McLEAN AND CO. Chartered Accountants

Accounting          Taxation         Business Advice and Development Assistance           Audits                             

 P.O. Box 10 , Clive         133 Main Rd, Clive           Tel. (06) 8700952          Fax. (06) 8700955 

Email murray@mcleanandco.co.nz                                  Website www.mcleanandco.co.nz

 
 
EMAIL NEWSLETTER  JULY 2010
 
 

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

 

NEW CLIENTS

We are happy to accept new clients.  We would be happy to assist colleagues and acquaintances as new clients.

 

INDEX

  1. Choosing the Right Tax Code

  2. Student Loans- Voluntary Payments

  3. Associated Persons

  4. Supplies to Associated Persons

 

CHOOSING THE RIGHT TAX CODE

Here are some guidelines to help you choose the right one.

If you have a main job

For income from your main (or only) job, use M unless one of the following codes applies:

  • ML if your income is less than $9,880 and you work more than 20 hours per week
  • ME if your income is between $24,000 and $48,000 and you:
    • and/or your partner aren't entitled to receive Working for Families Tax Credits
    • don't receive an income-tested benefit, NZ Super, a veteran's pension, or a foreign equivalent of any of the above
  • M SL or ME SL if you have a student loan and earn over the repayment threshold ($19,084).

If your main income is from an income-tested benefit, you'll be taxed using the M code. Any other salary and wage income you earn should be taxed using a secondary tax code.

 

If you have more than one job

If you receive income from a second job, use S unless one of the following codes applies:

  • SH if your total annual income is over $48,000
  • ST if your total annual income is over $70,000.
Note

From 1 April 2010 there's a new SB (secondary bottom) tax code for people whose total income for the tax year is $14,000 or less.

 

Combining tax codes

If you have a student loan and your income from your main job is over the repayment threshold ($19,084), you need to add SL to the secondary code that applies to you, eg, S becomes S SL, SH becomes SH SL and ST becomes ST SL.

If your income is under the threshold, there's no legal requirement to have student loan payments deducted from your wages. However, if you have income from a second or third source and the combined total is over the repayment threshold you're required to start paying back your student loan.

If you use the S SL tax code for your second job you may end up paying back too much towards your student loan, but if you only use the S tax code you may end up with a student loan bill at the end of the year. In this situation we strongly recommend you apply for a special repayment deduction rate, which we'll work out to best suit your individual circumstances.

To apply for a special repayment deduction you'll need to complete a Special tax code/student loan special repayment rate application - 2011 (IR23BS). You can download a copy from "Forms and guides". on www.ird.govt.nz.  This form can be filled in online. Once you've completed it, print it out and post it to the address given. Or you can order a copy by calling IRD at 0800 257 773.

 

Other tax codes include:

  • WT for schedular payments
  • CAE for casual agricultural employees
  • EDW for election day workers
  • STC for the special tax code.

 

 

STUDENT LOANS- VOLUNTARY PAYMENTS.

The government has introduced a 10% student loan voluntary repayment bonus for voluntary repayments that total $500 or more in a tax year (1 April to 31 March).

You don't need to make a voluntary repayment in a lump sum. You could make voluntary weekly repayments of $10 throughout a tax year instead of a one-off payment of $500, and still be eligible for the repayment bonus.

You don't need to apply for the voluntary repayment bonus, but you do need to have met all your student loan obligations. These are making your repayments by the due date, using the correct tax code, and filing your income tax returns (if you're required to) to be eligible

When you're eligible for the voluntary repayment bonus 

You're eligible for a voluntary repayment bonus if:

  • you're up-to-date with your repayments and filing your income tax returns (if you're required to)
  • your loan balance with Inland Revenue is $550 or more at the beginning of the tax year (1 April), and
  • your voluntary repayments for the tax year total $500 or more.

 

When youíll receive your Bonus

When you receive your voluntary repayment bonus depends on your circumstances.

