IRD eyeing cryptoassets: Tax implications for investors
Come clean or expect Inland Revenue (IRD) to come calling.
For investors who are unaware of their tax obligations, this is the situation they face in the wake of the New Zealand tax department exercising its powers under the Tax Administration Act 1994 to request customer information from companies dealing with cryptoassets.
This appears to be part of a OECD initiative. The intergovernmental economic organisation recently released a comprehensive overview of the current tax treatment and tax policy gaps across the main taxes applicable to cryptoassets. This report looks at more than 50 jurisdictions, including all G20 and OECD nations.
IRD says it wants to help people get things right from the start.
It will not be surprising if investors receive a letter reminding them of their obligations and encouraging them to fess up if they have failed to disclose any income made from cryptoassets.
And investors would be wise to take heed of this correspondence.
After all, the information requested from cryptoasset companies includes customer blockchain wallet addresses and transactions until 31 March 2020.
It’s this type of data that may enable IRD to find other cryptoasset exchanges someone uses – even if those exchanges are based overseas – and compare the profile of cryptoasset investors against the position taken in their tax returns to see if there are any anomalies.
Don’t underestimate the department either. Its investigation staff are very effective at using this type of information to connect the dots. Just look at their work in the ‘Hidden Economy’.
What will be fascinating to see is just how much tax IRD is able to recover.
It has the potential to be quite a significant sum as the tax implications of cryptoassets do not appear to be widely understood by investors.
Tax treatment of cryptoassets
IRD treats cryptoassets as property for the purposes of tax, so normal income tax rules apply.
Its default view is that most people acquire cryptoassets with the intention of selling them. That’s because cryptoassets don’t pay interest and it’s only upon disposal that someone will realise a return on their investment.
This is very similar to its position on gold.
As such, in most cases, the profit an investor makes from disposing or exchanging cryptoassets is taxable.
To determine if tax is payable, IRD will look at the main purpose for acquiring cryptoassets at the time of acquisition.
Unless a person can provide clear and compelling evidence that shows they did not acquire cryptoassets with the intention of selling them, they must pay tax.
It does not matter how long someone plans to hold on to cryptoassets for before selling or exchanging them. A person’s main purpose can still be to sell or exchange them, even if it takes a several years for them to do so.
Cryptoasset income must be included as ‘other income’, business income or self-employed income in tax returns.
People must also keep accurate and complete cryptoasset records. They must hold these for at least seven years.
You can find more information on IRD’s website. It recently issued updated guidance on the tax treatment of cryptoassets.
This is a useful starting point and explains how it sees the rules applying for individuals and businesses. They even provide a few examples, too.
We strongly recommend you cast your eyes across this.
What to do now?
Investors would be wise to weigh up their next move now that IRD is looking further into cryptoassets.
The first thing to do is to speak to an accountant if you are unsure of your tax obligations. After all, this is a complex area and specialist advice should be sought.
In the event someone discovers they do have tax to pay on the profit they made from selling, trading, exchanging, mining or staking cryptoassets, they should consider making a voluntary disclosure.
The consequence of not disclosing taxable income can be brutal, with IRD charging shortfall penalties of up to 150 percent of the tax liability and usurious interest. The latter is currently seven percent, although has been much higher.
However, the truth shall set you free.
Making a voluntary disclosure can see shortfall penalties eliminated. Even if IRD has notified someone of an impending audit, there is still a possibility of a 40 percent reduction in shortfall penalties if someone comes clean before the investigation commences.
Reduce the interest cost with tax pooling
An IRD-approved tax pooling provider such as Tax Management NZ (TMNZ) can be used to reduce the interest cost significantly, if someone owes additional income tax due to failing to disclose the profit they made from their cryptoassets.
TMNZ lets someone apply tax that was paid to IRD on the original due date(s) against their liability.
As such, IRD treats it as if they paid on time once it processes this tax pooling transaction. This eliminates any late payment penalties. Please note the legislation prohibits tax pooling from assisting with shortfall penalties.
For the current tax year (2021) or one just completed (2020), someone has up to 75 days past their terminal tax date for that tax year to pay the additional income tax they owe via TMNZ.
In the event a person receives a notice of reassessment from IRD due to an audit or voluntary disclosure, they can use TMNZ to reduce the interest cost on the difference between the original assessment amount and the reassessment amount.
