There are numerous generally positive tax changes from 1 April 2017 (and more coming). This is not a complete summary - just the simplest and most common. Not all details are known yet - the legislation was only passed in March. This is leaving it late - especially if elections have to be made before 1 April. So this is an advance warning: if you think some of these might affect you, we recommend getting your head around them quickly - but IRD still hadn't responded to our questions at the start of July.
Before LAQC's were abolished (replaced by LTC's - which have also been modified extensively), most of us accepted the default course of action - dropping the Loss Attributing to become Qualifying Companies. These have some advantages, and we've not been able to elect into this regime for some time.
This still hasn't seen numbers reduce significantly, so now if you sell more than 50% of a QC, it ceases to be a QC. There's a lot of detail. If you're thinking of changing shareholding, you already have to be aware of different thresholds. Now you also have to consider the possibility of losing qualifying company status.
PAYE on shareholder-employee salaries
IRD has finally corrected a silly situation where it was illegal to pay shareholder-employees a mix of PAYE and non-PAYE salaries. There are rules designed to stop mischief - although it's hard to see mischief in someone taking a PAYE salary through the year - and topping it up once their profit is known.
The trap is an irrevocable choice between 100% provisional or split can only be made once. There are still many uncertainties around this. How long do we get to make the choice? How do we make the election? What if we make a loss one year? What if we don't pay a PAYE salary regularly? And so on.
Accounting income method
This actually applies in 2018/19 and foreshadows bigger changes looming. It adds a fourth option for paying provisional tax. As with the ratio method (only more so), you return income tax with GST. This way it reflects what you actually earn. Like the GST ratio method, no use of money interest will be charged. It requires profit to be calculated by approved packages (they don't seem to have plans to register the operators of the packages). It's unclear how year-end adjustments will be dealt with although presumably, they'd like even small businesses to do these monthly.
We're unsure how this fits with the previous change to allow shareholder salaries to be topped up at year end - but there is another change proposed to allow shareholder-employees' tax to be grouped with company tax (mentioned again below).
This has been a challenge for shareholder-employees. From 1 April we have a new option - subject as usual to strict criteria (such as irrevocable election and the only benefits subject to FBT are one or two vehicles).
If you meet all the criteria, then you are allowed the option of calculating business use as a sole trader would, rather than paying FBT. This will appeal to some, although others will be put off by the record-keeping and other issues.
There is now a two-tiered rate - and removal of the 5000 km threshold - so some people may decide it's better to own the vehicle privately and just claim mileage. Again once you elect to use a particular system, you can't change it for that vehicle.
The good news is it's now simpler. The bad news is "simpler" in the same way taxes keep being simplified. The calculation of the floor area hasn't changed, but now you can claim a standard rate - no more keeping track of costs. Which is fine, until you realise that doesn't apply to mortgage interest, rates and rental. That doesn't seem to save much work.
Interest on tax (UOMI)
Interest will not apply until the third provisional tax date, which of course is now early in the following year. Again plenty of rules to prevent us from ripping off IRD. The threshold of $50,000 has been increased to $60,000 - and no longer applies just to individuals.
The following year will see the ability to manage shareholder provisional tax with the company's provisional tax.
Schedular payments have been extended to cover more people - notably labour-hire firms. The good news is people can now elect their own tax rates (generally with a 10% minimum) and can alter it at will (although limited to twice a year without the payer's consent). Again there are many other rules - check with us if you're affected.
If you're still not caught by the rules, you can now opt-in to help with your tax obligations.
The initial late payment penalties still apply, as does UOMI - but subsequent monthly 1% penalties will be dropped.
The limit for these (tax, GST, FBT) is rising from $500 to $1,000.