There have been some important tax changes made that affect a large group of taxpayers, these are summarised below:
LOOK THROUGH COMPANIES
The loss limitation rule that limits losses being allocated to shareholders up to the amount of their subscribed capital is to be abolished from 2017/2018 year. Accumulated losses not attributed to shareholders will be able to be utilised in the 2017/2018 year.
Where an LTC is liquidated, owing shareholders loans that have been injected into the LTC to support trading losses, the debt remission rules will generally apply. However, debts owing by a LTC that are remitted in proportion to the shareholders interest in the LTC will now not trigger debt remission tax liabilities. This is being amended retrospectively from 1st April 2011 due to the uncertainty around these rules.
Both of these amendments are complicated and we can advise clients on these issues on an individual basis.
FBT & SHAREHOLDER EMPLOYEE VEHICLES
Traditionally there has been quite a difference in how "owner operated" vehicles have been taxed in respect of their private use, depending on the structure of the business (company vs sole trader/trust/partnership).
The new concession applies to those businesses that trade through a company that only provide fringe benefits of up to a maximum of 2 vehicles to shareholder/employees, no other fringe benefits including medical insurances etc and that the company is defined as a "close company: under the tax rules (i.e. fewer that 5 shareholders).
From 1st April 2017 company taxpayers can elect to:
- Not paying FBT on shareholder employee vehicles;
- Keep a log book to determine business/private use %;
- Apply that business % to claim all vehicle related costs including interest.
To be able to apply the new rules, the company must:
- Provide an election notice to the IRD withing the time limits to file an income tax return.
This will apply to vehicles purchased after 1st April 2017.
ASSOCIATED PERSONS CAPITAL GAINS
Capital gains on sale/transfer of assets between related parties are normally taxable.
Some new concessions have been announced.
Clients should always seek our advice before restructuring assets, particularly so when transferring an asset such as a building from a company to a trust.
SHAREHOLDER EMPLOYEE SALARIES
A new proposal is to allow shareholder/employees to receive both a PAYE salary throughout the year and also be able to receive an additional salary to be credited after year end on completion of the company financials. This will be restricted to "closely held" companies as defined in the tax act and to apply from the 2017/2018 year.
RESIDENT WITHHOLDING TAX & DIVIDENDS
New rules are to come into effect for the 2017/2018 year that related to mixed cash/non cash dividends.
Dividends can be credited to shareholders on the first day of the income year, regardless of when the dividend is formally declared. This is helpful in calculating interest to be charged on overdrawn shareholder current accounts.
We can clarify these rule applicable to client circumstances.
New rules for contractors being paid by "labour hire" firms meaning withholding tax to be deducted where in the past this has not applied.
IRD USE OF MONEY INTEREST
The IRD have announced changes to the interest rates charged/credited from 8th May 2017 as follows:
INCREMENTAL LATE PAYMENT PENALTIES
- Charged: 8.27% down to 8.22%
- Credited: 1.62% down to 1.02%
- "Safe Harbour: threshold increased from $50,000 to $60,000 for individuals before UOM applies.
1% incremental late payment penalties charged after the first month of late/unpaid tax to be removed for unpaid tax for 2017/2018 years. Note 1% and 4% penalties still apply over the first month of unpaid tax.
A new method of basing provisional tax being paid throughout the year from internal management reports generated from clients software systems. This will apply from the 2018/2019 tax year and details of how this will work in practice and which software will be authorised are still being worked on by the IRD. We will keep you updated.
The above is a brief summary of current changes and changed to be made over the next few years.
We are always available to help clients work their way through the complexities of the tax laws.
Please contact either Kevin, Chris or Cal for advice about your individual circumstances.