan for on-going travel uncertainty. Make sure you have an updated travel policy in place that covers what to do when an employee’s work or personal trip is extended, and the steps that employees should take when travelling in the bubble.

Covid-19 vaccinations and employees

As the vaccination programme rolls out across New Zealand, you might be wondering what your obligations are as an employer. Make sure you are clear on what you can and cannot do when it comes to Covid-19 vaccinations and your workers. Employment New Zealand has released some guidelines to help employers understand their role in the vaccination process. The guidelines can be found on their website together with a one-page PDF for your workplace.

With the introduction of the 39% tax rate for individuals from 1 April 2021, the Inland Revenue is increasing the information it collects from trusts to assess compliance with the new tax rate and to monitor how trusts are being used.

Trust disclosure obligations

The additional information that needs to be included in a trust’s tax return (from the 2022 tax year) includes:

name, IRD number and date of birth of beneficiaries, settlors and those with power of appointment and removal of trustees
financial statements
details of settlements
details of distributions to beneficiaries

Non-active trusts, charitable trusts, Maori authority trusts, and New Zealand trustees of foreign trusts do not need to provide this additional information.

Increased disclosure obligations to beneficiaries

In addition to the above, from January 2021, trustees need to disclose the following trust information to all beneficiaries, including parents/guardians where the beneficiary is under 18:

that they are a beneficiary
name and contact details of all trustees
that they can request a copy of the trust deed and the financial statements

Trustees can choose not to provide requested information to beneficiaries provided the request has been reasonably considered. The beneficiary does not need to be told the reason for not providing the information.

Change to definition of settlor

There has also been a change to the definition of a settlor. A beneficiary with a current account greater than $25,000 will now be deemed to be a settlor if a market interest rate or Inland Revenue’s prescribed interest rate is not charged. This can have implications for the beneficiary such as student loan repayments and social assistance.

Since the 2012 income year the depreciation rate for commercial and industrial buildings had been reduced to 0%. Following the Government’s raft of Covid-19 support measures, depreciation can now be claimed on commercial and industrial buildings from the beginning of the 2021 income year. The reinstatement will mean commercial and industrial buildings are now depreciated at 2% diminishing value or 1.5% straight-line. Residential buildings continue to have a 0% depreciation rate.

If you had previously depreciated your commercial or industrial building prior to the 2012 income year, you must continue to depreciate the building from the 2021 income year. Alternatively, if you own a commercial or industrial building that you held prior to the 2012 income year and you had previously elected not to depreciate, you must continue not to depreciate.

This lockdown was announced at 17 August 2021 and has triggered three of the government’s existing policies – Resurgence Support Payment, the Covid Wage Subsidy, and the COVID-19 Leave Support Scheme. The terms ’employee’ and ‘business’ below include sole traders and shareholder-employees.

Some information and applications may not be immediately available, so keep checking the MSD website regularly https://www.workandincome.govt.nz/covid-19/index.html

Wage Subsidy Scheme (WSS)

For businesses which expect a loss of at least 40% revenue as a result of this lockdown
• To be paid as a two-week lump sum
• Can only be used for wages, not general operating costs
• $600 per week for each full-time employees
• $359 per week for each part-time employee

Applications expected to open on 20 August from Work and Income NZ.

Resurgence Support Payment (RSP)

The RSP is available if a business incurs a drop of 30 percent in revenue over 7 days, compared with 7 days in the last 6 weeks as a result of the Alert Level increase. For commonly owned groups, the whole group needs to be eligible before each entity can claim the RSP.

For businesses which expect a loss of at least 30% revenue as a result of this lockdown

• To be paid as a lump sum
• Can be used for general operating costs
• The amount is to be the lower of:
• $1,500 plus $400 per full-time equivalent employee (up to 50 FTEs), or
• Four times the actual revenue decline experienced by the business

Leave Support Scheme (LSS)

The LSS provides a two-week lump sum payment of either $585.80 per week for full-time workers, or $350 per week for part-time workers, who must self-isolate and cannot work from home.

For employers to help pay employees who cannot work from home while self-isolating

• $585.80 per week for full-time employees
• $350.00 per week for part-time employees

Short-Term Absence Payment (STAP)

The STAP provides a one-off (once per 30 days) $350 payment for workers who must miss work due to a COVID-19 test and cannot work from home. Further information is available on the MSD website.

The new 39% marginal rate that applies to all employment income over $180,000 is now in force. Consider how the new rate will affect you and your business.

The 39% tax rate and…

Trusts?

From now on, you’ll need to disclose a lot more information to Inland Revenue in your annual trust tax returns. The additional information will provide the Government with information on how trusts are being used, particularly with the introduction of the new 39% tax rate. As part of their annual income tax return, trustees will now have to disclose:

Financial accounting information, including profit and loss statements and balance sheet items
Loans to related parties
Information on distributions and settlements made during the income year
Names and details of settlors from prior years
Names and details of each person who, under a trust deed, has the power to appoint/dismiss a trustee, to add/remove a beneficiary, or to amend the trust deed.

FBT?

A new Fringe Benefit Tax (FBT) rate of 63.93% will apply for all-inclusive pay above $129,681 and the single rate and pooling of non-attributed fringe benefit calculations. The 42.86% rate for non-attributed benefits will no longer apply. Talk to us about your current FBT profile and we can review it together.

RWT and RLWT?

If you earn interest, this will be taxed at 39% (RWT) from 1 October 2021. If you’re selling property covered by the bright-line test, Residential land withholding tax: (RLWT) will increase from 1 April 2021 to 39% (except where the vendor is a company).

