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July Tip-Bits

July 2010                                                                                                              Volume 1, Number 1

·    GST Increase

·    Property Structure

·    PAYE Changes

·    Enforcement by Ir

·    Extend your reach

- Tax Dates.

- Tax Facts

-IRD Website

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Regular Reporting.

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GST Increase

Property Structure

PAYE Changes

Enforcement by Ir

Extend Your Reach

GST Increase to 15%

The GST increase to 15% from 1 October will mean changes for every consumer and every business.  There are less than four months to account for the changes are you and your accounting systems ready   Click here for more info.

Work in Progress as at 30 September

In our business as with many businesses, we work on clients work every day.  We do not charge our clients every day and so over the year most of annual and regular clients have a small work in progress balance in our books. 
We have realised this work will all have to be billed as at 30 September, because the correct rate of GST on this work is 12.5%.  The rate of GST is determined by the Time of Supply.
From 1 October all work we do on your behalf will be billed with the new rate of GST.
By billing our work in progress correctly this means we can do an adjustment entry on our debtors and creditors balances in the Oct/Nov GST return – where like most of our clients we are on the payments basis.
The adjustment entry in Oct Return would be to include all payments received during this time at 15% and then take off the 2.5% related to debtors that had paid.

Example of Calculation for Sales

If I had income for the Oct/Nov period of $25000 including GST and $10,000 of these sales were for income prior to Sept 30 the entries would look like this:

Sales including GST at 15%		25000
Divide by New GST Rate		7.666
Net GST on Sales		3261.15
Less GST on sales at old rate
$10000 divided by 7.666	1304.46
$10000 divided by 9%	1111.11
		193.35
GST Payable		3067.80

Debtors and Creditors as at 30 September

The important thing will be though you do keep very accurate records of debtors and creditors at the end of September and you do bill out all work in progress as at this time.

Increase Prices

Retail customers will have to decide whether or not to increase prices for without a doubt this cost will need to be passed on at some time to the customers or margins will be effected.  Stock sold after 30 September will be sold with the additional GST amount whether or not you purchased it at the old rate of GST or not.
How much do you increase your price by? 
Your increase in price can be more or less than 2.5% depending upon demand and price sensitivity but if you had a good valued at $99.50 before the GST increase than you may increase the price to $102.00 or $105.00 or $109.50.  The test is what consumers will expect and will pay for your goods.

Help is here

Many clients may need help with these adjustments and some may need to get new software installed to cope with the two rate systems.  We are happy to help you by either doing the return for you or advice by phone. 
Please do not leave it to the last day which will be in January for most of you for the GST return for Oct/Nov is due to be paid 15 January and this is the holiday month so please ask for help early if you need it.

Is your Structure ok under the new rules?

Property investors will need to look to their accountant for investment structure advice as Budget changes are implemented according to a survey by Landlords.co.nz.   Click here for more information.
Finance Minister Bill English unveiled in his Budget last month that property investors are losing the ability to claim depreciation costs against their rental income and the government is also closing the loophole on loss attributing qualifying companies (LAQCs), by aligning the tax rates between the structures' deductions and profits.
Landlords.co.nz publisher Philip Macalister says depreciation probably featured highly for investors as they could easily calculate what the changes mean in dollar terms.
Nearly half of the respondents in the survey held their properties in LAQCs.
Macalister says it is important for investors to understand the changes and make the necessary adjustments before the rules change next year.  We agree with  this and ask that you do arrange for a structural review with one of our accountants before March next year.  The best time is just after you have completed this year’s tax return.

PAYE Changes are ahead

To move to a fully automated system, and to  simplified processing the IRD wants to work with software providers to build integrated systems which will send the required information directly from the employer's system to IRD, without the need for manual input or processing, either by the employer or the IRD.

The first area to be targeted will be the PAYE system, but if successful, the project will be expanded to other tax types. 
This will mean all employers will need some kind of computer integrated software for payroll or to change to providers that can provide this service for them.     Click here  for more info...

Real efficiency gains and organisational change will only be achieved if a large proportion of the functions are converted to the electronic environment, which will inevitably take several years.

The Government has consulted with payroll providers to understand how their software could integrate with IRD systems.  It sees a strategic partnership with these payroll providers as a key way to unleash the creativity of the private sector to revitalise the IRD's PAYE processes and strive towards a fully automated system.

Currently only 30% of PAYE monthly schedules are filed electronically.  The discussion document can be found at http://www.taxpolicy.ird.govt.nz/publications/2010-dd-making-tax-easier/overview.

A significant investment may be required by employers to upgrade to new IRD-compliant systems, and there will be an inevitable reluctance from some to move away from paper filing.

IRD note that a mandatory approach may be required to ensure that change does occur but also considers the upside that the new system should provide taxpayers with the level of IRD service that they demand, and which they do not currently receive using a paper based system.

A further proposal is that PAYE should be a final tax, and that there should be no square up refunds payable if individuals have worked for 11 or 12 months of the year.

This would free up IRD resources currently used to process small tax refunds for thousands of individual taxpayers, who receive an average refund of $188 each year, and generally remove the need for personal tax summaries to be mailed to taxpayers (the information would be available on line if required). 

With the exception of those who have only worked for part of the year, only refunds/payments due in relation to non-PAYE income would be processed by IRD.

More enforcement by Ir

Another point of this budget that cannot be ignored is over the four year period the Inland Revenue will be expected to bring in another $745m from increased audit and compliance activity. Meaning taxpayers can expect to be subjected to increased audit activity. One can only hope this also includes a stronger emphasis on the cash economy that is expected to increase given the GST rate increase. The tax office's track record of recovering $5 of tax revenue for each $1 they incur in costs is seen as justifying an increase in their funding to go after more untaxed dollars.

Along with the promise of much stronger enforcement the rules will be tightened for qualifying for working for families and student loans.

Is there any Good News?

Extend your Reach – By Michelle Thompson

What does it mean to be successful ?

You are successful in your life when you reach out to grow in any of these areas: