Posted: 16/09/2010 By: Bill Singh (CA)

Budget 2010 What Does It Mean For You.

This is the first in a series of articles by Bill Singh from Gulf Accountants Limited dealing with issues to come out of the 2010 budget. Some of the changes have still to be worked through and there are various groups undertaking this work.

GST

Increases from 12.5% to 15% from 01/10/2010 onwards.

Special Rules

Laybys: If you make your final payment on or after 01 October 2010 you will pay GST of 15% on the whole purchase price. However an amendment is being proposed to allow the old rate of GST (12.5%) to apply , where a binding contract has been entered into before 20 May 2010 (budget night), to all payments made by the 30/09/2010.

Hire Purchase: If you entered into the agreement before 01/10/2010 then you only pay at the old rate of 12.5%.

Contracts that are reviewed annually: Contracts such as health insurance and car insurance that straddle 01/10/2010 and are reviewed annually will if certain conditions are satisfied allow the GST to be paid at the old rate until the expiry of the next annual review.

Finance leases: A proposed change will allow finance leases entered into before 1 October 2010, for a maximum term of 5 years to continue to pay GST at the old rate (12.5%).

Successive Supplies: For example telephone line hire- The GST is due when the payment is due so for September 2010 phone line rental the payment is due in October and this would mean that the new rate of 15% would apply. However it is proposed that if the invoice is dated 30 September 2010 and is issued before 11 October 2010 and payment is due no later than 60 Days from the invoice date the old rate of GST of 12.5% will apply.

General

Make sure that you issue invoices for all work done or goods sold before 01/10/2010 on the 30 September 2010 if possible. However a proposal is being put forward that will allow suppliers to treat tax invoices issued on or before 11 October 2010 for goods and service provided on or before 30 September 2010 as having been issued on the date of the invoice. This is provided that the invoice is dated on or before 30 September and the payment is due no later than 60 days from the invoice date.

The new tax fraction is 3/23. This is the fraction that you multiply a GST inclusive amount to arrive at the GST charged e.g. GST inclusive price of a pair of shoes $1500, the amount of the GST would be $1,500 x 3/23 = $195.65

Transitional Period Return

The GST return for the period ended 30 September 2010 will be the most problematic for GST persons registered on a payments basis. This is because as at the end of September 2010 there will be amounts owed to businesses that have not been received referred to as debtors and amounts owing by the business but not yet paid referred to as creditors. For payments basis registered persons these amounts are usually returned in the period that they are received or in the case of creditors claimed in the period that they are paid but the problem is that in post 30/09/2010 return periods the tax rate will be 15% instead of 12.5%. This is taken care of by making an adjustment for the difference in rates in the return for the period ended 30/09/2010..

The best way to understand this is by way of example.

A business on a payments basis for GST as at 30 September 2010 has made sales (taxable supplies) of $11,000 (inclusive of GST) for which it has not received payment and incurred expenses subject to GST of $9,000 (inclusive of GST) which it has not yet paid.

The adjustment to be made in the return period ended 30/09/2010 would be as follows:

Debtors (sales)	$11,000.00
Less creditors (expenses)	$ 9,000.00
Equals	$ 2,000.00
Adjustment 4/207	$    38.65

Thereafter all sales and expenses are returned at the new rate of GST of 15% because the adjustment (the extra 2.5%) is taken account of in the calculation above.

What businesses need to do now.

• Update the accounting software and ensure your accounting staff know what to do.
• Make sure that tax invoices at the old rate and the new rate can be issued.
• Make sure that you can issue debit and credit notes at both rates.
• If you GST return period spans 01/10/2010 e.g. 2 monthly GST return for the period ended November 2010 you will need clear procedures in place to deal with two rates of GST in one return period.
• If you are thinking of deregistering do so before 01/10/2010 so you don’t pay GST at the higher rate on assets sold or kept if you de-register on or after 01/10/2010.

Bill Singh, is a principal of Gulf Accountants Limited, a chartered accountants firm on Waiheke Island providing business and taxation advice to residents of Waiheke Island and the world. He has had over 33 years experience in the taxation field including senior positions with the Inland Revenue Department. He worked for the Inland Revenue Department when GST was introduced in 1986. He was the principal adviser to the Government of Fiji on the implementation of VAT and was on an international team to assist the Government of Delhi on the implementation of VAT.

Please note the information provided in this article is for general information purposes only. Before relying on the information provided you should contact your professional adviser. If Gulf Accountants Limited can be of assistance please ring us on 093728996.

Income Tax

Personal Tax Rates

Income Band	Prior 30/09/2010	01/10/2010 Onwards	New Secondary Rate
$0- $14,000	12.50%	10.50%	10.50%
$14,001-$48,000	21.00%	17.50%	17.50%
$48,001-$$70,000	33.00%	30.00%	30.00%
$70,000 and over	38.00%	33.00%	33.00%

Company Tax Rate

The Company tax rate will be decreasing from 30% to 28% from the 2011/2012 tax year e.g. 31 March 2010

Depreciation

Any building that according to the Commissioner of Inland Revenue has an estimated useful life of 50 years or more will have a depreciation rate set at zero percent from the 2011-12 income year. This will apply for the majority of businesses from the 01/04/2011.

