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Business Tax

What are the key tax issues that businesses face?

The tax system should be easy for businesses to comply with, ensuring they spend more time on running their businesses and less time on tax.  If it's easy to do the right thing, overall levels of compliance should increase.

What are the key tax administration issues currently facing businesses?  Are there any particular areas that present concrete ways of increasing speed and certainty?

Are there aspects of running a business that present specific tax administration issues for you – such as the impact of taking on more staff?

Comments

Joy
The way PAYE Is worked out needs to be made heaps simpler. It is far too easy to get it wrong especially with it being worked out based on different frequencies etc.

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1 year ago
Dione
Most small companies employ less than 5 people - not worth the expense of computer software to work out the PAYE. The IRD are good at politely pointing out errors. In which case, it should be possible to phone or go online, give the employees IRD number (with his permission of course), tell them the gross amount and be told how much net amount to pay. At the end of the month, the business could then be told how much is owing at 20th following. The business does not need to know what the deductions are for. This simple method would encourage many small companies who probably pay employees 'cash' at the moment, to be legal employers.

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1 year ago
carl
The key problem is, frankly, paying the money. Government makes far more money from my business than I do, and I have to do much of the paperwork. In terms of administration: (1) less changes. every change is weeks of MY personal time, going through trying to unlearn stuff I can't remember well, and trying to re-educate myself on something intricate and vital that I (hopefully) only use for a few hours a month. (2) keep steps and messages to a minimum - I already ignore dozens of emails each day, many of the rest tend to merge together... one company sends me three separate emails of "special deals" every day..so I had to set up an "Outlook" rule to delete them automatically. (3) At the end of the day, no matter how you shuffle the shells, there is only the same shells and same pea - don't pretend and dont try to sell us the benefits of swapping things around - we look at a clock to tell us how much time we spent, and our bank statement to tell us the cost - any tap dance/dog & pony/shell game just makes us more aware how many of your staff are paid more than us to sit around thinking sh.. up.

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1 year ago
Allan
The rules around capitalising and depreciating fixed assets are in need of significant update. The $500 threshold for capitalisation of fixed assets is too low, and not particularly relevant today. Equipment purchased for $500 has little economic value beyond 1 year, and the compliance cost of maintaining an asset register with lots of small assets is too high. The depreciation rates applied are far too complicated. I have a book with 250+ pages of depreciation rates for different assets to be used for tax purposes. That is a complete nonsense - there should be broader categories of assets to apply depreciation rates to, rather than for example a specified depreciation rate for "Microtomes" (Scientific and laboratory equipment - excluding equipment used in a medical laboratory).

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1 year ago
Josie
Fully agree - threshold of $500 is way too low. There's no way it's time efficient for the country to have people maintaining asset registers on assets of that size. It's better than it used to be ($200) but $2000 or more would be a lot more realistic - or, if necessary, a sliding scale depending on something like the size of a business. If a business has a turnover of $20m or more, you could claim assets as expenses up to say $5000 - or whatever seems realistic. IRD gets the some amount of tax in the end - more actually, because the time people save on not maintaining asset registers is time they could be using to make money = more tax for the government. Thanks for asking for our opinions.

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1 year ago
KH
Agree that $500 is too low but is too low for all businesses not just large ones. Otherwise it would 1. be inequitable and 2. for the same asset a large business would get 100% write off with the cash flow and compliance advantages that brings, but a smaller business - same asset -would have to capitalise and depreciate it. SME s already subsidise larger businesses and don’t need yet another disadvantage

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1 year ago
Josie
Also, it would be great if we could write off assets once their value reduced to below $500 or $1000 or similar. No more assets on the schedule with book values of $29.63 or $7.70 ....

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1 year ago
Michael Bennie
The collection and payment of Paye & Gst I see as working as an unpaid employee of the state and a small percentage be set aside to meet that cost.

