101 Accountants - Winter Newsletter 2017

Melessa Henderson CA Ltd @101 accountants 101 Arawa Street North PO Box 366 Matamata 3440 p 07 888 6740 f 07 888 7498 e office@101accountants.co.nz w www.101accountants.co.nz

101 ACCOUNTANTS NEWS BUSINESS YEAR END INFORMATION The end of another financial year has now been and gone. While tax planning is a vital component of the financial planning process all year round, now is the time to pay special attention to issues for the 2017 taxation year.

ISSUE: Winter 2017 YEAR END INFORMATION

1

BUSINESS LAW CHANGES

1

EMPLOYMENT ISSUES

2

FARM ACCOMODATION

2

FARMING FACTS

3

FARM TAX CHANGES

3

CONTRACTORS

4

INVESTMENTS

4

SMALL CHANGE

4

MELESSA’S MESSAGE

4

Below are a few common tax planning matters that may need to be addressed, as well as some considerations for next year.

 Investments - check your withholding tax rate is correct & retain all investment reports, shareholding certificates, RWT certificates and/or dividend statements.

 Bad Debts - Debts likely to remain uncollectable must be written off before balance date on your system.

 Prepaid Expenditure - Please forward us documentation relating to expenses that have been paid in advance, eg Feed, Insurance, Repairs & Maintenance, Contracts.

 Stock on Hand - While stocktakes are only required if your stock is over $10,000 and your turnover is greater than $1.3m, we recommend these are undertaken to ensure we can give you useful financial information.  Wage Related Considerations - All holiday pay paid within 63 days of balance date is deductible in the 2017 tax year. This also applies to bonus payments incurred.  Fixed Assets - We will need to review your asset schedule and identify any assets no longer used or disposed of. PIease provide documentation for any assets purchased or repair bills over $500.  Children - please advise of any new children in your care, or any children that have left school which could affect any Working for Families entitlements.

These are just a few areas requiring consideration at the end of any tax year.

For a more comprehensive discussion regarding your business and personal year end tax issues please contact us.

Please complete 2017Year End Questionnaire forms as thoroughly as you can, and return to us with your year-end records.

TAX PAYMENT DUE DATES 2017 PROVISIONAL TAX Balance Dates 31 March 31 May Prov 3: 7 May 2017

28 Jun 2017

2018 PROVISIONAL TAX 31 March

31 May

Prov 1: 28 Aug 2017 28 Oct 2017 Prov 2: 15 Jan 2018 28 Feb 2018 Prov 3:

7 May 2018

28 Jun 2018

BUSINESS LAW CHANGES A number of business-related legislation changes have taken effect from 1 April 2017: 1. Minimum wage rates up. From 1 April 2017, the adult minimum wage increased from $15.25 to $15.75/hour, and the starting-out and training minimum wages rose from $12.20 to $12.60/hour.

2. ACC levies down. The ACC Earner levy rate remains at $1.39 (GST Incl) per $100/liable earnings.

The ACC maximum earnings threshold will be $124,053 (up from $122,063).

The maximum annual ACC earner levy will be $1,724.33 (up from $1,696.67).

3. Paid Parental Leave From 1 June 2017 parents and primary carers of premature babies may be entitled to extra payments. Employees will also be able to use their holiday entitlements before they commence paid parental leave payments.

4. Provisional Tax Changes There are changes to provisional tax for the 2018 year ahead. ‘Safe harbour’ (the standard uplift method) has been extended to include companies, trusts and individuals where no use of money interest will be charged for underpayments of provisional tax if residual tax is less than $60,000 threshold. If over the $60,000 threshold, use of money interest will not be charged until the third instalment date, rather than the first, as was the previous rules.

There are some rules and exceptions, particularly related to associated parties and estimations.

WINTER 2017 - PAGE 2

EMPLOYMENT ISSUES Minimum wage rates as of 1 April 2017

Farm Accommodation ALERT

New minimum wage rates took effect from 1 April 2017.

The new adult minimum wage rates (before tax) that apply for employees aged 16 or over who are not starting-out workers or trainees, and those involved in supervising and training other employees are $15.75 per hour.

In 2014 the rules in relation to employer accommodation were amended to ensure that the market value of accommodation is treated as income of the employee and taxed accordingly. At that time, no guidance on how to establish market value was given.

The starting-out wage is focused on:  16 & 17 year olds starting out in the workforce;  18 & 19 year olds who have been on a benefit for 6 months or more; or  16 to 19 year olds in training in a recognised industry-training course involving at least 40 credits a year.

The training minimum wage applies to employees aged 20 years or over who are doing recognised industry training involving at least 60 credits a year in order to become qualified.

