Category: Tax


Avoid the Bad Payers

 

Female

The first rule about debts is to try and avoid customers who don’t pay what they owe you. If the amount is going to be large, get a deposit first, get a credit report, or both.

When you get a bad payer:

  • Get onto the customer quickly.
  • Follow up on a planned basis and minimise the time between each follow-up.
  • When ringing the customer, get a commitment of how much will be paid and when.
  • When following up by phone, write notes of the commitment made and preferably the actual words used by the customer.
  • If you still have trouble collecting the debt, confront the customer with each of the promises and what was said.
  • If you still can’t get paid, warn the customer you are going to take debt recovery action. If this does not produce results, carry out the threat promptly.
  • If you're dealing with a company, the threat of winding it up can be very effective for those who are first in.

That's why it pays to act quickly. You don't want to be last in line when the money runs out.

The second rule is to avoid having your business dominated by one firm. If you possibly can, diversify your customer base as quickly as you can.

What if the company is too big to be concerned about your threats? There is little you can do other than reread rule 2. If the bad-paying corporate is only a small customer, some people load their bills to them to allow for bad payment practices.

Changes to Use of Money Interest

Previously Use of Money Interest charges from IRD were back dated to the date of your first instalment of provisional tax. This could sometimes prove to be a bit of a problem for clients where income went up unexpectedly through the year – for example if the milk pay-out increased in the later part of the season, you could end up with a use of money interest bill even though you paid the required amount of provisional tax on each due date. 

Piggy

For the financial year we are in now (2018) this is no longer the case. For normal provisional tax payers, interest will only be imposed from the date of your third instalment of provisional tax – and then only if the total amount of tax you pay is over $60,000. This is a really sensible change which makes managing your tax a lot simpler.

Changes to Farm House Deductions

As highlighted in previous newsletters, IRD have been looking at deductions applicable to housing for farmers and orchardists. They have recently released their decision.

Until now there has been no difference between deductions applicable to “real” farmers and those deemed to be “lifestylers”. From the 2018 tax year, there will now be a difference.

If a farmer/orchardist buys a property and the house makes up more than 20% of the value of the property, the farmer will be a “Type 2” farmer. As a Type 2 farmer, you will be not be able to claim a full deduction for rates or interest on mortgages. Those expenses and others related to the property (such as electricity for the house) will need to be apportioned between the business and the private use. Each case will vary and will depend on the facts of a particular situation.

Farmhouse

All other farmers will be deemed to be “Type 1” farmers. This is where the house value is 20% or less of the overall value of the property. In these cases, full deductions are allowed for rates and mortgage interest. When it comes to claiming things like electricity, previously farmers were allowed a “no questions asked” deduction of 25%. This was an historic deduction with no proof needed. From the 2018 year this will now be limited to 20% for Type 1 farmers and orchardists. For Type 2 farmers, the deduction is limited to their actual usage – so a calculation is needed.

In most cases (particularly in relation to farms), it will be obvious whether the property is a Type 1 or Type 2. Orchards, however may be a little different. IRD has provided some guidelines on how the difference between Type 1 and Type 2 properties should be made. If historic purchase prices are not appropriate, you are able to use rateable valuations. In examining rating valuations for orchards however, we have found them not to be particularly helpful when determining the split between the house/section and the rest of the property. In these cases, it may be that some sort of valuation is needed to determine the value of the house compared to the total value of the property. IRD have said this can be done by a real estate agent or of course a formal valuation by a registered valuer is ideal.

Proposed Changes to Tax Deductibility of Farmhouse Expenses

Proposed Changes to Tax Deductibility of Farmhouse Expenses

IRD are currently reviewing the laws around tax deductibility of farmhouse expenses. Since the 1960s, farmers and orchardists have been able to deduct 25% of farmhouse expenses without  needing to provide evidence of their business use. They have also been able to deduct 100% of rates bills and interest costs on loans.

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Kiwifruit Contractor Payments

Kiwifruit Contractor Payments

Over the last few months there have been a number of clients that have received letters from IRD in relation to payments made to labour only contractors in the kiwifruit industry. This is mainly in relation to summer and winter pruning. Generally these letters have come about because IRD are investigating a particular contractor that is possibly not doing things correctly in relation to withholding tax.

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Targeting the Cash Economy

Inland Revenue’s crackdown on ‘cashies’ continues with their focus on undeclared cash in the construction and hospitality sectors. Last year, the Auckland region saw the most activity. Inland Revenue are now widening their reach. They’ve been trying to change attitudes among tradies and subcontracting businesses and their efforts seem to be getting results.

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