This page is not in alphabetical order, but in order of Top Questions first:
Tax Return Filing Dates
Q: When does my tax return have to be in i.e. filed with IRD?
A: If you have an Extension of Time to file, the date is 31 March. If you are linked to a Tax Agent or Accountant, then usually you will have this extension. Note that the IRD must receive your tax return by this date i.e. if you post it on this date, it will be late.
Q: Cool, so I can send my info to you guys about the middle of March and that will be ok then? That gives 2 weeks to get it sorted, right?
A. Sorry, but no. In order to get the figures right, there is a process of many eyes checking your financial statements/tax return/s. So we recommend that you allow at least 5-6 weeks for us to collate, code, compile, check and file your financial statements and tax returns.
Q: I didn't earn any income last year, but I am a shareholder in a Look Through Company. Do I have to file a tax return?
A: Yes. You will have income or loss from the LTC and this has to be declared to Inland Revenue via a personal tax return.
Q: My rental is running at a loss. Why don't I get a tax refund anymore?
A: You can blame the government for that. They changed the rules so that losses from rental residential property, are "ring-fenced". That means they can only be offset against profits from the same kind of income. Read more here. What do do about it? Read about our recommended strategies here.
Q: I don't see any impact of the LTC losses to the final tax figure?
A: Please see the example IR3 tax return below
How Do The Amounts On The Profit & Loss Relate To My Tax?
Here is a typical Profit & Loss report. You can see the Profit hi-lighted in yellow, and the Expenses hi-lighted below (also in yellow). Then at the bottom, you can see that the result is a Loss - which is why it is written in parentheses (brackets).
This loss amount (or negative amount) is then put on your tax return. It offsets other rental income you have received. In this sample, assuming the person is being taxed at 33c in the dollar (ie they earn over $70,000 per year), then they could offset the loss of nearly 11k against other rental income (or if they have none, then this loss would be carried forward to future years).
How is the Tax Calculated?
All sources of income are added, e.g. wages, interest, dividends. Next, all sources of loss are added, e.g., LTC losses. Then tax is calculated on the sum of all of these figures. After that, tax that you have already paid is deducted, e.g., RWT, PAYE, provisional tax. The resulting figure is either a debit (tax to pay) or a credit (a tax refund).
Dividends - AECT/Entrust
Q: Why does the IR3 (personal tax return) you sent me show a dividend of nearly $500 from Entrust (formerly the Auckland Electricity Consumer Trust or AECT)? I only got about $300-something?
A: The Entrust dividend is shown on the tax return as follows
Using this formula, we arrive at the $300-something you received. You can see the exact breakdown here
Q: Why does the tax return show this? I wanted the refund to be credited to my bank account?
A: That's exactly what this means. It says, in effect: "do you want to receive the refund in cheque format?" The answer is "No." IRD only gives one other option, and that is a refund to your bank account.
Q: Does my LTC get a refund as well as me?
A: No. If you have an LTC, the refunds go to you. The company is Looked Through at tax time, hence the name Look Through Company.
Q: Is the amount shown as a refund what we're going to get?
A: Probably. All returns filed are subject to review by IRD, and sometimes they don't agree with our calculations. There are a number of reasons for this:
However, don't panic. All errors, wherever they are made, can be easily rectified.
Q: What's an IR3 form? What's an IR526? How long does it take to file a return?
A: That is what the personal tax return form is called: an IR3. (If you are not NZ tax resident, the form is an IR3NR). The actual filing online takes about half an hour. Then IRD processes it, which can take anywhere from 1 week to 12 weeks or longer. Once they’ve processed it, you then receive your tax refund.
The IR526 is the donations rebate form; it has to be processed separately. Note that you can now login to myIR and upload your own donations during the year, and IRD will process them once your personal tax return is done.
Q: I own a rental property, or I'm self-employed. Why is ACC sending me a bill?
