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Deductibility of overseas business travel

A question that is often asked is to what extent can expenses incurred when travelling overseas on "business" be deducted.

When the sole purpose of a person's overseas travel is for business then typically any expenditure incurred is deductible to the business. To support a deduction, the business should obtain from the person copies of invoices and receipts relating to the expenditure incurred. In addition it is often good to also keep on file an itinerary of what was done on the trip and when. Read more…

Many business owners are still having difficulty working out when and how to pay the IRD on time. In consequence, the IRD have issued a useful reminder of the rules for the remaining payment types. The changes to the rules have been designed to save the IRD money but don't make it any easier for many business owners to pay what they owe unless of course they have embraced modern technology!

The SPS 14/01 Tax payments - when received in time sets out the rules for payments accepted as being made in time.

These are the following rules for the various payment types:

  • By post - must be received by us before or on the due date
  • Electronic payments, local and from overseas - must be paid into our bank account before or on the due date
  • Internet banking - payments made on the due date must be made before the end of the banks business day to be treated in time.
  • Cash and eftpos - these are accepted at Westpac branches and must be made before or on the due date before the end of the banks business day
  • Cheques - must be delivered to an Inland Revenue office before or on the due date, and before the office closes for the day. Post-dated cheques will be treated as late if the post-dating is after the deadline.

Payments that fall on a holiday or weekend

The IRD accept a payment to have arrived on time if it arrives or is credited before the close of business the next working day after a holiday or weekend.

If you have any questions about these rules around paying the IRD on time please get in touch.

Avoid tax evasion

Tax avoidance and tax evasion are technical terms, but it helps to know the difference.

Tax avoidance is working out a scheme which reduces the tax you pay. Some schemes are acceptable and others aren't. The IRD uses a test: "Was the scheme something which would have been contemplated by Parliament when it made the law?"  Read more…

Specialise to succeed

Being a specialist gives you an edge. You'll be offering things few other people do. 

You don't have to be a doctor to become a specialist. A cleaning contractor could specialise in getting rid of asbestos. A painter could specialise in textured coatings. 

If you want to break out of the rat race, look for a specialty and make sure there's a demand. Look especially for something others don't want to do, or that others are doing poorly.  It could be as simple as upping your customer services levels.

If you're an expert, the job might not be hard for you, and you can charge a premium for your expertise.

ACC and Rental Income

The ACC have discovered a lucrative way of extracting money from more of us. They have now decided that if you have a rental property you should pay ACC on the income unless you use a rental agent. This would seem crazy because who relies on rental income as a main source of income and therefore would need this replaced by income from ACC? They have issued a very detailed analysis as to whether a property investor is self-employed and has exercised mental or physical effort. The long and short of it is that property investors are receiving ACC bills going back several years which can be quite painful. Looking at the mess some clients get into not having a rental agent this would seem to me to be a clear argument for utilising a decent rental agent!

The position is even worse if you get rental income from a Look Through Company or LTC. Here, ACC have decided that all rental income irrespective of whether you have a rental agent or not is subject to ACC. I had a client phone up the other day trying to tell me off because ACC had told her that I had reported her income as self-employed income not rental income. Unfortunately, she is going to be one of many property investors that ACC will be invoicing for multiple years.

If you have any questions on ACC and your rental property, get in touch with A+BAC today.

Want to find out more about our specialist ACC and administration service, just click here.

Here's a story about a client who's on a modest salary.

He was paying interest on his mortgage at 6.2% and noticed he could borrow from the same bank at 4.9%. As he had enough equity in his home, he went to the bank and asked if he could get another mortgage at 4.9% so he could repay some of his 6.2% mortgage.  He negotiated the following: Read more…

The sudden drop in the New Zealand dollar will increase the value of money held in overseas bank accounts or overseas fixed interest investments.  

Most investors are what is termed a "cash basis person". This is someone (including a company or trust) who, roughly speaking, doesn't have more than a million dollars of money owing to them and by them, in total. You add the two together. There are other conditions but I'm are leaving them out to make this article readable. 

Cash basis person

A cash basis person pays tax on their income received. It takes in currency gains only when the investment matures or is repaid. Larger investors have to also include income earned but not received by balance date (31 March for most of us) and currency gains made each year regardless of whether the investment has been repaid.

For example, you are not a cash basis person. You lent a bank $A100,000 on 1 June 2015 at 5% for one year. You have earned income at 31 March 2016 of 10/12 of 5% of $A100,000 = $A4167, but you won't get it until 1 June 2016. This is income earned but not received. Also if you purchased the $A100,000 for $NZ103,000 and it is worth $NZ108,000 at balance date, you would include the extra $NZ5,000 as income.

A currency surge affects income and if it is big, like $US, the impact on income can also be big. This can have a significant effect on the amount of provisional tax you should be paying. If your personal year-end tax bill, which is calculated on all your income, and called Residual Income Tax (RIT), climbs over $50,000, you'll be socked for backdated interest at 9.21%. RIT is what's left after deducting tax taken off at source. It's worse for companies and trusts. The interest kicks in if the RIT goes over $2,500. Therefore, if you think you may exceed either of these RIT thresholds, you should pay some more provisional tax, now. 

Non cash basis person

There's another rule to catch you. 

Look at the sum of money owing to you and by you, again, in total. Calculate income calculated as a non cash basis person and deduct income calculated as a cash basis person. Call this total A. Now take expenditure (like interest expense and bank fees relating to a mortgage) calculated as a cash basis person and deduct expenditure calculated as a non cash basis person. Call this total B. Add A and B together and if the figure exceeds $40,000 you are now a non cash basis person. You have to include in your tax return your income earned but not received and the value of currency gains on your investments. You don't get taxed twice, but you could be paying tax on some of your income a year earlier than expected. If the amount is big enough you could exceed those RIT figures mentioned above and get caught for interest. 

Shares in foreign countries

What about shares in foreign countries? This has nothing to do with being a cash basis person or otherwise. A different formula is used to calculate income from foreign shareholdings (except most Australian shares) and this may not be affected by currency fluctuations to the same extent as fixed interest investments. The dividends from most Australian shares, when converted to $NZ may be higher than last year to the extent our exchange rate has fallen relative to the $A.

We recommend monitoring your investments right through to the end of the year in case the $NZ slips further.  For any questions on the impact of the $NZ get in touch today.