Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. We trust you find it informative.  Any feedback would be welcomed.

McLean and Co. has installed Norton Antivirus software to minimise risk of virus transmission in the provision of this service.

McLean and Co. is a home based chartered accountancy practice based in Clive, Hawkes Bay.    Readers are invited to peruse the practice website www.mcleanandco.co.nz,  which lists services provided, gives contact details and indicates how to become a client, contains an extensive base of articles on business and taxation matters,  and has links to other websites that may assist your business.    Being a small firm itself,   McLean and Co. strives to provide a personal and professional service largely to a self employed person and small business client base.  Enquiries are welcomed.

1. Are you likely to get a tax refund?

2. Benefits of investing in Rental Property in New Zealand

3. Tax advantages of Rental Property

4. Expenses claimable on Rental Real Estate

5. Employers Liability for Workplace Stress

6. Independent Contractor or Employee?

7. Withholding Payment Tax Deduction Rates

8. Loss Attributing Qualifying Companies

9. Medical and Health Expenses not deductible.

The McLean and Co. website contains an extensive number of articles prepared by McLean and Co. relating to taxation and business matters.    Here are a selection that will be of interest:

	Revolving Credit- Hidden Costs                                         www.mcleanandco.co.nz/page96.htm
	Setting Your Selling Prices                                                   www.mcleanandco.co.nz/Page105.htm
	Sole Trader, Partnership, Company Comparison                 www.mcleanandco.co.nz/Page7.htm
	Entertainment Expenses                             www.mcleanandco.co.nz/Page44.htm
	Goal Setting in Business                                                        www.mcleanandco.co.nz/Page81.htm

We are happy to accept new clients.  Please contact ourselves at the contact points highlighted above if we can assist you in your accounting and taxation requirements. Our website lists information required for this in the following link:

ARE YOU LIKELY TO GET A TAX REFUND?

If you are a salary and wage earner, you may get a refund if you: are able to get a low income rebate- for example, the child rebate and/ or received salary and wages less than $9880.00 received less than $38000 and were paid diveidends had more than one job during the year didnt work a full income year are able to deduct expenses from your income

	If any of these apply to you in the tax year ended 31 March 2003, check out this Personal Tax Summary Calculator. This is an easy way to check if you could receive a refund before you request a Personal Tax Summary.

BENEFITS OF INVESTING IN RENTAL PROPERTY IN NEW ZEALAND

 

	capital appreciation ( not guaranted but occurs more than not)
	no capital gains tax
	no interest clawback
	no stamp duty on residential property
	no limit on losses available
	favourable depreciation rates.   It should be noted though that depreciation should be declared back as depreciation recovered income when the property ceases to be a rental property or is subsequenly sold at a value higher than cost
	stable government policies
	allows easy entry into the Investment Property owning field
	provides a service which has a high demand
	is the best security for lenders
	it is easy to spread your risk over several properties with several points of income
	it provides instant and consistent cash flow
	it protects the value of your investment (hedge against inflation) assuming property values increase at rates equal to or higher than inflation
	it provides an asset that is easily tradeable
	it is not time consuming
	many taxpayers derive more satisfaction and feel more comfortable with an investment which is  bricks and mortar and which they  can see, touch and take pride in as opposed an investment with a certificate.

 

TAX ADVANTAGES OF RENTAL PROPERTY

	only rental earned is treated as assessable
	capital gain (the excess of sale price over original cost) is not treated as income

	can claim all costs involved
	the opportunity to keep the property in good repair and claim these costs throughout the years which may improve the resale value
	no interest clawback when the property ceases to be a rental property
	if there is a loss (i.e. expenses higher than assessable income) this can be deducted against other income earned by the taxpayer which will reduce the income tax liability

 

EXPENSES CLAIMABLE ON RENTAL REAL ESTATE

	rates
	insurance
	interest on borowings
	borrowing costs
	loan repayment insurance
	agent's comission
	management fees
	repairs
	cleaning
	gardening
	depreciation
	advertising
	telephone
	stationery/ postage
	hire charges
	pest control
	body corporate fees
	accounting fees
	business deductions
	electricity
	bank charges
	heating and cooling
	mower fuel
	rubbish disposal costs
	motor vehicle
	any other relevant costs

McLean and Co prepare Property Investment Financial Statements for a number of clients.   Please make contact with us if we  can assist you in this regard.

 

 

INDEPENDENT CONTRACTOR OR EMPLOYEE?

There is a trend to take staff on as independent contractors for a number of reasons:

	avoiding the need to pay  ACC Levies by the employer
	can be laid off quickly if not required
	ideal to get persons with expertise for specific projects
	saving the need to deduct PAYE and pay it to IRD

A distinction must be drawn between an employee and an independent contractor.   Payments to an employee constitute payments of salary or wages which are subject to the PAYE system.   An independent contractor, on the other hand, is taxed on the basis that he or she is carrying out a business

In determining whether a person is an independent contractor or an employee, it becomes for tax purposes a question of fact or law.   IRD and the courts have developed several tests for distinguishing between an employee and a contractor:

	Control-  the employer's right to control the method of doing the work i.e. the employer's right to choose, pay, control or dismiss the employee.
	Organisation or integration- is the type of work or the way it is done the same as work performed by other staff who are employees?   Is the work an integral part of the employers business?
	Independence- does the worker supply all the necessary tools?   Does he or she work from home?   Is he or she free to work for other people as well?
	Intention- how are the payments for the work made?   Did the worker carry out the same activity as a self employed person (or as an employee) in the past
	Economic reality- is the worker genuinely in business on his or her own account.

