[Tia Maria]

Anyone on this forum self employed or aware of tax issues concerning the self employed?

In particular do you have to declare your earnings even if they are quite low?

Are there any advantages to declaring legitamate business expenses even if your earnings are below the tax threashold?

Do you have to/or is it wise to, have a seperate business account?

Do you have a certain time limit to register with the tax office if you are just starting out and seeing if things will work out?

Anything else you want to mention that is remotely useful?! :laugh

Cheers

Tia

[Moorf]

Yep, I'm self-employed and am about to do my first tax work! I registered recently (Jan 07) but am claiming for prospecting and portfolio work done throughout the year (unpaid work by me) and any expenses I incurred such as travelling for business, internet, phone, etc etc.

I rang the tax office when I started earning money from it and they were very very helpful. They offered me an at-home meeting with a tax officer to go through things like claiming "at home working" expenses such as % of housing bills/heating and telephone/internet etc etc. and how to fill in the forms, etc.

I'd recommend calling them and talking through things. They do seem keen to let you know what you can claim - they even mentioned a proportion of the garden upkeep! :uhoh

And they sent me a bumper info pack! :nice1

Luckily we ran a business in the UK before we moved here so we're pretty au-fait with some of it, but OH used to sort tax matters back then and I've been told I'm doing my own this time round!! :laugh

And I would advise a separate account for business transactions, it makes your life much much easier when it comes to reconcilling expenses and any interest etc you make, withholding tax etc, best if it all comes from one source.

Hope that helps a little, as I said, it's my first time too!

[sarahw]

I'm also self-employed & earn a very small amount of money - you get taxed from the first $1 you earn, but you can offset a lot of things as Moorf says - heating bills, space for your office & petrol etc. I too am about to do my first tax return but don't expect to owe them anything at the end of it (as I say its a small amount of money & I need an office & to travel for it and have only been doing it since the beginning of the year) - Moorf thanks for the advice about contacting the tax office - I was only going to look on their website & download the forms but if they are that helpful I'll give them a call.

[Moorf]

Good luck girls - let us know how you get on!

Sarah - I'm also hoping to find enough outgoings to offset earnings, if you come across any quirky allowances let me know! I'll do likewise!

[eternalkiwi]

Generally speaking if you are charging others for goods and/or services on a regular basis with a view to making a profit (your aim does not need to be the result) you are usually operating a business and then liable to pay tax.

There is no legal requirement to have a separate bank account, but as you are required to have evidence of what income & expenses are business related, a separate bank account makes things easy.
If it works out cheaper or more convenient, you could initially use a separate personal bank account, rather than a business bank account.

NZ Income Tax laws are not usually prescriptive, so there is no list of allowances. Generally speaking if the costs are related to the earning of income, it is claimable.

As NZ operate a voluntary compliance system, IRD recognise that its in their best interests to assist taxpayers where possible, so I would also recommend contacting them and arranging an on-site visit.

Shawn

[constablechuck]

Work & Income can provide financial assistance to people starting new businesses in NZ.

For tax concerns the Inland Revenue web site www.ird.govt.nz is a great resource, as a self employed person you are responsible for paying your own tax and acc earners levy, you are also entitled to some of the same tax credits that salary and wage earners receive, I suggest that you ring the IRD 0800#, they will go out of their way to help you.

[sarahw]

Will do Moorf - have put phoning IRD on my list of must do's today!

[Tia Maria]

Thanks for the info, I was just about to phone the IRD while the baby was asleep, but the website has gone down.

Bet it sorts itself out once the baby wakes up!

Cheers :nice1

Tia

[Tia Maria]

I got this response to my question from someone on another forum I use (thanks zx81 :nice1 ). Thought some of you might find it useful:


--------------------------------------------------------------------------------

Tia Maria wrote:
In particular do you have to declare your earnings even if they are quite low?

Are there any advantages to declaring legitamate business expenses even if your earnings are below the tax threashold?

Yes to both, there is no income tax threshold (it's charged from the first dollar you earn) so everything has to be declared and taxed, but to be taxed and to claim back expenses it has to be a business rather than a hobby. See http://www.mcleanandco.co.nz/Page115.htm for the difference.

Quote:
Do you have to/or is it wise to, have a seperate business account?

No, it's not necessary. You should keep a cashbook which is just a simple list of your business income and expenses, but you can use your personal bank account and credit cards for the business.

