Gilmore Taylor Associates Ltd Blog

Government rules out a capital gains tax

The Coalition Government will not proceed with the Tax Working Group's recommendation for a capital gains tax, Jacinda Ardern announced today.

For more information :

One of the outcomes of last year's levy consultation was the decision to change the way we invoice self-employed customers. From 1 April 2019, we will now be invoicing customers based on their actual income at the end of each year, rather than invoicing them in advance based on last year's earnings.

What you need to know

  • Most self-employed customers will not receive an invoice in the 2019/2020 year.
  • The next self-employed invoices will be sent in the 2020/2021 year (approx. July-August 2020).
  • These invoices cover the 2019/2020 year and are calculated using the 2019/2020 year's actual earnings filed from Inland Revenue.

 

 

Inland Revenue to shut down services later this week

The tax system is about to close for a week as Inland Revenue implements its biggest changes in 20 years.

Online services in myIR will be unavailable from 3pm Thursday afternoon and will reopen at 8am on Friday 26 April. Inland Revenue contact centres and front counters at its offices will also be closed.

Inland Revenue Deputy Commissioner Sharon Thompson says the dates were carefully chosen to cause the least possible disruption to customers.

"Easter holidays and Anzac Day fall within this period so there are only two full business days when our services won't be available.

"Almost 20 million tax records are going to be transferred to a new system during the shutdown so we're closing to make sure that goes smoothly.

"When we reopen on Friday 26 April, we will have a vastly superior tax system – one that can issue automatic tax refunds and can operate closer to real time to help more New Zealanders pay the right amount of tax at the right time."

This is the third time in the last three years that Inland Revenue has shut down the tax system to roll out part of its business transformation. The first year saw the GST system modernised. Year two moved more business taxes into myIR and brought in the Accounting Income Method option for paying provisional tax.

The third release sees individual income tax records moved to the new system. This will allow the process of automatic tax assessments to get underway along with mechanisms to make sure customers are on the right tax code and not over or under paying tax.  

"No customer will be disadvantaged by our shutdown." says Ms Thompson. "The payments of Working for Families tax credits will go out on Friday and employers filing their final Employer Monthly Schedule or doing payday filing will be able to file on April 26. Although we would encourage them to file before the shutdown if they can.

"Tax payments can still be made via internet banking and all the information on our website will remain accessible.

"There's never an ideal time to shut down the tax system but we're confident the changes will make any inconvenience worthwhile.

"Tax is about to become much more straightforward for salary and wage earners," says Sharon Thompson.

Changes in effect on 6 May 2019

Changes in effect on 6 May 2019 regarding

Employment Relations Amendment Act 2018

 

1.   The right to set rest and meal breaks will be restored, the number and duration of which depends on the hours worked. For example, an eight-hour work day must include two 10-minute rest breaks and one 30-minute meal break, while a four-hour work day must include one 10-minute rest break.

Rest breaks benefit workplaces by helping employees work safely and productively. Employers must pay for minimum rest breaks but don't have to pay for minimum meal breaks. Employers and employees will agree when to take their breaks. If they cannot agree, the law will require the breaks to be in the middle of the work period, so long as it's reasonable and practicable to do so.

Some limited exemptions may apply for employers in specified essential services or national security services.

2.   90-day trial periods will be restricted to businesses with less than 20 employees. This change means the majority of employees will have protections against unjustified dismissal from when they start a job.

Businesses with 20 or more employees can continue to use probationary periods to assess an employee's skills against the role's responsibilities. A probationary period lays out a fair process for managing performance issues and ending employment if the issues aren't resolved.

3.   Employees in specified 'vulnerable industries' will be able to transfer on their current terms and conditions in their employment agreement if their work is restructured, regardless of the size of their employer.

Changes also include a longer notice period for employees to elect to transfer to the new employer; this notice period is a minimum of 10 working days.  

4.   The duty to conclude bargaining will be restored for single-employer collective bargaining, unless there are genuine reasons based on reasonable grounds not to. This ensures that parties genuinely attempt to reach an agreement. 

5.   The 30-day rule will be restored. This means that for the first 30 days, new employees must be employed under terms consistent with the collective agreement.  The employer and employee may agree more favourable terms than the collective.

6.   Pay rates will need to be included in collective agreements, along with an indication of how the rate of wages or salary payable may increase over the agreement's term.

7.   Employers will need to provide new employees with an approved 'active choice form' within the first ten days of employment and return it to the applicable union, unless the employee objects. We are currently developing the form, which will be available on this page for download before 6 May 2019.