We can assist with provisional and terminal tax, and other tax types such as GST, PAYE and FBT when there’s a reassessment.
Someone has up to 60 days from the date IRD issues the reassessment notice to pay the tax they owe via TMNZ.
Please contact us if you have any questions about tax pooling. We’re happy to help.
Three tax pooling solutions for businesses impacted by COVID-19
IRD has announced a suite of tax relief measures during COVID-19 to help struggling businesses.
However, a tax pooling provider such as Tax Management NZ (TMNZ) offers some solutions of its own for those wishing to manage cashflow, facing uncertainty about their profitability or needing access to funds during this difficult economic time:
- Provisional tax payment deferral.
- Reducing exposure to interest if someone miscalculates their income tax.
- Using tax pool deposits as a line of credit.
Below we explain how these three tax pooling solutions work. We also compare them to IRD’s equivalent offering at this time.
1. Provisional tax payment deferral
Alternative to
IRD’s remission of interest if someone is unable to pay their tax on time.
Suitable for
Businesses who cannot pay on the prescribed instalment date due to cashflow constraints.
Drawback of IRD’s offering
At first glance, this looks pretty good. Even more so given IRD has the power to remit interest all the way up to 25 March 2022.
However, dig deeper and you will see its ability to wipe interest if a taxpayer fails to make a tax payment due after 14 February 2020 on time because of COVID-19 is discretionary.
That’s important to note.
Whenever discretion is in the mix, inconsistencies can arise and we have seen a number of these already.
There are also a few hoops to go through in terms of:
- Requesting the relief as soon as possible.
- Proving eligibility.
- Providing accounting and financial information to support a claim.
- Maintaining the agreed payment plan set by IRD to ensure there is no default. Remember, this is not a tax holiday. There is an obligation for someone to pay what they owe as soon as practicable.
TMNZ’s solution
For those wanting certainty of outcome or less hassle, tax pooling is a better option.
Indeed, someone wanting to manage their provisional tax payments in a way that better aligns with their cashflow requirements can defer an upcoming payment to a date in the future with TMNZ, without having to worry about late payment penalties.
For a taxpayer with a 31 March year-end, they would have up to 22 months from the date of the first instalment (28 August 2020) of the 2020-21 income year to settle their provisional tax.
That means payment would not need to be made until mid-June 2022.
Acceptance is guaranteed with tax pooling. No security or additional information is required.
There are a couple of ways to pay with TMNZ.
Someone can pay a fixed interest fee upfront and then the core tax at an agreed future date or make a one-off payment of interest and core tax when they figure out their liability.
They also have the option of paying what they owe in instalments.
TMNZ’s interest is much cheaper than the seven percent IRD otherwise charges if someone does not make a payment on time.
This cost may be negligible given a tax pooling arrangement is easier to set up, offers more payment flexibility and gives someone peace of mind at an uncertain time.
2. Reducing exposure to interest if someone miscalculates their income tax
Alternative to
IRD’s remission of interest on underpaid provisional tax for the 2020-21 income year for those using the standard uplift or estimation methods who are impacted by COVID-19.
Suitable for
Businesses who are uncertain how their year will play out due to the global pandemic.
Drawbacks of IRD’s offering
IRD’s recently announced relief is only for smaller- and medium-sized businesses with a liability of less than $1 million who can demonstrate their ability to forecast what they owe for the year at one or more provisional tax dates was “significantly adversely affected” by COVID-19.
In other words, any underpayment needs to be due to a change in circumstance that is totally out of their control (i.e. the border reopening), not human error. Those who have tools to forecast what they owe – as well as those who make no effort to forecast – are unlikely to qualify for the remission.
Someone not impacted by COVID-19 is expected to pay on time and in full.
The other thing to note is IRD will decide who qualifies for relief on a case-by-case basis after a taxpayer files their return for the 2020-21 income year.
Again, this is a discretionary power.
That poses a significant risk if someone is touch and go as to whether they meet the criteria for assistance. After all, if IRD declines their application, they will be up for IRD interest from the date of their first instalment for the 2020-21 income year.
TMNZ’s solution
A taxpayer facing uncertainty over their profitability for the upcoming year who does not want to pay provisional tax based on an uplift calculation from a pre-COVID-19 time has another option if they are unlikely to qualify for this remission.