The minimum wages for employees on the starting-out and training wages is $12.60 per hour.

MBIE Prosecuting Farmers A recent investigation into Waikato dairy farms, which found half of the farms visited were in breach of basic employment obligations. These resulted in infringement notices and fines of $1,000-$2,000 for those farms in breach of the rules.

Ministry of Business, Innovation and Employment (MBIE) has now launched a nationwide investigation into Employment Law compliance within the dairy industry.

At minimum, all employers should be keeping the following records:  Signed employment contracts;  Records of hours worked (including salaried employees);  Records of leave taken;  Written authority from the employee for the employer to make deductions from the employees pay; and  Ensuring employees receive at least the minimum wage (currently $15.75/hr).

Tax Rates The tax rates and thresholds effective for the 2017/18 year and beyond have not changed.

Income Band

Tax Rate

$0 - $14,000

10.5%

$14,001 - $48,000

17.5%

$48,001 - $70,000

30%

$70,000 and over

33%

Company Tax Rate

28%

Trusts Tax Rate

33%

Please ensure you are using the latest edition of 2018 PAYE tables IR340 or IR341 for all pay periods from 1 April 2017 which are now available from IRD or online, or use the IRD PAYE calculator.

If you use a payroll software, please ensure this has been updated for 2017/18 year to accommodate the changes from 1 April 2017.

IRD guidance has recently been issued and has stated market value is “periodic rental that would be paid if similar accommodation in a comparable location subject to similar restrictions or conditions relating to the tenancy, was rented on an ‘arm’s length basis between non-associated parties’.

While determining market value will often be a matter of judgment, the IRD has indicated that the valuation should be: 1. Based on a number of objective factors; and 2. Follow a reasonable and appropriate process that is well documented and able to be demonstrated as reasonable in the circumstances.

The following process is recommended: Step One: Obtain a Valuation This could be achieved (but is not limited to) by the following : a) a valuation from a registered valuer; b) an estimate from a Real Estate Agent or Property Manager; c) a review of comparable properties on internet sites that advertise rental properties eg. Trade Me; or d) any other reasonable basis that takes into the account the features of the accommodation provided and compares it with similar accommodation.

Step Two: When you are deriving a valuation by reference to comparable rental property, the comparison needs to take into account: 1. The location of the accommodation, its desirability, access to amenities (transport, shopping etc), relative building values and security; 2. Overall functionality eg. size, no of bedrooms, garaging, laundry facilities, quality of build; 3. Overall condition of the building eg. rundown vs luxury; Ease of travel from work, schools, shopping etc, availability of public transport; and 4. Restrictions on accommodation, or access to it, where they substantially inhibit the rights that would normally be allowed. (IRD have decreed restrictions on pets and smoking are not substantial).

Please note:  Where an employer pays for electricity or phone lines this will be required to be added to the value; and  The value of the property cannot be ‘discounted’ to reflect obligations of employment associated with living in the property.

IRD guidelines stipulate that the value of the property should be reviewed every three years and adjusted accordingly.

Our practical recommendation in most circumstances will be to print and retain Trade Me or Real Estate adverts for two properties and document: why these properties were used for comparison, and adjustments to value based on the factors listed above.

We will be contacting those clients who offer employees on farm accommodation to see whether we can help with the review of the value of this benefit.

WINTER 2017 - PAGE 3

FARMING FACTS

FARM TAX CHANGES

Farm Dairy Payout 2016/17 Season

Farmhouse Expense Claims

The Forecast Farmgate Milk Price for the 2016/17 Season has increased by 15 cents to $6.15 per kgMS. The estimated dividend remains at 40 cents per share. Initial indications from Fonterra are $6.50/kgMS farmgate milk price for the 2017/18 season.

OCD is forecasting a $6.25-$6.55/kgMS average milk price.

This increase reflects improved global milk prices. Whole milk powder prices appear to have settled into a US$2,800/t to $3,400/t range and the NZD/USD trading 0.68 to 0.72.

Fonterra Support Loan Many farmers have chosen to utilise Fonterra’s offer of an interest free ‘support loan’ over the past season.

This year the following will change: Interest 1. Interest on these balances will be charged from 1 June 2017.

Interest payments will be deducted from monthly milk payments.

2. Interest rates: The interest rate has been set for three months from 1 June – 31 August 2017 at 2.47%. Interest rate will be reset every three months and updated rates will be advised at the time.

Repayments 1. Based on the recently announced 2016/17 payout, the $6.00 threshold for the repayment of the Co-operative Support Loan has been reached. On this forecast $0.15 will be deducted from the final milk payment for the 2016/17 season in the October retro payment, paid on 20 October.

