TAX TIDBITS
Issue Nine, June 2006
In this months issue:
Depreciation of Rental Properties
Inland Revenue Debt
July 7
DEPRECIATION OF RENTAL PROPERTIES
The Inland Revenue has recently stated in media releases that it considers it unacceptable for taxpayers to break up rental properties into smaller components to gain higher depreciation deductions. According to the IRD, items such as doors, electrical wiring, internal walls, furniture and fittings that are permanently attached etc are not separate assets and should be depreciated as part of the building. Property owners who have in the past split such items out will not need to restate these prior returns however they will need to: -
- Add the value of the assets they have been depreciating individually into the cost of the building; and
- Combine the depreciation claimed for the individual assets with that accumulated on the building.
The IRD has no objection to property owners depreciating chattels (whiteware, carpets) and fittings (clothes lines, water heaters) that are not part of the building as separate assets. A further interpretation statement is expected from the IRD shortly which will clarify its position and invite submissions.
INLAND REVENUE DEBT
The IRD is quick to charge late payment penalties and interest if tax debts are not paid on time, however, there are a number of options available to taxpayers who know they will not be able to meet upcoming payments.
Options for payment are:
- Payment in full
- An instalment arrangement where you repay an agreed amount over time
- Making an application to the IRD to request a write off an agreed amount if the IRD determine that full payment would cause you serious hardship
- A combination of an instalment arrangement and a serious hardship write-off.
Making contact with the IRD, either directly or via HWI is the best way to pre-empt any late payment penalties and interest. If an arrangement for any tax debt is entered into with the IRD before the due date then only a 1% penalty will be imposed. This is far more appealing than doing nothing and being faced with monthly incremental penalties of 5% (1% if one day late plus 4% if seven days late plus 5% monthly thereafter) being imposed! Please note use of money interest will continue to accrue regardless if a debt is outstanding.
JULY 7
Friday July 7 looms as a very important date in the tax calendar for two reasons: Firstly if you do not use a tax agent and don’t have an extension of time arrangement for filing your 2006 tax return (for standard march balance dates) then it is due by this date. Secondly, if you are a provisional tax payer then your first instalment of 2007 provisional tax is due for payment. If you believe your income has fluctuated significantly from the last tax return filed then contact HWI in the first instance.
Upcoming events at HWI:
FREE Seminar: Writing a business plan,Wednesday 12th July 2006 at 9am,
email Mark at
maldridge@hwi.co.nz
for details or book online at
www.hwi.co.nz
Disclaimer Information contained within this document is of a general nature and does not constitute advice. Readers are cautioned not to act or reply on it without first seeking professional advice.