They can make their provisional tax payments based on how their year is unfolding – and then use TMNZ to wipe late payment penalties and reduce the interest cost they face if they end up underpaying their tax.
We offer significant savings on IRD interest.
TMNZ let’s a taxpayer apply provisional tax that was originally paid to the tax department on the date(s) it was originally due against their liability.
As such, IRD treats it as if they paid on time once it processes this their tax pooling transaction. This eliminates any late payment penalties.
A taxpayer has up to 75 days from their terminal tax date for the 2020-21 income year to pay any underpaid provisional tax with TMNZ.
3. Using tax pool deposits as a line of credit
Alternative to
IRD’s temporary tax loss carry-back scheme.
Suitable for
Taxpayers who hold deposited funds in TMNZ tax pool in urgent need of cash.
Drawbacks of IRD’s offering
Under the temporary tax loss carry-back scheme, a taxpayer who expect to make a loss in either the 2019-2020 or 2020-2021 income year will be able to estimate that loss and use all (or a portion of it) to offset any profit made in the previous year.
This allows those who need cash urgently to receive a refund of any income tax paid in the previous year.
However, some taxpayers are nervous about using the regime as they are uncertain how the 2020-21 income year will play out.
There are consequences if they overestimate the loss they are carrying back and this results in tax payable in the previous profit year.
In a nutshell, someone will incur IRD interest all the way back to the first instalment date of the profit year.
This is because they have to file an estimate with IRD in order to use the scheme. That subsequently takes them out of the interest concession rules that apply for standard uplift taxpayers.
TMNZ’s solution
Tax pooling allows someone short on cash to temporarily withdraw deposits they hold in the pool.
A taxpayer receives from TMNZ an amount equal to their deposited funds (minus an upfront interest cost), while having the option to restore those deposits at their original deposit date(s) when their cashflow situation improves.
Unlike the temporary tax loss carry-back scheme, there is no need to be in a loss position to access funds.
The ability to stay within the standard uplift interest concession rules also remains intact as there is no requirement to file an estimate with IRD.
Someone needs to give consideration to their imputation credit account balance before withdrawing any tax pool deposits.
It’s also important to note that funds taken out of the pool switch from own to purchased funds.
That means to reinstate the deposit(s) at their original dates, a taxpayer must have paid back and transferred the core tax from the tax pool to their account at IRD within 75 days of their terminal tax date for that tax year.
About TMNZ
TMNZ operates with the blessing of IRD and under legislation set out in the Income Tax Act 2007 and Tax Administration Act 1994.
Not only are we New Zealand’s first and oldest tax pooling provider, it was our company founder, Ian Kuperus, who came up with the concept and worked with officials to set up a framework.
TMNZ has been creating a better tax environment for businesses since 2003.
For more information about tax pooling, please feel free to contact us.
Anti-money laundering requirements and tax pooling
Updated 12 October 2020
Tax Management NZ (TMNZ) must now conduct a limited form of customer due diligence on all clients as part of recent changes to anti-money laundering (AML) requirements.
As such, we will be collecting information about the taxpayers using our service and asking anyone acting on their behalf to supply some basic personal details.
We also need to see evidence that a taxpayer has an actual or expected liability at Inland Revenue (IR) before we transfer tax from our tax pool.
Transactions cannot be completed until we receive this information from you.
Information we require from a taxpayer
For a company, limited AML requires us to collect and hold information about them that is publicly available. We will obtain this information ourselves from the New Zealand Companies Office. You don’t have to do this.
For an individual or a trust, we only need information from a person acting on their behalf (see below).
What person acting on behalf means
As part of the limited AML requirement, TMNZ must collect the identity information from at least one individual who has the authority to act on behalf of a taxpayer using our service.
For tax agents, this can be either of the following:
- A partner, director or owner of your firm; or
- An agent at your firm who is linked to the taxpayer (e.g. the taxpayer’s accountant). It can also include the person who entered the transaction for the taxpayer or the person who receives email correspondence regarding the taxpayer’s transaction if this person is different from the accountant.
For a taxpayer, this can be ANY of the following:
- The taxpayer themselves, if they are an individual.
- An employee who has authority to act on behalf of the taxpayer (if they are a company).
- A trustee of the taxpayer (if they are a trust). We require a copy of the trust deed to ensure this person has authority to act.