Quote:
Do you have a certain time limit to register with the tax office if you are just starting out and seeing if things will work out?

If you are self-employed you don't register separately for income tax, you just use your personal IRD number. You only have to register for GST and then only if your turnover is (or you expect it to be) over $40k. It is easy to register for GST, the reporting requirements are simple and can be done online, and you can de-register at any time if your income is below the threshold. Obviously you can only claim back GST on business purchases if you register. When you register for GST you automatically get registered for ACC as well.

EDIT: I should say that one advantage of not registering for GST if your turnover is below the $40k threshold is that you don't have to charge GST to your customers so your prices can be 12.5% lower. This only makes a difference if you're supplying individuals rather than businesses which could just claim back the GST anyway.

Quote:
Anything else you want to mention that is remotely useful?!

Read the Businesses section on the IRD website, it's very helpful, and the IRD helpline is pretty good too. The book "Slash Your Taxes Now!" is well worth getting for a list of all the things you can claim as deductions. Keep good records for everything though.

Useful websites:
http://biz.org.nz
http://www.homebizbuzz.co.nz/

[Super_BQ]

IMO if your turnover (sales) is pretty low, I would not suggest registering for GST. Being GST registered means more paper filing and tracking and you're not getting paid to fill in the GST credit/debit every 3 or 6 months. More of a hassle?

EDIT: I should say that one advantage of not registering for GST if your turnover is below the $40k threshold is that you don't have to charge GST to your customers so your prices can be 12.5% lower. This only makes a difference if you're supplying individuals rather than businesses which could just claim back the GST anyway.

Though you may not charge GST on your sales, you will still have to pay the GST on everything you buy as an expense. (well maybe not on everything but pretty much 99% of the time because I don't know of any big or small business in NZ that isn't GST registered).

The key being if you don't want to bother keeping track of the GST amounts on everything you buy and sell, the extra accounting work may not be worthwhile if your busines is very small.

More importantly, part of the reason for the gov't's introduction of GST is it creates an auditing system for IRD to use. Every 3 or 6 months, IRD's computers will have a good idea of the status and health of your business - from each time the GST return is filed. When sales drop off but your expenses are rising, the unusually large GST credit can often send a flag on their computers and the IRD auditors are more likely to send an audit your way.

When you're not registered, well the only time they will know is when you file your annual tax return (which is filed together with the ordinary Joe wage earner and is least likely to be audited).

[Tia Maria]

Thanks for the info Super BQ, I've ordered quite a few leaflets from the IRD automated information service, which the lady I spoke to at the IRD thought might be useful. What a fun few nights reading I have planned! :(

Cheers

Tia

[eternalkiwi]

I personally doubt your GST registration would impact your risk profile with IRD to the degree suggested by BQ, especially as wage earners are not required to file tax returns and IRD have specialist Small Business teams to audit and assist small businesses. So if you are in business you would be on the radar of IRD numbers that are selected for Audit.

With good systems in place, GST requirements can often be met with limited impacts on your time and effort, especially if you are using the cash basis as your Cashbook would provide all the information you need.

One other possible advantage is that being registered can increase your discipline in keeping up to date with all the administration and provide the owner with an indication of how things are going.

Shawn

[eternalkiwi]

Of the information booklets etc that IRD provide, one that I would especially recommend is the Smart Business Guide (IR320), which provides a very useful and plain English guide to the key requirements and obligations a business operator has.

My ACE students have found this to be very helpful, though unfortunately the 'entertaining' video/dvd that previously went with this guide is no longer available.

Shawn

[Super_BQ]

I personally doubt your GST registration would impact your risk profile with IRD to the degree suggested by BQ, especially as wage earners are not required to file tax returns and IRD have specialist

Nowadays, that may be the case but historically, GST registration does increase your chances of being audtied. From a recent thread here (http://www.emigratenz.org/forum/showthread.php?t=11063)suggests:

I'm a NZ Accountant returning to NZ from Ireland later this year.

From my time in practice in NZ (a bit of a distant memory I must admit), most IRD audits were generally triggered from a GST perspective as opposed to from a general income tax point of view. General exceptions to this rule would relate primarily to large income tax refunds, which might raise an eyebrow from the IRD.

