Provisional Tax

Provisional tax is a system of paying income tax in New Zealand.

It applies to all individuals who earn income from self-employment, rental properties, investments, and other sources not subject to Pay As You Earn (PAYE) withholding.

In this blog, we will take a closer look at what provisional tax is, how it applies to everyone, and what you need to know to stay compliant.

What is Provisional Tax?

Provisional tax is a system of paying income tax in advance, based on an estimate of the income you will earn during the year. It is designed to help you spread your tax payments over the year and avoid a large tax bill at the end of the year. The amount of provisional tax you pay is based on an estimate of your total income for the year, less any allowable deductions.

How does Provisional Tax apply to everyone?

Provisional tax applies to everyone who earns income from self-employment, rental properties, investments, and other sources not subject to PAYE withholding. If you earn income from any of these sources, you are required to pay provisional tax. You will need to estimate your total income for the year, including any income earned from employment subject to PAYE, and deduct any allowable expenses.

If you earn more than $5,000 per year from self-employment or other sources, you will be required to pay provisional tax in instalments throughout the year. There are three provisional tax payment dates each year: 28 August, 15 January, and 7 May. The amount of each instalment is based on your estimated income for the year, less any tax credits and any tax paid in previous instalments.

What do you need to know to stay compliant?

To stay compliant with provisional tax requirements, it’s important to keep accurate records of all your income and expenses. You will need to estimate your total income for the year and make sure you have enough money set aside to pay your provisional tax instalments.

If your income fluctuates throughout the year, you may need to adjust your provisional tax instalments to reflect changes in your income. You can do this by estimating your income for the remaining instalments and contacting Inland Revenue to request a change.

It’s also important to file your tax returns on time and pay any tax owing by the due date. Failure to pay your provisional tax instalments or file your tax returns on time can result in penalties and interest charges.

In conclusion, provisional tax is a system of paying income tax in advance, based on an estimate of the income you will earn during the year. It applies to everyone who earns income from self-employment, rental properties, investments, and other sources not subject to PAYE withholding.

To stay compliant with provisional tax requirements, it’s important to keep accurate records, estimate your income, and file your tax returns and pay any tax owing on time. If you’re unsure about your provisional tax obligations, it’s always best to seek advice from us.

Fringe Benefit Tax

As an employer in New Zealand, you may offer fringe benefits to your employees as a part of their employment package. These benefits can include things like health insurance, company cars, and low-interest loans. 

However, it’s important to understand that these benefits are subject to Fringe Benefit Tax (FBT) in New Zealand. In this blog, we’ll take a closer look at what FBT is, how it applies, and what the rates are.

What is Fringe Benefit Tax?

Fringe Benefit Tax (FBT) is a tax on non-cash benefits that you provide to your employees. It’s calculated as a percentage of the taxable value of the fringe benefit, and it’s paid by the employer. The purpose of FBT is to ensure that employees are paying tax on the full value of their remuneration, including any non-cash benefits they receive.

How does FBT apply?

FBT applies to a wide range of fringe benefits, including:

  • Company cars: If you provide a company car to your employee for private use, this is considered a fringe benefit.
  • Health insurance: If you provide health insurance to your employee as part of their employment package, this is considered a fringe benefit.
  • Low-interest loans: If you provide a loan to your employee at a lower interest rate than they would get from a bank, this is considered a fringe benefit.
  • Staff discounts: If you offer your employees a discount on goods or services that you sell, this is considered a fringe benefit.

The taxable value of a fringe benefit is the cost of the benefit to the employer, less any amount the employee contributes towards it. The amount of FBT that is payable depends on the type of fringe benefit and the employee’s tax rate.

What are the rates?

The FBT rate in New Zealand is currently 49.25%. This means that if the taxable value of a fringe benefit is $100, the FBT payable by the employer would be $49.25. The FBT rate is the same for all types of fringe benefits.

FBT returns must be filed and paid quarterly, and the due date for each quarter is one month after the end of the quarter. It’s important to ensure that you are accurately calculating and paying FBT on any fringe benefits you provide to your employees, as failure to do so can result in penalties and interest charges.

In conclusion, Fringe Benefit Tax is a tax on non-cash benefits that you provide to your employees. It’s important to understand how it applies and what the rates are so that you can accurately calculate and pay any FBT that is due. If you’re unsure about whether a benefit you provide is subject to FBT, it’s always best to seek advice from us.

Claiming business expenses

If you’re a business owner in New Zealand, you’ll likely have expenses that are directly related to your business operations. These expenses can include anything from office rent to equipment purchases to travel expenses. 

As a business owner, you can claim these expenses as deductions on your tax return, reducing your taxable income and potentially lowering your tax bill. In this blog, we’ll explore the basics of claiming business expenses in New Zealand.

What are Business Expenses?

Business expenses are costs that you incur in the course of running your business. These expenses can be divided into two categories: capital expenses and operational expenses.

Capital expenses are expenses that you incur when you buy an asset that will be used in your business for more than a year. Examples of capital expenses include the purchase of equipment, vehicles, and property.