The person above requires a TMNZ dashboard login and must either have visibility to view all taxpayers registered with your accounting firm or be linked to the specific taxpayer or transaction. This is not applicable if the taxpayer is an individual or the person acting on behalf is a trustee.
You have the option of supplying the tax agent or taxpayer identity information as part of limited AML.
Identity information we require from a person acting on behalf
TMNZ must collect the following identity information as part of the limited AML requirement if you are a person acting on behalf of the taxpayer:
- Your full legal name.
- Date of birth.
The above is required under section 15 Anti-Money Laundering and Countering Financing of Terrorism Act 2009.
Any personal information TMNZ holds about you or your clients is stored on a secure system that has been penetration tested to ensure this data will not be compromised.
Confirmation of tax liability
The limited AML requirement means TMNZ must also ascertain that a taxpayer using our service has a liability or expects to have a liability with IR before we can complete their transaction.
Proof of this can be in the form of:
- Written confirmation from a tax agent that the taxpayer is expecting to have a liability at IR. (This can be an approximation if the exact figure is not known at the time.)
- A copy of the taxpayer’s myIR transaction detail report for the relevant tax year.
- Standard uplift amounts determined from prior year RIT information. Prior year RIT information must be determined from copies of IR correspondence or written confirmation from a tax agent.
- A copy of any provisional tax estimate submitted to IR by the taxpayer.
- Any correspondence from IR showing a liability to pay in respect to the relevant tax year.
We only require confirmation of a taxpayer’s liability when we transfer funds from the tax pool to their IR account.
Does the information provided need to be verified?
A partial exemption granted to the tax pooling industry means there is no need for TMNZ to carry out the verification requirements that apply under full AML.
In other words, we DO NOT need you to provide copies of documents to substantiate the information you provide.
Full AML, including verification, is still required for refunds or sales that meet our policy thresholds.
AML has been around for a long time – why are you asking for this information now?
Previously, TMNZ only carried out AML if a taxpayer was requesting a refund or sale over a certain amount from the tax pool.
However, our AML regulator – the Department of Internal Affairs (DIA) – is making tax pooling providers hold more information about every taxpayer using our service and anyone with authority to act on their behalf.
This limited AML requirement from DIA is in response to the accounting profession being brought into the AML regime. It has been in effect since 1 July 2020.
As a reporting entity captured under the Act, TMNZ must comply with the AML regulations set out in the legislation and any other requirements issued by DIA.
Please feel free to contact us if you have any questions. We’re happy to help.
Disclaimer: This article is correct as at 12 October 2020. It is subject to change.
TMNZ virtual roadshow: Tony Alexander talks post-COVID-19 economic recovery
The increase in New Zealand’s net debt to GDP ratio over the next four years is not the bogeyman some are making it out to be, nor will the Government necessarily have to increase taxes to pay off what they are borrowing.
That’s according to one of New Zealand’s leading and respected economists, Tony Alexander, who last week discussed a range of topics relating to the current and post-COVID-19 economic landscape as part of TMNZ’s first virtual roadshow for the year.
The net debt to GDP ratio increase
The Budget shows New Zealand’s net debt to GDP ratio is forecast rise to 30.2 percent this year and peak at 53.6 percent in 2023.
This is up from 19 percent last year.
Unsurprisingly, this has led to concern in some quarters.
However, Alexander (pictured left) says it’s important to remember there is no permanent increase in the size of the Government’s spending as a proportion of the New Zealand economy.
“Some people may be looking at this as the Government spending a lot more. Yes, in the short term they are, but in about five years’ time the ratio of the Government’s spending to the size of our economy will pretty much be back to where it was [during the] last fiscal year.
“That gives me assurance that Grant Robertson does want to continue along the lines of finance ministers in New Zealand since the early 1990s of trying his best as possible to get good control over the quantity, and hopefully quality, of Government spending going forward.”
Alexander says that credit rating agency Standard & Poor’s believes New Zealand’s economic outlook is better than The Treasury is forecasting.
They are showing no signs of issuing a potential downgrade in the wake of the Budget, he says.
A peak net debt to GDP ratio of 53.6 percent is still lower than where other economies are at currently. Some are sitting as high as 110 percent.
“Even after all this, we’re still going to be in a very good position,” says Alexander.
Tax hikes not the only way to pay down debt
In terms of how the Government will go about reducing its level of debt, there is talk they may have to introduce new or increase existing taxes.
That's because its tax revenue is forecast to drop.
The Treasury expects tax revenues to fall from $86.5 billion for the year to June 2019 to $80.1 billion dollars for the year to June 2021. Over the period to June 2024, it expects tax revenue to be more than $15 billion lower net of the effect of the reduced GDP over the period.
However, Alexander believes it is possible for the Government to reduce its debt without tinkering with the tax system.
He bases this claim on past experiences.
For instance, Alexander cites successive National- and Labour-led administrations managing to decrease New Zealand’s net debt to GDP ratio from 55 percent in 1992 to just six percent in 2008 through controlled, responsible spending.
“New Zealand has an established record of good fiscal control under both Labour and National governments,” he says.
“My expectation is we will see the net debt to GDP ratio in New Zealand decreasing over an extended period, that it’ll be a gradual process and it will be able to be achieved with spending restraint, rather than whacking GST up to 20 percent or introducing a new 46 percent top marginal tax rate or that sort of thing.”
Increasing taxes in the future would also be counter-intuitive to the Government’s goal of trying to get people to spend money now, when confidence is low.
“If they did [raise tax], we would spend less in anticipation of higher taxes down the track.”
Hear more from Tony Alexander
The affable Alexander spoke at length about several different topics during his informative, wide-ranging session with TMNZ.
These include:
- His thoughts on the Government’s Budget and The Treasury’s economic forecast.
- How the New Zealand dollar will fare in the next 12 to 18 months.
- Why the party is over for tourism and what the collapse of that industry might mean for regional New Zealand.
- When he feels banks will resume lending again.
- Why quantitative easing does not cause hyperinflation, but may push up asset market prices.
- The chances of the Reserve Bank of New Zealand resorting to a negative official cash rate.
- The outlook for the property market.
Trust us, this is one hour worth your time.
You can watch Alexander’s full webcast here.
Next virtual roadshow – register now
Richard Owen from IRD will be joining us as part of our next TMNZ virtual roadshow on Wednesday 17 June.
Owen is the small and medium enterprises customer segment lead at the department. He will cover tax policy on COVID-19 and the impact for IRD, tax agents and taxpayers.
If you have questions about the remission of UOMI, the carrying back of tax losses or the Small Business Cashflow Loan Scheme, then you won't want to miss this.
You can register here. Get in quick because spaces are going fast.
Coffee with Tsarina at Shore Accounting Solutions
Tax pooling is part of the strategy Shore Accounting Solutions employs to assist businesses with managing cashflow and provisional tax payments.
Tsarina Dellow (pictured above) is a chartered accountant at the two-person firm in Amberley, 45 minutes north of Christchurch.
She says paying provisional tax on dates IRD prescribes can be hard on small- and medium-sized businesses’ cashflow. That’s particularly the case during the January to May period, when the department awaits payment of two provisional tax instalments (not to mention GST).
Xero’s Small Business Insights reveal January and May are two of the most difficult months in terms of cashflow. August is another. (See a pattern here?)
Tsarina says business owners can come unstuck in this period – particularly if they’re guilty of not squirreling cash away throughout the year.
“Kiwis are often quite bad at saving. They’re not very good at putting money away in the good times, so when they have a bit of a bump – maybe a customer pays late or a supplier puts their costs up – they don’t often have that buffer there. When you don’t have that buffer, things start to go downhill and it gets really stressful for people really, really fast.”
Enter Tax Management NZ
As an IRD-approved tax pooling provider, Tax Management NZ (TMNZ) allows businesses to make their provisional tax payments when it suits them.
There is no need to worry about late payment penalties. And the interest it charges is fairer than the 8.35 percent IRD slaps someone with when they miss a payment.
Tsarina mentions this service to clients when discussing tax planning and cashflow management if she notices they’re going to encounter any difficulty at certain times of the year.
“If [TMNZ] can help them out with that, we can set a programme in place to even things out during the year,” she says.
“It delivers excellent benefits for people’s cashflow. They’re able to pay their tax as and when it suits them and their business – and they don’t have to worry about the IRD always chasing them up. If they can’t meet a provisional tax payment, they can hand it over to TMNZ and pay it when they can.”
