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McLEAN AND CO.
Tax Obligations when Buying and Selling Residential Property
Company Income Tax Rates- Issues relating to Personal Taxable Income
PAYMENT OF ACCOUNTS TO IRD BY INTERNET BANKING
IRD forward Income Tax Statements of Accounts for clients to ourselves and we pass these on to clients. We note on these instances where it clearly appears that clients have advised the wrong year or period to IRD when they pay the amount. In such cases (and obviously we can't identify all wrong periods) we contact IRD on behalf of clients and get the payments transferred to the correct period.
For example, we noted in a recent spate of Income Statements of Accounts issued after the date for payment of 2007 Terminal Tax (April 7, 2008) that a number of clients had paid their 2007 Terminal tax due but IRD had allocated the payment to the 2008 income year (and IRD usually only do so after notification of the year by taxpayers). Due to the fact that the payments related to the 2007 income year they should have been processed to 2007 on the IRD Bill Processing template. As a consequence the Statements indicated that 2007 Income Tax was outstanding and overdue and penalties had been added by IRD in this year, but that 2008 Income Tax was in credit by the amount of the payment. Where we were readily able to identify these instances we contacted IRD and arranged re-allocation, and also a credit for the penalties charged by IRD.
We have also acted to arrange re-allocation for other tax types. For instance PAYE, say for the month of March 2008, where clients had advised IRD that is was for April 2008 because they paid it in April. If it relates to the month of March it should be indicated accordingly on the IRD Bill Payment template, not April when it was paid.
In respect to Income Tax we provide Payment Slips to Clients once their tax year affairs are finalised which clearly indicate the year for which a payment is due. It is important to process these particular years when paying by internet, and if paying by cheque to provide these Payment Slips with your payment.
Any wrong allocation causes much extra work and no doubt confusion and frustration to you as clients when you know you have paid an account but IRD are saying you still owe the money.
The Internet Bill Payment template for payments to IRD asks clearly what tax types are being paid and gives options as to the specific period to which a payment relates to.
Be extra careful to process the correct period for the payment. Otherwise there will be the scenarios as described above.
EMPLOYERS- YOUR PAYE RETURNS
Employers will note that there is only one copy of the IR345 Employer Deductions Form supplied from 1 April 2008, just as there is only one copy of the Employer Monthly Schedule.
It is important to take copies for your own records before you submit these to IRD.
As detailed in our April 2008 Email Newsletter, it is also very important to keep workpapers of the calculations of Employer Tax Credits claimed on the Employer Deductions Form in relation to Employer Contributions to employers who are KiwiSaver scheme members.
Accountants will require all these copies and workpapers brought in with the end of year documentation for preparation of your year end Financial Statements.
This also applies to GST Returns- IRD now only supply you with one copy, so it is important that you keep a copy of the GST Return you have submitted. Accountants will want to see it also when processing year end Accounts.
EXEMPT CHARITIES NEED TO REGISTER AS A CHARITY BY 1 JULY 2008
that are currently exempt from income tax must apply to be registered as a
charity as soon as possible to retain the exemption from income tax and gift
duty, in respect of gifts made to the charity. The Charities Commission
has the power to back date registration to the date the application is
received by the Charities Commission, so at the very least applications should
be with the Charities Commission on that date.
The Inland Revenue recently published a booklet on tax obligations when buying and selling residential property.
The booklet (IR313) can be obtained at www.ird.govt.nz.
This booklet is a guide only and is aimed at individuals to provide an understanding on whether they should be paying tax when they sell a residential property.
Taxpayers who are in business, or are associated persons of a person, as a builder, property developer, or dealer, may be subject to different rules.
Whether an individual pays tax on the sale of the property depends upon the reason or intention the taxpayer had at the time the property was bought.
To establish this intention IRD has the ability to obtain information from third parties.
IRD may also review the actions taken by the taxpayer at the time of purchase — for example discussions between the taxpayer and the bank manager or real estate agent, whether the property has been rented and the terms of the rent, any proposed plans for the property (plans drawn up, applications for resource consents).
Generally, any property that is bought with the intention of sale when property prices increase would see profits being taxed.
There is an exemption if the taxpayer and their family reside in the property, provided the taxpayer has no history of regularly buying (or building) and selling properties.
Generally, it is your intention at the time of purchase that counts, though there are many exceptions to this rule.
From 1 April 2008 the company tax rate changed to 30 cents in the $. This rate is less than current personal tax rates for some levels of income (33c from $38000-$60000, 39c thereafter).
The new legislation includes a clause relating to situations where the restructuring of a business into a corporate form may be considered as tax avoidance and subject to reassessment by IRD. These provisions may be considered if the restructuring results in the alienation of income that is essentially personal services income. In some cases the alienation also undermines some of the government's social assistance programmes, such as Working for Families tax credits, which are based on the tax definition of "assessable income".
For example , surgeons who corporatise their private practice but don't receive most of the taxable income from that structure may be asked if their use of the corporate structure is appropriate from a taxation perspective.
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