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Inland Revenue has released a paper to propose the introduction of loss ring-fencing on residential properties held by speculators and investors. Under this paper speculators and investors will no longer be able to offset tax losses from their residential properties against their other income (for example; salary or wages, or business income), to reduce their income tax liability.
The reasoning for this proposed loss ring-fencing is to help level out the playing field between property speculators/investors and home buyers. The Government believes that investors (particularly highly-geared investors) have a portion of the cost of servicing their mortgages subsidised by the loss, reducing tax on their other income sources and assisting them to outbid owner-occupiers for properties.
The loss ring-fencing rules will apply to “residential land”. The definition of residential land provided under the bright-line test will apply. Such rules will not apply to a person’s main home, a property that is subject to the mixed-use asset rules (for example, a bach that is used privately and publicly) or land that is held under land-related business (business of land dealing, development of land, division of land, or building).
The loss ring-fencing rules will apply on a portfolio basis. This enables investors to offset rental losses from one rental property against rental income from another property.
The current proposed start date for the loss ring-fencing rules is the 2019-20 income year.
If you have a residential investment rental property and have any queries regarding the above proposed changes please get in touch with us to discuss how such changes may affect you.
We have been receiving an increased number of queries from the Inland Revenue in recent months around clients' financial activities. The instigation of an Audit, Review or Investigation on you or your business will likely result in associated costs. Even if there are no adjustments to returns, there would still be costs surrounding the preparation of material for the Inland Revenue and managing the response process. Depending on the type of investigation and its results, these costs can be anywhere from a few hundred dollars to a few thousand dollars.
For this reason, we have purchased an Audit Shield Master Policy in our name. This Tax Audit Insurance policy, underwritten by Vero Liability Insurance Limited, covers the professional fees incurred by our participating clients (up to a prescribed limit) for any Audits, Reviews or Investigations relating to both the current and all previous years' lodged returns.
This insurance cover does not automatically apply to you, unless you voluntarily decide to undertake coverage.
Our clients should have received an email this week with an invitation to undertake coverage for you and your associated entities. Should you wish to participate, please reply to us by email and make payment as per the client acceptance form. We receive the premium payment from you as an agent of Accountancy Insurance and your payment also includes a small fee payable to us to cover administrative costs for operating this service.
If you do not wish to take up this insurance coverage, we would appreciate a response declining the offer and if you do not want to receive this offer in future years, please advise us as such.
We consider Audit Shield to be a very effective way of planning for the professional fees for which you would be liable in the event of an Audit, Review or Investigation.
If you have any queries with respect to this insurance, please do not hesitate to contact us on (04) 970-1182 or email@example.com.
When you engage an accountant to file your tax returns, the Inland Revenue grants an automatic extension of time for filing the returns to 31 March following your balance date i.e. with a 31 March 2018 balance date, the tax return is due 31 March 2019.
If the return is not filed by that date, Inland Revenue may charge a late filing penalty and revoke your extension of time, requiring subsequent returns to be filed by 7 July following your balance date. Late payments resulting from late filed tax returns are also subject to penalties and interest.
Of greater consequence, when tax returns are filed late there is no time to plan for tax payments, particularly with terminal tax due on 7 April and for provisional taxpayers; the third installment of provisional tax for the following year due on 7 May.
If you would like further clarification on your tax filing and payment obligations, please get in touch.
There are two methods that can be used to claim a deduction for business use of a private motor vehicle:
1. Actual costs incurred in business use of the vehicle
2. Kilometre rate method (replacing the mileage rate method)
The kilometre rate method is used by calculating the proportion of business travel from the total kilometres travelled in the year, which is then multiplied by the kilometre rate set by the IRD, depending on type of vehicle.
They have also introduced a two-tier system for the rates used. The tier one rate applies to the first 14,000 km travelled in a year. Once a vehicle has travelled more than this, the lower tier two rate will apply.
This means it is now important to not only keep a log book of business travel, but the total travel the vehicle has done. Once an election is made to use the kilometre method, it must be used until the vehicle is sold or no longer used for business use.
See some apps that can help you keep track of your mileage.
Inland Revenue have introduced a number of changes relating to how taxpayers pay their provisional tax.
Safe harbour rules provide protection for tax payers who have paid their provisional tax using the standard method but have had an increase in income during the year. Meeting the safe harbour requirements means that the tax payer is not liable for interest or penalties on the increased tax liability.
