The theme of resilience was strong throughout the budget but came into sharp focus when considering our ability to cope with natural disasters. Funding for the Christchurch rebuild continues, as does rebuilding and repairing infrastructure in the wake of the Kaikoura quake.

Shoring up the National Disaster Fund is a priority so from 1 November this year the Earthquake Commission (EQC) premium rate will increase from 15 cents per $100 in cover to 20 cents per $100 in cover. This increases home owners’ annual EQC premiums by up to $69 per year.

A large slice of the budget is allocated to support our growing economy and population. $4b in new capital funding is committed across the Education, Health, Defence, Justice, Housing, Primary Sector and Transport portfolios. This includes $2.39b for Crown Health facilities and district health boards. The investment translates to new schools, additional hospital facilities, housing and water storage as well as greater prison capacity, more police officers, court and corrections services.

The Social Investment Package proposes $321 million to support the most vulnerable people in our communities: vulnerable children and their families, children with behavioural difficulties and people affected by mental health issues.

The Government’s Business Growth Agenda invests $1b over the next four years. Our economy and population have already been growing strongly. Over the next four years, this growth might be slowed down by the inflation that tends to follow economic growth as well as factors beyond our shores if growth rates slow in the trade regions that are so important to us.

The Agenda supports continued growth by investing in innovation, developing our skilled workforce and paving the way – literally – with infrastructure spending on roading, transport and communication networks. This includes investment in infrastructure to support tourism, recognising the pressure increased visitor numbers have put on existing facilities but also acknowledging the corresponding increases to revenue.

Innovation

The Business Growth Agenda aims to nurture innovation in New Zealand businesses and attract research and development from overseas.

The Agenda extends the second round of funding to the Government’s Innovative New Zealand programme. Some of this is earmarked for strategic science investments, and research and development grants. The Strategic Innovation Partnerships Programme has been expanded with a goal to attract 10 multinational companies to undertake R&D activity in New Zealand by 2020. Economic development funding will be spread across various government initiatives.

Feasibility

So-called black hole expenditure is back on the table for discussion. This is the money businesses spend on trying to get new ideas to fly. Early stage spending is often not tax deductible and it’s a deterrent to business innovation not to be able to recover funds spent on testing feasibility, if it turns out the idea doesn’t work. Hence a perception that the business is throwing its money down a black hole.

Businesses can be hog-tied by the capital limitation: if it’s capital expenditure it’s not tax deductible, but in the early days of testing out whether projects will work and are commercially viable it can be hard to be clear on what’s capital expense and what’s not.

The Government discussion document, ‘Black hole and feasibility expenditure’ proposes measures to ensure the tax treatment of feasibility expenditure is clearer, and that it won’t receive black hole treatment. Submissions on the proposals close on 6 July 2017. If you would like to discuss how this could affect your business, please call us.

The early hints of tax relief for families have been fleshed out in the Family Incomes Package which will take effect from 1 April 2018. The legislation giving the changes effect was passed by Parliament the Friday after the Budget was read and at time of writing awaits Royal assent.

Tax brackets

There’s a broad recognition that while the average wage has risen, the tax rates haven’t flexed to accommodate it. Moves into a higher tax bracket bit into wage rises for lower and middle income families. The Government aims to tackle this by stretching the lower tax brackets. From 1 April 2018, the $14,000 income tax threshold will increase to $22,000 and the $48,000 threshold to $52,000.

The tax rates aren’t changing but the points where they cut in are changing (though there’s no change for the top tax bracket). If you were earning $22,000 a year, you receive a $560 tax saving each year; if you were earning $52,000 a year, it’s an annual tax saving of $1,060.

Family Tax Credit

Balanced against the changes to the tax thresholds are changes to the Family Tax Credit. The abatement threshold will decrease from $36,350 a year to $35,000 and the abatement rate will increase from 22.5 cents to 25 cents in the dollar. So if you receive the Family Tax Credit, the amount of Family Tax Credit you receive will start to decrease sooner and by more as your earnings increase.

