McLEAN AND CO. Chartered Accountants

Accounting          Taxation         Business Advice and Development Assistance           Audits                             

 P.O. Box 10 , Clive         133 Main Rd, Clive           Tel. (06) 8700952          Fax. (06) 8700955 

Email murray@mcleanandco.co.nz                                  Website www.mcleanandco.co.nz

 
 
EMAIL NEWSLETTER  JULY 2011
 

Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. We trust you find it informative.  

 

NEW CLIENTS

We are happy to accept new clients.  We would be happy to assist colleagues and acquaintances as new clients.

 

INDEX

  1. Extra Income such as Tips.

  2. Donation Rebates.

  3. What is Child Support?

  4. Is Property Still a Good Investment?

 

EXTRA INCOME SUCH AS TIPS

Tips paid directly to the Employee or pooled between them

If tips are paid by the customer direct to an employee, or pooled and shared among employees, the:

  • employer does not have to account for these types of tips
  • employee must pay tax on these payments.

Tips collected by a Business as Service charges

If tips are collected by a business as service charges, added to the customer’s bill and later paid to an employee:

  • the employer must treat these receipts as income and
  • deduct tax from payments to employees.

 

DONATION REBATES

You can claim a Donation Rebate if you made a gift of money voluntarily to a donee organisation, where there is no identifiable direct benefit to you or your family.

You need receipts to show that you donated $5 or more to:

  • approved donee organisations . You can search these on www.ird.govt.nz/donee-organisations/
  • approved New Zealand religious organisations
  • medical research schools and universities
  • approved overseas aid funds
  • kindergarten associations (excludes private kindergartens or other early childcare fees - these may be claimed under the childcare tax credit)
  • state and state integrated schools, or their board of trustees (the payments can either be "donations" or payment of "school fees" if they go to the school's general fund).

    Exceptions:
    • payments for classes where there is a take-home component, such as woodwork
    • where attendance or participation in the activity is voluntary
    • transport to or from a school activity, such as a camp or food at the camp
    • tuition fees.
  • other schools who have been approved as donee organisations (the payments must be "donations")
  • parent-teacher associations (the payments must be "donations").

You can't claim for:

  • tuition, exam or tertiary educational institution fees
  • payroll giving donations you made through your salary and wages. You received the tax credits at the time of your donation.

You can use the IR526 to claim tax credits for donations not made through payroll giving.

 

WHAT IS CHILD SUPPORT?

The Aims of Child Support

Inland Revenue Department Child Support Department administers the Child Support Scheme, which is designed to collect money from parents not living with their children to help financially support them when:

  • a couple who have children split up, or
  • two people have children and aren't living together.

The Child Support Scheme operates under the Child Support Act 1991. This legislation aims to ensure that:

  • parents take financial responsibility for their children when marriages and relationships end
  • financial contributions from paying parents help to offset the cost of benefits, like the Domestic Purposes Benefit, which support custodians and children.

How does Child Support work?

  1. The person caring for the child generally applies for Child Support. IRD call this person the custodian. Custodians can sometimes be people other than parents - like grandparents or a member of the whanau, or Child Youth and Family if they have the care of the child. In these cases both parents may pay Child Support.

  2. IRD use a standard formula to calculate how much Child Support must be paid by the paying parent. A paying parent is the parent who does not care for the child on an ongoing basis.

  3. The standard formula uses a process which works out the paying parent's taxable income, takes away a set living allowance (the amount of which depends on their living arrangements - such as if they have a partner and how many children live with them), and multiplies the result by a percentage based on the number of children the paying parent pays Child Support for. 

  4. IRD then divide the annual amount into monthly amounts. IRD let the:
    •  the paying parent know how much they need to pay, and
    •  the custodian know how much they will receive.

  5. IRD collects payments from the paying parent and passes them on to:
    • the custodian to assist with care of the child, or
    • the government, if the custodian is receiving a sole parent benefit like the DPB.

To qualify for Child Support, the child must be:

  • under 19 years of age
  • a New Zealand citizen or "ordinary resident" in New Zealand
  • not married or in a de facto relationship
  • financially dependent, that is, not working more than 30 hours a week on average, or receiving a benefit or student allowance.

The paying parent must pay until their child turns 19. It will stop before this if the child starts:

  • living with them full time
  • work full time (30 hours a week or more)
  • receiving a benefit or student allowance
  • living in a de facto relationship or marries.

What are not matters for Child Support?

Child Support does not:

  • decide on custody of children, on access to children, nor who is a legal parent.
  • deal directly with children. Payments are made to the custodians.

Also, Child Support is not Working for Families Tax Credits.

 

IS PROPERTY STILL A GOOD INVESTMENT?

Tax changes for investment property came into force on 1 April this year, forcing many existing investors to review the ownership structures for their investments and the viability of retaining their properties.

The effect of the changes is that investors will no longer be able to claim depreciation on their buildings, and fewer investors will be able to claim losses against personal income. The backdrop to these changes is a depressed property market with little prospect of significant increases in property prices for some time to come. The question many are now asking is whether investing in property is still a good idea.

One of the most prevalent mistakes made by investors in all types of investment assets is to base investment decisions on tax benefits. As they say, ‘there are only two certainties in life: death and taxes’. To that should be added a third certainty, and that is, ‘tax rules change’.

Sound investments are those that stack up in their own right, rather than because they have tax benefits. Many investors made the mistake of purchasing properties in the expectation that future capital gain would offset losses and that the tax benefits would help their cash flow in the short term. This was not always a sound long term strategy. The impact of the new legislation is that those investments which were soundly based are likely to  continue to be so, and those which relied on the benefits of tax losses are unlikely to stack up.

Investors without good cash flow may well sell off properties over the next two years. The result is likely to be higher rents, fewer investors (but with deeper pockets) and more soundly based investment portfolios. In the long term, the increased stability will be a good thing for both landlords and tenants.

 

McLEAN AND CO KNOWLEDGE CENTRE AND ARTICLES ABOUT TAXATION AND BUSINESS IN GENERAL PRESS HERE FOR BUSINESS STARTUP KNOWLEDGE CENTRE PRESS HERE
FOR INFORMATION ABOUT COMPANY INCORPORATION PRESS HERE FOR PREVIOUS MONTH EMAIL NEWSLETTERS PRESS HERE

FOR PROPERTY INVESTMENT AND TAX INFORMATION PRESS HERE

FOR FRANCHISE INVESTMENT AND TAX INFORMATION PRESS HERE


The information provided in this email newsletter is for informational purposes only.   McLean and Co. accept no responsibility for the opinions and information expressed in the information provided and it is provided "as is" without warranty of any kind.    The user assumes the entire risk as to the accuracy and use of this document.   Readers are asked to seek professional advice pertaining to their own circumstances.    The McLean and Co. email newsletter may be copied and distributed subject to the following conditions:
  • All text must be copied without modification and all pages must be included.
  • This document must not be distributed for profit.    

 

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