Beyond Covid-19

Well it has certainly been an interesting seven weeks; dealing with level 4 lockdown conditions and then easing into level 3 before finally getting back to a level of normal activity under level 2 conditions. Obviously things will never go back to business-as-usual as it was before Covid-19 raised its ugly head but we are able to get back to business and work on rebuilding our businesses.

Then we had the 2020 Government Budget announcements, a budget designed to make sure as many businesses as possible survive and are able to rebuild in a new economic environment.

Some businesses will never be the same, some will close and others will adapt and grow, taking advantage of the opportunity to revisit how they do business.

We reopen our office on Monday 18th May

with some Covid-19 restrictions in place.

While the office will be open please note Sari will still be working from home for a few more weeks. She is available for Zoom video conference meetings, on her mobile (021-548-489) or by email (sari@savage.co.nz)

Visiting our office

For us our focus will be on helping you as it always has been, the success of our clients is really important to us and to help you we need to make sure we have a workplace that is safe for you and our staff. This means if you do need to come to our office you will notice a few small changes that are designed to meet government requirements for operating under level 2 conditions.

We will have social distancing practices in place, there will be a table at reception for you to leave packages, there will be hand sanitiser readily available, there will be single-use facemasks available for you to use if you are meeting with a staff member and you will be required to register as a visitor to our office for contact tracing purposes whenever you visit, no matter how briefly.

Contact Tracing

We will be using the “I’m Here” contact tracing system, you will need to use your phone to scan a code when you arrive and depart. We have chosen this because it is a simple solution to use, however, our staff will be able to assist if you have any issues using it. There will also be a form to fill in if you don’t have a mobile phone. You can check out the system at www.imhere.nz so you know what to expect when you do visit us.

The Budget

The one Budget item that will have the most impact immediately for many businesses is the announcement of an extension to the Wage Subsidy Scheme.

If your business has suffered a 50% or greater decline in turnover for a two month period then you are able to apply for a subsidy to help you pay staff wages for another eight weeks.

Small Business Loans via IRD

Announced before the budget but included in the overall Covid-19 response package is a loan scheme for SMEs. The scheme (https://media.ird.govt.nz/articles/government-boosts-cashflow-support-for-small-businesses/) for SME’s is to be administered by IRD. This will be interest free for 12 months or low interest for up to five years with no repayments for the first two years if you take the low interest option. It will be administered through IRD and provides for loans of $10,000 per business plus $1800 per employee up to a maximum of $100,000.

While we can’t make the application for you we will give any of our clients up to an hour free time to help you with your application, just email Sari, Anna or Libby to arrange a time to talk.

We hope you are all staying safe and we’re looking forward to talking with you sometime soon.

Covid-19 update – 14.04.20

Well it continues to be an interesting time we are working our way through. The great news is that the Covid-19 lockdown appears to be having a positive effect by controlling the spread of this illness.

While all the signs are good we still have a long way to go, firstly to get through the immediate crisis and then a very long road to economic recovery. We are expecting some of the lockdown restrictions to be eased but not expecting them to be lifted totally for a few months yet.

Today’s Government Announcement re Level 3

The Government has announced general conditions for operating under Level 3 restrictions when they do drop the Covid Threat Level from Level 4 to Level 3.

It appears there will still be strict restrictions on who can open for business and how those businesses operate. The key point is the social distancing 2 meter ‘bubble’ must be retained. We’re uncertain how this will effect Savage & Savage and whether or not we are able to operate from our offices. We are expecting to not be able to operate from the office however we do want to get back as soon as we can and will be seeing if the detail in Level 3 lockdown rules allow us to. Watch this space.

Planning

With that in mind business owners need to start thinking about what their business is going to look like post Covid-19. Some of the things to consider are when will your business be able to be up and running again? Will your business clients still be in business? How will your general customer base have changed? What will your cash flow look like for the next two years? How many staff will you need? What is your tax liability for the next two years? And many other things.

There are many things to consider and every business owner is going to have to do some serious thinking and planning. We can help you with your cashflow forecasting for the next few years so we are happy to offer our clients an hour of time from either Anna or Libby, at no charge, to discuss what you need to think about when preparing a cashflow.  If you’d like us to prepare your cashflow for you we will give you an hours’ free time when preparing it.

Recent tax changes announced

The Government has announced some changes to various taxes and payments, in particular tax carry back changes (tax losses carried forward). When we get exact details about the implementation of these changes we will share those with you but in the meantime you will need to do some panning, both for your cashflow and future tax purposes.

So we can accurately estimate your future tax liabilities it’s important we have the most up-to-date information as possible so please don’t delay sending your annual accounts information to us. By having your tax position for 2020 established we can then look at forecasting 2021 for the loss carry back if you have one. The tax relief measures will be easier to use if books are up to date.

