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Taxing Times Ahead for Farmers - August 2018

Taxing Times Ahead for Farmers

July through to December is the main reporting time for both dairy and drystock farmers who usually have a May or June balance date. Profitability has certainly been up over the last couple of years, helped by an increased Fonterra payout, along with excellent returns for both sheep and cattle.

In our office we have completed a number of 2018 financial accounts for both dairy and dry stock clients and it is noticeable that profits have been very good. In addition to increased gross income through higher commodity prices, farmers in general have worked very hard to reduce their costs and are farming in a more sustainable and prudent way. Interest rates remain at very low levels and generally the past couple of seasons have been pretty good from a climatic point of view.

Livestock Valuation Options

With profit comes tax. Although it can be looked at as a problem, it is certainly a good problem to have. In the King Country farmers are fortunate to have the option of a number of excellent rural accountants that specialise in the farming sector. In our office we are looking carefully at how livestock are valued in the financial accounts as this can have a considerable impact on tax. Generally for beef and sheep farmers we will not be adding any livestock to the Herd Scheme this year, as these are at historically high levels. Dairy cattle values, however, are low for the 2018 financial year and it may be an opportune time to utilise the herd scheme, although this will add to a farmer’s income and cause even greater tax problems in the short term. However, once livestock is on the herd scheme, it can save that farmer a lot of tax when they eventually sell their livestock in the future, as the increase in value over time will be tax free. It is certainly worth going through the exercise.

Increased ‘safe harbour’ threshold – a positive change

The change that came into effect from the 2018 tax year onwards, that has helped farming businesses from a tax perspective, is the lifting of the safe harbour threshold from $2,500 to $60,000 for trusts, companies and individuals. In the past accountants would generally be scrambling to keep a client’s tax to a lower level, to avoid use of money interest that is imposed by the Inland Revenue Department for underestimating the provisional tax that has been paid. The new system is a lot easier to work with, it avoids a lot of profit estimating which costs time and money and so is overall much fairer for farming families and small businesses.

Option to delay filing dates with IRD

With the lift in incomes for the 2018 year, most farmers would not have paid sufficient provisional tax. This will generally mean terminal tax to pay in April next year and increased provisional tax for the current year. Accountants do (in most cases) have the option of not filing tax returns with the Inland Revenue Department until later in the year (perhaps after the second provisional tax instalment date) and this can help with cashflow as effectively it means deferring the bulk of the provisional tax to a later date, when funds are available. In the meantime, provisional tax is paid at a lower level, based on the previous year’s profit.

Tax is one of life’s certainties, unfortunately high commodity prices and low interest rates are not. As always good communication with your accountant is essential.

Tax Rates (As at April 2018)

Tax Rates (As at April 2018)

Individuals

  • 0 – 14,000                                            10.5%
  • 14,001 – 48,000                                  17.5%
  • 48,001 – 70,000                                   30%
  • 70,001 +                                               33%

Trusts

  • Flat tax rate                                            33%

Companies

  • Flat tax rate                                            28%
  • DWT (Dividend Withholding Tax)           5%

Alert - Scam Email! 9 May 2018

We have been made aware that there is a scam email being sent out to people. If you have received an email regarding a refund from Inland Revenue please contact us to confirm this is correct. The scam email will state the following;

 

From:  "This email address is being protected from spambots. You need JavaScript enabled to view it." <This email address is being protected from spambots. You need JavaScript enabled to view it.;

Date:    Monday, 7 May 2018 1:19 AM

Subject: A message from Inland Revenue. DO NOT REPLY

 

Dear Customer,

You still have a $____ tax return for period 2016/17 ending due 9 May 2018, now available for refund.Please submit the tax refund request and allow us 1-3 business days in order to process it.

Complete your details at https:((services.ird.qovt.nz/irsso/loain.aspx to receive your refund online.

Note*

Make sure all your income, benefits and family details are up to date in mylR, this will help make sure you're getting the right entitlements. This email is NOT a SPAM/BULK and has been sent as you have registered your email address with Inland Revenue.

Please do not reply to this email as this inbox is not monitored.lnland Revenue, 55 Featherston Street, Wellington, New Zealand.

By accepting this communication by electronic means you consent to accept future communications by electronic means for the purposes of section 16 of the Electronic Transactions Act.

Please do not reply to this email, the inbox is not monitored.

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Alert - Scam Email! 15 March 2018

We have been made aware that there is a scam email being sent out to people. If you have received an email regarding a refund from Inland Revenue please contact us to confirm this is correct. The scam email will state the following;

 

IR3 individual income tax return 2016

   1 April 2016 to 31 May 2017

 

After the last calculations of your fiscal activity, we have determined that you are eligible to receive a tax refund of $Amount NZD ending due 28 February 2018. Please Click Refund Form to sumit your tax refund request.

Note: A refund can be delayed a variety of reasons, for example submitting invalid records or appying after deadline.

This email was sent to - your email address - for the ongoing support of your account. For security reasons you'll be automatically logged off after 15 minutes.

Copyright 2017 Inland Revenue. Conditions of use

 

 

Changes to Provisional Tax Rules - April 2017

Provisional Tax

From the 1st April 2017, or balance date, there has been great changes to provisional tax. The thresholds for companies trusts and individuals have been lifted from $2,500 to $60,000. In addition, interest for all tax payers will only apply for tax payers with residual tax over $60,000, from the third instalment date, and will run until the tax is paid. Tax payers with residual tax below $60,000 will, under normal circumstances, not pay interest.

We set the basic position as follows:

Provisional Tax Changes from 1st April 2017

Previous Rules:

Use of money interest applied if residual income was over for

  1. Individuals $50,000
  2. Companies $2,500
  3. Trusts $2,500 (on trustees Income)

This was applied at a current rate of 8.33% per annum from the first instalment due for that year’s provisional tax.

For example 31st March 2017 Balance Date from:

            28th August 2017

            15th January 2018

            7th May 2018

In addition, penalties applied for late payment of standard uplift payments. These payments could be reduced by purchasing tax from a tax pooling intermediary who charged about 6%, but could back date payments to reduce interest and penalties if paid by the final date.

New Rules:

Provisional Tax threshold for interest charges is now $60,000 residual tax for Individuals, Companies and Trusts from 1st April 2017 or equivalent balance date.

Those tax payers with residual tax over $60,000 will have interest charged from the final instalment date (7th May 2018 for a March balance date).

Requirements to pay provisional tax remain as follows:

  1. 10% uplift on previous years residual tax (2016) where a tax return for 2017 has not been filed.
  2. 5% uplift on 2017 residual tax where a return has been filed.

There are some new provisions regarding anti avoidance to stop companies, trusts and individuals chopping and changing to get the benefit of this, and leaving money in the company and in the next year paying it as salaries or trust distributions. As long as a consistent approach is made, there are considerable savings and less administration work for a large number of tax payers. Those with residual income tax will generally be able to pay a best estimate on residual income tax likely to be over $60,000, as quickly as possible.

Tax can also still be purchased at a later date through a tax intermediary whose interest rates are about two thirds of those of Inland Revenue.

This change is great news as there are companies and trusts currently with residual income that have been previously caught with use of money interest as a result of residual income tax over $2,500. It will mean use of money interest will only apply after the normal due date, except where residual income tax is over $60,000 and the interest rate will commence on the last day for provisional tax payment.

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Our offices are located in Otorohanga, Taumarunui and Te Awamutu

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