again to the McLean
and Co. Newsletter
in which we discuss current taxation and business matters. We trust
you find it informative.
are happy to accept new clients. We would be happy to assist colleagues
and acquantances as new clients.
17/5/2007 Budget- Some Tax Facts
Budget- Key Facts of Kiwisaver
Timeline for Kiwisaver
Much do I Need to Save for Retirement above NZ Super
Changes to Provisional Tax and GST
BUDGET- SOME TAX FACTS
- Company tax rate reduced from 33% to 30% from 1 April 2008
- The drop in the company tax rate has not been met by a corresponding drop in the trustee tax rate.
- A 15% tax credit for research and development where the
expenditure is greater than $20,000 for each year the credit is claimed
- Kiwi Saver- as discussed below- the Budget is a timely reminder to
employers that they need to be up to speed with their obligations and will
need to take into account the effect of these budget changes in their
empkloyee wage negotiations.
- $14.6 million will be allocated to the IRD to investigate property
- Late filing fees for GST Returns will be introduced, and that the
Commissioner will be able to offset refunds of a taxpayer to a tax
shortfall of an associated person.
- The $630 threshold for donations made by individuals has been removed
and from 1 April 2008 individuals will be able to claim a 33% rebate on
donations up to their annual net income. Companies will also be able
to deduct donations up to its net income.
THE BUDGET- KEY
FACTS OF KIWISAVER
Key facts on the Kiwisaver scheme and its latest enhancements.
* Employees who sign up must contribute either 4 percent, or 8 percent of
their gross income.
* Participants will receive $1000 from the Government to kickstart their
account and will receive a tax credit of 4 percent of their gross income, capped
at $20 a week.
* Participants' savings schemes will claim the tax credit on their behalf.
* Starting from next year compulsory employer contributions will be phased
in at 1 percent of an employees income, building up to 4 percent by 2011-2012.
This contribution is tax free.
* Participants will be able to divert half of their and their employer's
contributions to pay their mortgage.
* First home buyers can withdraw all of their savings to purchase their
first home and after three years in the scheme will receive a deposit grant of
$1000 a year, capped at $5000.
* The Government pays the administrative fees of Kiwisaver schemes.
TIMELINE FOR KIWISAVER
need to decide on their policy regarding KiwiSaver
significant newspaper and television publicity of KiwiSaver
will begin sending out employer starter kits
will be sending out KiwiSaver information packs for new employees
Scheme Providers will publish information on their websites to assist
employees decide who they would prefer to manage their KiwiSaver funds
may start calculating what they can afford to save- 4% of gross salary or
wages or 8%
employees may ask their employers for a 4% contribution to KiwiSaver
may start to seek advice from financial experts to explain how the
different KiwiSaver schemes work
coverage of KiwiSaver will intensify
that havent considered KiwiSaver will be doing so at the last minute.
begins- members can join
are required to provide new staff with a KiwiSaver information pack within
seven days of starting work
also need to give IRD contact numbers and addresses of all new staff and
those staff who want to opt in to KiwiSaver.
managers receive their contributions the IRD has collected over the last 3
portfolio investment tax rules are implemented benefitting low tax rate
HOW MUCH DO I
NEED TO SAVE FOR RETIREMENT ABOVE NZ SUPER?
(NZ Super after tax rate for single person living alone is approx $13,722 a
year as at 1 April 2006)
|Weekly savings required for a single
person if he/she wants an extra $10,000 or $15,000 per annum once
he/she turns 65
||An extra $10,000 pa
||An extra $15,000 pa
||$60 a week savings
||$90 a week savings
|Savings assume real rate of return of 2.5% per annum
(after tax, fees and inflation).
PROVISIONAL TAX AND GST
There are important changes happening to the way GST and
provisional tax is paid from 1 April 2007, although the majority of the
changes occur in the 2008 income year.
From 1 April, 2007
You'll notice the dates change on GST forms.
Return periods should be changed to allign with balance dates
2008 Income Year
- Provisional tax and GST will be
calculated on the same form and paid together for GST registered tax
payers. GST refunds can be applied to provisional tax payments due.
- 6 monthly GST payers will pay
provisional tax 2 times on the GST payment dates
- GST Ratio method is introduced
For a standard March balance date
provisional tax will be due on 31 August, 15 January and 7 May.
The GST Ratio Method applies to taxpayers
who are registered for GST and have Residual Income Tax under
$150,000. Taxpayers who elect under this method will pay provisional
tax 6 times a year based on a ratio of prior years Residual Income Tax over
taxable supplies and multiplied by the current period's total taxable
supplies. IRD will calculate and notify the taxpayer of the initial ratio
and any subsequent changes to the ratio.
The benefit of the ratio method is that
provisional tax is paid in line with seasonal sales thereby assisting
cashflow. The ratio method is also a safe harbour in that Use of
Money Interest won't be charged for taxpayers who qualify throughout the year.
A taxpayer will need to elect to use the
ratio method in phone or by writing to IRD.