Attached is a factsheet from the Beehive – Supporting small and medium sized enterprises during the COVID-19 crisis. This is a summary of the latest support measures being rolled out by the government.

Annual Accounts

We operate on a first in – first out basis unless there are urgent business needs like refinancing business sale etc so the sooner you get your information to us the sooner we can get your annual accounts finished.

Tax payment relief

When it comes to IRD payment arrangements your tax position needs to be established first, this goes for all tax types. It’s better to get in contact with us to request an IRD payment arrangement rather than just not paying – even though IRD will be lenient and write off interest and penalties it is much better to have a formal arrangement in place.

Payment of our invoices

We understand these are difficult times financially for many businesses and we don’t want this to be a barrier to us doing work for you so if you would like to make an arrangement to pay your account with us over a period of time please contact Neil at neil@savage.co.nz . We want to make sure we help all of our clients as much as we can.

Please continue to think about your safety if you are out and about.

We’re working on how we will operate under Covid-19 Level 3 restrictions when they come into place, hopefully in the not too distant future.

Covid-19 Update – 30.03.20

We certainly hope you are all well and sticking to the rules, everyone doing the right thing now will help businesses get up and running again. Having said that we are expecting the current four week lock down to be extended, to possibly eight weeks, and then restrictions to come off slowly I.E. – reverting back to level three restrictions for a few weeks then back to level two.

We have no definitive evidence of this but looking at what’s happening overseas this is what we expect. The real message here is we are in this very unusual and curious situation for many weeks to come and we need to be prepared for it.

Savage & Savage invoicing and payment

We will be emailing March invoices as usual in the next week, however these will not contain the same level of detail we normally include as we are working remotely and don’t have access to some of the information we use each month due to not being able to get in to our premises. If you require a fully detailed invoice we can send this to you when we are able to return to the office, but do note the totals won’t change.

We also understand it a difficult managing cashflow for many so with this in mind we will work with clients to make payment over time if required. We are in exactly the same position as many of our clients, we are a small business too and are subject to the same pressures of not being able to work at normal levels to generate income.

It is important we all pay our regular invoices on time so the economy keeps ticking over but as I said above, we are very happy to work with clients to arrange payment over a few months. Please just contact Neil and he can make suitable arrangements with you. His contact details are shown below.

Wage Subsidies

Many of you will have applied for and received the wage subsidy. You need to try your hardest to pay employees named in the application at least 80% of wages. If you want and are able to you could give employees the option to top it up to 100% using annual leave or sick leave. If it isn’t possible pay 80% you need to pay at least the subsidy rate. Employers are obliged to retain the employees for whom they receive the subsidy for 12 weeks.

Paying the subsidised wages

When processing the pays in payroll, work out what 80% of their normal hours would be and pay that as ordinary hours. By paying it as ordinary hours PAYE, Kiwisaver, holiday pay etc is calculated as it should. If the employees hours vary you will need to work out an average of the last 4 weeks hours. If the last 4 weeks are not an accurate picture of their usual fluctuations in hours you can average out over the last 12 months. If topping up pays with annual leave or sick leave, use appropriate pay code.

Please set up a spreadsheet or similar to keep track of how much of the subsidy is used each pay as any balance unused is earmarked for wages but can be used for other employees. If you use the full subsidy amount for each employee each pay period, then you wouldn’t need to track it.

Reconciling transactions

Sole trader

The subsidy payment received has no GST. Code to other/sundry income, change to no GST. It is taxable as it is received by the end user.

Companies that pay end of year Shareholder Salary – no other employees

The subsidy payment received has no GST. It is taxable to the shareholder when taken as drawings. As it will be used over a period of time and is a grant earmarked for wages, it should be coded to a liability account called Subsidy with Conditions.  We are more than happy to take care of coding if you’d like. We will then transfer the subsidy out of the liability account as it is used up and ensure correct coding and tax treatment.

Company or partnership with employees

The subsidy payment received has no GST. As it will be used over a period of time and is a grant earmarked for wages, it should be coded to a liability account called Subsidy with Conditions.  We are more than happy to take care of coding if you’d like. We will then transfer the subsidy out of the liability account as it is used up and ensure correct coding and tax treatment. Taxable to employees as wages.

For all employers (Sole traders excluded), the income is not taxable and it is not a deductible expense when paid, we will take care of coding and ensure correct treatment when we prepare your annual accounts.

Rent and Lease Obligations

The impact for this Covid-19 event is likely to be long and lingering,

With this in mind, we recommend you contact your landlord sooner rather than later to discuss your lease and rent situation. Many leases are based on the Auckland District Law Society form and depending on the version of the ADLS Lease form you have signed with your landlord (clause numbers may vary) you should be able to negotiate a reduction in rental to a ‘fair proportion’ of the rent and outgoings as provided under clause 27.5 (No Access in Emergency) of the lease agreement.

