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BREAKING NEWS

23RD MARCH 2021

CHANGES TO BRIGHTLINE TEST AND

INTEREST DEDUCTIBILITY FOR RESIDENTIAL PROPERTY INVESTMENTS

The Government has just announced new changes that will effect Residential Property Investors.  Once we know all

the details we will put out a newsletter with the relevant details but for now the main points are:

INTEREST WILL NOT BE DEDUCTIBLE AGAINST RENTAL INCOME FROM 1 OCTOBER 2021 FOR INVESTMENT PROPERTY PURCHASED AFTER 27TH MARCH 2021.  

PROPERTY PURCHASED BEFORE 27TH MARCH 2021 WILL BE ALLOWED SOME INTEREST DEDUCTIONS AT A REDUCING RATE  (75%, 50%, 25%, 0%) UNTIL IT REACHES  $NIL BY 2025.

THE  5 YEAR BRIGHTLINE TEST  HAS BEEN EXTENDED TO 10 YEARS

THERE ARE SOME EXEMPTONS FOR NEW BUILDS

On the information available at this point, the main impact will be that taxable rental income will increase for landlords who are paying off mortgages on their rental properties.  This will be in addition to the ring-fencing of losses that currently applies.  

More details when we know them....

WAITANGI DAY

As an Employer.....

There is a lot of confusion around the employer's obligations with regards to statutory holidays as well as employee rights & entitlements.  Hopefully we can explain it simply.....

 

 

This year Waitangi Day falls on a Saturday  (6th February)-

Any employee who normally works a Saturday then Waitangi Day is treated as a Public Holiday as normal.​

Basics        -  the day is a paid holiday 

if the employee works that day then they get paid time-and-a-half with a paid day-in-lieu to be taken a later date.

Because Waitangi Day has been Mondaydized then....

For any employee who would normally work on Monday (8th February), Monday would be treated as the  Public Holiday  instead.

Basics        -  the day is a paid holiday 

if the employee works that day then they get paid time-and-a-half with a paid day-in-lieu to be taken a later date.

​Employees

who don't normally work   Saturday but work Waitangi Day Saturday get paid time-and-a-half. No day in lieu.​

who don't normally work  Monday (8th February) but work that Monday also get paid time-and-a-half. No day in lieu

who don't normally work either Monday or Saturday and don't work those days,  miss out entirely.  No pay and no day-in lieu. For them things are just as normal.

Additional Things to Note:

 

An employee cannot be made to work on a Public Holiday unless their employment contract has a clause requiring them to be avail to work on Public/Statutory Holidays.

If an Employer closes both Saturday and Monday they still have to pay employees their entitlements for the public holiday and they cannot make their employees take annual leave on one of those days unless 14 days written notice has been provided.

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New Tax Rates and Minimum Wage Rate

Minimum Wage

 

The minimum wage rate goes up to $20.00 from the 1st April 2021.

Note that is applies on a pay-period by pay-period basis.  So if your employees are on a salary you need to be aware that if their equivalent hourly rate  for the hours actually worked is less than $20.00 per hour - you are in breach of the legislation.  It doesn't matter that the following pay-period  their hourly rate might be $25 per hour.

Please talk to us if you have any questions.

Personal Tax Increase

Another increase this time to the personal tax rate. If your income is over $180,000 then your new tax rate on amounts over $180,000 is 39% - this is an increase of 6%.  It takes effect from 1st April 2021. In keeping with this from 1st October 2021 there will be a new Resident Withholding Tax rate of 39%. This is effective  six months later to allow updates to the various systems used by the Banks etc.

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Provisional Tax, Terminal Tax and Loss-Carry-Backs

Provisional Tax

 

Provisional tax is charged when your terminal tax for the prior year is over $2,500. For example in 2020 you filed a tax return on 31 July 2020, showing $3,567,89 is payable by 7th April 2021  ( without a tax agent this would be February not April). This would make you a provisional tax payer for 2021 - with instalments due August 2020 , January  and May 2021.

Under the standard option the amount would be $3567.89+ 5% uplift ( $3,746) divided by three ( eg $1,249 per instalment).

Due to Covid-19, the Government has passed legislation increasing this $2,500 limit to $5,000. In the above example, as your terminal tax is under $5,000 you would not be deemed a provisional tax for 2021 and therefore would have no payments to make in August, January or May on that basis.

This is the position of most taxpayers, however there are other options available for paying provisional tax that may be more suited to your particular requirements.  Please see us or your Tax Agent  if you have any questions about provisional tax.

Terminal Tax

 

Terminal tax is due on 7th April 2021 for those taxpayers with Tax Agents and standard 31 March 2020 balance dates.  If you do not have a tax agent then payment is due 7th February 2021.

If due to Covid-19 you are unable to make full payment by the due date, please contact us or your Tax Agent who can advise you of your options. Inland Revenue  are able to reduce any late payment penalties or set up payment instalment arrangements if you inability to pay is due to Covid-19. The key here to is to get something place well before the due date for payment and not well after the due date for payment.

Temporary Loss Carry Back Scheme

 

Businesses expecting to make a loss in 2020 or 2021 now have the ability to off-set that loss to the preceding year instead of carrying it forward into future tax years. Now the key here is that the preceding year had a profit and  the business paid tax.  So if you have a loss in 2020 and a profit in 2019, you can offset 2020's loss against 2019's profit and Inland Revenue will refund any overpaid tax.  