8.   Employers will need to allow for reasonable paid time for union delegates to undertake their union activities, such as representing employees in collective bargaining. Employees will need to agree with their employer to do so or, at a minimum, notify them in advance.

An employer will be able to deny the request if it will unreasonably disrupt the business or the performance of the employee's duties.

9.   Employers will need to pass on information about the role and function of unions to prospective employees. Unions must bear the costs if they want printed materials to be passed on.

Minimum wage rises to $17.70

Minimum wage rises to $17.70

On 1 April 2019 the adult minimum wage becomes $17.70 per hour, up $1.20 from $16.50. This adds up to $708 for a 40-hour week.

The starting-out and training hourly minimum wages rates increase from $13.20 to $14.16 per hour – remaining at 80 per cent of the adult minimum wage.

The Government also set indicative rates of $18.90 from 1 April 2020 and to $20 from 1 April 2021. These rates will be subject to each year's annual review.

 

Tax implications of working for accommodation

Providing a person with accommodation in exchange for work can have income tax and GST implications, for both the provider and the worker.

Common situations include seasonal and casual labour in the farming, hospitality and tourism industries. In these industries, backpackers, travellers from overseas, university students, seasonal workers and other casual workers are often taken on to harvest crops, pick fruit, garden, paint, clean, cook, make beds, work in bars and wait at tables. As part of the arrangement, they get a place to sleep and may also get food to eat instead of or as well as payment for the work.

Tax issues are not confined to these industries or situations. Potentially, there will be tax to pay whenever a worker does work for someone else who gives them accommodation as "part of the deal". This is whether the worker also gets money for doing the work or not. It could also be despite the worker being called a "volunteer".

See the below link for more information:

https://www.ird.govt.nz/payroll-employers/make-deductions/staff-benefits/allowances/accommodation-allowance/tax-working-accommodation/

 

Tax Pooling

 

Tax Pooling

Tax pooling is the framework Inland Revenue established to help taxpayers meet their provisional tax obligations.

How does tax pooling work?

The tax pooling system is based on taxpayers who pay provisional tax into a 'pool' at Inland Revenue. Once taxpayers know exactly what they need to pay in provisional tax, they transfer this out of the pool to their Inland Revenue account and sell any surplus to someone else (typically for a fee greater than the Inland Revenue credit interest rate they would otherwise receive).

A taxpayer faced with an underpayment can then acquire those surpluses for a fee less than the Inland Revenue debit interest rate. When these surpluses are transferred from the pool to the taxpayer's Inland Revenue account it is like a transfer from a related party, so Inland Revenue considers it a payment made on time and therefore there is nothing further to pay. Any interest or late payment penalty charges on the taxpayer's account are usually eliminated at the same time.

Surpluses can be acquired from the pool whether you put tax into the pool or not. Surpluses can only be sold if they've been deposited into the pool initially.

Acquisition of additional tax can be done in advance (finance) or after the provisional date (buy), and surplus tax can either be sold over time (sell) or refunded within a matter of days.

For further information: https://www.taxtraders.co.nz/about/tax-pooling#intro-video

 

Simplified tax for short-stay accommodation providers proposed

Inland Revenue is seeking feedback on a proposal to simplify tax obligations for people who rent out their property as short-term accommodation.  

IRD's Director Public Rulings Susan Price says if someone gets money from renting out their house, a room, holiday home or a sleep-out - it's income – and they have to file a tax return.

"People renting out a room in their home can claim costs like advertising and a proportion of the expenses for the time the space is rented including things like rates, insurance and cleaning. What we're proposing in our draft Determination is a standard, nightly amount to claim as costs," Susan Price says.

"The proposed amount is $50 a night if the host is the home owner and $45 a night if the host rents the property. They may qualify if the space is rented for up to 100 days each year.

"Qualifying hosts may be able to use the standard costs from the Determination and don't have to work out their actual costs. If they don't meet the criteria, or choose not to use the standard costs, all income must be returned and the actual costs calculated to claim as deductions.

"We've drafted the new rules to simplify the tax obligations for people who occasionally host short-stay accommodation guests in their home, using websites such as Airbnb or Bookabach.

"We're also consulting on draft guidance about how the existing rules apply for other short-stay accommodation hosts who can't use the proposed standardised deductions – either because they rent space out for more than 100 nights per year or because the accommodation isn't in their home. 