Operational expenses are expenses that you incur on a regular basis to keep your business running. These expenses can include things like rent, utilities, office supplies, and travel expenses.

Claiming Business Expenses

In order to claim business expenses, you must be able to demonstrate that the expenses are directly related to your business operations. This means that the expenses must have been incurred for the purpose of earning income for your business. In addition, you must be able to provide documentation to support your claims, such as receipts or invoices.

When claiming business expenses, it’s important to keep accurate records of all expenses incurred throughout the year. This can include keeping receipts, maintaining a logbook for travel expenses, and tracking any other expenses that are relevant to your business.

Business expenses can be claimed as deductions on your tax return, which can reduce your taxable income and potentially lower your tax bill. However, it’s important to note that there are specific rules around claiming business expenses in New Zealand, and not all expenses can be claimed as deductions.

Examples of expenses that can be claimed as deductions include:

  • Rent and utilities for your business premises
  • Office equipment and supplies
  • Advertising and marketing expenses
  • Travel expenses, including meals and accommodation
  • Professional development courses and seminars

Examples of expenses that cannot be claimed as deductions include:

  • Private expenses that are not related to your business operations
  • Fines and penalties, such as parking tickets or late payment fees
  • Expenses that are not supported by documentation, such as receipts or invoices

In conclusion, claiming business expenses can be a valuable way to reduce your taxable income and lower your tax bill. However, it’s important to keep accurate records and ensure that you are only claiming expenses that are directly related to your business operations.

If you’re unsure about which expenses can be claimed as deductions, it’s always best to consult us.

Goods & Services Tax

GST (Goods and Services Tax) is a tax applied on the consumption of goods and services in New Zealand. It was introduced on 1st October 1986, and since then, it has been a crucial source of revenue for the government. In this blog, we will explore GST and its rates in New Zealand and when they apply.

What is GST?

GST is a tax on the supply of goods and services in New Zealand. It applies to most goods and services provided by registered businesses in New Zealand, including imported goods and services. The tax is collected by the registered businesses on behalf of the government and paid to the Inland Revenue Department (IRD).

GST Rates in New Zealand

There are currently three GST rates in New Zealand:

Standard Rate – 15%

The standard rate of GST in New Zealand is 15%, and it applies to most goods and services. It is the most common rate and applies to most goods and services, including food, clothing, and services such as legal and accounting services.

Zero Rate – 0%

The zero rate of GST applies to specific goods and services, including exports, international transport, and certain primary products such as fresh fruits, vegetables, and meats.

Exempt Supplies

Some goods and services are exempt from GST, meaning no GST is charged on these goods and services. Examples of exempt supplies include financial services, residential rental properties, and most healthcare services.

When does GST apply in New Zealand?

GST applies when a registered business supplies goods and services in New Zealand, and the value of the supply exceeds NZD $60,000 per year. GST applies to most goods and services, including those that are imported, sold or provided by a business.

The standard rate of 15% applies to most goods and services, while the zero rate applies to specific goods and services as mentioned earlier. Some goods and services are exempt from GST, meaning no GST is charged on these goods and services.

In conclusion, GST is an essential source of revenue for the New Zealand government, and its rates and application are crucial to understanding the country’s tax system. It is important for businesses to ensure they are registered for GST, charge GST correctly, and meet their GST obligations.

If you have any questions about GST, please consult with us to ensure you are meeting your GST obligations.

Starting a business in New Zealand

Got a business idea? You have decided to venture into a business. Now the question is where do you start and the process of setting up can be sometimes quite daunting.

Here is a simple guide to ensure you have taken care of the preparation, registration & keeping day to day records.  –

Preparation

  • Choose your business structure, eg, sole trader, partnership, company.
  • Choose a business name.
  • Create a business plan. It can help you to secure funding from investors and banks.
  • Prepare a cashflow projection.
  • Get help to create a marketing plan/business plan.

Registration

  • Get a Realme Login.
  • Get a New Zealand Business Number.
  • Register for myIR.
  • Work out if you need to register for GST.
  • Register your trade mark with IPONZ
  • Contact Accident Compensation Corporation (ACC)—to discuss cover for your first year, your business industry code (BIC) and the rate for your industry.
  • Ministry of Business, Innovation and Employment (MBIE)—to discuss requirements for employment contracts and health and safety.
  • New Zealand Customs Service (Customs)—to register if you’re importing goods
  • Set up a business bank account and a separate bank account for tax and ACC levies

Keeping records

  • Keep a business diary for appointments and important contact details.
  • Set up a record keeping system and keep all business-related invoices and receipts.
  • Home office—calculate the area of your home being used for business.
  • Start a vehicle logbook.
  • Set up an invoicing system—if registering for GST make sure it meets the taxable supply information requirements.
  • If employing staff, set up a payroll system.
  • Set up an asset register (may also be called a depreciation schedule).
  • Using your own assets? Get a written valuation of any private assets being introduced to the business