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1 year ago
Glenn
Matters that affect tax administration: 1. calculation of PAYE deductions - faster with software 2. filing wage deduction information 3. income:capital distinctions 4. business:personal distinctions (apportionments) 5. differing top marginal tax rates 6. timing of provisional tax payments - based on historical data rather than current actual, and timing does not match most business cash cycles.

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1 year ago
Danny Walker
First, I love that I live in a country where my tax payments actually get used for mostly useful things, and that I can see the purpose of almost every tax dollar I spend. I do however hate to see inefficiency and wastage and I think our tax system has rather a lot of inefficiencies. My small business (which is just me really - I'm a software contractor) seems to require rather a lot of my time each month, and each year. I have an accountant to handle most of my official tax-return documentation, but as far as I can tell it's pretty much boiler-plate from one company to the next and form one year to the next. To my mind, this is a waste of time - why can't I just have a simple form that says "I declare that I made X dollars this year" - why the 30 pages of text that I hope nobody actually reads? My accountant charges me 1000's for this service and I'd rather that was used to build my business. Also, I spent about 6 years battling with paying my provisional tax on time, and always found myself behind - it's only been the last year or so that I've been able to catch up with my arrears by switching to the PAYE system - which appears to mean I have to actually pay more in the long run. I wish I'd done this from year 1, and I wish it was simpler. I do have to say that the IRD are always very helpful and understanding when I have to call, but I'd prefer that I don't have to call them at all. Perhaps if I'd been encouraged to use PAYE from the start, I wouldn't have had to. Generally, there doesn't appear to be much information or advice for small businesses like me. on how best to organise our finances. Danny

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1 year ago
Merv Joe
The key issue facing businesses is cashflow, by systemising the payment of tax more than it is currently you take away the business' ability to use its cash more effectively and thereby causing the business problems in meeting its obligations. The last change of provisional tax payments dates to January 15 is a case in point where a lot of businesses are facing cash flow problems from closing down but still paying holiday pay and close down costs. Exacerbated by paying GST and Prov tax on the same date.

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1 year ago
Graeme Johnstone
We are finding the provisional tax system most frustrating trying to get it right along with massively increing accountants bill which I suspect are partly driven by IRD compliance requirements, compound this with the tax penailties for getting it wrong even though you are doing your best to get it right is most annoying to say the least. Our accountant has got our provisional tax wrong so in April and May .We are now faced with massive terminal and provisional payments and GST and the accountants bill on top of that . This is not working for us and will put on the back foot for the next 6 months. Believe it is hard to keep motivated when all you are doing is working dam hard to keep the IRD and accountnat off your back.

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1 year ago
Karen Staples
Terminal tax - if small businesses get the amount wrong they should have paid through out the year - There should be an limit of say if you are out by $2000 then yes you do have to pay it but not get penalties on it.

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1 year ago
Paul Burgin
Stating the obvious, cash flow is king: hence the push against provisional tax. The other side of the coin is those that use the time between income and tax dates to improve cash flow/reduce borrowing costs. A system of pay as you go , as long as it is brutally simple, will make life easier for most. Were it possible to have some sort of interest rate return for money 'parked' at the IRD I am sure compliance would improve.

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1 year ago
Odette
The fact that Farmers pay capital gains tax as livestock grow is an outdated and fundamentally flawed exploitation of farms. Farms can be liable to pay an actual cash tax amount on a paper generated profit, even if the livestock have not been bought or sold. I would like to see the tax on livestock be triggered by cash transactions relating to actual cash livestock trading transactions, rather than annually paying an adjusted figure based upon the IRD valuation of Livestock on hand as at the balance date. Any idea to rationalise income tax into monthly returns would create a complicated mess for any entity who owns livestock, representing a massive part of our economy. Why is livestock tax not a separate discussion topic of its own? Farmers pay capital gains tax on livestock, and then again pay income tax on the profits generated by those livestock. Its unfair and seldom discussed.

