June 2015 E Newsletter

Welcome

Welcome to the June edition of Focus. Winter is now definitely upon us and this is a great time to get your “paperwork” in order so we can prepare your 2015 financial statements. This month we highlight what the IRD are doing relation to property transactions (especially for property speculators), show the IRD summary of the budget announcements and look briefly at ACC on self-employed and shareholder income.

Property Speculators

New rules have been brought in last month by the government to tighten the net around property speculators who have been able to make big profits in the housing boom of the last few years. The aim is to cool down the property market and ensure that people speculating or trading in residential property are meeting their tax obligations.

People buying and selling property for profit have always been subject to a tax on gains, but under the existing rules Inland Revenue has to prove making a quick profit was always their intention. This rule has not always been tightly adhered to and the IRD have recently being allocating a lot more resources into finding speculators who have not paid the right tax over the past five years.

Foreign buyers are another group that have been identified as having a rising influence on the property market and have often managed to fly under the IRD radar due to the lack of information on them. The IRD have often complained of the fact that they know foreign property speculators may owe tax but they lack the resources needed to track them down.

To tighten up the rules on property transactions and help the IRD enforce them the following measures have been announced by the government and will take effect from 1 October 2015.

Provide the Inland Revenue with more resources, information and tools to ensure that both New Zealand and non-resident property investors pay their fair share of tax.

Requiring non-residents and New Zealanders buying and selling any property other than their main home to provide a New Zealand IRD number.

Requiring non-residents to have a New Zealand bank account and to get a New Zealand IRD number, as well as provide a tax identification number from their home country.

Introducing a new "bright line" test for non-residents and New Zealanders buying residential property, to supplement Inland Revenue's current "intentions" test. Under this new test, gains from residential property sold within two years of purchase will be taxed, unless the property is the seller's main home, inherited from a deceased estate or transferred as part of a relationship property settlement.

The effect of the "bright line" test is to take away some of the ambiguity of the current system where intentions are always hard to prove. The new measure will make enforcement easier as it assumes that any rental property investors who sell a home within two years are doing it to make a profit.

Budget 2015 Announcements

Please refer to the IRD website for these annoucements.

Accident Compensation – Are you covered ?

An area which can cause confusion amongst taxpayers is your ACC cover. If you are self-employed, or a company shareholder receiving a shareholder’s salary with no PAYE deducted, then when your tax return is filed the IRD notifies ACC of the income earned. An ACC invoice is then generated and forwarded to you. Should an accident occur this means that you will be covered by ACC, but this has an annual cap equal to the amount of income as shown in your last tax return.

So what happens if you make a loss during the year or business isn’t as profitable as usual?

If your business has made a loss for the year and therefore no shareholder’s salary is distributed to you personally, or you have no self-employment income, then you are not covered by ACC. Likewise if your profit is considerably lower for the year resulting in less income shown in your tax return you may find that the ACC cover you do receive is not sufficient to meet your living expenses.
If during the year your profits are down and it is expected to continue to do so for the remainder of the year it is recommended that you talk to ACC and discuss ACC CoverPlus Extra. This is an optional product that lets self-employed people and non PAYE shareholder employees negotiate a pre-agreed level of lost earnings compensation. This way you know exactly how much you’ll receive each week if you are injured and can’t work – whether the injury is work-related or not.

How do I know if ACC CoverPlus Extra is right for me?

ACC CoverPlus Extra may better meet your needs if: