Tax Tips & Common Mistakes

Tax Tips

Income Tax

The first year in business is not tax-free — you can choose to pay it in a lump sum after filing your first return, or you could choose to use AIM and pay small amounts during the year when your business makes an accounting profit. If you have to pay over $5,000 in tax after the first year you will need to pay provisional tax for your second year. See my previous article on Income Tax for more information.

File your income tax return by the 7th July if you don’t have an accountant. IRD can charge late filing penalties if the return is late. Normally $50.

Remember to pay your income tax & provisional tax on time. The payment date may be a few months after you file a tax return. Late payment penalties and interest can be charged on late payments.

GST

DO NOT keep the GST you charge. It’s not your money — you’re collecting it for the Government.

File your returns on time. These are normally due by the 28th of the month following. E.g. April – May GST return needs to be filed by 28th June.

Late filing penalties, late payment penalties and interest can be charged if filing and payments are not made on time.

PAYE

DO NOT file late or pay late. Penalties may be more than your PAYE deductions. This will also incur interest. Schedular payments also require PAYE to be paid to IRD.

If you are going to wind up your business DO NOT forget to deregister for GST and PAYE.

If you can’t afford to pay any of the taxes for any reason phone IRD before the due to setup a payment arrangement that will reduce the penalties and interest that are charged.

Common Mistakes

Income Tax – Read the income tax article for the due dates of terminal and provisional tax.

• Not keeping records of your income or expenses, or not keeping them for 7 years as is required by law.
• Calculating schedular payments on the amount after GST, not before.
• Not setting aside money to pay taxes
• Not realising tax needs to be paid on foreign investments. If you have these it is best to employ an accountant as the rules can be complex and it is easy to get them wrong.
• Portfolio Investment Entities such as Kiwisaver. Ensure these are taxed at the correct rate as IRD can now check these and will send a bill if they have been taxed at the wrong rate.
• Overclaiming Donation tax credits. Ensure you only claim the donation part of School fees not all the rest of the fees.
• Entering incorrect amounts into a tax return. Depending on the difference this may need to be notified to IRD or could be included in the next years’ return. If the amounts are drastically different the IRD could decide to review or Audit your information.

GST

• Not filing Nil returns for GST. If you have not had any income or expenses remember to file a nil return before the due date.
• Claiming GST on overseas transactions and on unregistered suppliers. Check all invoices and receipts to check if NZ GST has been charged. Also ensure you check contractors invoices as smaller contractors may not be GST registered.
• Claiming GST on assets that are for personal use. 100% GST can only be claimed if the asset is 100% for business use otherwise only a portion can be claimed. See more about this in next weeks article on expenses.
• Claiming GST on Finance/hire purchase payments. How to claim GST and code finance payments correctly will be covered in an article later.
• Not including all income & expenses in your return. Missing expenses as they have been paid through a personal account.
• Including Income & Expenses outside the GST period. This can be mitigated by using an accounting software like Xero to complete your return.

Information about fixing mistakes in returns can be found here. If you have made any large mistakes it is best to at least speak to an accountant about them and then employ an accountant if the mistakes are large as it can be very stressful if IRD conducts a review into your business. An Accountant can help to mitigate the stress by dealing with IRD on your behalf and finding a solution to the mistakes for you as well as negotiating payment plans if required.