Under the previous rules, the safe harbour limit was $50,000 and was only available to individuals. New amendments increase this limit to $60,000, and more importantly extends to include companies and trusts.
The second change affects taxpayers whose tax liability exceeds the safe harbour provisions. First and second provisional tax payments made using the standard method will not be liable for interest and penalties, even if your actual liability is higher.
Inland Revenue also introduced an alternate method for calculating and paying provisional tax - Accounting Income Method (AIM). This can provide benefits for taxpayers with seasonal fluctuation in revenue.
In Melbourne, Australia at Xerocon 2017 taking in the product changes and chatting with over 70 App partners that interface with Xero. It’s been incredible to see the enhancements not only within Xero that are on the horizon, but also the additional features within the partner App providers.
The All Accounted For team will be working our way through the potential benefits that could be delivered to our clients over the next few weeks. However here’s a quick summary of what we’ve picked up from Xero:
- Enhancements to expense claims – significant changes to the process, mobile apps that staff can use to make claims, easier payments process that can be made with payroll, etc.
- Projects – Xero has released a job management system as part of the Xero system. Its functionality is at a starting level currently, but it will be enhanced over the coming months. It would be of most benefit to professional service businesses with a handful of employees at this stage.
- User Role Changes – more flexibility around the level of access for users invited into a Xero file.
- Payment Gateways – Now the ability to add payment gateways such as Stripe to your Xero entity, meaning your clients can pay by credit card, but also you can pass on the transaction fees.
- Bank Rules for Transfers – The ability to now set bank rules so that transfer are always transferred to the correct bank account.
- Upcoming enhancements – More predictive functionality for invoices and bills, enhancements with fixed assets and improved ability to interact with us through Xero Discuss (which is currently limited to bank reconciliation).
From the App partners we are looking closely at the following Apps as having benefits for our clients:
- NowInfinity – Allowing better management of Company and Trust legal documentation and compliance obligations.
- Tradify – Ability to manage staff for trades based businesses.
And of course we continue to work with our recommended Apps SmartPayroll (best payroll provided in NZ), Workflowmax (job management), Spotlight Reporting (reporting), Vend (Point of Sale System) and Timely (appointment management and invoicing).If you want to know anything more about the changes or the Xero App partners, please contact anyone from the All Accounted For team.
Changes at All Accounted For
Just a quick note to update our valued clients about recent team members changes at All Accounted For.
As many of you will be aware, Suzanne Donoghue-Hunt, our previous Office Administrator headed home to the Yorkshire district of the UK 3 weeks ago to assist with caring for her allying Dad.
Stepping in to fill the void left by Suzanne is our new saviour, Kirsten Bell. Kirsten (firstname.lastname@example.org) has recently returned from New Zealand after spending a few years in Edinburgh. Kirsten is already having a positive impact on the team and should also have a positive impact on our golf team (keen golfer).
Kirsten will be able to help out with any of those day to day queries you might have.
Business Services Manager
On Friday, Dylan Guitry, one of our three Business Services Managers, has moved on, heading north. Dylan had been a member of the team since 2014.
While we wish him well, he was a Chiefs supporter! So we’ve taken the opportunity to replace him with a Hurricanes supporter. Viktor Zgomba, born and breed kiwi living in Lower Hutt, will join the team as our replacement Business Service Manager from the 4th of July 2017.
Viktor has been providing public practice accounting services for 10 years, with a strong background in providing services across property, retail and the not for profit sectors.
Sarah Toner & Allison Henderson, our two other Business Services Managers, having been with us since 2011 & 2012, are holding the fort. So if you have any queries that you would have usually sent through to Dylan, please email or call Sarah (email@example.com), Allison (firstname.lastname@example.org) or myself (email@example.com) and we will be more happy to resolve your queries. Between the three of us, we across all the current circumstance of clients that were looked after by Dylan.
We look forward to introducing Viktor to you all in early July 2017.
Graduate Accountant Intern
A couple of weeks ago, Jude Di Giacomo joined us from the town of Glen Mills, Pennsylvania, USA on a 10 week international intern scholarship. Part of Jude’s study at Susquehanna University involves international travel to understand accounting approaches in other countries.
We have introduced Jude to Xero and our GST system. Online accounting is still a relatively novel idea for small business in the US. While Xero has clients in the USA, most of those clients are in California, with growth just starting on the east coast in New York.
Jude is enjoying the kiwi culture. Having taken him to first rugby game, he understands what a religion it is here in NZ. He’s loving the cold weather, though not as much snow as back home (keen skier).