June 2014 E Newsletter

Welcome

Welcome to the June edition of Focus. We hope that you all have survived the storm, braved the Auckland power cuts and are wrapping up warm for the upcoming winter months. This month, we highlight the changes in the donation tax rebate claim period, common errors in filing GST returns, increase in FBT rates for low interest loan and introduction to the Mixed Used Asset calculator.

Donation tax credit claims

From the 2015 tax year (1 April 2014), the time period for claiming donation tax credits has been reduced to four years, in line with the other annual return filing periods. This means that a tax credit for a donation must be claimed within four years of the end of the year in which the donation was made. For example, if the donation was made during the 2014 tax year, the tax credit must be claimed no later than the 2018 tax year.

With the close of the 2014 tax year, you can now claim your donation tax credits for the 2014 year (and up to four years prior).  Please note that the total donations you claim cannot be more than your taxable income for the year.

Therefore, you can claim the lesser of:

• 33.3333% of the total donations made, or
• 33.3333% of your taxable income

Please ensure you have a copy of all receipts for donations made during the year, and send them to us so we can file the tax credit claim along with your income tax return. Legislation requires that all receipts be retained for at least seven years.

Please contact your accountant if you have any questions.

FBT rate for low-interest loans to rise

Inland Revenue has announced that the new prescribed interest rate used to calculate fringe benefit tax on low-interest loans provided by employers will be 6.13% from 1 July 2014. The previous rate was 5.90%.

This interest rate is used to determine whether any fringe benefits arise on loans to employees or related parties of a company. An FBT liability arises to the extent that the interest rate on a loan to an employee or related party is less than the prescribed rate. 

Overdrawn shareholder current accounts, for example, usually attract interest at the FBT prescribed rate so that no taxable fringe benefits arise. The increase in the prescribed rate will therefore mean that a higher rate of interest will be charged on overdrawn current accounts.

Common errors in filing GST returns

Some of the common errors we come across when preparing annual accounts relate to the way GST has been accounted for and returned to Inland Revenue during the year. These errors are more easily identified and fixed at the time of preparing GST returns, and can result in faster processing of year-end accounts.
The most common errors are:

1. Claiming GST on expenses that are not subject to GST

      These include:

1. Financial Services. Interest and fees charged by banks, credit card companies, other financial institutions and Inland Revenue are exempt from GST.

2. Fines and penalties. Tax penalties, parking and traffic infringements, and late payment fees on overdue accounts are exempt from GST.

3. Foreign sourced goods and services. Purchases made overseas, goods imported with a value less than NZD $400, and services provided by foreign entities are generally not subject to New Zealand GST (unless a non-resident entity is registered for GST in New Zealand and the goods or services are consumed or received in New Zealand – the tax invoice will usually make it clear if GST is charged).

4. International travel. Travel to and from New Zealand is not subject to GST. This includes any travel insurance purchased at the same time as the international journey and through the same agent or supplier.

5. Private expenditure. This follows the income tax rules which do not allow deductions for expenditure that does not have a link to generating taxable income. Clothing and private entertainment expenses are common examples.

2. Not including all income received
   The sale of business assets, receiving goods or services received in lieu of cash, and insurance settlements are common items of income overlooked for GST purposes. If you are unsure whether an item of income is subject to GST, please consult us before filing your return.

3. Returning GST in the wrong period
   If you or your company are registered on a payments basis, then you must only return income and claim expenses that are actually received or paid during the GST period.
   
   If you or your company are registered on an invoice basis, you must account for the full amount of the GST when any part-payment (eg, a deposit) is paid or received, or any invoice is issued.
   
   Errors in returning GST in the appropriate period can also mean that some income or expenses are returned twice, or not at all.

4. Not keeping accurate records
   Tax invoices or receipts must be kept for all expenses over $50. An eftpos receipt is not sufficient.

Mixed Use Asset Calculator

Do you own a holiday home or bach? Do you rent it out? If you answered yes to both questions the following may be of interest to you.

New rules set a new basis for apportioning deductible expenditure relating to certain assets that are used both privately and to earn income (mixed-use assets), such as holiday homes.

A mixed-use asset calculator is now available. The calculator is for customers who own holiday homes or baches for the 2014 tax year and onwards. It doesn't cater for mixed-use assets held in a close company. You can print the resulting calculation to keep for your records.

See link for IRD Calculator