HWI Chartered Accountants Auckland

Kiwisaver & Self-Employment

A guide discussing Kiwisaver for self-employed persons has recently been released by the Inland Revenue Department. (IRD reference number IR12).

Self-employed persons wishing to join Kiwisaver will need to choose a scheme provider and apply directly to them. The scheme provider will in turn advise the Inland Revenue Department that you have joined.

The amount of your contributions will need to be agreed with your scheme provider. In addition to the minimum agreed contributions you will be able to make voluntary contributions as regularly as you like.

If you wish to pay your contributions through Inland Revenue you can:

• Use the “Pay Tax’ option through your internet banking,
• Set up an automatic payment or
• Pay over the counter at any Westpac bank.

If you experience any difficulties in downloading a copy of the guide, or have any queries regarding Kiwisaver, please contact HWI.

Depreciable Property – Transfers between Associated Persons

Where depreciable property has been transferred from an associated person the basis on which the taxpayer can calculate depreciation is limited by the lesser of cost to the associated person or the item’s market value when the taxpayer starts to use it, “or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income” [section EE33(3), Income Tax Act 2004].

In certain circumstances the Commissioner of Inland Revenue has the discretion to permit the taxpayer to depreciate the asset based on it’s actual cost price where it is considered appropriate.

Factors that will be considered by the commissioner when exercising this discretion are:

• Whether the transfer is genuine
• Whether the transfer is made at fair market value
• Whether there is permanent transfer of legal ownership
• Whether the associated vendor continues to retain virtual ownership or a beneficial interest in the asset; and
• The commercial and non-tax related reasons for the transfer.

A common example of where this discretion would not be exercised would be the transfer of a family home from a husband and wife to a Loss Attributing Qualifying Company (LAQC) for the purpose of renting the property to an unrelated party. In this circumstance it would be suggested that the husband and wife had control of the LAQC, despite the ownership passing, the transaction being at market value and the nature of the property changing from a family home to being rental property.

Please contact HWI if you have any queries relating to the transfer of depreciable property between related parties and implications for depreciation.

GST – Invoice Basis vs Cash Basis

There are three different methods of accounting for GST, being

• Invoice basis – accounting for GST in the taxable period in which you issue or receive an invoice.
• Payments (or cash) basis – accounting for GST in the taxable period in which you make or receive payment.
• Hybrid basis – accounting for GST using a combination of the Invoice basis and the Payments basis.

The payments basis is suitable for small businesses using a cash system. If the following criteria apply the payments basis may be used by any registered person;

• The total value of taxable supplies for the last 12 months was $1.3 million or less, or
• The total value of taxable supplies is not likely to exceed $1.3 million in any period of 12 months beginning on the first day of any month.

If your turnover exceeds this threshold then the Invoice or Hybrid basis will need to be adopted. Note that in certain circumstances the Inland Revenue Department will consider allowing taxpayers to continue using the payments basis where turnover exceeds $1.3 million.

If you are currently registered for GST on a Payments basis and believe that your taxable supplies currently exceeds, or is likely to exceed, the $1.3 million threshold please contact HWI to discuss what the implications of adopting another GST basis will be for you. Alternatively, if you are currently registered on an Invoice basis and your taxable supplies have fallen to below the threshold then a payments basis may reduce return preparation time.

A registration form will be forwarded shortly for the next free HWI breakfast workshop;

Topic:               ‘Employment Issues’ with Emma Butcher, Employment Law Specialist

When:               Wednesday, 14 November 2007, 9:00am – 11:00am

Where:               HWI Boardroom, Level 3, Carlton Gore Rd , Newmarket

We look forward to seeing you there.