2. If you wish to make voluntary loan repayments details can be found at the link below along with more information at: https://nzfarmsource.co.nz/assets/Resources/rural-professionals/ Co-operative-Support-Loan-Flyer.pdf

Tax Planning With the likely increase in farmers income this year, we have been reviewing those clients who we believe could benefit from volunteering provisional tax this year. For others we will be looking carefully at whether utilisation of the ‘farm equalisation scheme’ will be favourable for you. This could be especially beneficial if you expect your income to decline in years to come, or you intend to undertake significant repairs or development work in future. We will be discussing this with you as we attend to your annual accounts but if you anticipate any changes in your operation we would be pleased to hear from you.

Other Planning Deductions for consumables such as fertiliser and stock food can be ‘deferred to the period in which the items have actually been consumed’. If you have purchased goods of this nature just before your balance day (typically 31 May or 30 June) we may be in contact to clarify which financial year they should be claimed.

Budgeting With the volatility of the climate and dairy prices fresh on our mind, it is always good to have a plan for the year ahead. For this reason we recommend preparing a budget.

Budgets have the following benefits: 1. Set goals for the year ahead and help you work towards longterm goals; 2. Allow you to consider your ‘game plan’ should the situation (payout/weather!) change and allow you to act pro-actively; 3. Forecast and help plan for tax; We recommend the Figured budgeting tool which integrates with our accounting software (Xero) to provide actual’s straight from our system.

If you are interested in using this software check it out at www.figured.com or give us a call to discuss these matters further with us.

Since the 1960s the IRD has allowed full-time farmers a deduction of 25% of farmhouse expenses, including electricity, repairs and maintenance and other general farmhouse costs without any evidentiary support. They have also allowed full time farmers to deduct 100% of interest and rates. This is about to change from the start of the 2017/18 income year (1 June for most farmers). The new rules require the expenses above to be apportioned between business and private based on actual use.

Type 1 or Type 2 Farm A key aspect of the new rules revolves around a distinction being made between farming businesses are either a ‘Type 1’ or ‘Type 2’ farm.

Type 1 Farms— is where the cost of the farmhouse, including curtilage and improvements is 20% or less of the total cost of the farm.

Type 2 Farms—is where the cost of the farmhouse, including curtilage and improvements is more than 20% of the total cost of the farm.

Where farmers fail to meet the ‘Type 1’ criteria based on cost, a market valuation can be used instead. Rateable values, bank valuations and real estate appraisals can all be used to ascertain this value.

Cost apportionment Deductions available to farmers under the new rules are summarised as follows: Expense

Type 1 Farm

Type 2 Farm

Farmhouse Expenses

20% default deduction for farmhouse costs*

Interest & Rates

100% deduction for all farm costs including farmhouse

Based on proportion of the value of the property that is used for farming (same as a standard ‘home office’ claim).

Telephone

50%* (default)

50%* (default)

We expect that those who have been claiming deductions as ‘full time farmers’ but now fall into the ‘Type 2’ rules will be most significantly affected.

Any farmer who is Type 2 and has been claiming deductions on the basis that they are a full-time farmer will likely see a large drop in deductions for farmhouse expenses, particularly interest. This will especially effect the likes of kiwifruit farms, orchardists and the bloodstock industry where the farming activity is full-time but the cost of the farmhouse relative to the total farm is significant.

We will be reviewing each client’s individual situation as we complete your 2016/17 financial statements. In the meantime you are welcome to contact us if you want to discuss the effects of this change in your business and tax position.

Selling Livestock to Relatives In 2011 the IRD introduced new livestock rules including prohibiting elections to change from the Herd Scheme to National Standard Cost. Another important change was the restrictions placed on livestock sales between associated persons. This include siblings, parents, grandparents, in-laws, nieces and nephews.

If you are selling or buying livestock from any of these relatives there may be restrictions that apply to the values that can be adopted for tax purposes.

Please speak to us if you are contemplating transactions of this nature.

WINTER 2017 - PAGE 4

CONTRACTORS

SMALL CHANGE

Contractors Withholding Tax—Rate Options

ACC Invoices

From 1 April 2017 Contractors are able to request to have withholding tax deducted from their payments (eg. pay tax as they earn). Resident Contractors are able to elect any rate that is 10% or higher. The minimum rate for non-residents is 15%.

The election can be made by giving the party you are contracting to an IR330C form. The form is compulsory if contractors wish to have withholding tax deducted because it is illegal for the engaging firm to deduct the tax without having a written arrangement in place.

