TAX TIDBITS
Issue Thirty Three, November 2009
In this months issue:
School Children as Employees
Holiday Home Rentals
School Children as Employees
For families with businesses who wish to have their children work in the business and earn some pocket money over the Christmas break but do not want the extra hassle of complying with Inland Revenue’s PAYE procedures there is an opportunity to do so.
School children are entitled to an income tax rebate of $321.75 in relation to earned income (the rebate does not apply to interest, dividends or other investment income). This means that they can earn up to $2,340 without being taxed. Also the child’s employer is not required to deduct PAYE from their wages and pay it on to Inland Revenue.
To qualify the child must:
- Earn $2,340 or less during this tax year
and - Be under the age of 15
or - Be under the age of 18 and at school
or - Have turned 18 the previous tax year and is still at school
This rebate is unfortunately not available for university or other tertiary students.
Please note while the wages are effectively tax free to the child these are still tax deductible to the business. So the business should pay them from the business bank account and record them as wages in the bookkeeping system so they can be claimed as a deduction in the business’ income tax return.
If you have any queries about school children as employees please contact us.
Holiday Home Rentals
We have recently noticed increased numbers of holiday homes being transferred to, or purchased using a loss attributing qualifying company (LAQC). A LAQC can allocate losses incurred to the shareholder’s personal tax return resulting in a reduction of their income tax liability or a refund of PAYE.
We recommend that the ownership structure of a holiday home rental property be considered carefully. While a LAQC structure may be most appropriate in some circumstances, owning the property personally can be more cost effective.
Inland Revenue have indicated that they are concerned about the genuineness of holiday home rental businesses. While we advise caution in this area we believe that as long as the rental business is genuine and the structure is carefully thought out then renting holiday homes for profit is still a viable business.
Important indicators of a genuine holiday home business are:
- Availability – the holiday home must be available to be rented out year round, including at peak times.
- Advertising – plenty of it and serious in its intention to attract bookings, certainly online (eg. Bookabach) and also with the local real estate agent or rental manager.
- Personal use – strictly limited if any, an adjustment will need to be made at year end for the number of days used privately.
If you have any queries or concerns about a holiday home rental business either existing or planned please contact us.
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. The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
