Tax Stats 2008

Tax Stats 2008 A Guide to Key New Zealand Tax Stats and Facts Partnering clients to success Income Tax Individuals: Taxable Income 0 - $38,000* $38,001 - $60,000 Over $60,000 Rate 19.5% 33% 39% *A low income rebate may apply, which could bring down the effective tax rate to as low as15%. As announced in Budget 2008 the new tax rates and thresholds that will apply to income earned by individuals from 1 October 2008 are as follows: 0 - $14,000 12.5% $14,001 - $40,000 21% $40,001 - $70,000 33% Over $70,000 39% From the 2008/09 income year the low income rebate is removed and replaced by the new 12.5% rate. The tax rates and thresholds will change part way through the year. Therefore there are composite tax rates to use when calculating tax for the whole 2008/09 income year. Companies: 30% from the start of the 2008 / 2009 year (1 April 2008 for companies with standard balance dates). Qualifying Trusts: Trustees Beneficiaries - except for minors… 33% Individual rates apply (see above) 33% (<16 years on the balance date of the trust) where a guardian or relative (or associate of these has made a qualifying settlement on the trust. Resident Withholding Tax: Interest - no IRD# supplied - IRD# supplied - can then elect Dividends - fully imputed - not fully imputed Individuals 39% 19.5% by default 19.5%, 33% or 39% NIL 33% Companies 39% 33% by default 33% or 39% NIL 33% Non-Resident Withholding Tax: Interest 15% Dividends - fully imputed 15% - not fully imputed 30% Royalties 15% Where a double tax treaty exists, the rate of non-resident withholding tax may be reduced. A company paying an imputed dividend to a foreign shareholder may be entitled to claim a foreign investor tax credit. Goods & Services Tax (GST) On all supplies in NZ 12.5% Except for zero-rated supplies, including: Exports Duty-free goods Sale of taxable activities as a going concern International transport Some business-to-business financial services Exempt supplies: Financial services (except some business-to-business) Domestic rental accom. Salaries / wages Most directors’ fees 0% 0% 0% 0% 0% N/A N/A N/A N/A If the annual turnover of a business exceeds: $40,000 Compulsory GST registration $250,000 Can’t use 6-monthly periods $1,300,000 Must use invoice basis (not payments basis) Fringe Benefit Tax (FBT) On most fringe benefits FBT on Low or Interest Free Loans: Benchmark Interest Rate (1/4/08 – 30/6/08) (Interest rate is reviewed quarterly) 64% of value of benefit (tax deductible) 10.57% p.a. FBT Value of Motor Vehicles: Either 5% per quarter of original cost of vehicle (incl. GST), Or 9% per quarter of tax value of vehicle (incl. GST) *Minimum tax value of $8,333 The option of using tax value instead of original cost aligns the treatment of leased vehicles with that of purchased vehicles. Entertainment Deductions Entertainment expenses are limited to a 50% deduction for: Venue off-premises 50% (e.g. corporate box, holiday home, boat) Food / drink off-premises 50% (e.g. social event, business lunch) Full deduction is available for: Food / drink on-premises 100% (e.g. subsidised staff cafeteria) Food / drink - business trip 100% Entertainment outside NZ 100% Promotional samples 100% Where employees enjoy the benefit of the entertainment outside of their employment duties, FBT may apply. The entertainment add back is subject to GST. Gift Duty Value* of Dutiable Gift 0 - $27,000 $27,001 - $36,000 $36,001 - $54,000 $54,001 - $72,000 Over $72,000 Gift Duty 0 5% of value over $27,000 $450, plus 10% of value over $36,000 $2,250, plus 20% of value over $54,000 $5,850, plus 25% of value over $72,000 *Aggregate value of all gifts made during a 12 month period (subject to limited exclusions). Depreciation Allowances Certain assets can be depreciated for tax purposes. In addition, a 20% loading applies to most new (or newly imported) assets, except for buildings, imported used motor vehicles, and fixed-life intangible property. Examples: Economic Rate (DV) + 20% loading if new Vehicle 30% 36% Computer 50% 60% Desk 13% 15.6% N/A Building 3% (from 19/5/2005) There is an option to use either straight line or equivalent diminishing value for all assets. From 19/5/2005, low value assets ($500 or less) can be claimed as an income tax deduction (subject to normal deductibility criteria) in the year incurred. Kiwisaver Taking effect from 1 July 2007, KiwiSaver is the government’s new voluntary retirement savings scheme. From this date: Automatically enrolled, unless they opt out New employees Not automatically enrolled, but can opt in Existing employees Members / employees: 4% (default) or 8% in total of gross earnings Employee contributions Member tax credit Matches contribution, paid into scheme Maximum tax credit $1,042.86 p.a. ($20 per week) Incentives offered to participants include a $1,000 tax-free kick-start, and can include subsidised scheme fees, assistance