Carrying back a loss can effect other taxes but will not change any shareholder salaries, dividends or subvention payments that may have already been made for that preceding year. 

The loss carry back is only available for 2020 ( carry back into 2019) and 2021 ( carry back in to 2020)

This Loss Carry Back does not apply to individuals where the Inland Revenue issue an automatic assessment  ( what used to be called PTS or IR5)  and does not apply to Companies who have not maintained 49% common ownership or Groups who have not maintained 66% common ownership throughout both the loss year and the preceding year.  With regards to companies, the Inland Revenue will not refund any taxes where there are insufficient imputation credits available to cover the refund.

Application must be made to the Inland Revenue before your tax return is filed  and can be done through your Tax Agent or myIR online service account. 

Please let us (or your Tax Agent)  know if you want to take advantage of this Scheme.

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Covid-19 IR Initiatives

Automatic Income Tax Write-Off Threshold

 

For 2020 only, Inland Revenue will be writing off terminal tax amounts of $200 or under. This write off applies ONLY to individuals, who receive an automatically calculated assessment. (What used to be called an IR5 but is now commonly known as a PTS (Personal Tax Summary).

 

 

Filing Returns & Making Payments

 

The Inland Revenue still expect to you to file all relevant tax returns on time ( eg. GST, PAYE, FBT, Income Tax etc). However, the Inland Revenue do have initiatives to help with making the payments.

Payments may be made via:

  • Westpac - the Bank will be open one day a week at least even under Lockdown.

  • Credit Card or Debt Card

  • Direct Debit Payments

  • Internet online Banking

  • Acceptable Payment Arrangement( monthly instalments)

 

If you are having difficulty making payments, the Inland Revenue have the discretion to write-off any penalties ( including Use of Money interest (UOMI)) if your inability to pay is directly related to Covid-19.  There must be a request for remission of the interest & penalties charged to the Inland Revenue with an explanation as to how the Covid-19 pandemic has impacted on your ability to make your payments on time.

 

Covid-19 Cashflow Loan Scheme

 

Just a reminder that you have until 31 December 2020 to apply for the Inland Revenue Cashflow Loan. The maximum amount available is $10,000 plus $1,800 per full-time equivalent employee.  You apply for it on the Inland Revenue website. The conditions are:

 

  • It’s a one-off loan

  • Term is 5 years

  • Interest free ONLY if repaid within 1 year

  • Less than 50 or fewer full time employees

  • Repayments are not required for the first 2 years

  • Interest will be charged at 3%

    • NB: the  interest will be charged from the start of the loan.
       

  • IMPORTANT –

    • If a default event ( Clause 9.1) occurs then the loan plus any interest becomes repayable IMMEDIATELY

    • A default event is defined as

      • You do not make your payments as due

      • You cease to carry on the business for which the Loan was made

      • You sell the business or substantially all of the business assets

      • You go into liquidation/administration/receivership or similar

      • You breach or do not comply with any information made on your behalf in order to qualify for either the cashflow loan or the wage subsidy scheme ( for example if you received the Wage Subsidy and the DSW discover that you did not qualify for it then the cashflow loan will become immediately repayment with any interest that may have been charged).

 

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Key Dates

  • 5th   October      -   Employer deductions for large Employers (ie more than $500,000 PAYE + ESCT per annum)

  • 20th October      -   Employer deductions payment due for both large and small Employers

  • 28th October       -  GST Return and Payment due for the period ended 30 September 

  • 28th October       -  Provisional Tax due if have a March balance date and use the ratio method.

  • 5th   November   -  Employer deductions for large Employers (ie more than $500,000 PAYE + ESCT per annum)

  • 20th November   -  Employer deductions payment due for both large and small Employers

  • 28th November   -  GST Return and Payment due for the period ended 31 October 

  • 5th   December   -  Employer deductions for large Employers (ie more than $500,000 PAYE + ESCT per annum)

  • 20th December   -  Employer deductions payment due for both large and small Employers

  • 15th January       -  GST Return and Payment due for the period ended 30 November 

  • 15th January       -  Provisional Tax due if have a March balance date and have a provisional tax to pay.

  • 15th January      -  Employer deductions for large Employers (ie more than $500,000 PAYE + ESCT per annum)

  • 20th January      -  Employer deductions payment due for both large and small Employers

  • 20th January      -  FBT for the quarter ended 31 December 

  • 28th January      -  GST Return and Payment due for the period ended 31 December

  • 5th   February    -  Employer deductions payment due for large Employers

  • 7th  February     -  Student Loan Year End Payment due if you have one

  • 7th  February     -  Terminal Tax and Working For Families Payments due if you have no extension of time (EOT)

  • 7th February      -   FBT Income Year Return and Payment due if you have March Balance date and no EOT

  • 20th February    -  Employer deductions payment due for both large and small Employers

  • 28th February    -  GST Return and Payment due for the period ended 31 January

  • 28th February    -  Provisional tax if March balance date and use the Ratio Option

Some Advice From Your Friendly Accountant

If you are going to buy a business, purchase or sell land, invite an employee to become a shareholder or partner in your business, or make any substantial changes to your financial situation

 

PLEASE talk to your Accountant first. 

 

What may seem like a great idea could cause you serious problems if it is not done right.