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1 year ago
Rabbit
Flat or flatter income tax only, no fringe benefits and no F.B.T, no G.S.T, no R.W.T (it discourages saving) treble penalties for evasion, no tax havens, no fuel levies, no R.U.levies ( every one benefits from better roads and cheaper freight) tax all income earned in N.Z. Combine A.C.C with all health insurance (compulsory) = billions saved in government employee wages, billions saved in business compliance costs, billions of more productive hours earning more money and then paying more tax, instead of wasting time trying to minimise tax and tax compliance.

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1 year ago
Dave Stanton
Have Regional councils invoice and collect EQC levies via Regional council rates (Not Insurance companies) then everyone who owns land will pay them regardless of whether they are insured, paid the insurance, can insure. Everybody pays rates and will pay EQC - (If they don't pay rates have no mercy). Dave

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1 year ago
Peter Feehan
Improvements need to be reflected in the lives of the users. Us the tax payers. There has been a tendency for changes made to date to make life easier or more cost effective for the IRD but not for the user. Therefore this is a good initiative and it will bring some good results if implemented with an attitude of giving the end users a high priority. The advances in technology now could create more flexible payments methods and timings. So tax payers can pay at times that work for their business i.e any time. The technology must be used to make the end users life simpler. It must take less learning than previous methods and less time to work. Ultimately this would cost the country's business arm less to stay take compliant. For this to work the technology will also need to be used with a new attitude.

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1 year ago
William Reeder
Must be simplified, to pay according to income earned in real time and do wash up end of FY. Up to individuals and accountants to ensure accurate formula based on previous year(s) to avoid high end of FY terminal payment and penalty. Here is the genius. Option of overpaying to reduce risk of underpaying, bad surprises and penalties. BUT earn at least equal to bank interest so incentivises client to use IRD as a bank - everyone wins. Having tax payments early in the year is a killer! Huge cash flow issues. Holiday pay, reduced income for many self employed over holiday period, plus other costs due all at worst time.

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1 year ago
Grant
The issue I have with provisional tax is the penalty system and paying more funds to the IRD than necessary in case they penalise us. I cannot accurately predict my turnover let alone net profit at the start of the year and if I do increase my turnover through improved service / marketing I get penalised at years end because I earnt more than I predicted at the start of the year. This is plainly wrong and business should be encouraged to grow their business and employ more staff without the unnecessary cost of penalties by the IRD at exorbitant rates of interest. The rate reimbursement must be at the same rates the bank would offer for the amount & term the money was in the IRDs account unnecessarily.

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1 year ago
Lynn Townsend
Estimating profitability for the coming year and then being penalized when you get it wrong is totally unfair and unreasonable. My business is in agriculture, so it is very much weather dependent as we have not yet learnt to control the weather, therefore we cannot completely control our turnover and profit.

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1 year ago
Nigel Parry
The main issue is worrying whether we have paid the right provisional tax. Scrap the punitive interest for not getting it right until the end of the year (which s the only time we know the correct figure).

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1 year ago
Diane
Ditch Provisional Tax - When you're trying to grow a world class company you need to spend every dollar you have to grow into that international market, yet you're constantly being stunted by pre -paying tax on what can only be described as a 'guestimate' of what you may earn in advance. That money could be better spent on actually achieving growth which in tern would benefit the NZ economy. Then if you get it wrong the penalties are so high that you have just stunted your following years growth by having to pay not only the next Prov tax but also the penalties for not recognising them the previous years. Once in the past I was caught out in March by landing a huge unexpected contract which I should have been celebrating but instead I ended up commiserating as the penalties due instantly were crippling and interest charged was back dated by 6 months to my last Prov tax instalment for a job that I didn't even get paid for, for a further 3 months! I am more than happy to pay fair tax on what I earn but to tax me on potential is preventing a lot of NZ business moving and growing quick enough especially if they're also trying to compete in a world wide arena where our competitors already have an upper hand with larger seed funds on tap to help them out.