"We're releasing the proposed Determinations and guidance in "Questions We've Been Asked" (QWBAs) for public consultation today. We'd very much like to hear from people on this," Susan Price says.   Inland Revenue is also updating the Determination that applies to taxpayers who have a boarder in their home. The refreshed Determination is also now out for public consultation.

The draft Determination and questions will be open for submission for six weeks and are available here:  https://www.ird.govt.nz/public-consultation/current/.

Following consultation, Inland Revenue will review and consider any comments received before finalising and publishing the items.

 

 

Is your business ready for cyber litigation?

 

When household brands suffer data breaches, you're on notice that your business could be the next potential target for cybercriminals.

 

This has the potential to impact your brand, reputation and worse. There are also regulatory and legal obligations in most jurisdictions that require you to safeguard and secure consumer data. Fail to do this and you risk exposing yourself to legal liability and even litigation from your partners, clients and customers.

 

The sensible thing to do is to have a policy and plan of action for dealing with cyber security breaches, with a clear awareness of the legal implications.

 

If you are not sure how prepared your business is for litigation, start by asking these 3 questions:

 

1.       How secure is your operation?

 

Your cybersecurity program not only needs to be as hacker-proof as possible, it needs to be ready for litigation. The better your cybersecurity program protects your assets against reasonable and realistic threats, the better it will stand up in court when someone's questioning how seriously you took your duty of care. A court is unlikely to expect your cybersecurity program to be bullet-proof, but it must be highly defensible. You must be able to show that it was given careful thought and was reasonable in all circumstances.

 

2.       Are my staff up to speed?

 

Your staff can be the weakest link when it comes to cybersecurity, so make sure they understand their responsibilities. Consider the need to upskill, re-hire, or supplement IT staff if you don't have people with right skill set. You need someone with exemplary security credentials, an individual who can take the witness stand and speak about your security measures with real authority.

 

3.       Other questions to ask

 

You also need to be constantly asking yourself these questions - things you could be asked in court by a lawyer trying to prove you didn't do enough. So, make sure you have watertight answers before declaring your cybersecurity program is up to standard.

 

·         Are we sure what we're doing is best practice? How do we know? Can we show how we came to these conclusions?

·         What security measures do we use to protect our data?

·         Have we declared our objectives and plans in writing, so everyone is clear?

·         Does our cybersecurity program take into account business strategy-are we across any planned mergers?

·         Do we know the risks posed by our vendors and other partners?

·         Are we mitigating all the potential cybersecurity risks?

·         Do we have an emergency plan for a sudden attack? Why is it the best plan possible? Does everyone know what it is?

·         Has everyone been trained in the physical security of IT (e.g. laptop theft) and social engineering attacks?

·         How are we making sure this isn't all written out and just put in a drawer?

 

Fail to ask the right questions and you risk exposing yourself to a fine, litigation or worse. The key is to be prepared and have an effective cybersecurity policy in place before an event occurs.

 

 

Ring-fencing rental losses

 

Ring-fencing rental losses

 

The government introduced their long signalled changes to rental property tax into Parliament.  They propose introducing loss ring-fencing on residential rental properties.

 

What do these changes mean?

 

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.

 

How will it work?

 

At its most basic, any losses will be carried over to the next income year.  No PAYE refund will be issued to the investor. The losses won't be able to be utilised until the investment makes a profit. The ring-fencing will apply on a portfolio basis, so if an investor has more than one property, losses on one can be offset against profits on another. For many investors, it will take some time to pay down a mortgage before the investment becomes profitable.  The ring-fenced losses won't be utilised until quite some time in the future.

 

What can losses be utilised for?

 

Under the suggested changes, ring-fenced residential rental or other losses from one year could be offset against:

 

·         residential rental income from future years (from any property); and

·         taxable income on the sale of any residential land. e.g. any capital gain caught under the Bright-line test rules.

 

Losses can't be used to offset income from other investments.

 

What property is excluded?

 

·         A taxpayer's main home if they are renting out part of it ( a significant number of family homes in New Zealand are owned by family trusts. The definition of "main home" would therefore ensure that a home owned by a trust can be regarded as a main home);

·         Mixed-use assets as there are already specific rules on these;

·         Any property that was bought from the outset with the intention of resale;

·         Certain accommodation provided for employees, and:

·         Property owned by 'widely-held' companies (e.g. 25+ shareholders).

 

When is it intended to take effect?

 

It is proposed that the loss ring-fencing rules will apply from the start of the 2019–20 income year, assuming the bill passes through all stages in Parliament unchanged.  The rules could either apply in full from the outset, or alternatively they could be phased in over two or three years.