The Family Tax Credit itself will increase for the first child under 16 by $9 a week, and for the other children under 16 by between $18 and $27 a week each.

Independent Earner Tax Credit

The Family Incomes Package gets rid of the Independent Earner Tax Credit (IETC). Less than a third of eligible people actually claim it during the year and increasing the $14,000 tax threshold to $22,000 largely compensates those who were receiving the IETC.

For some middle income earners, the combination of the new tax thresholds and disappearance of the IETC results in an annual tax saving equivalent to the value of a flat white and big brekkie for two or a couple of mid-size grocery runs, depending on whose calculator you use.

Housing assistance

After staying at the same levels for the last decade the Accommodation Supplement will increase. The Supplement assists beneficiaries, pensioners and lower income working families to meet rental, board or mortgage payments. For smaller households it will increase by $25 to $75 a week and for larger households by $40 to $80 a week. Increases will be geared to recognise where people live in areas where housing costs have increased most.

Students who receive the Accommodation Benefit will see this increase by up to $20 a week.

Many business owners find calculating and paying provisional tax one of the most difficult areas of compliance. So any opportunity to simplify this has to be welcome.

The accounting income method is a grand name for a simple but smart change. It allows you to use your accounting software to calculate and pay your provisional tax, taking the guesswork out of the process. If that sounds a lot like how you calculate PAYE, that’s because it is. Although these changes don’t take effect until April 2018, now is a good time to start planning for them. We’ll look deeper into this in future issues, so watch this space.

Other business-friendly measures include reducing or removing UOMI for the vast majority of business taxpayers. In the past UOMI has been seen as unfair, because even if a business paid the correct amount of provisional tax during the year it could still incur the interest. As of April 1 this year, this charge is considerably reduced through the extension of the safe harbour rules.

In addition, there are new rates for UOMI. As from 8 May, they have changed to:

Underpayments – 8.22% (down from 8.27%). That’s what you pay on money you owe to IRD.Overpayments – 1.02% (down from 1.62%). That’s what IRD pays you on money it owes to you.

The rates are reviewed regularly to reflect market interest rates.

The combination of the accounting income method and the other provisional tax changes will reduce the impact UOMI has on small businesses. The changes also remove the one per cent incremental late payment penalty for new GST, income tax, and overpaid Working for Families tax credits.

If you’d like more information about these changes, or how they could benefit you, get in touch with us and we’ll be happy to walk you through them.

Further changes to provisional tax will be coming next year, starting 1 April 2018. But what does it mean for you this year? For provisional taxpayers who pay using the standard method, there are two changes to the way IRD will charge UOMI from the 2018 tax year.

The first change applies to smaller taxpayers (including companies and trusts) using what’s called the ‘safe harbour’.

It’s good news for you if:

Your income tax liability is less than $60,000; and

The second change applies to other taxpayers If your tax liability is $60,000 or more, and you have paid provisional tax for the year based on the standard method, then:

IRD won’t charge interest if you paid tax due according to the standard method at your first and second provisional tax dates, even if your actual liability is higher.The final balance will be due at your third provisional tax date. IRD interest applies on any underpayment of tax from the third provisional tax date.

If you pay using the standard method It’s important you pay the uplift amount on the provisional tax dates required or you’ll run the risk of incurring UOMI. IRD will charge UOMI on the uplift amount or a third of the actual liability, whichever is the lower amount. Late payment penalties will also apply if payment is not made on time.

Provisional tax amounts may be substantial and hard to manage. In addition, you may not know your taxable profit for the year until months after balance date. If your income is seasonal and difficult to forecast, or you have an unexpectedly profitable transaction or contract, you could end up owing IRD an amount you’ll struggle to pay.

Choose the right payment method Volatile or seasonal income means you may prefer to use the estimation or GST ratio methods to calculate your payments – in which case you will be subject to the same provisional tax rules as before.