Beneficiary income from a trust?
If you receive beneficiary income from a trust let us know if you’d like to know more about your tax position.

Property or shares?

If you are looking to purchase assets such as property or shares, or already have such investments, it would be prudent to assess your overall investment strategy so that it meets your commercial and personal goals, including your tax profile.

Such investments are able to be held in companies or a trust, which have tax rates of 28% and 33% respectively, however on distribution to individuals in most cases the individual’s tax rate will effectively be applied.

A strong note of caution – the main reason for any restructuring of your investments should not be due to any perceived tax benefits arising out of the restructure. Any restructuring should be focused on achieving key objectives such as successful commercial, risk, succession, and asset protection outcomes. Talk to us and we
can review and assist you with planning to meet your objectives.

Superannuation contribution tax?

Time to check whether you have employees whose Employer Superannuation Contribution Tax (ESCT) and Retirement Savings Contribution Tax (RSCT) rate threshold exceeds $216,000. The tax rate for these has risen to 39% (as of 1 April 2021).

Additional employment income?

The tax change applies to all employment income over $180,000 a year, including bonuses, back pay, redundancy, and retirement payments. As an employer, take account of when additional remuneration to employees may affect their tax obligations and make sure tax is deducted correctly.

Do you have staff taking leave over Christmas? Are systems in place to make sure everyone gets what they’re entitled to? Even if someone else handles your payroll, you are responsible for making sure holiday pay and leave payments are handled correctly.

Remember:

Whether your staff work full-time, part-time, casual, on-call, or shift work, they’re entitled to any benefits that come from working on public holidays.
If your employee agrees to work on a public holiday that falls on a day they would normally work, they will need to be paid time and a half PLUS receive another paid day off later, otherwise known as a day in lieu. If an employee works on a public holiday, and it is not a day they would usually work, the employee is only entitled to the time and a half. The entitlement to time and a half has to be included in employment agreements.
Employees can choose to take their day in lieu:
- on a mutually agreeable date that is not a public holiday
- on another day on which they would normally be working
- for a whole working day, regardless of how much of the public holiday they actually worked.
If your business is having a closedown period, employees are entitled to a paid public holiday if they would ordinarily work on the day of the public holiday.
Make sure your payroll system:
- is flexible enough to handle different working arrangements (eg, changing employee work schedules)
- records all relevant time worked and payments made
- has accurate and up-to-date information.
If you realise an employee hasn’t been paid the right amount, be up front and correct the mistake immediately.

Overseas businesses selling goods valued at $1,000 or less online to New Zealanders are now required to register for, collect …

Cash flow is essential at this time of year, so if chasing late payments makes you feel uncomfortable, outsource those phone calls …

Get familiar with the flexible work legislation and take ideas from the Flexible Tool Kit.
Take a good look at your business metrics and cash flow and if things aren’t looking as flash as you’d like, or expected, give your accountant a call for advice.
Check out the Headspace app for short, easy meditations on the go.
If you’re committed to gender equality and creating a positive work culture, show the world by becoming accredited with New Zealand’s Gender Tick™.
Thinking of rewarding employees for a year of work? If vouchers or gift baskets aren’t your thing, consider saying thank you in the form of time off or flexible hours.
Get inspired by leading business people at Champions for Change.

Fill your drawers: Can you stock up on stationery, postage and courier bags before 31 March? Claim now and save.
Staff expenses: If you owe employees holiday pay, bonuses, long service leave or redundancy payments, you can claim for these now – as long as they are paid within 63 days of the balance date
Can you fix it? If you’ve got any significant maintenance or repairs on the cards, do it before year end and save on tax.
Turn fun into savings: Do you know which entertainment expenses you can claim 100% of? It’s worth finding out – ask us if you need clarification.
Look at your fixed assets: Do you have any you’re no longer using or don’t plan to use in the future? If so, you may be able to write off the book value.
While you’re at it, check your stock: Look at your stock as well, especially obsolete stock. There may be an opportunity to write some of this off as well – check with us on what could be done in this area.
Income boost: Earnt a lot more this year? Consider making a voluntary provisional tax payment.
Logging car use? Remember to jot down your odometer reading at year end and if you’ve kept a logbook of business and personal use, mileage and costs, good work!
Home office: It’s also a good time to review what home office expenses may be available for deduction, especially your home office. We can help with calculating this.
Saving time saves money! Accountants are required to ask for information to comply with AML – DIA obligations plus the IRD may ask you, via your accountant, for extra information in relation to your EOY tax. Having your identification and tax documents collated and correct saves your accountant time, which saves you money, so get started this week.

Payday filing

We have mentioned this in the past, but don’t forget payday filing for employers is compulsory from 1 April 2019. Please contact us if you need any help with complying with the new process and rules.

No more cheques for IRD

Do you send post-dated cheques for tax payments? It’s time to go digital!

From now on you’ll need to use online banking to make future-dated payments as the IRD no longer accepts post-dated cheques. Plus, if you’re one to put your tax payments in the Inland Revenue’s dropboxes, you’ll now have to head to an IRD office reception area during office hours to do so.

Writing off bad debt? Get your ducks in a row

If you’re expecting a tax break from writing off bad debt, you may also expect to hear from the IRD asking you to prove the debt is, in fact, bad. A new ruling means the IRD could request evidence of any steps you took to recover the debt (before writing it off) and proof there is no reasonable likelihood the debt will be paid. So, get your paperwork in order!