As discussed above their may be tax
advantages in setting up a company for your business activity, particularly when
your business profit is in excess of $38000 (the level at which the personal
marginal tax rate increases to 33%). The Companies Office have announced some
sizeable increases in their charges for incorporating a company from 1 July,
2007. This will impact on companies incorporated after that date-
incorporation costs will rise from that date. McLean and Co act to
incorporate companies. Our current charge for this task is $250.00 plus
GST , and we will likely charge $360.00 plus GST from 1 July, 2007 as a
consequence of the above.
The setting of up a
business entity as a company may
or may not be approprate for business entities.
Here are some of the advantages and features and disadvantages of the company
relatives. By introducing family
members as employees and/or as shareholders income splitting is possible
to enable tax less tax to be paid at the higher rates.
Approval from the Inland Revenue Department is required to allow a claim
for wages paid to a spouse of family of a sole trader or of a partner in a
partnership. Restrictions are placed at the hourly rate which
can be paid. With a company there is no such
restriction. The amount of remuneration paid is to be in
keeping with the value of the work undertaken.
Imputation. With the introduction of dividend
imputation from the 1st of April, 1988, double taxation has been removed.
Companies now pay tax at 33c in the dollar on any profit earned after
allowing for shareholders salaries. If the
company's tax paid profit is later distributed to shareholders as dividend
they get an imputation credit for the tax the company has already paid on
confer the impression of greater credibility and that the business is “serious”
and there for the long term.
have any number of business owners (shareholders) providing varying levels
of investment capital and personal services. A sole trader is
limited to one and a partnership normally will have fewer partners
than the business owners of a company.
limited liability, Claims against the company fall on
the company, not the shareholders
. That is there can be a separation of business risk
from the shareholders personal assets. A company allows
shareholders to limit their maximum possible liability for the debts of
that company. If a shareholder holds 50 $1.00 shares in
a company, that shareholder's liability for the company's debts is limited
to $50.00 (liability can be increased in situations where shareholders and
directors provide guarantees to Banks or other Financial Institutions to
cover the company's borrowings) Similarly,
shareholder's loans to the company can also increase the potential risk in
the event of financial collapse of the company. This
situation is to be contrasted with the position of a sole trader or
partner in a firm, where their liability for the debts of that business is
of the Name, Once a name is approved by the Registrar of
Companies no other company can be registered with an identical or near
identical name. There is no register for unincorporated
bodies such as sole
traders or partnerships.
legal entity. An individual can not enter into a
contract with himself but a shareholder can enter into a contract with the
company. As a consequence of this a shareholder may be
employed by the company and may also loan money to the company on the same
basis as any unrelated party.
offer tax advantages when the tax rates for companies and individuals
differ e.g. tax rate for companies is 33c in $, whereas tax rates for
individuals differ (19.5c to $38,000, 33c $38,000-$60,000, 39c over
If a director pulls out, or a shareholder wishes to sell part or all of
his or her shares, the company is not affected with a new director or
shareholder. This would be different with a sole
trader or partnership. Both of these business
forms would have to create a new entity.
more options for funding e.g. raising of equity, venture capital.
Arranging security for a loan can be both cheaper and easier for a company
than an individual. A company may grant a floating
charge over its assets, both present and future, by the granting of a
debenture. Individuals, on the other hand, cannot
do this and must grant specific charges over specific assets.
A company can grant a charge over its undertakings whereas an individual
would have to provide a detailed schedule of all assets to be charged for
the charge to be effective. Under the debenture, new
assets acquired by the company would automatically be covered by the
charge and existing assets sold in the course of the business would be
released from the charge. In the case of an
individual where a new asset was acquired a new charge would have to
be prepared. Similarly where an asset was sold a release would
have to be executed to release the asset from the charge.
for Shareholders Loan. It is possible for a shareholder
to have their lending to the company secured by way of a debenture.
In the event of the company experiencing financial difficulties,
eventuating in a wind up of the company, the debenture holder would stand
to rank ahead of the unsecured creditors in distribution of the residual
to sell part of company than a sole trader or partnership business
structure- just sell some of the shares.
of the Company's Loss Amongst Shareholders. It is
possible to separately register the company with Inland Revenue Department
with Loss Attributing Qualifying Company (LACQ) status.
In the event of the company experiencing a tax loss in a future year, this
loss can be distributed to the shareholders (in the same year).
The result is, losses which would otherwise be held within the company,
awaiting future profits to offset these losses, can be used immediately by
the shareholders to reduce their individual personal tax liabilities.
An example of the use of an LACQ company is the purchase of a rental
property which is heavily mortgaged or a forestry company from its start
up. In the early years both
situations are likely to have losses. These losses would be
able to be distributed year by year to the shareholders- without
LACQ status these distributions would not be possible.
not protect you from personal liability as a director.
If it can be shown that you continued trading when the company was
insolvent you can be held to be personally liable for the debts of the
must be fully aware of the financial operations of the company to prevent
it trading while insolvent.
not provide any opportunity to spread business income to family members on
lower marginal tax rates other than through legitimate wages.
losses have to remain in the company (unless the company is a loss
attributing qualifying company) and cannot be offset against a shareholder’s
taxable income from other sources.
public company has to declare financial results publicly and has to be
on profit levels in first year, may have to start paying income tax
earlier than other business structures.
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
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