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Johnston Associates Chartered Accountants

Masterminding Brighter Tomorrows

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It’s time to tax the family not the individual

The family ‘unit’ is perhaps the foundation that safe and healthy and contributing communities are built on. It is hard to argue with this. It’s time our income tax system was changed to reflect this, and to put more money back in families’ pockets.

Some countries operate an elective tax system where couples can choose to be taxed as a couple rather than as individuals. In other words they file a combined or ‘joint’ income tax return and often end up paying less tax in total due to the way personal marginal tax rates work, and the ‘averaging’ effect that filing as a couple achieves in many cases. One could make a rational argument that perhaps that taxing option should always have been available in New Zealand given the central importance of the family unit, and also on the basis of the real world economics of the family unit (and I am talking about family in the broad sense here – not the ‘nuclear family’ concept I was taught about at school).

I believe it is time to adopt this approach in New Zealand. Such an approach I think would reflect the reality of how many or perhaps most family units operate. This was the view of Peter Dunne, former Minister of Revenue. In fact he had a bill before parliament which proposed a tax credit for couples with children, which was designed to achieve something along the lines of what I have described above – a family being taxed on its ‘family income’, rather than each individual being taxed on their personal/individual income. Mr Dunne’s bill passed its first reading in 2010 and made it to Select Committee but then made it no further and then lapsed in 2017.

One of the hurdles identified in respect of that bill at the time was that supposedly under the Bill Of Rights Act such a law would discriminate against those not in a relationship with children. Really? Please forgive my ignorance – I’m not a lawyer and I’m certainly no expert on the Bill Of Rights, however to a lay person is that really “discrimination”? If so, is Working For Families also discrimination since it is in part based on the number of children you have – the same issue raised in relation to Mr Dunne’s bill?

Putting that aside, I can think of no good reason why a family with a single income earner earning $100,000 should pay significantly more tax than the same family with two income earners earning $50,000 each. Families with one primary income earner are being overtaxed. Now is the perfect time to fix that, put more money in families pockets, and have the tax laws more accurately reflecting how many families operate.

Filed Under: Tax

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Tax – time for change


Tax changes in recent years, at least as they have affected the typical SME and SME owners have been largely tinkering, except perhaps in respect of tightening up on rules aimed at property speculation (but which unfortunately go somewhat further then mere property speculation). However now is the time to act. Tax changes need to feature in this week’s Budget, and they need to help business owners.

Below are some ideas of some changes which I have tried to restrict to those things that would be reasonably easy to implement. So for example removing GST from so-called healthy foods, or fresh fruit and vegetables, is not there as I believe this would actually be quite complex in practice.

Some of the ideas may be met with calls that they favour wealthy business owners more than a minimum wage earner – a criticism of many tax reforms which lower the tax burden in this country. But now us not the time for those howls of protest – now is the time when we need to be incentivising and assisting those in our communities who have ideas, skills, and the willingness to take calculated business risks. These are the people that we want to encourage to start a business or expand or improve their existing one: to employ that extra person, start a now product line, enter a new market, invest in new technology, undertake some research and development, and ultimately grow our cake – increase the wealth of this country. Too often the discussion in this country seems to focus on how the cake should be sliced, rather than how we make it bigger for the benefit of all.

Tax has a role in helping grow a bigger cake, so below are some thoughts.

(I’ve not mentioned any tax rate reductions as for a variety of reasons I think these are unlikely…)

  1. Re-indexation of the tax thresholds in terms of the income figures at which tax rates start to apply, at least based on CPI or average income movements. This hasn’t been done since October 2010 – ten years ago! Backdate to 1 April 2020.
  2. Big increase in small asset writeoff deductions, and simplify the rules around how these apply. The $1,000 threshold which will apply once the current temporary (one year) increase to $5,000 finishes should be at least $10,000. Perhaps have a deduction allowed for up to $20,000 of new assets each year – similar to the legal expense deduction rule which allows up to $10,000 of deduction each year. Backdate to 1 April 2020.
  3. Depreciation loading on new assets (with the exception of buildings) of 50%, for the current and future income years.
  4. 150% deduction allowed on R&D expenditure which results in NZ owned IP.
  5. Permanent loss carry back rules for up to four years, and extension of the current temporary loss carry back rules to allow carry back for up to four years not the current one year.
  6. Allowing couples to file joint tax returns if they choose.

Comment with your thoughts on what YOU think should be in the budget.

Filed Under: Tax

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Are you a small business looking for a cash injection?

Last week the Government announced a new 12-month interest free loan product. Loans ranging from $10,000 to $100,000 are available for small businesses with less than 50 EMTs.

The key criteria to providing these loans is proving business viability before a company can borrow funds.

The Government has also made changes to the criteria for the Business Finance Guarantee Scheme, including removing the requirement for a General Security Agreement.