About Shore Accounting Solutions
Tsarina has been working at Shore Accounting Solutions for four years. Her colleague Ben Shore founded the firm in 2012.
The duo is big on providing great, technical tax advice and helping North Canterbury businesses and the community grow.
You can watch our full interview with Tsarina below.
COVID-19 update: Devil in the detail with UOMI remission
Update as at 14 April 2020 after IRD clarified its position following the publication of this article
Someone who is struggling to pay tax on time due to COVID-19 will have to engage with IRD and agree to the terms of a payment plan if they want to receive a remission of interest (UOMI).
Given that, they might find setting up a Flexitax® arrangement with TMNZ much easier.
But more on that later.
The criteria for UOMI remission
First, IRD has issued general guidance on the requirements taxpayers must meet in order to be eligible for a remission of UOMI on tax obligations due after 14 February 2020.
To qualify, someone must satisfy the department that they are:
- Physically unable to make their payment when it’s due because of COVID-19; or
- Struggling financially to pay on time because of the economic impact caused by the outbreak of the deadly virus.
IRD also requires taxpayers seeking relief to both contact them and pay the tax they owe “as soon as practicable”.
Now on the surface that doesn’t sound too onerous. However, this is the taxman we’re talking about and the devil always lurks in the detail.
And, when you delve a little deeper, it appears that they’re asking a lot from anyone seeking assistance due to COVID-19.
What does ‘struggling financially’ mean?
IRD says there must be a reduction in someone’s income or revenue as a result of COVID-19 which prevents them from paying their tax on time and in full.
The extent to which there needs to be a reduction in income or revenue is not explicitly set out.
IRD will look at GST and other tax return information to help it get a picture of someone’s financial affairs when determining the extent of the relief it will grant them. That’s why it’s important to keep filing these returns.
They may want to know how a taxpayer plans to sustain their business if they own one.
IRD indicates that they may ask a taxpayer to provide the following information when applying for a remission of UOMI:
- Bank and credit card statements for at least the last three months.
- Any management accounting information.
- A list of aged creditors and debtors.
We understand this will be for more serious cases where someone is asking for IRD to write off the tax payable in addition to UOMI.
And, although they do not mention this specifically, their guidance document implies someone will also need to have reviewed other financing options before going cap in hand to IRD. The two examples they give are not helpful as they involve taxpayers who either cannot get an extension of their business overdraft or have maxed out their personal loans or credit cards.
If the department deems the taxpayer has the means to pay on time following a review of their financial affairs, it will expect that person to do just that –and will take appropriate action if they don’t.
What does ‘as soon as practicable’ mean?
IRD says it will determine this on the facts of each case.
As a general guideline, they say someone will satisfy this requirement if they both apply for relief and agree to pay the tax at the earliest opportunity (or over the most reasonable period given their specific circumstances).
We take this to mean that taxpayers seeking a remission of UOMI must:
- Be proactive and apply for this relief as soon as possible. If you have missed a payment, you can still contact IRD and ask for remission.
- Agree to pay the tax they owe as quickly as possible – most likely at a date or within a timeframe set by IRD based off the financial and tax return information it receives from the applicant. In other words, this WILL NOT be a two-year holiday or deferral from paying tax.
- Contact IRD as soon as possible if they encounter further difficulty and need to re-negotiate the terms of the agreement.
- Honour the agreement with IRD by paying the tax they owe.
If someone ticks those boxes, we believe IRD will consider them to have met the ‘as soon as practicable’ requirement.
How will the UOMI remission work?
Taxpayers seeking a remission of UOMI will agree to enter a payment plan with IRD.
This will likely be a regular instalment arrangement, but may also include:
- An instalment arrangement with a deferred payment start date.
- A partial write-off due to serious hardship and payment of the remaining tax by instalment or a lump sum.
- A partial payment and balance write-off under maximising recovery of outstanding tax.
Again, the type of payment plan entered – and any instalment amounts payable – will likely to be determined by IRD based on someone’s financial and tax return information.
In serious cases of hardship, IRD says it may agree to write off the debt.
UOMI and late payment penalties will continue to accrue for those who enter a payment arrangement.
However, once a taxpayer pays the tax they owe and IRD deems they meet the criteria for remission, it will automatically cancel UOMI.
IRD will also wipe late payment penalties.