A: If you received rental income in NZ and you didn't use a property manager, ACC can still charge you. And if you are self-employed, you have to pay ACC Employer and Earner Levy
These questions are based on questions asked by customers. We'll be adding more examples to this page as they occur.
Other FAQs you might have:
RENTAL PROPERTY: WHAT RECORDS DO YOU NEED TO KEEP?
USING ACCOUNTANCYONLINE.CO.NZ/MY TAX QUESTIONNAIRE
HOW DO I DOWNLOAD TRANSACTIONS FROM MY BANK'S ONLINE INTERNET BANKING?
WHAT IS XERO.COM?
WHAT'S THE PROCESS FOR MY TAX RETURNS?
COMMON QUESTIONS ABOUT YOUR FINANCIAL STATEMENTS
You might have noticed that your invoice is a little bit more this year. Why?
Did you buy another investment property during the year? If so, that requires a bit more work to account for that, usually a couple of hours.
It might be a price increase. We haven't raised our prices in 3 years; meanwhile the CPI has gone up, and up. So we adjusted the base price by 2.8%. This is actually less than inflation, so doesn't really reflect the eroding dollar. We've absorbed some of that cost ourselves.
At the same time, accountants from this year onward will be required to comply with new AML legislation, which we estimate will add at least 1-2 hours per year to costs. However, we can't charge all that time. So we've added $55 to try and offset that cost a little bit.
We think this is fair/reasonable, but if you have any concerns, please contact us.
What does this have to do with your tax? Well, we might have asked you to supply information, clarify a request etc etc. We know you're busy! But we don't hear from you promptly. Instead, it drags on and on.
Frankly, that doesn't help you, us, anyone!
So, what we ask is this
1. stop for a moment,
2. send through the info,
3. get their tax refund sooner!
Moral: Stop and sharpen your axe. Work smarter, not harder!
We often get asked if there is a GST component in a Sale and Purchase Agreement for a rental residential property, or if GST needs to be claimed on the purchase of something for the property.
The answer is no to both questions. Why? Residential rent is viewed as a "GST exempt supply" of services. Exempt supplies are goods and services which are not subject to GST and not included in your GST return.
IRD give these guidelines:
For more info, see this page at the IRD website, or contact us.
The answer is maybe. It really depends on your circumstances.
Please see this page at IRD for more info; remember though it is only talking about rental residential property, as different rules apply for property traders/developers.
As always, if you would like more information or are not sure about your situation, please contact us.
NB: If you are a property developer or trader, and therefore paying tax on the net profits from the sale of your buildings, then legal fees are one of the things you can claim.
Facing an IRD Risk Review is a scary thing. You might have read about Audits, and Risk Reviews here. But what does the process (sometimes) look like? Here it is. A request for "more information."
If they are not happy, they will go to a Risk Review or a full Audit. Sometimes they skip the Request for more info and go straight to one of those instead, depending on how dodgy things look. Here is what a Risk Review looks like:
AuditShield insurance pays the costs of getting specialst expert advice to face this kind of thing (you don't want to face it alone!) If you'd like to get a quote on AuditShield, please contact us today.
Note that this is only available to our clients. If you are not an EpsomTax.com client, ask your accountant about AuditShield (and why they don't have it!)
Sometimes we ask you for a Lawyer's Settlement Statement. What is it? Here is a sample one for your reference:
Please note: if viewing this on a mobile platform, the document plug-in may not work. In this case, please click the link below.
Q: What's the quickest way to get your tax refunds?
A: Be a super duper filer.... but how?
1. Do not procrastinate
It is easy to say, “I’ll do it later.” It is better to do things as soon as possible. The moment you get your tax questionnaire, start filling it in and gathering information to send to us.
2. Organize your gear
Getting organized will save you the stress of forgetting things, running late, feeling pressurised and never seeming to have enough time for other things.
In other words, keep your bank statements, keep your receipts, and keep them all in one place. This could be a shoe box, or a folder, or on your computer or in a folder in your email.