New assets purchased after 20 May 2010 will not qualify for the 20% depreciation loading.

Working for families tax credits entitlements

	You Receive	You Receive
	Up until 30/09/2010	01/10/2010 onwards
Your eldest child is 16-18	$5,198	$5,303
Your eldest child is 0-15	$4,487	$4,587
Each other child is aged 16-18	$4,651	$4,745
Each other child is 13-15	$3,557	$3,629
Each other child is 0-12	$3,119	$3,182

There have been no changes to the:

• Child tax credit
• Parental tax credit
• In work tax credit component of WfFTC
• Abatement thresholds and rates

Please note the information provided in this article is for general information purposes only. Before relying on the information provided you should contact your professional adviser. If Gulf Accountants Limited can be of assistance please ring us on 093728996.

Posted: 25/03/2010 By: Bill Singh (CA)

NEW ZEALAND A TAX HAVEN

Farfetched - not really. A book published by Tax Café and written by Lee Hadnum LLB ACA CTA on the world’s best tax havens lists New Zealand as a country that qualifies and so it should.

People who grumble about how much tax we pay don’t ever consider the taxes we don’t pay that are paid in most other developed countries. We don’t pay:

• Estate Duty
• Stamp Duty
• Capital Gains Tax

These are big number items especially towards the end of your working life. Let’s hope the Government does not get carried away and change this.

Transitional Resident

This is a new classification and anybody who has never lived here or someone that has lived here but has been overseas for more than 10 years qualifies as a transitional resident. If you qualify then;

· All your income from overseas that is not from personal services i.e. investment income is exempt from income tax as far as New Zealand is concerned for a period of 4 years .

Why would you not want to live here. So if you are from the United Kingdom and a transitional resident and you receive income from a Minerva SIPP then that income will be exempt from income tax in New Zealand for a period of 4 years.

If you are a transitional resident from the United States of America and you receive income from a Roth IRA or an IRA then you qualify for an exemption from income tax on that income for a period of 4 years.

As well as the above you are coming to a country with great people, breath taking scenery, a stable political system, world class education system and a safe and secure environment to bring up your family.

It is not often that chartered accountants sing the praise of the revenue services, and while acknowledging there could be improvements, we have one of the best in the world. The way the revenue service operates not only affects citizens when they pay tax, it affects most areas of the citizens life. More importantly revenue services can stifle or enhance business prosperity or development.

We have heard some horror stories of what happens overseas. While acknowledging that the Department could do it better (It would be the first to acknowledge this) generally it is courteous, professional and efficient in the way it deals with its citizens.

SO WHY WOULD YOU NOT WANT TO LIVE HERE

If Gulf Accountants can be of any assistance please give us a call.

Posted: 15/01/2010 By: Bill Singh (CA)

NEW ZEALAND TAX RESDENCY - INDIVIDUALS

There are three main parts of legislation to consider when dealing with tax residency of individuals:

· Notwithstanding any other provision of this section, a person is resident in NZ if that person has a permanent place of abode in NZ whether or not that person has a permanent place of abode outside NZ.

· Where a person is personally present in NZ for a period exceeding in total 183 days in any period of 12 months, the person is deemed to be resident in NZ from the first day that they were present in NZ.

· Where a person has been personally absent from NZ for a total of 325 days in any period of 12 months that person is deemed not resident in NZ from the first day of the 12 month period that the person was personally absent.

Note that the permanent place of abode test is the overriding test. The test of whether a person has a permanent place of abode is a matter of weighing all facts of a person’s circumstances. The nature and quality of a person’s connections with NZ is important.

e.g. A NZ resident is to work in the USA for a two year contract. He will not resign from his NZ job but will take a leave of absence. He will consider employment opportunities on USA and Europe at the end of two years as well as the option of returning to his NZ job. His family will travel with him and their Wellington house will be rented. 42 days notice of termination will need to be given under the Residential Tenancies Act. Personal property will be disposed of or taken with him to the USA. Electrical equipment unable to be used in the USA will be stored in Wellington. The only investment apart from the house is the Government superannuation Scheme, to which he will continue making contributions for 1 year.

Factors that would make him a non resident are;

• Period of absence being a significant length of time.
• Family going with him
• Personal property being taken with them.

Factors that would make him a resident are;

• Strong association with NZ despite his absence
• Job ready for him to take up should he decide to come back
• House available for him and his family to live in.
• His intention that he may come back to NZ to live
• Some personal property kept here.

In the CIR’s view the above would mean that he was a resident of NZ. If some of the factors changed such as his absence was for a period of 3 years then he may well be considered a non-resident.

Often there is no clear cut answer and minor facts could change the outcome.