Those who do not pay the outstanding tax will face UOMI from the date they stop complying with their arrangement.
IRD’s ability to remit UOMI due to COVID-19 under s183ABAB Tax Administration Act 1994 will apply until 25 March 2022.
Why paying with TMNZ might be easier
The requirements a taxpayer must meet to receive a remission of UOMI from IRD may prove to be one hurdle too many during what is already a difficult time due to the COVID-19.
They may find it easier to set up a Flexitax® payment arrangement with TMNZ if they’re unable to pay their 7 May 2020 provisional tax on time – or missed paying terminal for the 2019 tax year on 7 April 2020.
The reasons why are simple:
- It’s light touch in terms of organising the arrangement – approval is guaranteed, and no security or financial information is required.
- Taxpayers have the flexibility to pay as and when it suits their cashflow.
- No need to worry about late payment penalties.
- Competitive interest cost in comparison to most other forms of credit or finance. We’re the next best option for those who are ineligible (or don’t want to go through the process of applying to IRD) for a remission of UOMI.
- The arrangement doesn’t impact other lending arrangements.
- More time to pay – an extra 75 days to settle the 2019 terminal tax and up to 13 months to pay provisional tax for the 2020 tax year.
- You only pay for the tax you end up requiring.
- We’re approved by IRD.
Please get in touch with us today if you wish to know more about Flexitax®.
Five great accounting tips for small and medium businesses
Getting the right small business accounting advice is vital for the success and growth of your small business. Here are five essential tips to help organise accounting for your small business.
Keep a record of tax deadlines
Knowing when business taxes are due throughout the financial year is crucial for the health of your small business. If you miss an important deadline, you could receive a costly penalty. In New Zealand, staying on top of GST returns and paying provisional tax on time is especially important.
The IRD has resources available to remind you of these important dates. You can also check the TMNZ Tax Dates Calendar to see your terminal tax and provisional tax dates. It is important to be proactive about tracking these yearly deadlines to meet your ongoing tax obligations.
Be diligent and stay on top of invoicing
A common challenge when accounting for small businesses is keeping track of invoices. Courteous clients will provide quick payment for your services rendered. Unfortunately, fair and steady returns are not always reality, which affects the cash flow of your business.
Be polite but assertive when invoicing. Send invoices as soon as possible after a job is complete. Be clear in your expectations regarding how clients can provide payment, and by which date. Arrange standard follow-up procedures if you do not hear back or do not receive payment after a certain period.
Always remember that you and your employees work hard to provide quality goods and impeccable services to your clients. You have every right to expect clients to respect that effort by meeting their payment obligations as quickly as possible.
Make the most of automated accounting software
Automated accounting software can be a lifesaver for small businesses. Accounting software covers many of the fundamentals of running a small business. This software helps keep track of expenses and automatically generates forms and reports about your business. This lightens the load of your day-to-day accounting practices.
Tax Management NZ is integrated with accounting software such as Tax Lab and APS to make it that much easier and convenient to use tax pooling if a payment has been missed. To get the most out of accounting software, we would recommend a chartered accountant look over the specifics of your business for any gaps that may have inadvertently be over-looked.
Know your limits and hire a professional when necessary
Just because you have a great idea for a business, doesn’t necessarily mean you have the skills and knowledge to do small business accounting. Many small to medium business owners try to tackle bookkeeping on their own to save costs. But in the end, making errors or filing expenses incorrectly could prove costlier than hiring a professional.
Maintain a relationship with a chartered accountant who can help keep your books tidy. A reliable accountant can help you arrange tax pooling for your business. Tax pooling provides you with more control and flexibility to manage tax payments and can save your business money from late payment penalties and use of money interest.
You may only need your accountant’s services several times a year. However, having a professional on hand for accounting advice gives you precious peace of mind that your accounting is in order.
Don’t get caught out by unexpected costs
The longer your business is in operation, the more likely you are to face a large, unexpected cost. For example, you may find yourself needing to repair or upgrade your business’ equipment. This is costly, but unavoidable for your business to operate.
An unexpected cost could even come in the form of an opportunity to grow your business, such as a market gap that you could fill perfectly. Taking advantage of such opportunities requires up-front investment.
In either case, expect the unexpected and put money aside to cover unforeseen operational costs. This is sound advice for any small business. Doing so will save you the headache of scrambling to cover a significant bill or missing out on the chance to grow your business.