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1 year ago
KH
ENTERTAINMENT WHICH IS REALLY 100% BUSINESS. The current classification of some business expenses into entertainment and only half deductible is inequitable with SME businesses being excessively penalised. This whole area of taxation needs to be reviewed. As well as being unfair it creates extra work for GST, FBT and income tax. Training etc. for staff. The current rules are “Food and drink at conferences/staff training or business course. To qualify for full deduction of the cost of food and drink, the conference or course must continue for four hours or more, not counting meal breaks— morning and afternoon teas are not considered to be meal breaks. The conference must not be held for the principal purpose of entertainment.” Offering training or professional development for a couple of hours over some evenings (or maybe a half day but less than four hours) is considered “entertainment” under the current rules. It is not. It is 100% business, often making a long work day longer, and should be fully deductible. SME employers are more likely to use these options. Executive dining rooms (see below as defined by current tax law) are fully deductible. SMEs don’t have Executive dining rooms. They have shared spaces or use cafes as ‘shared space”. This is considered 50% private/ leisure time and is 50% not deductible. Using cafes for work space is 100% business – SMEs would not be doing it if it wasn’t for work. “Executive dining room ( an area reserved for the use at that time only by those at a certain level of seniority, and not open to all the employees working on the premises) and Food and drink at conferences/staff training or business course.” “The cost of a light meal provided to employees in an area reserved for senior staff is fully deductible when the meal is provided during the course of the employees’ duties. For example, sandwiches provided at a lunchtime meeting of supervisors.” SMEs don’t have this option – many use cafes or work space available for all staff. Light meals in a shared space or café if provided during the course of the employees’ duties are 100% business – SMEs would not be doing it if it wasn’t for work. It is 100% business and should be fully deductible. “Food and drink provided or consumed”. SMEs that don’t have large or suitable business premises still have Christmas or other staff functions (and business lunches). These are not a leisure activity but 100% business. SMEs would not be doing it if it wasn’t for work. It is 100% business and should be fully deductible. The litmus test should be – would you be doing this activity / spending this money if you were not in business? If the answer is No then it is business and should be 100% deductible. Reasonable limits could apply for lunches and so on.

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1 year ago
KH
Imputation tax accounts - are these really necessary for private SME size companies? Consideration should be given to this and other similar deductions and returns (including being levied fees to subside large entities and listed companies.)

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1 year ago
Owen Williams
It would help if the tax system is made more user friendly . We have a farming business & are finding ,that we are now spending 2 weeks or more , a year on tax issues .All of this time is given free & often we have to leave other more productive work ,so we can meet your deadlines . I prefer to use a written system to work out the large another of detail need to complete our tax obligations . Also I find the computer can be rather hard on your eyes ,so there is a health cost in ,doing more time looking at a screen .

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1 year ago
KH
Noting the new interest rates effective 8 May 2015 - this is a huge problem - businesses end up with cash sitting earning 2.63% because the cost of getting their estimates wrong is so high (9.21%). Capturing working capital in this way restricts growth (as restricts working capital). The margin is 6.58 - huge gap and very profitable for the government to have that money and only be paying 2.63% for it. Businesses should not be exploited as a cheap source of funds for government "Announcement is - > Use-of-money interest rates on underpayments and overpayments of tax will change on 8 May 2015. The new rates are: Underpayment rate 9.21% (up from 8.40%) Overpayment rate 2.63% (up from 1.75%). Use-of-money interest rates are reviewed regularly to reflect the current market interest rates. The changes were made by Order in Council on 30 March 2015.

