Blog Archives

NEW TAX RATES NZ

10/18/2020

What will the new tax rates in NZ mean for you? Now that the election is decided, there will be a new tax rate to deal with in 2021: 39% on personal income exceeding $180,000 per year.

This applies to individuals only, e.g. an individual receiving a salary of $200,000 will pay an additional $1,200 tax each year
It does not apply to combined household income, e.g. if you earn $100,000 each as a couple, you won't pay any more tax
All other rates and brackets unchanged
Any new taxes or further income tax increases ruled out for next term (if present government remains in power)
Applicable from next year
No changes are proposed to trust (33%) or company (28%) tax rates

These coming changes emphasize how important it is to have the right business and/or investment structures in place. There will be tax planning opportunities arising out of the difference between the trust tax rate (33%), the company tax rate (28%), the present top personal tax rate (33%) and the new top personal tax rate (39%).

If you would like a review of your tax position and structure, please complete the contact form below or call us on 099730706 line 2

RESIDENTIAL TENANCIES LAW CHANGES EFFECT LANDLORDS

10/14/2020

The Residential Tenancies laws have changed. What effect does the "Healthy Homes Act" have on landlords? The Residential Tenancies Amendment Act will take effect in three main stages:

Phase 1: Law changes from 12 August 2020

Transitional and emergency housing: Accommodation provided for these purposes, which is funded by the government or part of a special needs grants programme, is exempt from the Residential Tenancies Act.
Rent increases: Rent increases are limited to once every 12 months. This is a change from once every 180 days (six months).
Any rent increase notices given to tenants from 12 August must comply with the new 12-month rule.

Phase 2: Law changes to take effect from 11 February 2021

Security of rental tenure: Landlords will not be able to end a periodic tenancy without cause by providing 90 days’ notice. New termination grounds will be available to landlords under a periodic tenancy and the required notice periods have changed.
Changes for fixed-term tenancies: All fixed-term tenancy agreements will convert to periodic tenancies at the end of the fixed-term unless the parties agree otherwise, the tenant gives a 28-day notice, or the landlord gives notice in accordance with the termination grounds for periodic tenancies.
Making minor changes: Tenants can ask to make changes to the property and landlords must not decline if the change is minor. Landlords must respond to a tenant’s request to make a change within 21 days.
Prohibitions on rental bidding: Rental properties cannot be advertised without a rental price listed, and landlords cannot invite or encourage tenants to bid on the rental (pay more than the advertised rent amount).
Fibre broadband: Tenants can request to install fibre broadband, and landlords must agree if it can be installed at no cost to them, unless specific exemptions apply.
Privacy and access to justice: A suppression order can remove names and identifying details from published Tenancy Tribunal decisions if a party who has applied for a suppression order is wholly or substantially successful, or if this is in the interests of the parties and the public interest.
Assignment of tenancies: All requests to assign a tenancy must be considered. Landlords cannot decline unreasonably. If a residential tenancy agreement prohibits assignment, it is of no effect.
Landlord records: Not providing a tenancy agreement in writing will be an unlawful act and landlords will need to retain and provide new types of information.
Enforcement measures being strengthened: The Regulator (the Ministry of Business, Innovation and Employment) will have new measures to take action against parties who are not meeting their obligations.
Changes to Tenancy Tribunal jurisdiction: The Tenancy Tribunal can hear cases and make awards up to $100,000. This is a change from $50,000.

Phase 3: Law changes to take effect by 11 August 2021 (but may take effect earlier if the Government agrees)

Family violence: Tenants who experience family violence will be able to withdraw from a fixed-term or periodic tenancy without financial penalty by giving two days’ notice and evidence of the family violence. If they are the only tenant, the tenancy will end.
Physical assault: If a tenant physically assaults the landlord, owner, or agent of the landlord, or family member of the landlord/owner, and the Police have laid a charge against the tenant, landlords can issue a 14 days' notice to terminate a fixed-term or periodic tenancy.

COVID-19 STRATEGIES FOR PROPERTY INVESTORS AND BUSINESSES; GOVERNMENT STIMULUS

10/7/2020

WHAT CAN YOU DO?

We haven't yet found a garden centre that sells one of these

1. MORTAGE HOLIDAY: In other news, with the OCR dropping to (and staying at) 0.25%, your bank should be passing on rate cuts for any floating loans, and it is worth looking at existing loans to see if you should break and re-fix or extend the term. Break fees are tax-deductible. Ask the bank or your mortgage advisor to do the calculations for you, or use this tool here. You might also want to look at a mortgage holiday, but just be aware that this will increase the loan,^ but it will buy you some time, so in the big picture, may be worth it. We suggest you only do this if you really need to.

Please see this detailed page with info about mortgage holidays, including links for all the major banks to apply for one. See also our blog post with 4 options for your mortgage to improve cash-flow right now

2. INTEREST RATES: Check with your bank re break fees on your loans, and look at whether the math adds up to break and renegotiate one or some loans at lower interest rates.

3. RENTS: Rent increases are worth considering, as you can now only increase the rent once a year.

4. PAYMENTS: Of course, cash-flow is king, and in this environment, we suggest asking your suppliers if you can start paying in smaller regular installments, rather than bigger sums. This will help reduce the impact of having less cash coming in. EpsomTax.com group offer interest-free time payment plans to all customers as a matter of course; please contact us to arrange this now.

