Various tax concessions exist that can save significant time and money, but they are often overlooked. You may want to save this article as a handy reminder to take advantage of these options whenever possible.
Business-related legal fees are tax deductible irrespective of whether they are capital in nature, provided the total amount for the year is $10,000 or less. The concession is not just for companies – trusts and individuals can also take advantage of it. Because the concession allows capital expenditure to be claimed, it can be applied to legal fees to purchase or sell assets. The Government has accepted a recommendation by the Tax Working Group to increase and expand it to other categories of professional fees and some feasibility expenses, providing a tax incentive for businesses to invest and expand, so watch this space.
For indirect taxes, the preparation of GST returns can be time consuming. When most businesses initially register for GST they ‘default’ to having a two-monthly filing frequency. However, for smaller businesses with annual sales below $500,000, taxpayers have the option to choose the six-monthly filing option instead.
For taxpayers making payments of interest, for example a company paying interest to a shareholder, or to a related entity, Resident Withholding Tax (RWT) needs to be accounted for and paid to IRD. However, there is no withholding requirement where total interest payments for the year are less than $5,000. At the other end of the scale, RWT exemption certificates are available for taxpayers with gross income of more than $2m.
The Fringe Benefit Tax (FBT) regime can be complex to navigate, however there is a useful de minimis threshold for ‘unclassified benefits’ provided to employees, such as gift vouchers, flowers and chocolates. FBT is not payable when the value of such benefits in a quarter is below $300 per employee, and the total value of unclassified benefits provided to all employees does not exceed $22,500 in the past year. For example, if 10 employees are each given $200 vouchers at Christmas, no FBT would be due providing no other benefits in the quarter were provided and the $22,500 annual threshold is met.
Finally, provisional tax payments for income tax can cause a headache for many small businesses, however the rules were simplified from the 2018 tax year. Now, where Residual Income Tax (RIT) for a year is between $2,500 and $60,000, provisional tax payments can be paid based on the standard uplift method, with any RIT not due until terminal tax date. This removes the requirement to estimate tax payments in advance, reduces interest costs and provides cash flow benefits.
Further simplification to the provisional tax regime is expected following the Government’s recommendation that Inland Revenue should consider increasing the provisional tax threshold from $2,500 to at least $5,000. This would be a welcome change for taxpayers who fall into the provisional tax regime due to a one-off transaction. And as a final bonus to using an accountant, there is a specific provision that allows a deduction for expenditure relating to determining your tax liability. The provision also overrides the capital limitation, so in most cases, fees charged by your accountant should be tax deductible.