Spring 2012

 

Newsletter

 

 

 

Never assume your ACC bills are correct

ERRORS in ACC bills are not uncommon. Check the invoices you receive.

Typical examples include:

1        Your ACC category can be changed. For example, accounting practice might suddenly appear as administration.

2        If your personal wages plus your company salary come to more than about $110,000 a year, you could break through the maximum levy threshold. Inland Revenue supplies ACC with your company salary figure. There appears to be no system for matching this with any other wages you have received. The sum of the two incomes could exceed the maximum ACC income threshold. For example, you might have earned consulting fees of $70,000 and have shareholder remuneration from your company of $80,000. Both amounts are likely to be levied by ACC, even though the total is well over $110,000.

3        If you are ceasing business you are likely to get a provisional assessment for the next year. You need to get this cancelled.

You can split your ACC bill into different classifications only if you are actually running two or more distinct businesses through the one entity. You should check the rules on the ACC website if you think you qualify.

For example, if you employ office staff and you are a builder, ACC levies on office staff wages have to levied at the rate for builders.

Strangely, if you are in partnership and one partner does the office work while the other is working in a higher risk occupation, the office worker is allowed to use the office worker classification.

Note, we have said partnership. This dispensation does not apply to companies.

 

 

ACCOUNTANT’S TIP

 

Tax on Rental of Holiday Homes

The 2012 budget clarifies how rental income on holiday homes is to be treated for tax purposes.  Under the new rules tax deductions are limited to the percentage use of the holiday home for rental purposes. The percentage calculation is based on the amount of time the premises are used by the owner in relation to the amount of time the property is rented out during any financial year.  This means that if a holiday home was rented for 20 days a year and was utilised by the owner 20 days a year then a 50% reduction can be claimed.  It will be necessary to keep a log book or record of the time rented out as opposed to the time used for personal use in order to justify any claim.

 

Declaring dividends for foreign investments

 

SOME individuals have shares or other equity (not loans or fixed deposits) investments in foreign countries, which do not qualify for the Australian exemption.

If the total cost is less than $50,000, under current law you have to declare the dividends you receive.

The $50,000 threshold can be a nuisance if you’re sometimes over and sometimes under the threshold.

Also, if the dividends are significant, it will sometimes be cheaper if you could pretend your investments cost you more than $50,000.  Some bigger investors at present don’t pay any tax at all.

If you have a small parcel of foreign shares, you’ll be pleased to know you’ll be allowed to ignore the $50,000 threshold from next tax year onwards. Well, that’s nearly true. If you happen to have a 31 July, 31 August or 30 September balance date, the new rule applies this tax year.

What should you do, now?  Next time you’re talking to us, put this subject on the agenda. We’ll help you decide whether it would pay you to pretend you’re a big player.

If you elect to change, you have to stay with your decision for four years.

 

 

Andrews Corner

 

The European market situation continues its precipitous ride with the financial problems in Greece continuing and spreading to other countries.  It is only a matter of time before a fall off the cliff.  The European economic union continues to worry about the political issues rather than deal with the problem.  It is interesting that I read recently that financial commentators are calling for a one world currency in order to address the situation.  The only thing holding back this inevitable conclusion is the reluctance of countries to give up their sovereignty in relation to economic issues.  This situation will change as the problems become insurmountable and issues such as large increases in oil prices begins to bite into economies and tensions in the Middle East escalate into military conflict.

At the moment the New Zealand economy is trickling along and no real improvement is obvious on the horizon.  It is interesting that house prices have been increasing in recent times.  While there is some contribution to this due to the historically low interest rates, I have been saying for some time that we would see an increase due to the migration of people from Christchurch to Auckland.  This has created a demand for housing and I believe is the main reason for the increases that we are currently seeing.  I believe the days of purchasing residential properties as an investment, the hope of achieving significant capital gain are gone.  It is very likely that subsequently we will see significant correction in house prices again as a result of the international debt crisis. At this point in time there is between 600-700 trillion dollars worth of collateralised debt in the world and this can never be repaid, it is only a matter of time before this insurmountable debt affects the world’s economy.

You ask what shall we do and my answer is to reduce your debt, live within your means and avoid large cash build ups in the bank.  Many commentators are pointing to gold as an alternative to cash.  And one other thing grab your fishing rod and enjoy a day out on the sea or on a river before the Inland Revenue Department invents a way to tax us on all our pleasures.   

 

 

Family trusts still the safest option

WE SAW this headline in a lawyer’s advertisement for a seminar:

PROTECT YOUR ESTATE FROM YOUR CHILDREN’S PARTNERS

The seminar was about family trusts, and we’ve done articles about them before, but it’s an important issue. Briefly, protection works like this:

When you die, you don’t need to leave your wealth directly to your spouse or children. You may leave it in a trust set up for their benefit.

What if that dear charming marriage partner your off-spring has chosen, turns out to be a louse? He/she will usually get half of what you left to that child. If you’ve put everything in a trust, it’s not your child’s asset, so the partner will have difficulty making a claim on it.

Also, if your youngster does own the asset, look at the embarrassment for them of having to tell a potential partner: “I’m worth a little fortune. I love you and trust you but, just in case, I want a pre-nuptial agreement, which means  I don’t really trust you.”

How much nicer to smile and say: “Yes I do,” and if the relationship turns to custard, no worries. The trust owns everything and the separating partner gets none of your estate.

You don’t have to wait until you are dead. Commonly people move their assets into a trust years before they pass on.

You should, of course, explain to your children that when you’re gone, it would be a good idea to keep the trust going. Instead of taking money out to buy a house, they should borrow it from the trust so the trustees can demand repayment if the relationship falls through.

  TAX CALENDAR

 

August 28

1st instalment of 2013 Provisional tax if you pay three times a year

(March balance dates)

 

September 28

2nd instalment 2013 Provisional tax  (December balance dates)

 

October 29

1st instalment of 2013 Provisional tax for those who pay GST twice a year.

 (All March balance dates)

 

November 28

1st instalment of 2013 Provisional tax

(June balance dates)

 

About Us

We are a full service Chartered Accountancy firm based in Mt. Eden, Auckland, New Zealand.  We provide full tax accounting, management accounting, trust accounting services.

Member, Institute of Chartered Accountants