  • There exists an “emergency” that prevents the tenant from gaining access to the premises to fully conduct business from the premises because of reasons of safety of the public

27.5 (a)       Access is prohibited

27.5 (c)       Restriction on occupation of the premises is by a ‘competent authority’ (the government of New Zealand)

We believe that lease clause 27.5 can be relied on to enter into negotiations with your landlord.

We have seen a range of negotiated results and it is apparent landlords are prepared to share the pain everyone is experiencing, the question of what is a fair proportion of rent and outgoings is going to vary depending on your business and lease term and conditions but you should be talking with your landlords now.

Please don’t hesitate to contact us if you have any questions.

IRD changes – Free seminar & webinar in March

Chamber of Commerce Seminar

The Nelson Tasman Chamber of Commerce is hosting an IRD seminar at NMIT on the 12th March on the IRD’s business transformation and further changes to be implemented in April. This includes changes to payroll, Kiwisaver and Student Loan accounts in myIR.

It will be a great opportunity to learn more about the changes and how to get ready and to ask IRD representatives any questions you may have. It is open to both members and non-members and is free to attend.

Follow this link to find out more and to register

IRD Webinar

IRD are also running a webinar suitable for Employers and Not-for-Profit organisations on Wednesday the 18th March. This webinar will help you prepare for the upcoming changes.

To find out more and to register click here

Residential Loss Ring-fencing

From the 19/20 year onwards losses from a residential rental property can no longer be offset against other income such as salary, wages or other business income.

The loss from one rental property can be offset against other residential rental income if you choose to use the portfolio basis (if you own more than one property the rules can be applied to all your affected properties as a single portfolio).

If you have unused losses at the end of the year they will need to be carried forward and can be used to offset future income from residential rentals including taxable income on sale if the bright line rules are triggered and depreciation recovered (if you owned the property before 2010). In some situations, any remaining losses can be released from the ring fencing rules, but more often than not they will need to be carried forward until the day you receive surplus residential rental income again to offset the losses carried forward against.

Certain properties are excluded from the ring-fencing rules including your main home, farmland, property that the mixed-use asset rules apply to, business and commercial premises, to name a few.

If you are a client of ours holding residential rental property you will hear from us over the next few weeks with more specific information.

If you have any questions, please contact anna@savage.co.nz

Residential rental loss ring-fencing

Many of you will have heard about the ring-fencing of losses made from residential rental properties which applies from 1 April 2019.

Deductions for residential properties are now ring-fenced so they can only be used against income from that property, or sometimes a portfolio of properties.

Deductions that exceed the income from that property/portfolio of properties will need to be carried forward, to offset future income from that property/portfolio of properties.

This means that losses from a rental property, that you in the past would have used to offset against your other income, is no longer available for that purpose. They can only be used to offset future profits from that property/portfolio of properties.  

The rules apply to all entity structures, ie sole traders, partnerships, trusts, LTCs and ordinary companies.

Family homes, farms, commercial rental and business premises are excluded.

We will send some detailed information including going over different scenarios, to those of our clients who have residential properties in the new year.

Inland Revenue to probe hospitality sector for businesses hiding cash sales

First published in Stuff 4th October 2019

This serves as a word of warning to anyone who owns a business where cash is regularly received as payment for goods and services

Four members of the Thai restaurant family have been sentenced to prison or home detention after a $2.3 million tax evasion case brought by Inland Revenue, and another was convicted but discharged.

They were also been ordered to pay more than $2.2 million in reparations by the High Court in Wellington over tax evasion carried out through 21 “Thai House Express” restaurants around the country.

The five – Boonrouen Thongskul, Sirirat Kampeng, Anchalee Minwong, Chanaratt Thongskul and Anuchit Tongskul – originally denied the charges but entered guilty please five weeks into the trial that had been expected to last ten weeks.

They were accused of having been part of co-ordinated tax evasion effort over a seven-year period which involved not reporting cash sales to the taxman, and distributing the cash directly to family members.

The charges related to the filing of 366 false income tax, GST and personal tax returns evasion relating to their own tax affairs and those of their 11 companies.

“Once they’d heard much of the Crown evidence against them, these five entered guilty pleas in relation to the GST and income tax returns of the businesses for which they were responsible, and their own income tax return,” said Inland Revenue spokesperson Richard Philp.

“By their guilty pleas the brothers and sisters acknowledged they knew their returns were false and were a deliberate ploy to evade tax. Cash sales were deliberately suppressed to pay less tax.

“An aggravating feature of the offending for Chanaratt Thongskul and Anuchit Tongskul was that their declared income was low enough to qualify for Working for Families Tax Credits in some of the years charged.

“The case followed an extensive investigation into the family group with searches of private properties disclosing business records, luxury goods and cash in some instances.