The new pay-as-you-earn option, the accounting income method, which IRD hopes will address those issues, is not available until 1 April next year (to coincide with the start of the 2019 tax year).

Until then, it is important to talk to us if you are going to have trouble meeting your provisional tax obligations. We can work with you to devise a plan and discuss options like the use of Tax Management NZ to mitigate your risk if you cannot pay on time or in full.

Whatever your tax challenge, we can help.

Are you using all your devices to their best advantage? They should be operating for you as an ‘office when you’re out of the office.’ For example, if you’re on the road and you need to answer an inventory question or check how often a customer orders, you can use your notebook or phone to have the information at your fingertips.

The number of mobile apps designed to save you time and money is mind boggling. Here are a handful we like – but we really recommend you do your own research and find the ones that work best for you.

Hubspot and Salesforce are powerful tools for growing and managing your database. They are inbound marketing and sales platforms that help you attract visitors, convert visitors to customers, close sales and develop marketing relationships.

Trello is a multilevel app for managing projects. Trello’s boards, lists, and cards enable you to organise and prioritise tasks in a co-operative, flexible and rewarding way across your workforce.

Viber and What’s App reduce the cost of international calls. Calls between other users, no matter where in the world they are, are free. And calls to mobile numbers around the world are cheap as chips.

Both Viber and What’s App sync your contacts, messages and call history with your mobile device and use your phone’s internet connection, instead of your cell plan’s voice minutes, so you don’t have to worry about expensive calling charges for your business calls.

GotoMeeting for web teleconferencing reduces expenses for communication and can eliminate the need to travel to meetings. Work can happen anytime, anywhere. GoToMeeting with HD video conferencing is a simple yet powerful way to collaborate in real time so business can be undertaken anytime, anywhere.

Concurrent with the new Act, IRD is also making more and more taxation reporting and payment options available online. For some small businesses, especially those that tried it when it was first available and gave up on it, that may be an intimidating prospect. However, IRD has made their online sites more user-friendly over time.

We encourage the use of widely available accounting software packages, to take advantage of changes brought in by the new Act. Using the online option will make your business easier to run. But it won’t just be in relation to IRD reporting.

Switching to online accounting software like Xero (there are many others) removes a lot of stress for you in terms of compliance and reporting. What’s more, we often find that a time-consuming part of doing end of year work for some clients is first tidying up the bookkeeping. That then becomes a cost to you – and an avoidable one at that.

Cloud-based accounting software packages for small business can cover everything from revenue management to salesforce records, your billing system, bank reconciliation, inventory management, HR, customer records and a whole lot more.

Here are the biggest benefits of using cloud-based accounting software

You’ll save time.You won’t lose data if your computer crashes.Well-established software companies have a history with IRD and keep up to the minute with tax changes and developments.The best companies offer technical support as part of their package.

By reducing time spent on bookkeeping, you’ll free up time for gaining customers, extending your reach and expanding your profile in the market.

Switching to a new bookkeeping system can be daunting at the best of times, and it’s certainly not a panacea for poor record keeping. If you’re interested in making the move, contact us to discuss your options and to plan a methodical transitional process along with any training needed for you and your employees. Time spent doing this will likely repay you many times over!

The early hints of tax relief for families have been fleshed out in the Family Incomes Package which will take effect from 1 April 2018. The legislation giving the changes effect was passed by Parliament the Friday after the Budget was read and at time of writing awaits Royal assent.

Tax brackets There’s a broad recognition that while the average wage has risen, the tax rates haven’t flexed to accommodate it. Moves into a higher tax bracket bit into wage rises for lower and middle income families. The Government aims to tackle this by stretching the lower tax brackets. From 1 April 2018, the $14,000 income tax threshold will increase to $22,000 and the $48,000 threshold to $52,000.

The tax rates aren’t changing but the points where they cut in are changing (though there’s no change for the top tax bracket). If you were earning $22,000 a year, you receive a $560 tax saving each year; if you were earning $52,000 a year, it’s an annual tax saving of $1,060.