If you... then you'll receive your voluntary repayment bonus...
havenít repaid your loan in full and donít need to file an IR 3 income tax return by the end of October in the following tax year
havenít repaid your loan in full and are required to file an IR 3 income tax return within 12 weeks of your return being filed
are an overseas-based borrower by the end of October in the following tax year
repaid your loan in full by 30 June 2010 by the end of October 2010
repaid your loan in full after 30 June 2010 within 4 months of your final repayment

 

ASSOCIATED PERSONS

Associated persons are:

  • companies controlled by the same persons
  • companies and individuals with a 25% or greater interest in the company
  • partnerships, partners and associates of partners
  • relatives by blood, marriage, or adoption to the second degree (including people in a de facto relationship)
  • trustees of a trust and a beneficiary of a trust, except if:
    • the trustee is a charitable or non-profit body with wholly or principally charitable, benevolent, philanthropic or cultural purposes and the supply is made in carrying out these purposes, or
    • the beneficiary is a charitable or non-profit body with wholly or principally charitable, benevolent, philanthropic or cultural purposes and the supply enables them to carry out these purposes
  • trustees and the settlor of a trust
  • trustees of two trusts that have a common settlor, except if:
    • either trustee is a charitable or non-profit body with wholly or principally charitable, benevolent, philanthropic, or cultural purposes and;
    • the supply is made in, or enables, the carrying out of the charitable, benevolent, philanthropic, or cultural purpose
  • two persons who are each associated with a third person.

 

 

SUPPLIES TO ASSOCIATED PERSONS

Special rules apply if you make certain supplies to associated persons.

 

Supply to Registered Associated Persons

If you supply goods or services to an associated person who can claim a GST credit for the purchase, you account for GST on the amount received.

Example

Jones and Jones, a GST-registered partnership sells a piano to Dawn, a sister of one of the partners. Dawn is registered for GST and can claim a GST credit on the purchase.

The open (current) market value of the piano is $2,000 but the sale is for $1,500. The partnership accounts for GST of $166.66 ($1,500 / 9).

 

Supply to Unregistered Associated Persons

If you supply goods or services to an associated person who cannot claim a deduction, you must determine the open (current) market value of the supply and account for the greater of the market value, or the amount you charged, in your return.

Example

If Dawn (see previous example) was not registered for GST, the partnership would account for GST of $222.22. This is the $2,000 market value divided by nine.

Include transactions with associated persons in the return for the taxable period in which you made the supply. However, if you receive payment or issue an invoice before the last date for filing that return, the date of payment or invoice determines which taxable period the supply falls in, depending on your accounting basis.

Example

A partnership has a two-month taxable period. The return for the period ended 30 April is due on the last working day of May.

The partnership supplies goods with an open (current) market value of $135 to a non-registered brother of one of the partners on 24 April and receives payment of $100 on 16 June. The partnership will account for $15 GST (on the market value of $135) in the return for the taxable period ended 30 April, as this is the period in which the supply was made.

If the partnership had issued an invoice or received payment during May (before the April return was due to be filed), the $15 GST would be included in the return for the taxable period ended 30 June. This is because the invoice or payment would fall in the June period.

 

 

McLEAN AND CO KNOWLEDGE CENTRE AND ARTICLES ABOUT TAXATION AND BUSINESS IN GENERAL PRESS HERE FOR BUSINESS STARTUP KNOWLEDGE CENTRE PRESS HERE
FOR INFORMATION ABOUT COMPANY INCORPORATION PRESS HERE FOR PREVIOUS MONTH EMAIL NEWSLETTERS PRESS HERE

FOR PROPERTY INVESTMENT AND TAX INFORMATION PRESS HERE

FOR FRANCHISE INVESTMENT AND TAX INFORMATION PRESS HERE


The information provided in this email newsletter is for informational purposes only.   McLean and Co. accept no responsibility for the opinions and information expressed in the information provided and it is provided "as is" without warranty of any kind.    The user assumes the entire risk as to the accuracy and use of this document.   Readers are asked to seek professional advice pertaining to their own circumstances.    The McLean and Co. email newsletter may be copied and distributed subject to the following conditions:
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  • This document must not be distributed for profit.    

 

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