Generally:

	Contractors are not paid holiday pay or sick pay and, with some exceptions (mainly commission sales agents) they are responsible for paying their own ACC levies
	contractors are not usually provided with fringe benefits such as company cars and health insurance- these are their own responsibilities
	contractors are usually registered for GST and provide GST invoices
	it is possible to control the work performed by a contractor, but not the manner in which it is done
	a contractor may employ staff or subcontract work
	a contractor supplies his own tools of trade
	a contractor is able to work for more than one person, although in practice there may be exceptions to this
	a written contract for service should exist

 

WITHHOLDING PAYMENT TAX DEDUCTION RATES

Withholding Tax should be taken off  persons in the following types of business activity business at the following rates, unless they have obtained a Certificate of Exemption from the Inland Revenue Department and provided this to the business to which they are contracted or employed by.    Withholding tax on payments made on or after 1 April 1988 must be calculated on a GST exclusive basis when the payment is made to a person who is registered for GST and the payer holds a tax invoice issued by the payee.    The rates are:

Agricultural contracts for maintenance, development, or other work on farming or agricultural land 15% Agricultural work involving firewood cutting, post splitting etc, grass or seed cutting, hedgecutting, planting trees, planting or cutting flax, threshing, chaff cutting, hay making etc. or gathering crops 15% Board of Trustees/ Community Board Members 33% Caretaking or acting as Watchman 15% Cleaning office, business, institution, or other premises (except residential) or cleaning or laundering plant, vehicles, furniture etc 20% Commissions to insurance agents and sub-agents, and salespeople 20% Company Directors' Fees 33% Contracts wholly or substantially for labour only in the building industry 20% Demonstrating goods or appliances 25% Droving 15% Fees payable to examiners 33% Forestry or bush work of all kinds or flax planting or cutting 15% Freelance contributions to newspapers, journals etc. (articles, photographs, cartoons etc.) or for radio, television or stage productions 25% Gardening, grass or hedge cutting, or weed or vermin destruction (other than agricultural or agricultural premises) 20% Honoraria 33% Jockeys' or drivers' riding or driving fees paid to New Zealand residents (Apprentices normal rate 15%) 20% Mail contracting, transport of school children, milk delivery, or refuse removal 15% Modelling 20%

Non Resident Contractors: Work in respect of construction, installation, assembly and similar projects Professional or technical services in respect of such projects Hire of equipment or personnel (other than as employees) (Applications for exemption should be applied for to Inland Revenue Department)	15%
Non Resident Entertainers visiting New Zealand (Please note that Non Resident Entertainers taking part in a cultural programme sponsored by a government or promoted by an overseas non-profit cultural organisation, and Non Resident Sportspeople officially representing an overseas national sports body may be entitled to exemption from tax-   applications for exemption should be applied for to Inland Revenue Department)	20%
Participation by New Zealand residents in professional sporting events (other than horse racing or trotting)	20%
Participation by non residents in professional sporting events of any nature (see not above re exempt sportspeople)	20%
Planting, sowing, or gathering potatoes or vegetables	15%
Proceeds from sales of: Eels (not retail sales) Greenstone (not retail sales) Whitebait (not retail sales) Wild Deer, Pigs or Goats or parts of these animals	25%
Shearing Contracts	15%
Share fishers on contract for the supply of labour only	20%
Sphagnum moss (not retail sales)	25%
Street Road Cleaning	15%
Theatrical, musical, stage, concert, radio or television performances by entertainers resident in New Zealand	20%

 

 

LOSS ATTRIBUTING QUALIFYING COMPANIES

Loss Attributing Qualifying Companies must be qualifying companies and can pass their losses through to their shareholders in proportion to their effective interest in the company  i.e a loss is attributed to its shareholders.   Each shareholder is deemed to incur a loss equal to the company's net loss for that year multiplied by the shareholder's effective interest in the company for that year.   The amount of any net loss attributed to each shareholder is treated as if it was a loss incurred by the shareholder in deriving his or her gross income for the year.   Consequently, the loss will either be allowed as a deduction from annual gross income or carried forward.

A company can be a loss attributing company where certain criteria are met:

	The company must be a qualifying company
	All shares in the company must carry the same rights as each other share in the company
	A notice in writing electing that the company be a loss attributing qualifying company must be received by IRD.

 

 

MEDICAL AND HEALTH EXPENSES NOT DEDUCTIBLE

 

The IRD's view is that expenditure incurred to remedy injury or disability to the human body is expenditure of a private or domestic nature, even if the expenditure is to enable the taxpayer to resume earning income by having his or her health restored.   Such expenditure is not incurred in the course of deriving gross income, nor is it an overhead or functioning cost in a taxpayer's business.   Instead, it is a health maintenance cost for the taxpayer as a human being.

 

  

 

 

If we can assist further, please email McLean and Co as follows:

 CONTACT McLEAN AND CO. BY EMAIL BY CLICKING ON THIS LINK

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