5. INVESTING: This might also be the time to look out for housing bargains - see this article about timing and buying. If you can get a good deal on a cash-flow positive rental, that's going to introduce some $ into your portfolio. Heads-up: Banks are deluged with lending applications, so getting mortgage approval is slow

6. OTHER RESOURCES: Xero.com have provided a page with links to educational content. You don't have to be a Xero user to access all of it. Webinars include managing stress, resilience, business continuity and so on.

What good news is there for the coming weeks and months, in view of the COVID-19 pandemic and its effects on the economy?

Government policy changes include:

Increasing the small asset depreciation threshold to $5,000 for the period 17/03/20 to 16/03/21. It will return to $1,000 for 2021/22 onwards
Giving Inland Revenue the discretion to remit use-of-money interest (UOMI) for customers significantly adversely affected by COVID-19. Affects all tax payments due on or after 14 February 2020. (There are some conditions, see here for more info. For those who don't qualify; tax pooling is still a cost-effective option.)
Increasing the provisional tax threshold from $2,500 to $5,000 i.e. if your 2019/2020 income tax was under $5,000, you are not a provisional tax payer for 2021 year
Allowing 2% depreciation on commercial and industrial buildings from 2020/21.
Giving wage subsidies or leave payments in some situations.* Find out more HERE.
Business Finance Guarantee: loans for businesses with annual revenue up to $80 million can apply for loans up to $500,000, for up to three years. Click here for more info.
COVID-19 small business cashflow loans: 10k minimum loan, 1 year interest-free, no repayments till year 3, then 3% interest p.a. There are some fishhooks if you miss a payment, so be aware of your responsibilities if you apply and are accepted. More info here. Apply via the IRD website (use your myIR account)

* The wage subsidy and leave payments are NOT subject to GST - an Order in Council was passed to treat it as exempt (Section 5(6E)(B)(iii GST Act). The wage subsidy paid to the employer is not taxable; it is excluded income under section CX 47 of the Income Tax Act 2007; it is also therefore not deductible when paid by the employer as part of wages to employees. The payments made to employees are taxable for the employee and subject to PAYE, KiwiSaver deductions, Student loan etc in normal way. The same is true for self-employed persons: it is taxable income. NB: you only need to show a 30% revenue reduction for a single 4-week period to receive the full 12-week lump sum; you should be able to show that you took active steps to mitigate the financial impact of COVID-19, which could include drawing from your cash reserves (as appropriate), activating your business continuity plan, making an insurance claim, proactively engaging with your bank or seeking advice and support from either the Chamber of Commerce, a relevant industry association or the Regional Business Partner programme.

^ How it works is that the principal payments temporarily stop and the interest is added to the mortgage

Is Now a Good Time to Buy a Rental Property?

10/1/2020

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Are you thinking about buying a rental property but not sure if now is the right time to dive in?

There’s nothing like a worldwide pandemic to give you wobbly legs at the thought of making a big financial investment! It may seem like a precarious time to buy a rental property due to Covid-19 and political uncertainty around landlord requirements. However, there are other drivers which may indicate that it is a good time to enter the property market or expand your portfolio. Let’s take a closer look!

The Housing Market

Despite the economic uncertainty caused by Covid-19, the New Zealand property market is still growing. International migration has decreased, however Kiwis are returning to and staying in Aotearoa in record numbers.

According to the REINZ, in August median house prices across New Zealand increased by 16.4 percent. Furthermore, every region in the country has experienced an annual increase in median house prices. There are still housing supply issues which is hot on the political agenda and demand for rentals are said to be strong.

Interest Rates

The amount at which home loan interest rates are set is influenced by the Reserve Bank of New Zealand’s Official Cash Rate. As of September 2020, the Official Cash Rate was held at an all-time low of 0.25 percent. These modest home loan interest rates make it a more affordable time to borrow funds. Consequently, term deposit rates are decidedly slim…

LVR Ratio Restrictions

In addition to low-interest rates, you currently will need to use less of your hard-earned savings to buy an investment property.

Pre-Covid-19, the loan-to-value ratio (LVR), or the size of the deposit that lenders require you to provide in order to buy an investment property, sat at around 30 percent. In response to Covid-19, these LVR restrictions have been removed for one year in an attempt to make it easier for households and businesses to buy property

Legal Requirements for Landlords

Something to keep in mind when thinking about purchasing an investment property is any new and ongoing legal requirements on landlords.

For example, the new healthy homes standards have been introduced for rental properties in New Zealand, to ensure tenants have access to warm, dry and safe homes. These standards set specific and minimum requirements, including heating and insulation for rental properties. This means any property you purchase will either need to be up to specification when you buy it, or investment will need to be made to get it ready for tenants.

Final Thoughts

In reality, the decision on whether now is the right time to buy is always going to be ‘as long as a piece of string’. There are always going to be risks and potential threats.

However, lower interest rates, the temporary removal of LVR restrictions and ongoing demand in the housing market make it an attractive time to buy a rental property. Ultimately, the decision of buying a rental property needs to be right for your situation. Doing your research and seeking expert advice is going to help you make informed, long-term financial decisions that are right for you.

Engage with us at EpsomTax.com to learn more about how you can minimise tax when investing in a rental property.

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