UPDATED
IRD RATES
Mileage Rates
IRD have announced that the 2016 mileage rate has decreased from 74
cents to 72 cents per kilometre for both petrol and diesel vehicles.
This reduction is a result of lower average fuel costs and overall
operating costs expected during the 2016 income year.
Self-employed taxpayers are able to use the above rate up to 5000km of
work related travel during the year. There is no restriction on
engine size or fuel type to motor vehicles. Self employed taxpayers
must use one of the following methods if their business related travel is
over 5000km:
- actual expenditure
- log book method
The above rate may be used as a reasonable estimate by employers for
reimbursing employees' (and shareholder employees that meet the definition
of employees) expenditure incurred by the employee in connection with
their employment. Employers have the right to use an alternative rate from
another reputable source than the IRD rate, for example the New Zealand
Automobile Association.
Use of Money Interest
IRD charges interest daily on outstanding amounts of tax (more than
$100) This includes penalties, and is charged from the day after payment
is due. This UOMI was reset from 8/5/2016 to 8.27% (down from 9.21%) for
underpayment of tax.
IRD will pay interest on overpaid tax from the later of the day after
at 1.62% from 8/5/2016 (down from 2.63%) for overpayment of tax in the
following situation:
- your payment was due
- you make a payment which creates a credit balance
- you file your return
NEW
BRIGHT LINE RULE FOR RESIDENTIAL PROPERTIES
New Zealand Citizens and Residents
The bright-line
rule only applies to residential properties bought on or after 1
October 2015. Under this rule you'll pay tax on income you earn if you buy
and sell a house within two years, unless you're selling your main
home or another exception applies.
All existing property tax rules still apply.
Check out the bright-line
questions and answers for more information, including:
- other exceptions to the bright-line rule
- tax requirements if you sell overseas property
- how to pay tax on property income.
New Information Requirements
When buying, selling or transferring New
Zealand property, excluding your main
home, you’ll provide your:
You’ll give your property lawyer or
conveyancer this information. You may choose to do this by filling in a Land
Transfer Tax Statement, which is available on the Land Information New
Zealand (LINZ) website.
If you’re transferring property that’s in trust, you’ll supply
the IRD number for the trust. Trustees’ IRD numbers can’t be accepted.
Everyone Else
The bright-line
rule only applies to residential properties bought on or after 1
October 2015. Under this rule you'll pay tax on income you earn if you buy
and sell a house within two years, unless you're selling your
main home or another exception applies.
All existing property tax rules still apply.
Check out the bright-line
questions and answers for more information, including:
- other exceptions to the bright-line rule
- tax requirements if you sell overseas property
- how to pay tax on property income.
NEGATIVE
GEARING- PROS, CONS, HOW IT WORKS
Negative gearing is a practice whereby an investor borrows money to acquire
an income-producing investment property and expects the gross income generated
by the investment, at least in the short term, to be less than the cost of
owning and managing the investment. The arrangement is a form of financial leverage. The investor may enter into such an arrangement and
expect the tax benefits (if any) and the capital gain on the investment, when
the investment is ultimately disposed of, to exceed the accumulated losses of
holding the investment.
Taking out a loan to raise money for an investment is a well-used tactic for
many New Zealanders. In fact, borrowing to buy big ticket items is part of
financial reality — how many of us could afford to buy a house out of our own
pocket, for example.
Borrowing funds will increase the amount you can have invested, and naturally
amplifies potential gains because there is more of a capital base on which to
earn returns. The caveat in all this, of course, is that it can also magnify
losses. If you're using borrowed funds, and the investment makes a loss, you are
still responsible for the interest on the loan as well as the principal of the
loan itself.
A "geared" investment is just another way of saying that the amount
invested has been ratcheted up through getting a loan.
One of the basic principles of tax in New Zealand is that costs necessarily
incurred in earning income are generally tax deductible. Where a loan is needed
to buy an income-producing asset, the interest on the loan is tax
deductible.
For investment property, the ideal situation would be to make enough returns
to cover loan repayments, plus interest, over the life of the loan. But what if
some negative influences crop up? Say interest rates increase, or the tenants
move out and leave you with no rent coming in. A longer-term concern would be
the property losing value over the time you own it.
A negative gearing strategy makes a profit under any of the following
circumstances:
- if the asset rises in value so that the capital gain is more than the sum
of the ongoing losses over the life of the investment
- if the income stream rises to become greater than the cost of interest
(the investment becomes positively geared)
- if the interest cost falls because of lower interest rates or paying down
the principal of the loan (again, making the investment positively geared)
The investor must be able to fund any shortfall until the asset is sold or
until the investment becomes positively geared (income > interest).
Should a loss be made on your investment property because its costs exceeds
its income, the laws on negative gearing can step in and reduce the impact of
that loss by allowing you to offset it against other income — in other words,
you can take the loss off your assessable income to end up with a reduced income
before tax is calculated. With investment property there are also
allowable expenses to be deducted — rates, repairs, depreciation of assets and
more.