with first-home deposit, and a diversion to mortgage option. Employers: (from 1/4/2008) Employer contributions* 1%, phasing up to 4% over the next 4 years Employer tax credit Matches contribution Maximum tax credit $1,042.86 p.a. ($20 per week) per employee *Employer contributions are exempt from Employer’s Superannuation Contribution Tax (ESCT) to the extent of the lesser of either the employee’s contribution or 4% of their gross earnings. Employers deduct the employee’s contribution from their earnings, add their employer contribution, and pass this on via the IRD to an approved scheme provider for investment on the employee’s behalf. Employer’s Superannuation Contribution Tax (ESCT) ESCT is deductible from employer superannuation contributions.* The amount of ESCT incurred is determined based on the total amount calculated by adding the employer contribution to the employee’s salary / wage: Under $11,400 15% on all contributions $11,400 – $45,600 21% on all contributions Over $45,600 33% on all contributions *Some exceptions apply (see section on KiwiSaver). New ESCT rates will apply from 1 October 2008 to reflect the changes in individual tax rates and thresholds as announced in Budget 2008. Fair Dividend Rate (FDR) New rules apply from the 2008/09 income year to share/equity investments of less than 10% in most overseas companies. Those using FDR rules are no longer taxed on their dividend income or the increase / decrease in the value of their share portfolio. Individuals and trusts can now opt to be taxed at the lesser of: 5% of the opening value of their share portfolio (as at 1 April each year for standard balance date taxpayers) or, their actual return calculated under one of the FIF calculation methods (normally comparative value but losses are disallowed) Companies and other non individuals use: 5% of the opening value of their share portfolio R&D Tax Credit A tax credit is available for R&D conducted by NZ businesses from the 2008/09 income year (1 April 2008 for most entities). A business must meet three main eligibility criteria to be eligible for the R&D tax credit. 1. They must meet the criteria as an eligible person. 2. The R&D activities must be systematic, investigative and experimental and be directed at acquiring new knowledge or creating new or improved materials, products, devices, processes or services, or involve an appreciable element of novelty. 3. The credit applies at the rate of 15% of eligible R&D expenditure and depreciation loss incurred in an income year. IRD have issued detailed guidelines on the R&D tax credit which are available at www.ird.govt.nz/rd-tax-credit Income Tax Payment Due Dates Month of Balance Provisional Tax Due (1st instalment 5th month Tax Date after balance date) Terminal Due Provisional Instalments 1st 2nd 3rd October 28 Mar 28 Jul 28 Nov November 7 May 28 Aug 15 Jan December 28 May 28 Sep 28 Jan January 28 Jun 28 Oct 28 Feb February 28 Jul 28 Nov 28 Mar March 28 Aug 15 Jan 7 May April 28 Sep 28 Jan 28 May May 28 Oct 28 Feb 28 Jun June 28 Nov 28 Mar 28 Jul July 15 Jan 7 May 28 Aug August 28 Jan 28 May 28 Sep September 28 Feb 28 Jun 28 Oct The above terminal tax dates assume the taxpayer is linked to a tax agent. 7 Nov 7 Dec 15 Jan 7 Feb 7 Mar 7 Apr 7 Apr 7 Apr 7 Apr 7 Apr 7 Apr 7 Apr Provisional Tax Taxpayers that are likely to have a year-end tax liability exceeding $2,500 are generally required to pay in instalments of provisional tax during the year in question. From the start of the 2008 / 2009 year (i.e. 2009 provisional tax), provisional tax payment dates have been aligned with GST payment dates, and depend on GST status and method used. Generally, most taxpayers pay provisional tax in 3 instalments, with a payment cycle of 5, 9, and 13 months after balance date. An exception to this is 6 monthly GST payers, who pay in 2 instalments. Another method of calculating provisional tax, the GST ratio method, is available to some taxpayers. These GST ratio method payers pay in 6 instalments. Provisional tax generally calculated as follows: 1st and 2nd instalments 105%† previous year’s residual income tax* 3rd instalment Must be based on estimate, or 105 % uplift †This uplift factor for company taxpayers is now 95%, taking into account the reduction in the company income tax rate from 33% to 30%. *Unless the previous year’s tax return has not been filed, or if provisional tax has already been estimated for the current year. Use of money interest is payable on shortfall of terminal tax for: Non-individuals, from 1st instalment date until the tax is paid Individuals, from Same, where any of the following apply: - residual income tax > $35,000 - provisional tax is estimated - hold an RWT exemption certificate Use Of Money Interest (UOMI) (See section on tax pooling) The UOMI rates are: (from 8/3/2007) Payable to the IRD 14.24% on underpayments (usually tax