As Chartered Accountants in the rural sector we consider a lot of factors when we prepare a set of accounts and file tax returns for our farming clients. One of the things that is very important is viewing the client's entire family situation, not only in the respect of saving tax but also ensuring that other entitlements and savings are considered. We also need to read the market, look at where incomes are going in the future and plan accordingly. Some of the things we look at are discussed below.
Wages paid to family members
For many years farming families were able to pay their children a weekly wage up to a certain level which was tax deductible yet tax free for the children. The government have now removed the tax free exemption so in order to satisfy Inland Revenue requirements PAYE must be deducted from any wages paid to children who work on the farm. It is still tax effective to do this as the individual tax rate up to $14,000 per annum is 10.5% which is a relatively cheap rate of tax. Proper wage records must be kept not only for normal employees but for children who are employed for farm work as well. Remember that all employees need employment contacts.
So long as correct wage records are being kept and PAYE is being paid appropriately then not the entire net wage needs to be paid out immediately to your children. Some can be held in education accounts or in a savings account to meet future costs.
Student Allowances and Working for Families
Our office has been particularly busy over the past two months filling out income statements for student allowance purposes. Study Link who administer the student allowance scheme have new criteria for determining parent's income which is in line with the new definition of income for working for families tax credits which came into effect almost two years ago. What it means is if farming families have companies or trusts that make profits over and above the wages or salaries that are paid to the individuals (Mum and Dad) then these profits need to be added on for both working for families and student allowance purposes. Other payments that families may have received including payments of over $5,000 per year from other sources, fringe benefits received or drawings from the business (over and above the actual profits) will also be added onto the parents' income.
Based on the changes made we are seeing that less farming families are now entitled to working for families and in addition less students are entitled to student allowances or their student allowance entitlements are becoming a lot less.
Paid parental leave
Self-employed parents including farmers are eligible for 14 weeks paid parental leave which applies to both births and adoptions. The paid parental leave entitlement is the same as the applicants average weekly income up to the maximum amount of $504 per week. Taxpayers who have made a loss or earn less than the minimum wage are entitled to receive payments for 10 hours per week at the minimum adult wage which equates to $142.50 gross per week. The 2014 budget announced that paid parental leave will increase to 16 weeks from 1 April 2015 and extends to 18 weeks from 1 April 2016.
Accommodation and meals provided to employees
New rules effective from 1 April 2015 clarify the tax treatment of accommodation and meals provided to employees including family members. This also covers allowances paid to reimburse employees for accommodation and meal expenses. The Inland Revenue Department website (www.ird.govt.nz) has been updated and provides information on this. It is important that these sorts of payments are treated correctly as if not fringe benefit tax may apply and if so it may have a bearing on the recipients working for families entitlements.
We are continuing to see farmers and other business people utilising ACC CoverPlus Extra to reduce their ACC costs. Many farmers and business people are opting to be covered for the minimum ACC cover (currently $22,880 per annum) and obtain some sort of income protection insurance. Not only is there an ACC saving but income protection insurance may also cover for illness and events that ACC won't usually cover.
While I was writing this article we had just had some decent rain and the Global Dairy Auction had shown a 9.4% increase. After a very tough start to the year things are starting to look more positive for our farmers. Let's hope this continues for the rest of 2015.