Gov'ts have relied that the GST system is an effective tool for generating and monitoring it's tax collection. Canada had introduced GST in early 1991. NZ implemented GST shortly after. Recently Australia brought in GST in 2000 (much modelled off Canada's GST system). What does this mean to you? Well as long as you keep your books straight, you have nothing to be concerned about.

[eternalkiwi]

IRD have been restructuring almost all areas of their business and how they achieve the objectives set by Government in recent years, so I would expect their audit sampling methods have also been developed during this time.

Though ultimately BQs closing comment is the key, if you keep things tidy and talk to IRD and your Accountant sooner rather than later you are likely to have no stresses from any potential audit.

Also IRD will substantially reduce penalties if you voluntarily notify them of any errors, (especially if they are one off); If they audit you then they are likely to enforce the maximum penalty available.

Some people find having a computerised cashbook programme helps them keep on track and makes 'doing the books' more straightforward. While MYOB is a popular programme in NZ, there are other very good cashbook programmes available for small business at a lower price.

I also agree that GST is a great way to see trends in a business.
This is relevant to the business owner, Accountants and the IRD.
One small note is that NZ introduced GST in 1986 which was before Canada's 1991 introduction.

Shawn

[Moorf]

I wondered if anyone here who is working from home measured, or guessed, their workspace area - I notice it says "dedicated work area" so I guess I can't add in the floorspace of the lounge where I do my evening work? (office to scary in the dark outside :o).

Plus, I have regular massage for my back as I'm at a PC all day, can I claim for that do you think? And what under?

Cheers - I'm going to try and get the tax form sorted once and for all this weekend!

Moorf

[wiki]

Helen you might need to check with IRD but I think you'd have a good case for the massage under health and safety or anti-RSI rules. They'd rather pay for a massage than have you off on ACC for months with a frozen shoulder and carpal tunnel.

[eternalkiwi]

Home office space is required to be dedicated to your 'work area'.
And IRD have been paying closer attention to home office expenditure and have been tightening the rules as some people have been pushing the limits too far.

IRD may possibly accept a pro-rata deduction for the lounge space which will take into account the business and private use of the area.

Regarding massages, as Wiki said you could claim any expense that is related to your income generating activity, so if you do extensive desk based work you might be able to claim the occasional massage, though IRD may prefer you to have an ergonomic work area and take regular breaks etc. . .
They would also accept the costs of a workplace assessor, to help you have the right setup for your needs.

Shawn

[whiskythedog]

i had a chat with a nz accountant who said you could include the garage in the home area (assuming you are using a car in your business- used to protect a business asset so allowable)
she also recommnends that if a private car is used for business that you retain detailed business mileage records for the first 3 months of trade in order to substantiate business % of car usage when calculating deduction for relevant costs - insurance/repairs/fuel etc
i'm not sure if nz has the uk flat rate equivalent of 40p per business mile?

[Moorf]

Thanks everyone, I really appreciate the advice :nice1

Now all that's left to do is measure the floor area. Thankfully I have a separate office (seperate from the house) I assume that it's still to be counted as part of the total house floor area.

Moorf

[Moorf]

Just had quick chat with tax office, and I'm going to leave out claiming for massage - just complicates matters as I'd need to show a history that demonstrates PC work screwed up my neck, which it isn't really, it was a car accident when I was 20-ish. Oh well... glad I found out before I started claiming...

Won't be claiming for car either although they did confirm that I could, if I used the car, claim for the space it takes up in the garage. As I only use it to go in to Chch once a week for a half-day meeting I just can't be bothered with the paperwork, divvying up bus/pleasure and business mileage etc that goes with it! :no

Onwards... this is easier than the UK, but it's still a pain :wah

[sarahw]

Still waiting for my forms to come through - reckon it'll be another week - not really worth it for the few hundred bucks I made last year!

[constablechuck]

The larger the area of the home used for business purposes the more you can deduct from overall expenses, it's based on percentages ie: if 20% of the space in the home is used solely for business then 20% of the overall expenses ie: electricity, rates ect..can be claimed as a deduction.

As for the car, if you do use it for business then you may be able to claim a nominal flat rate deduction without having to keep a log, you may want to call IRD again and ask them about it.

[eternalkiwi]

If you prefer not to keep a logbook for 3 months out of 36 months, you can claim a mileage reimbursement at either a flat of 28c/km or 62c/km for the first 3000kms and then 19c/km for any additional mileage.