This is an optional election. The benefit of this arrangement is that it will reduce a contractors terminal and provisional tax obligations, but they will obviously receive less cash ‘in the hand’ because the contracting party will effectively be paying some tax for them.

Please note that GST will still need to be charged at the normal rate and included in your GST return.

Example: $1,200 @20% = $1,200 - $240 WT + 15% GST If contractors are considering this arrangement it would be a good idea to talk us about the rate most suitable for you or your Company and consider the implications for your cash flow.

Labour Hire Firms Contractors Withholding Tax Deducting withholding tax on payments to contractors is now compulsory for labour hire firms. Labour hire firms are firms that arrange for a person to perform work or services directly for their clients. We have contacted clients we believe risk falling into this classification. Ordinarily contractors that are effected by this change will have been notified by the firm that they need to fill out an IR330C to avoid withholding tax being deducted at the standard rate.

INVESTMENTS Kiwisaver Even the self employed can be putting money towards their KiwiSaver – it’s not just for salaried or wage employees.

By putting a small amount each week into KiwiSaver, it can make a big difference to your sunset years.

1. If you put in at least $20 per week or $87 a month ($1,044 a year) into your fund, you’ll receive the full government top-up of $521 a year.

If you don’t want to commit to a set amount each week or month, you can make lump sum payments through Inland Revenue or your KiwiSaver provider when you choose to.

2. Check that you’re in the right fund - If you don’t choose a fund, IRD will put you in one of the nine default funds. The right fund for you will depend on your situation and attitude to risk. The riskier the fund, the higher your potential returns.

Use Sorted’s Fund Finder tool to find the right type of fund for you and compare different funds of that type.

3. Check that the tax rate is right for your income – so you don’t pay more tax than you need to.

Use-of-money interest (UOMI) rate change Starting on 8 May 2017 the UOMI rates on underpayments and overpayments of tax change.

The new rates are: • Underpayments - 8.22% (down from 8.27%).

• Overpayments - 1.02% (down from 1.62%).

Rates are reviewed regularly to ensure they are aligned with market interest rates.

Make use of 6 monthly payment instalments for ACC invoices, which have no interest or admin charges incurred for anything between 4-6 months.

The schedule for this years invoices is: Shareholders: Starting week of 3 July Employers: Starting week of 10 July Self-employed: Starting week of 7 August

Budget 2017 The 2017 Budget announced by the Minister of Finance includes a Family Incomes Package comprising proposals to:  Adjust the bottom two tax thresholds  Discontinue the Independent Earner Tax Credit  Increase the Family Tax Credit rates for children under 16, and  Increase the abatement rate and decrease the abatement threshold for Working for Families Tax Credits.

Also announced was public consultation on proposals to improve the tax treatment of feasibility expenditure for businesses.

Fire Levy Insurance Increase On the 1 July 2017 Fire Service Levies will be increased.

This will impact anyone who has insurance on a Residential Property, Non-Residential Property, Motor Vehicle, and any insurance policy that is subject to a Fire Service Levy.

You should always be reviewing your insurances to ensure things are up-to-date and you’re getting the best cover for a good value.

MELESSA’S MESSAGE Its hard to believe we are half way through the year already. I trust this year has started well for you all. It has been a trying few months for many relying on sunshine and hot weather, but it is a relief to see some optimism around dairy prices and the economic outlook in general. Nevertheless, we are experiencing times of great uncertainty concerning international relations. Seeing our international counterparts take steps to resist ‘globalisation’ to some degree with the likes of Brexit and the Trump election I am reminded of just how quickly things can change. As a ‘small fish’, changes in global lending policies and trade negotiations can have a tremendous effect on us. The banks appear to have taken a cautious approach and are very much expecting debt repayment in the good years. All of these factors are a great encouragement to have goals and work toward them while things are good.

In our neck of the woods there has been plenty of tax changes to keep up with, as a new financial year is upon us. We have had a change of staff, with Raewyne Paterson moving on to the sunny (but wet) Coromandel Coast. However we welcome Debbie King to our team, who has settled in like water on a duck’s back! It’s great to have her depth of experience in the team.

Remember our open-door policy. We are happy to discuss any plans or issues you may have, or just a general chit-chat about how things are going.

Thank you for your continued support & all the best for the year ahead!

From Melessa, Richard, Wendy, Maree, and Debbie

@101 Accountants

DISCLAIMER: The information contained in this newsletter is of a general nature and to the best of our knowledge true and accurate. This information should be used as a guide only and we can assume no liability for any person relying directly or indirectly upon this newsletter. We recommend clients consult us before acting upon any information enclosed in this newsletter.