Your business tax obligations – Starting Up

QCL_Profil-Melinda LiNew Zealand comes in at third in the World Bank Doing Business rankings for the ease of doing business, and is number one in the world for ease of starting a new business. What makes it so straightforward? This week Queen City Law Tax expert Melinda Li explores your business tax obligations when you start up a new company.To read this article as a print and tablet friendly PDF click here. Melinda speaks fluent English and Mandarin. Having studied law in both New Zealand and China equips her well to deal with the growing contact and business development between the two countries. To find out more about Melinda click here.

New Zealand consistently scores well on the  World Bank Doing Business rankings for the ease of doing business. The country’s straightforward, business-friendly taxation system does make things a lot easier for people who’ve just started their business.

What do you need to do as an owner to make sure your business is tax compliant? Getting in the right track from the very beginning is vitally important:

Record keeping:

Learn to get in the habit of keeping supporting documents such as invoices, receipts and statements for business transactions. Remember all records are to be kept for 7 years. Make sure you keep the records in English unless you’ve got written approval from IRD to use a different language.

Cashbook:

Maintain an up-to-date cashbook. This helps any owner who is new to the business to track down how much money is coming in and out. It also becomes useful when preparing the end of year financial accounts. You can also add cash transactions that didn’t go through your bank account and split transactions where there are business and private components.

Vehicle expenses:

the key is to calculate the portion of business related vehicle running costs. Travel between home and work is not classed as business use. If a company owns the vehicle, it could claim all the expenses without making a private use adjustment. However, the company must pay fringe benefit tax (FBT) if the vehicle is available for employees’ or shareholder-employees’ private use.

Fixed asset records:

A fixed asset is a business asset that is generally expected to be in use for more than a year and valued more than $500. The full cost of purchasing the asset cannot be deducted in the year of purchase to reduce your taxable income. It must be depreciated using the applicable rate supplied by IRD.

Being an employer: if you’ve decided to employ staff, you must register as an employer with IRD before the employees start or as soon as they start. As an employer, you’re required to make deductions based on each employee’s different situation, which in most of the cases include individual tax, ACC earners’ levy, and in some cases include student loan, child support and Kiwisaver deductions. You are also required to contribute a minimum 3% (compulsory employer contributions) to the employees’ Kiwisaver accounts.1319068597239236

Avoid interest and penalties: The key is to pay the correct amount to the correct tax account on/before the due date. Make sure you have all the signatures required for the bank transaction before making the payment. For your first late payment, “grace period” will apply and you will be given a further date for payment. If you’re late again within a two-year period, don’t panic, you can ring up IRD, explain what happened and you might be able to get the penalties remitted based on the lateness being a genuine mistake.

If you are new to the business world in New Zealand and finding it stressful to deal with GST, Provisional Tax and employee related tax matters, we may be able to help to ensure you have properly fulfilled your tax obligations. Or if you are being investigated by IRD, in a dispute with IRD or being chased for a tax debt, come in and talk to our Queen City Law tax team, we will explain to you about the legal consequences and help you to minimise the impact on your business.

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