The basic notes for the new lending process will be released in due course. Here are the key points to take away from this;

  • The design of application forms and processes are still being completed, no doubt some forms should be available late this week
  • Applications can be made from the 12th of May 2020
  • IRD will administer and process applications for the loans.
  • $10,000 will be the base loan amount
  • Then you may borrow an additional $1,800, per full time employee (therefore you need 50 FTE employees to get the full $100,000)
  • It says the loans are available to businesses with 50 or fewer FTE staff, we assume you can have more than 50 staff, if some of them are part time as long as the equivalent FTEs are not more than 50
  • No repayments are required for the first two years
  • The first year of the loan is interest free
  • After the first year, the interest rate is 3% pa for a maximum of five years
  • You need to have had a 30% revenue reduction/hit
  • Can use it to cover Rent, Insurance, Utilities, Supplier Payments and Rates

If you want to consider taking this loan, check in with us before you start the application process. We can help run through the risks and rewards best suited to your business

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Helping our hospitality businesses back on their feet

Now we are almost through the most critical phase for containing COVID-19 as a health risk to our country there is a sharper focus on the steps Government can take to help the business recovery that is badly needed at all levels of our economy. 

One of the industries worst affected by this pandemic is hospitality. It is a major employer and a big part of our SME landscape. Just as importantly the hospitality sector plays a vital role in the social fabric of our communities. Its health or otherwise is very visible and has knock-on effects for the morale and well-being of us all.

We are keen to feed into these conversations and encourage all ideas to be put forward, no matter how left-field they might sound. As a starter we think there are existing tax rules that can be modified quickly and easily (even if only temporarily) to help the people who run these businesses back on their feet:

·        Entertainment rules – remove the 50% cap to allow full deductibility for business-related consumption of goods or services provided by hospitality operators.

·        FBT rules – make vouchers for goods and services provided by hospitality businesses exempt from this particular type of tax.

What do you think?

Filed Under: Tax Tagged With:

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Covid-19 Business Tax Package

On Tuesday evening, the government announced a number of significant tax changes that will be very valuable to some businesses.

The most significant change

The most significant change is that taxpayers with tax losses in 2020 or who expect losses in 2021 will be able to use those losses against profits in the prior year, which will result in tax refunds for that prior year. In other words, they will be able to be turned into cash benefits now, rather than carrying the loss forward and saving tax in the future.

The details around this are very loose at the moment and will be for the next week or so. However, an example of how this is expected to work:

Example:

X Ltd had $2m profit in 2020 and has already paid $310k prov tax in respect of that. They will be paying a further $250k on 7 May.

They already expect a $1.5m loss for 2021, in part due to COVID closure.

The opportunity: X Ltd can estimate/re-estimate 2020 prov tax to $500k (i.e. the original $2m profit minus the $1.5m loss carried back) x 28% = $140k, and get a refund of the $170k excess tax they have already paid (and obviously not pay anything on May 7).

The benefit: X Ltd in the next few weeks has an extra $420k cash, rather than a balance of tax losses that it can’t turn into cash potentially for at least a year (and in some cases this could be longer).

This is also proposed to apply to 2020 losses – i.e. they can carry back and use against profits from 2019.

We will have more details on this next week – we will update you then.

What you should do now

1. If you had a loss in the 2019 tax year and tax profits in the 2018 tax year, we will in most cases be able to determine that from our records and we will contact you to discuss your situation.

2. If you expect that you had or will have a loss for the 2020 year and you had taxable profits in the 2019 year please contact us so that we can help you determine how best to use those losses to get extra cash for you and your business, as quickly as possible.

Other tax changes to be aware of

  • It will be easier for the IRD to extend filing deadlines for taxpayers affected by COVID 19, so that late filing doesn’t necessarily get penalised;
  • There will be greater ability for companies to carry losses forward from one tax year to another in the future as there is proposed to be a ‘same business’ test introduced that a company can satisfy instead of having to satisfy the ‘shareholder continuity’ test. We expect this will be of assistance in many cases of relatively new businesses which are looking to expand their equity base, but also possibly in situations where some restructuring of existing groups is planned but can’t be undertaken under the current rules due to the risk of losing tax losses
    We will keep you updated on all of the tax changes outlined above as more information is released in the coming days and weeks.

In the meantime, we have heard that some people and businesses are not getting the support they need from their business advisers. Therefore, if you are aware of any friends, family, business connection etc. who would appreciate more in the way of specialist tax, business advisory or accounting assistance please encourage them to contact us and we will do our best to help them.

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The Impacts of COVID-19


The impact of COVID-19 on the way of life of Kiwis and the ability to conduct business across many of our industries could not have been predicted even just a few weeks ago and our main concern is the health and safety of our people, clients and communities, and we are following all guidelines recommended by the Ministry of Health.

Second to this is ensuring we’re flexing with the situation and minimising any disruption to our clients and our ‘business as usual’ operation. Our priority is to work with you as you navigate the scenarios that may be affecting business, and respecting policies you may be putting in place.

We have robust IT remote access infrastructure in place, enabling all of our people to work remotely at a moment’s notice, should that be required.

If you are implementing your own COVID-19 protocols, we will work with you to ensure the safety and wellbeing of both your people and our own, including that when requested, your protocols are followed by any of our staff you’re interacting with.

Below is some key information from important stakeholders in your business:-

[Read more…] about The Impacts of COVID-19