WILL IT HAPPEN?
Hard to say. Now the cat is out of the bag, it might be hard to put it back in. It is, however, worth noting that attempts have been made to control the property market by brute force before, and they ultimately resulted in a change of government. In the early 1980's, the then Prime Minister, Mr Robert Muldoon, introduced a rent and interest rate freeze in an attempt to control property market growth. The result was that no one could get finance, and so no one could sell either. Eventually, this regime was repealed.
There has been some very strong push-back by influential companies and bodies, which is to be expected. So, we wait and see.
Meanwhile, let's talk about possible strategies:
Until where know where things are going to land, these are only ideas to consider at this stage - although point 1 is probably a bit of a no-brainer.
RESIDENTIAL LAND RICH
IRD have proposed that any entity which is not "residential land rich" won't be subject to the ring-fencing rules.
Please explain?! Well, this is a bit tricky. An entity is which is not "residential land rich" is any entity wherein 50% of more of its assets are not rental residential property. For example, an entity e.g. LTC buys a residential rental, and also buys a commercial property and the value of the rental is less than the value of the commercial property (as measured by open market value of the assets at year end). The shareholders would need to borrow the money and inject the capital into the company. The shareholders could then claim a deduction for the interest in their personal tax returns, and thus offset any profits coming from the company. And if the interest cost is greater than the profits, then that would be a loss to record on their personal tax returns.
However, this would really only work if starting from scratch, and in our view, there are better ways to do it than this method.
You have a mixed-use asset if, during the tax year, it's used for both private use and income-earning use, and it's also unused for 62 days or more.
The rules apply to any:
See here for more info.
So in other words, a mixed-use asset means you have to use it a bit yourself, e.g. a holiday home that you mostly rent out, but that you stay in a bit during the year.
There are various rules (outlined in the above link) which limit what you can claim from these kind of assets, and you have to be careful if you think your gross annual income will be more than 60k (GST registration; that's another issue - especially when it comes to sale time), but it bears thinking about.
SET IN STONE?
By no means. We are recommending a wait-and-see approach at this stage. But start thinking ...
You might find our earlier article on this subject useful as well.
Tax Treatment of Cryptocurrency
IRD is till working out the tax treatment of cryptocurrency. But it has made up its mind on some things. You can read all about it here. The main points so far are:
Cryptocurrency Fraud Warnings
NZ Police in association with City of London Police have just released a warning. See below for the PDF.
Apparently, fraudulent websites alleging to offer cryptocurrency investments are dishonestly using the image of Martin Lewis, the founder and editor for moneysavingexpert.com, as an endorsement for their companies. However, Martin doesn't do adverts. See his blog post for more info here. These sites are also falsely stating that Dragons Den back their schemes.
More info is available at NetSafe, especially re scams. And, just for the record, we don't claim any endorsement by Martin Lewis, his website, NZ Police, City of London Police or NetSafe. Any copyrights belong to their legal owners. We are merely making you aware of what is going on out there. Keep safe!
Shock! Horror! IRD have released a proposal to ring-fence rental property losses. What does that mean for you?
At present if you own a rental property (sole trader, partnership, LTC) and it makes a loss, then you can offset that loss against your personal income or the income of the shareholder/s (in the case of an LTC). This means you pay less tax or get a tax refund. In IRD speak, that is
"Currently investors (particularly highly-geared investors) have part of the cost of servicing their mortgages subsidised by the reduced tax on their other income sources."
Thousands and thousands of Mums and Dads across New Zealand have become landlords in this way, and the tax refunds help pay for the mortgage.
From 2019-20 onwards (or possibly phased in), losses won't be passed on to the owners, so no more personal tax refunds. Instead, ring-fenced residential rental* or other losses from one year could be offset against:
Solutions for Investors
IRD make this comment:
It is suggested that the loss ring-fencing rules should apply on a portfolio basis. That would mean that investors would be able to offset losses from one rental property against rental income from other properties – calculating their overall profit or loss across their portfolio.
So, our initial thoughts are that investors with negatively-geared property need to look at
Where to Read the IRD Proposal
Goto this page
How To Make A Submission
Officials invite submissions on the suggested changes and points raised in this issues paper. Send your submission to email@example.com with “Ring-fencing rental losses” in the subject line.
Ring-fencing rental losses
C/- Deputy Commissioner, Policy and Strategy
Inland Revenue Department
PO Box 2198
The closing date for submissions is 11 May 2018, so if you want to say something, you'd best be quick about it!
Check out Part 2 here
* If your house is a Mixed Use Asset, ie you use it as a holiday home that you rent out to others, then the rules wouldn't apply to you. They also don't apply to your "main home" ie where you live, or if you are buying and selling houses for profit e.g. a trader.
Here are the main steps involved, and an approx. % showing how far through we are at each point. The chart starts at the bottom, and the top is 100%, tax returns filed and assessed by IRD!
Here is a detailed description of each part of the process
Timeframes - How Long Does It Take?
As a rough guide, from the date of invoice issuance to you having the draft financial statements in your hands, we aim for 8-9 weeks, subject to this disclaimer: these timeframes are indicative only and at peak times of the year e.g. May-October, it will often take longer.
Before Processing Starts
We'll advise you in February via email when this is.
We trust this helps take some of the mystery out of the process. Please contact us with any questions!
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?
COMMON QUESTIONS ABOUT YOUR TAX RETURNS
COMMON QUESTIONS ABOUT YOUR FINANCIAL STATEMENTS
According to Wikipedia*, "phishing is the attempt to obtain sensitive information such as usernames, passwords, and credit card details (and money), often for malicious reasons, by disguising as a trustworthy entity in an electronic communication."
What Do Phishing Emails Look Like?
Quite often they look like a legitimate email from IRD (about a tax refund, or warning of tax owing), or an email from a provider like Office365 or Apple. More info here at netsafe.org.nz*.
How Do You Know If It Is A Phishing Email?
There are often several clues; please see the copy of example emails below.
What Does a Phishing Email Look Like?
Here is one phishing email we received recently. It looks rather convincing, but there are a couple of clues in the email that it is not from a legitimate source
Here is another example of a phishing email. Note again the clues that it is not "legit":
How Can I Keep Myself Safe?
See more tips on this page at netsafe.org.nz
What should I do if I need help or advice?
You can contact Netsafe:
* We have quoted information from Wikipedia (licence terms) and Netsafe (licence terms). Use of this information does not constitute an endorsement of EpsomTax.com by either organisation. This information is not provided for commercial purposes, but strictly in an attempt to help promote community awareness of fraud and how to prevent it and protect yourself.
Currently, the tax thresholds are as follows:
As you may recall, these were to be changed. However, due to a change of government, there will be no change to these tax rates. There will no doubt be lots of other changes coming; we will post as soon as information is finalised. At the moment it is all hot air and speculation...
Insurance Premiums Increase
The government announced in today's Budget that it would be increasing the EQC rate insured homeowners pay from 15c per $100 of cover capped at $207 a year to 20c per $100 to a maximum of $276 per year.
The increase could result in people paying up to $69 more per year on their insurance. This comes at a time when the government was already planning a 40 per cent increase in the fire service levy.
The fire service levy increase comes in from July 1 while the EQC levy increase will come in on November 1.
For more info please see this article
Is selling your home taxable?, Or in other words, do you have to pay tax when selling your home?
Buying and selling your private or family home typically is not taxable. However some are looking to purchase a family home with the intention of reselling it in time, and a few earn their income this way – buying and selling.
If you have established a pattern of purchasing and then selling your “family home,” this could be considered as property speculation or dealing for tax purposes.
So, how do you know whether you are considered a property speculator, dealer or investor? Click here for the IRD definition
Things to consider in answering the above question:
How do you know if selling your home will be taxable? Think carefully about the answers to these five questions.
“Ok, so I just have to hold onto a property for a really long time and then I’m not considered a dealer?” No. The amount of time you hold the property is immaterial. It’s your intention at the time of acquisition.If you bought a property with the intention of reselling it, then any capital gain that you make on the sale taxable.
“Right-o. So, is there some sort of level? That is, my first couple of properties are tax-free and then I pay tax after that?” Ahhh… no. Again, it’s intention, patterns and associations – not numbers of properties sold.
“Great. It looks like I will have to pay tax then. How do I figure that out?” The IRD have a great resource here – or you can contact us.
* For a definition/more info please see this article at the IRD Tax Policy website
As a result of changes imposed by Google, we will soon be acquiring an SSL certificate for our website. The host, weebly.com, is rolling this out to all sites. Meantime, if you wish to check our credentials, you can do so here.
For more information, please contact us
How to View Documents
You will be sent an email with a link. Click on the link to view the document. This will open in a web browser on your device. To view the document, click on it.
How to Approve Documents
Click on the email link once again, scroll to the bottom of the page and click on the green approve button if you are happy with the contents.
From the 2018 income year (that is, 1 April 2017 onwards), the safe harbour threshold has been increased! Hooray, I hear you say. It's gone from $50,000 to $60,000. It has also been extended to non-individual taxpayers e.g. companies.
What does this mean? Use of Money Interest (UOMI) will only be payable from terminal tax date* for natural persons and non-individuals where their residual income tax liability is less than $60,000 and the following requirements have been met:
The taxpayer must have:
There are a couple of other points: The requirement that they must not have held an RWT exemption certificate at any time during the year has been removed. Oh, and there is an anti-avoidance rule as well, so that you can't manipulate your incomes to fall within the safe harbour provisions.
See this article for the 2020 changes to provisional tax
* Terminal tax date is either 7th February if you do not have an accountant or tax agent OR 7th April if you have an accountant or tax agent who has an extension of time on your behalf.... more info
# Standard method is last years residual income tax + 5%, OR your residual income from two years ago + 10% (only if you haven't filed last year's return yet)... more info
Accounting for your rental residential investment property; specialised property tax advice. Buy me a coffee!