Provisional Tax threshold and Use of Money
Great news for tax payers! The current residual income tax limit of $50,000 before use of money interest is imposed will be increased to $60,000, and this has also now been extended to include Companies, Trust and other entities (not just Individuals).
For taxpayers who fall under the threshold and who use the standard (uplift) method to calculate provisional tax, UOMI will no longer apply from the first and second instalment. Generally this will benefit clients who find they have shortpaid on the first provisional payments due to an increase in Profit. UOMI will only commence from the date of the final instalment of provisional tax due.
Private use of Motor Vehicles
At the moment if a company provides a vehicle to a shareholder employee then that vehicle will be subject to FBT. There are some good things about this; the company can claim all the GST on the purchase of the vehicle as well as all the running costs of the vehicle. In return, FBT will be payable.
From 1 April 2017, close companies (with 5 or fewer shareholders) with no more than two vehicles that are caught within the FBT net will be able to apportion vehicle costs in the same way as individuals and partnerships can, resulting in a saving in time and FBT.
There are completely different rules for sole traders or partnerships and these rules are much easier to apply. For these types of business structures, you need to keep a log book for three months every three years (over a representative period) to determine the percentage of business vs personal use. You can then use that percentage to work out how much of the vehicle running expenses can be claimed. If you don’t maintain a log book, then the maximum that can be claimed is 25%, although the general practice seems to be that 25% can be claimed without any question. And when it comes to buying a vehicle you can claim back GST based on your expected business percentage.
The criteria for eligibility for close companies is…
- A company can only use the new basis if the only fringe benefits made to all employees is a motor vehicle benefit to 1 or 2 shareholder-employees
Only smaller companies with very few employees (5 or less) the total whose voting interest is more than 50%
- No more than two vehicles will be able to apportion vehicle costs in the same way as individuals and partnerships can. The election to use the new rules will apply on a per shareholder and per vehicle basis from the date a vehicle is purchased.
Contractors and Withholding Tax
At the moment the Schedular Payment Rules set out the rate of tax that needs to be deducted at source – for contractors this is generally at a rate of 20%. This is an effective means for IRD to collect the tax but because contractors may also incur significant costs to generate the income it can also mean that tax is overpaid during the year. This may be particularly relevant to real estate agents.
From 1 April 2017 contractors can decide their withholding tax rate, without requiring the consent of the payer. A minimum rate of 10% for resident contractors and 15% for non-resident contractors will be imposed. The contractor will not be able to change their tax rate more than twice in any income year without the approval of the payer, it must also align with their expected tax obligations.
IRD sees these changes as a good balance between making sure tax is being paid and giving contractors more control over their own tax affairs.
The schedular payment rules will be extended to contractors that work for labour-hire firms. Contractors not covered by the schedular payment rules will be able to opt in to the rules with the consent of their payer.
RWT exemption certificates will not need to be renewed annually.