3. Scanning Is Great
Then you don't have to store a mountain of paper, and you can email us your documents. We recommend a scanner with ADF or Auto Document Feeder. That'll save you lots of time, and isn't much more expensive than one without. Brother make a wireless model for about $330
That's a good question, and it depends a lot on what entity incurs the loss. Let's break down the various types and what effect they have.
Look-Through Company (LTC)
If you are a shareholder in a Look-Through Company (LTC) and that company makes a loss, then you get to carry that loss through to your personal tax return (usually an IR3). There are a few rules and limitations* which we won't go into at length here.
Let's assume you're a salaried employee, and so you've had PAYE deducted from your wages. Well, at the end of the financial year a wash-up is done on your personal tax return. The above-mentioned loss is deducted from your gross (pre-tax) wages. It might look something like this:
-$ 5,000 Loss from LTC
- - - - - - -
$80,000 Net taxable income
We then calculate (a) how much tax you have paid, and (b) how much tax you should have paid. If (a) is more than (b) then you get a tax refund. If the other way around, you have tax to pay.
Limited Liability Company (LLC)
Ok this situation is totally different. If the LLC makes a loss, then it can't be passed on to anyone. Not the shareholders, not the directors: no one.
Instead, it carries that loss forward to the following financial year. If there is taxable profit, then the loss can be offset against that profit. It might look something like this:
$85,000 Net taxable profit
-$ 5,000 Losses brought forward from previous years
- - - - - - -
$80,000 Net taxable income
If there is no profit, then you just keep carrying the losses forward, year to year.
If you have a trust it's the same as an LLC with respect to losses. They can't be distributed out to the beneficiaries. Rather, they get carried forward until there is profit to offset them against.
A partnership works in a similar way to a Look-Through Company essentially. Losses are distributed to each partner, according to the rules of the partnership.
Sometimes you might combine some of these structures.
For example, a trust might own all the shares in a Look-Through Company. The LTC makes a loss. What happens then? In this case, the losses flow through to the Trust. They are then dealt with as explained above.
In the meantime, please contact us with any questions, or talk to your tax professional.
* From 1 April 2019, tax losses will no longer flow through from LTCs that are residential land rich. Please see us or call for advice on how to get the best results from your portfolio, build wealth and minimise tax
Good question. The best answer is: look at the flow-chart below (kindly provided by IRD).
Basically, if you have overseas investment property and you have a mortgage with an overseas bank, then you might have to pay NRWT.
NRWT is Non-Resident Withholding Tax. Essentially, if you're paying interest, dividends or royalties to people (and banks, e.g. a mortgage with an overseas bank) who aren't New Zealand tax residents, you'll need to deduct NRWT. However, there are exceptions. We'll write some more about that soon, but here's a link to check out in the meantime.
The other alternative is to pay AIL (Approved Issuer Levy). If you pay interest to a (non associated) non-resident lender, and want to pay it at a zero rate of NRWT, you have to apply to Inland Revenue to become an approved issuer. Instead of deducting NRWT, approved issuers must pay a levy on the securities they register with Inland Revenue.
Again, we'll write some more about this later, but here's some bedtime reading on the subject.
Are You A "Cash Basis" Person?
What we refer to above is known as a financial arrangement, ie if you have overseas investment property and you have a mortgage with an overseas bank. IRD says that if you are a "cash basis" person, you have to account for changes +/- in foreign currency as well!
Here's how to tell:
The criteria for a person to be classified as a Cash Basis Person are that the value of all financial arrangements of the person do not exceed certain values and that there is not a difference between accrual and cash recognition exceeding $40,000. This $40,000 is cumulative from year to year.
The rules under the first criterion are that one of the following is satisfied:
Nope. No Idea!
Still stuck? Contact us or your tax professional
Accounting for your rental residential investment property; specialised property tax advice. Buy me a coffee!