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1 year ago
KH
Note that the "use of money rate" equivalent for when ACC are overdue in paying levy payers (can be years overdue) is 5% and at their discretion if any interest at all is paid - so is that case levy payers provide interest free working capital to the government!!!!!! An equitable system would have the ACC rate as non-discretionary and at 9.21% (or have the IRD underpayment rate at 5% not 9.21%)

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1 year ago
Richard
Its all about the carrot and the stick IRd don't use the carrot mores the pity we the selfemployed will continue to worknights to collect and pay government taxes wouldnt it be great if we could invoice Ird for our time there a thought small business waste more than 2billion dollars annually complying with IRD

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1 year ago
Michael Dunn
Trying to automate income tax withholding from small business revenue streams is fraught with difficulty. In our own case, the income is lumpy, as are the expenses, and they generally do not match month to month. Cash flow is important, which is why we are registered for GST on a payments basis. If suppliers don't pay in a timely manner, we can't meet an income tax liability based on revenue accrued month to month. On an annual basis, we can manage the creditors to a reasonable proportion of our annual cash flow and profit. But not monthly.

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1 year ago
Michael Dunn
This is a complaint about the nonsense of requiring small companies to maintain imputation credit accounts. Our aim each year is to pay out as much of the expected surplus as possible, as salaries and drawings, and retain a small balance at year end. So waht we need is a simple system to carry any small surplus or deficit forward to the next year without adding all the complexity associated with ICA's and the like.

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1 year ago
Michael Morris
I am a retired Chartered Accountant and a former senior partner of KPMG. I have been a substantial shareholder and Director of Te Mata Estate Winery Ltd. Havelock North, for 40 years. Under the IRD rules for the valuation of stock the formula is " The lower of cost or market value." That may be appropriate for manufacturers in general but is not appropriate for the wine industry. A winery produces wine generally using grapes from its own vineyard production and others from its contract growers. Grapes are the product of an agricultural activity with potentially marked seasonal variations in both quantity and quality. Wine cost under the IRD rules consists of the raw material (grapes), winemaking materials, renewable containers (barrels) and production overheads. Overheads include winery staff wages & salaries, electricity & water, repairs & maintenance of equipment and depreciation (at IRD rates) of Plant, tanks refrigeration equipment etc. Under the IRD formula if there is a 'good' year with excellent crops of high quality, the impact of the allocation of overheads on cost is lower and the wine valuation is lower despite it being more valuable in the market. In contrast in a 'poor' year crops are low and the wine is not of such good quality, it is worth less in the market but the allocation of overheads results in a higher value. To us this is a nonsense but one that we have been forced to apply. I submit that a more appropriate method of valuing wines stocks is a "Discounted Market Value" approach. For example wines would be valued, regardless of cost, at the winery's price to the New Zealand trade (NZ Trade Price) less 30 - 35% to create a standard gross margin on the largest element of sales. For large wineries that export most of their production, instead of NZ trade price it could be the average price achieved in the main export markets. This would be a much more consistent and realistic method of valuing wine stocks for taxation purposes.

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1 year ago
KH
You would also remember the income equalization scheme then - which should be available to others not just " farmers, fishers and foresters ". Other types of businesses have major fluctuations in income due to factors beyond their control yet are unable to spread the good years into the bad years and even out (and save) on taxes. To be equitable a tax system needs to be consistent. The other example that someone has mentioned is why those without a tax agent have to pay their terminal tax two months earlier. There is NO excuse for the cash flow (and interest loss/ cost) disadvantage imposed on people who do their own taxes. “Income equalisation scheme - The income equalisation scheme allows farmers, fishers and foresters who are eligible taxpayers to even out fluctuations in income by spreading their gross income from year to year.”

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1 year ago
Kass
We could simplify our tax system by removing Income tax (INC, PAYE, FBT) and increasing GST and other consumer taxes like alcohol and tobaco levies, petrol taxes etc. This would put more money in the hands of families and could take 1000s out of the welfare system (including WfFTC). It would also reduce the cost of compliance for business and IR alike.

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1 year ago
Russell Parry
The key problem for business at any tax time is cash flow. The change of date to 15 January has been a major hurdle for many small business. Holiday pay paid out in December, with the corresponding increased PAYE on 20th Jan - 2 monthly GST payers paying GST in January, and then again in February, plus provisional tax All at a time when most business have closed their cheque books in early December and dont open them again until early February. Payment cycles for the months of December and January need to be re examined

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1 year ago
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