The Inland Revenue Department and the Government have recently introduced a multitude of tax changes. We outline some of the important ones below.
More on company cars and FBT
From 1 April 2018, the Government is proposing to let close companies (most small companies) calculate the private use of a company car in the same way as a sole trader.
You will have to keep a log book and apportion the costs. However, you will also need to make an adjustment for GST on the car, as well as its running costs. For many people the log book idea is going to be more hassle than it’s worth.
This option will be available only provided there are no other fringe benefits and no more than two vehicles are involved.
If, when the law is changed, you prefer to keep a log book and avoid fringe benefits tax (FBT), tell us. Remember, however, your compliance costs will increase a little. There’ll be calculations to make and GST adjustments to do.
FBT is a quick, easy and economical method of adjusting for private use of a vehicle. It will often give you a more favourable result, but not always.
Use of home
There is a proposal to change the rules for claiming “use of home”.
For years, Inland Revenue has said that to make a claim for this cost you must set aside a room as an office. This isn’t quite true.
A court case some years ago settled this matter. You can apportion the cost of a room used for business between your business use and family use, based on the time each activity uses the room.
Now, the IRD is planning to get its rule enshrined in the law, so if the law changes, you will need to have a room set aside as an office, if you want to claim for the use of a room for business.
To make claiming this cost simpler, the department plans to set a rate for utilities per square metre ($x for power etc). You will add your adjustment for rents, rates and interest.
You won’t have to use the IRD calculation but it might save you hassles if you do. The bigger the power bill, the more likely you won’t want to use the IRD rate.
Shareholder/employees
Currently, you are either a provisional taxpayer or you get a PAYE salary. A mixture of the two is not strictly permitted unless the provisional income is at least half the PAYE salary.
In practice, it makes very little difference and for this reason, the Inland Revenue Department is proposing to do away with the restrictions and allow shareholder employees to take a PAYE salary and then top up their incomes at the end of the year, once the profit is known. We look forward to this change becoming law.