“The general allegation was that the family distributed the cash amongst themselves, as part of a deliberate practice of not reporting or recording cash sales and diverting the cash to private use.

“This is not trivial tax evasion. At one point in the trial the cash deposited in personal bank accounts was said to be more than $9 million. For these five defendants the sum is more than $5.2 million.”

At the High Court in Wellington today Chanaratt Thongskul was sentenced to two years and eight months in prison and ordered to pay $900,000 in reparation.

Sirirat Kampeng was sentenced to 12 months home detention and ordered to pay $600,000 in reparation.

Anchalee Minwong was sentenced to 10 months home detention with $400,000 in reparations.

Anuchit Tongskul was sentenced to nine months home detention and must pay $300,000 in reparations.

Boonruen Thongskul was convicted and discharged with $5000 in reparation to pay.

Moving on from cheques

IRD recently announced their decision to no longer accept cheque payments for any form of tax from 1st March 2020. We will be in touch with those who for one reason or another (ie no rural broadband) can’t pay online to help you identify other payment methods.

Here’s what IRD had to say in their news release:

Cheque usage continues to decline every year. Last year cheques only accounted for 5% of payments to Inland Revenue and some people who used cheques also used other payment methods.
From 1 March 2020, Inland Revenue will no longer be accepting cheques if customers have an alternative payment option available. This includes post-dated cheques (cheques dated after 1 March 2020).

Around 90% of the cheques we receive come from clients of tax agents. If you or your clients use cheques you will be instrumental in the transition to alternative payment methods. There’s plenty of time before next March for people to explore their options and find a convenient and secure way that works for them.

There are many different ways to pay – electronically or in person.

Ways to pay

Here’s a summary of payment options:

  • myIR: You can pay by direct debit and make debit card and credit card payments securely through myIR online services. Visit our website (ird.govt.nz) and login or register for myIR.
  • Online banking: You may be able to make payments using online banking. Contact your bank for more information.
  • Credit or debit card via our website: Use your credit or debit card to make online payments through our website. Visit ird.govt.nz/pay.
  • In person at Westpac: Pay by EFTPOS or cash at a Westpac branch or Smart ATM.
  • Money transfer: If you are overseas you can pay us using a money transfer service. Search for “make a payment” on our website for more information.

Charges may apply for some payment options.

We are soon going to start contacting cheque payers (and their tax agents) to let them know about this change and alternative ways to pay.

In the meantime, if you would like more information visit our website at ird.govt.nz/pay.

Ir-file discontinuation for filing Employer Monthly Schedules and payday filing reminders

The ir-file service in myIR will be discontinued on 11th March.

That means if you file your February Employer Returns online before 11th March, you can file under ir-file as you do now.

If you file after the 11th March you need to use ‘payroll returns’ account in the Business tab section of myIR.

March Employer Monthly Schedules must be filed through the ‘payroll returns’ account.

From 28th February payroll returns will be available in myIR (or earlier if you’ve opted in early to payday filing) and you will need to add it to your work space.

The Business tab section is where you will go to file your payday schedules from 1 April unless your software supports payday filing and you can file directly from the software.

A reminder, your last Employer Monthly Schedule will be for the month of March, due on the 20th April.

From 1st April, you will also need to file payday information within 2 days of paying your employees.

If you file paper returns (only available if annual PAYE and ESCT are less than $50,000) you need to file your information within 10 working days of:

  • the payday, or
  • the 15th and end of month (if you choose to send information twice a month)

Please call Anna at our office on 03 5484894 or email anna@savage.co.nz if you have any questions re ir-file or payday filing.

International Automatic Exchange of Information

New Zealand has signed up to the Automatic Exchange of Information (AEOI) – a global OECD initiative to combat tax evasion.

Inland Revenue has been running an AEOI awareness campaign since 9th June 2018 with a primary focus of this campaign being to generate awareness among New Zealand tax residents most likely to have offshore accounts or financial interests, so they can take steps to determine if their tax affairs are in order and disclose if they identify issues. New Zealand tax residents with complex international tax affairs should contact us for support or advice.

This awareness campaign has included online advertising on relevant websites and via Facebook. These ads include a link to IRD’s campaign landing page.

As part of AEOI financial institutions will provide Inland Revenue with information about foreign tax residents with financial accounts in New Zealand, in line with the Common Reporting Standard (CRS).

IRD are now exchanging information with many other countries so it is vital you tell us about any income or assets you may have in other countries, if you don’t then chances are IRD will find out about it and that may cause you a few problems, something no one likes happening with IRD

The requirement of New Zealand Tax Residents to report world-wide income hasn’t changed, but IRD are now more likely to find out about it even if you don’t declare it. Please make sure information regarding ALL overseas income, bank accounts or assets is provided to us for your tax return preparation, even if you think it’s non-taxable income!