Family Tax Credit Balanced against the changes to the tax thresholds are changes to the Family Tax Credit. The abatement threshold will decrease from $36,350 a year to $35,000 and the abatement rate will increase from 22.5 cents to 25 cents in the dollar. So if you receive the Family Tax Credit, the amount of Family Tax Credit you receive will start to decrease sooner and by more as your earnings increase.

The Family Tax Credit itself will increase for the first child under 16 by $9 a week, and for the other children under 16 by between $18 and $27 a week each.

Independent Earner Tax Credit The Family Incomes Package gets rid of the Independent Earner Tax Credit (IETC). Less than a third of eligible people actually claim it during the year and increasing the $14,000 tax threshold to $22,000 largely

compensates those who were receiving the IETC. For some middle income earners, the combination of the new tax thresholds and disappearance of the IETC results in an annual tax saving equivalent to the value of a flat white and big brekkie for two or a couple of mid-size grocery runs, depending on whose calculator you use.

Housing assistance After staying at the same levels for the last decade the Accommodation Supplement will increase. The Supplement assists beneficiaries, pensioners and lower income working families to meet rental, board or mortgage payments. For smaller households it will increase by $25 to $75 a week and for larger households by $40 to $80 a week. Increases will be geared to recognise where people live in areas where housing costs have increased most.

Students who receive the Accommodation Benefit will see this increase by up to $20 a week.

Positive tax changes that we’ve been signalling for some time are finally taking effect, with key aspects of The Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act and the Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Act having come into force on 1 April.

Revenue Minister Judith Collins was bullish about the changes, stating, ‘This package gives businesses more certainty about their tax payments and more time to focus on growing their business’. While she would say that of course, she’s essentially right.

Key aspects include provisional tax changes, changes to use of money interest (UOMI) and penalty fee interest, and simplified reporting for businesses. There are also changes to tighten New Zealand’s disclosure requirements for foreign trusts.

Will yours be one of the small businesses to benefit from this tax simplification? Almost certainly, because the new accounting income method, due to take effect in April 2018 and explained below, will take the headaches and guesswork out of paying your provisional tax.

Of course, change – even positive change – can cause anxiety. What do you need to do to take advantage of these changes? Do you need to do anything differently to comply with them? As always, the best course of action, if you have any questions, is getting in touch with your accountant. We’re here to help.

Some changes to specific types of companies:

Closely Held Companies (CHC)

Small Closely Held Companies represent a significant proportion of New Zealand’s 400,000 companies. The new rules, which are intended to simplify compliance, cover Resident Withholding Tax, capital gains, and the payment of provisional tax.

Look-Through Companies (LTC)

These limited liability companies operate with a tax structure that allows the company to transfer income and expenditure directly to shareholders. Changes to the legislation are designed to ensure LTCs operate as closely controlled companies (as originally intended). The changes are complex, and while the changes include removing the deduction limitation rule for most LTCs, they also affect LTC-owning trusts and their beneficiaries, and the amount of foreign income that can be earned, among other things.

Changes to ‘Safe Harbour’ rules

As part of the changes to the provisional tax rules, the Bill increases the current ‘safe harbour’ threshold at which UOMI applies, from $50,000 to $60,000, and extends the safe harbour to companies rather than just

individuals.

The safe harbour threshold basically means that if you have paid tax on the standard uplift method of paying provisional tax (last year’s tax bill, plus 5%) and your tax bill is less than $60,000, you won’t be hit with interest. UOMI may be applicable only from the third instalment.

Before the third provisional tax payment, we can assess your year’s trading and work out how much tax you need to pay.

The amendments also add three requirements to tighten application of safe harbour rules. These will 1.) require a taxpayer to actually make the three instalments required under the standard method to enable them to use the safe harbour; 2.) prohibit a taxpayer who has a provisional tax interest avoidance arrangement from using the safe harbour and 3.) prohibit a taxpayer who has paid the first two instalments under the standard method from changing to the estimation method.