deductible for business taxpayers) Payable by the IRD 6.66% on overpayments (taxable income for all taxpayers) Tax Pooling Taxpayers are able to use a tax pooling system to manage their provisional tax payments. Tax payments can be purchased or sold at pre-determined dates (both past and present) through an intermediary. There are three companies that offer this service: Tax Management NZ Ltd (TMNZ), Electronic Tax Exchange Ltd (ETX) and Provisional Tax Finance Ltd. Using a tax intermediary gives the seller a better interest rate return, and it reduces use of money interest charges and, in certain circumstances, late payment penalties for the purchaser. Donations Individuals Maximum deduction* $1,890 p.a until the end of the 2007/08 tax year From the 2008/09 tax year the only limit is the total of qualifying donations must not exceed the taxpayer’s taxable income for that year Donation rebate, minimum $5 Donation rebate, 1/3 of the qualifying donations *Note, must be qualifying donations, and can include voluntary school fees Businesses Maximum deduction* 5% of net income (before donation) until the end of the 2007/08 tax year From the 2008/09 tax year all qualifying donations and gifts of money are deductible, to the extent that the donations do not exceed the company’s taxable income for that year.† *Note, must be cash donations made to approved donees †From the 2008/09 tax year there is no longer a restriction that a close company can only claim a deduction if it is listed on a recognised exchange. Balance Date If ‘linked’ to tax agent From 1 Apr to 30 Sep From 1 Oct to 31 Mar Tax Return Due Dates Return due date 31 March of the following year* Due date for the preceding 31 March year. Due date for the following 31 March year. *Under extension of time arrangements. However, taxpayers failing to file returns by the due date may lose their extension of time resulting in earlier return and terminal tax payment dates for subsequent income years. PAyE On Salaries & Wages Deductions from 1st to 15th of month 16th to last day of month Any day in December Due date 20th the same month. 5th the following month 15 January Exception: PAYE < $100k prev. year 20th the following month, every month Employee ACC Earner Premiums, Student Loan repayments, and Child Support deductions are all payable in same manner. ACC Levies ACC levies are determined based on the risk of accident in a particular industry. ACC levy details for the 2008 / 2009 year: Minimum Liable Earnings $21,320 (aged 18 or over) Maximum Liable Earnings $102,922 Earners Levy (incl. GST) $1.40 per $100 earnings. Tax Penalties A tax shortfall may incur the following penalties: Lack of Reasonable Care* 20% penalty Unacceptable Tax Position*† 20% penalty Gross Carelessness 40% penalty Abusive Tax Position 100% penalty Evasion 150% penalty *The shortfall penalty for not taking reasonable care or for taking an unacceptable tax position will not be imposed (100% reduction) if it is disclosed pre-audit †The shortfall penalty for taking an unacceptable tax position only applies to income tax (not GST or withholding tax) Penalties may be increased for: Obstruction 25% penalty increase Penalties may be reduced if shortfall is: Disclosed before audit 75% penalty reduction Disclosed during audit 40% penalty reduction Temporary shortfall 75% penalty reduction Penalties may be further reduced if the taxpayer satisfies the criteria for: ‘Previous good behaviour’ 50% further penalty reduction Late filing penalties (Income Tax Returns and Reconciliation Statements): Net income Penalty Under $100,000* $50 $100,000 – $1,000,000 $250 Over $1,000,000 $500 *Including any losses. Late payment penalties: Initial late payment penalty Then, after a week Then, after each month 1% (the day after due date) 4% (7 days after due date) 1% incremental increase *The information contained in this 2008 Tax Stats is necessarily general in nature and is not intended as a comprehensive guide or a substitute for specific advice. It is strongly recommended that you consult your BDO Spicers adviser before acting on this information in a way that may affect your affairs. This information was believed correct at 1 April 2008. Contact our Tax Specialists AUCkLAND (CBD) T: 09 379 2950 E: info@akl.bdospicers.com BAy OF ISLANDS T: 09 407 7250 E: info@kke.bdospicers.com ChRISTChURCh T: 03 379 5155 E: info@chc.bdospicers.com GISBORNE T: 06 869 1400 E: advice@gis.bdospicers.com hAMILTON T: 07 839 2106 E: office@ham.bdospicers.com INVERCARGILL T: 03 218 2959 E: admin@inv.bdospicers.com NAPIER T: 06 835 3364 E: admin@npe.bdospicers.com NEW PLyMOUTh T: 06 759 9034 E: info@npl.bdospicers.com PALMERSTON NORTh T: 06 358 4163 E: info@pmr.bdospicers.com ROTORUA T: 07 347 9087 E: info@rot.bdospicers.com TAURANGA T: 07 578 5095 E: info@bop.bdospicers.com WELLINGTON T: 04 472 5850 E: info@wlg.bdospicers.com www.bdospicers.com