First, determine whether your venture is a “taxable activity”. Most businesses fall into this category; the notable exception being residential rental property.
The second question is whether your turnover (the amount that comes in before any expenses) is $60,000 or more. If your business is at, or will reach, the $60,000 threshold, then yes – you must register.
If your turnover is less than $60,000, then registration is voluntary, i.e., it is your decision to make. Whether you do so depends on a number of factors, and we recommend you discuss these with us. They include:
– Time and effort involved in preparing returns;
– If you deal with other businesses, will it seem unprofessional if you do not charge GST?;
– Do you have a lot of expenses or capital expenditure on which you pay GST?
The main options are:
Payments or invoice basis: Our recommendation for which option depends on the size of your business. Smaller businesses have the option to take payments basis, and this helps with cashflow. The accounting records you keep will influence this decision and we can discuss this with you. There is a third option – hybrid basis – which suits businesses that keep a debtors ledger but do not maintain an accounts payable system.
One, two or six-monthly return filing: Most businesses operate on a two-monthly filing basis. Six-monthly is available for smaller businesses, but we recommend this option only if your business is very small and/or you are very disciplined with your money. We generally do not recommend a one-month filing schedule, but it is used by some clients who receive regular or frequent GST refunds.
Contact our office for assistance with these and other GST registration issues.
What you can claim
The following expenses can be deducted from your rental income:
- Rates and insurance;
- Interest paid on money borrowed to finance your property;
- Agents’ fees and commission relating to the rental of the property;
- Repairs and maintenance (except if they substantially improve the property);
- Motor vehicle and travel expenses;
- Legal fees for arranging the mortgage or finance to buy the property;
- From the 2010 income year and beyond, legal fees for buying and selling a property can be deducted. This is provided your total legal expenses for the income year, including the fees associated with buying and selling a property, are equal to or less than $10,000 (before the 2010 income year, legal fees for buying and selling a property are not deductible);
- Mortgage repayment insurance;
- Accounting fees for the preparation of accounts;
- Depreciation on the building prior to the 2011/2012 income year.
What you can’t claim
- Capital or private expenses can’t be deducted from your rental income. Capital expenses are costs you incur to buy or increase the value of a capital asset.
- Private expenses are incurred for your own benefit and are not connected with producing taxable income.
- The following are non-deductible expenses:
- The purchase price of a rental property;
- The capital part of any mortgage repayment(s);
- Interest on money which you borrow for some other purpose other than financing the rental property, even if you use the rental property to secure such a loan;
- Any repairs and maintenance that go beyond replacement and are in fact improvements to the property;
- Real estate agent’s fees incurred as part of buying or selling the property;
- The cost of making any additions or improvements to the property;
- Depreciation on the building from the 2011/2012 income year.
- For the 2009/2010 income year and beyond, a deduction is available for legal expenses incurred in acquiring a capital asset that is used to derive taxable income. This is provided your total legal expenses for an income year are equal to or less than $10,000.
Note
From the 2013/2014 income year new mixed-use asset rules apply to holiday homes to determine the expenses allowed for income tax purposes.
After you’ve been overseas for one year you can withdraw your funds from KiwiSaver if you have moved overseas permanently to a country other than Australia.
From 1 July 2013 you are no longer able to withdraw your KiwiSaver funds early if you have moved to live permanently in Australia. The Australian and New Zealand governments have worked on an agreement that makes KiwiSaver accounts and compulsory Australian pension savings portable across the Tasman. The portability arrangements allow a person who has retirement savings in both Australia and New Zealand to consolidate their savings in one account in their current country of residence. When moving to Australia you will only be able to either leave your funds in a New Zealand KiwiSaver scheme or transfer your funds to an Australian complying superannuation scheme. Please note a number of conditions apply. For more information, visit the KiwiSaver website.
Contact your KiwiSaver provider.
If you’re applying for this type of withdrawal you must include a statutory declaration stating you have permanently emigrated from New Zealand, and evidence that you have:
- departed from New Zealand (for example, your passport records), and
- lived at an overseas address at some time during the year after your departure from New Zealand.
A private recreational pursuit or hobby is not a taxable activity. Here is IRD’s policy on what is a hobby:
- Reason for conducting the activity: predominantly pleasure
- Time put into the activity: from time-to-time or part-time
- Structure of the activity: infrequent supplies, non-business like, no real structure or organisation and an “unreasonable” level of financial investment
- Weigh up all the factors
- A hobby being put under a company structure does not make it a taxable activity
There is a two-fold test to determine whether you are in a business.
1. What is the nature of the activities?
To determine this we have to look at the following factors:
- the actual nature of activity
- the period over which it is engaged in
- the scale of operations
- the volume of transactions
- the commitment of time
- amount of money involved
- amount of effort
- the pattern of activity
- the financial results.
Generally, the larger the amount of money involved, amount of time involved, profitable financial results, and large scale of operation will mean that a person is in business for tax purposes.
2. Is/Was the intention of the taxpayer to make a profit?
If the intention of the taxpayer was to make a profit, then it is likely that they are in business.
- “Statements by the taxpayer as to his intentions are, of course, relevant, but actions speak louder than words.”
- There does not need to be a reasonable prospect of profit, it is the genuineness of the intention to make profit that matters.
Why is it relevant to determine the point at which a business commences?
- Income derived from business is taxable.
- Potential provisional tax considerations.
- Potential GST implications.
- Expenses incurred pre commencement of business may not be deductible. Please seek advice for your specific case.
Our tax agency list is a list of tax returns that we will file on behalf of clients.
The benefits it gives you are:
- Extension of Time (EOT) to file tax return: If you don’t have an EOT then you have to file your tax return by 7 July of that year. However, if you have an EOT then you have until 31 March the following year to file your tax return. An EOT is automatically granted if you are with a tax agent and you are up-to-date with filing your tax returns.
- Safe harbour: If you are on a tax agent’s tax agency list then this means you can base your provisional tax payments on your two prior years’ tax. This is not possible if you are not linked with a tax agent. The advantage of being able to do this is that you avoid interest and penalties if you have paid less tax (as long as you based it on the prior years’ tax paid).
- Extra time to pay: If you have an extension of time, you get an extra two months to pay your terminal tax, 7 April instead of 7 February. Good eh?
To learn more about the above please go to IRD’s website.
Unfortunately, the answer is no. There is a specific provision in the Income Tax Act that specifies that absentees are not able to claim a rebate for donations made in NZ.