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Tax Policy Scholarship Competition finalists
A negative income tax coupled with a flat tax rate for individuals and the creation of a trusted taxpayer regime.
These are among the ideas judges will hear as part of the Tax Policy Scholarship Competition.
A tax on biogenic methane emissions and freshwater as well as reforming the R&D tax credit regime are the others options on the table.
Spark’s Nigel Jemson, and the Deloitte duo of John Lohrentz and Shay Webster are this year’s finalists.
They are vying to win $10,000 prize money.
The three finalists’ proposals are an interesting mix of environmental, social assistance and behavioural messages, says Tax Policy Scholarship Competition judge and Tax Policy Charitable Trust chair John Shewan.
The ideas of the quartet
Jemson is pushing for the creation of a trusted taxpayer regime.
This will see businesses receive a 10 percent discounted tax rate by opting to regularly report financial information to IRD.
Anyone part of the scheme for three years or more will also have their annual tax return requirement removed.
A small business would be eligible for the scheme if they are using the accounting income method to pay provisional tax and operating a “predominantly cash-free” business.
As for Webster, he favours using tax to create a broad, universal welfare system to tackle inequality, reduce the cost of welfare and stimulate the economy.
He proposes doing this by implementing a negative income tax combined with a flat rate of 33 percent for individuals.
Under this, those earning less than $31,500 will receive a tax credit or a weekly or fortnightly cash payment from the Government.
Meanwhile, Lohrentz supports a progressive tax on biogenic methane emissions in the agriculture sector.
Revenue from the tax would go back into agricultural. That would be in the form of:
- A fund to grant money to those changing land use, planting trees, retraining or implementing more efficient practices and technology.
- An R&D tax credit exclusively for climate change-orientated R&D in the agriculture sector.
Not only that, but he also promotes a 40 percent R&D tax credit. This would be for taxpayers undertaking a core R&D activity that fosters ‘natural capital’ in New Zealand’s agriculture sector.
The next stage of the Tax Policy Scholarship Competition
The finalist will present to the judges in Wellington in November.
Shewan says their proposals have the potential to make a difference to New Zealand society.
Still, the judges will be considering other factors when making their final assessment. That’s because these ideas may also place additional pressure on the tax system or have unintentional consequences.
“The judging panel will be looking closely at issues such as complexity, economic impact, the potential for distortions and technical feasibility in judging the final submissions,” says Shewan.
As well as Shewan, the other judges on the panel are former Reserve Bank of New Zealand governor Alan Bollard, tax barrister David McLay, former Bell Gully tax partner Joanne Hodge and former IRD deputy commissioner Robin Oliver.
While the winner will collect $10,000, the runner-up will receive $4000 and the other finalist $1000.
Tax Policy Scholarship Competition background
Every two years, the Tax Policy Charitable Trust invites young tax professionals with an interest in tax policy to make a submission.
Submissions for the Tax Policy Scholarship Competition must outline a significant reform to the New Zealand tax system.
It is open to those under the age of 35 working (or eligible to work) in New Zealand. Those in the public and private sector or academia can enter.
There were 14 entries this year.
“Several submissions focused on the use of tax to achieve social and environmental outcomes, and to incentivise taxpayers to behave in particular ways,” says Shewan.
This is the third Tax Policy Scholarship Competition.
Previous winners include Matt Woolley and Talia Smart (both 2017) and Caleb McConnell (2015).
About the Tax Policy Charitable Trust
Tax Management NZ founder Ian Kuperus is responsible for creating the Tax Policy Charitable Trust.
His aim is to support the continuation of leading tax policy research and thinking and inspire future tax policy leaders.
In addition to the Tax Policy Scholarship Competition, the trust also sponsors the visit of a leading tax expert to New Zealand.
This is to ensure New Zealand benefits from the best tax thinking from overseas.
Last year, it held an event with the Tax Working Group members after the release of their draft report.
TMNZ and Xero team up to educate clients
Xero and TMNZ partnered up earlier this month for Xero's Education month. Kathleen Payne, TMNZ's Strategic Partnerships Manager, ran the webinar educating people on the benefits of tax pooling as well as a practical demonstration of applying TMNZ provisional tax arrangements within the Xero platform.