There are three minimum wage rates:

• the adult minimum wage applies to all employees aged 16 and over who are not new entrants or trainees
• the new entrants minimum wage applies to employees aged 16 and 17, except for those who have completed 200 hours or three months of employment in the workforce, whichever is shorter; or who are supervising or training other workers; or who are trainees
• the training minimum wage applies only to employees aged 16 and over who are doing recognised industry training involving at least 60 credits a year.

From April 1^st new minimum wage rates took effect.

The adult minimum wage rates (before tax) that apply for employees aged 16 or over are:

• $13.75 an hour, which is
• $110.00 for an 8-hour day or
• $550.00 for a 40-hour week.

The rates that apply to new entrants, and employees on the training minimum wage (before tax), are:

• $11.00 an hour, which is
• $88.00 for an 8-hour day or
• $440.00 for a 40-hour week.

Employees have to be paid at least the minimum hourly wage rate for any extra time worked over eight hours a day or 40 hours a week.

Starting-out wage

From 1 May 2013 the starting-out wage will replace the new entrants wage and training wage for under-20s.

Three groups will be eligible for the starting-out wage. These are:

• 16 and 17 year-olds in their first six months of work with a new employer (or until they are training or supervising others)
• 18 and 19 year-olds who have been paid a benefit for six months or longer, and who have not completed six months of continuous work with any employer since starting on benefit (or until they are training or supervising others)
• 16 to 19 year-old workers in a recognised industry training course involving at least 40 credits a year

Under the starting-out wage, eligible 16 to 19 year-olds can be paid 80 per cent of the adult minimum wage for six months OR for as long as they are undertaking recognised industry training of at least 40 credits per year.

The starting-out wage sits alongside other government initiatives aimed at helping more young New Zealanders into work or training, including Work and Income’s Job Streams.

For more information visit the Department of Labour website.

Company Terminal Tax

Those of you with a payment due on 7 April may wish to consider paying the tax before 31 March. The imputation credits this converts to will allow for a potential increased dividend distribution. This gives greater flexibility in dealing with tax paid company profits. It also reduces the risk of not having sufficient tax credits to pay a dividend if required.

Provisional Tax

Have you paid enough provisional tax? Review your final March year end management reports. You may want to top up your 2013 tax now if profit has increased substantially, rather than leave the tax until 7 April 2014, and incur use of money interest on the outstanding balance. Companies and trusts al-ways incur use of money interest on terminal tax amounts. Individuals are only subject to it if they are over the $50,000 Residual tax threshold.

Bad Debts

Write off bad debts before 31 March. Record the date so you can demonstrate to the IRD when you did the write off. Note, this does not prohibit you from continuing to pursue the debt, nor does it let the debtor off paying.

Bonuses/Holiday Pay

Calculate any staff bonus for the financial year as soon as possible after 31 March. You have 63 working days from balance date to pay them out and still claim the deduction. Also ensure, where possible, that holiday pay unpaid at 31 March is cleared within 63 working days in order to claim the deduction.

Reports

If you run any kind of accounting system, please balance any required reports as soon as possible after 31 March 2013, including reconciliations such as bank, debtors, creditors and loans. Then do a back up on disk for our records. If you have balances rolling forward from last year, do they match our closing balances per the year-end accounts we prepared for you? Please call us early if you are having problems with this. Please refer to our questionnaire for the information we require.

Fixed Assets

Sell equipment likely to make a loss before balance date, rather than after. This way, you realise the tax deduction this year rather than next year. Scrap any assets no longer able to be used or of no value as you can claim the remaining book value as a deduction in the current year.

Retentions

Retentions on building contracts are generally taxable in the year the contractor becomes legally entitled to receive them. Therefore, if retentions are outstanding at year end, they usually do not form part of your income for tax purposes for that year, and are therefore only taxed when they become due. This can result in a significant deferral of income.

Stock on Hand

If your stock on hand is worth more than $10,000, you will need to count it at balance date. Ensure you get rid of expired or obsolete stock before this date, otherwise you will need to include it at cost price, resulting in an increase in your taxable profit.

Expenditure

If you have any major maintenance or other tax deductible expenses that you are likely to incur over the next few months you may wish to consider having this invoiced before the end of March in order to claim the tax deduction in the current tax year rather than the next.

We want to share some of the key points Julian and Kelvin took away from the presentation:

• GDP will continue to grow at a relatively restrained but still respectable rate over the next few years (averaging 2-3% pa).

• The construction industry will be the key driver for NZ over the medium term.  As we all know Canterbury needs colossal infrastructure and housing re-investment, while new life will be breathed into the residential building sector nationwide due to the large under-supply of housing stock that has emerged over recent years (and it’s not just an Auckland story – we are already seeing happier builders in Nelson).

• The high Kiwi dollar is here to stay – until, that is, capricious ratings agencies get the hump with our continuing balance of payments deficits (which will happen, but nobody knows when).  Good for importers and keeping a lid on inflationary pressures, but generally not helpful to our exporters.  Further movements in the NZD-USD cross-rate are likely as the Federal Reserve pulls back from the Quantitative Easing (ie printing more money) that got the US through the worst years of the Global Financial Crisis.

• Interest rates are likely to rise late 2013 or early 2014.  Many factors at work here including significant increases in global 2-year bond rates that so far have not flowed through to higher borrowing costs in NZ due to other factors in our economy (such as strong bank deposits by risk averse savers, discounted lending in the finance markets as banks try to lend those deposits out, and a warming housing market in key areas of the country) – this raises questions about borrowers reviewing their “fixed vs floating” strategies.

• Consumer Price Index trending upwards as inflation closes in on the upper range of the target band the RBNZ works to (3% pa) – be mindful of what could happen in terms of “imported inflation” if the Kiwi dollar drops for whatever reason (eg downgrade by capricious ratings agencies).

• Probable increase in the Official Cash Rate later this year – the “new normal” for the OCR is likely to be 4.5% (compared to 6.5% pre-GFC).

In some cases the schemes will be promoted and administered by a third party provider, who runs the scheme and supplies the vouchers and other administration services in return for a fee.

Why do it? Employees are told they can reduce their PAYE, child support, student loan and KiwiSaver obligations and/or claim larger Working Families Tax Credits entitlements.  Employers, on the other hand, are told they can reduce their KiwiSaver liabilities and avoid the imposition of Fringe Benefits Tax. They are also told they can claim GST on the cost of the vouchers without having to return output tax when they provide them to employees.  (Inland Revenue firmly rejects this proposition saying this kind of a supply is a “taxable supply” under s8 GSTA and must be returned as such.)

Inland Revenue’s view is that the commercial reality of such arrangements is that the overall level of remuneration does not change, it is merely paid in a different form.  Consequently PAYE should be withheld on the full amount of all salary and wages, including the value of the vouchers.  It also considers that both employers and employees are likely to have entered into this form of salary substitution for the purpose of avoiding tax.

Inland Revenue has already commenced a number of investigations into taxpayers and is seeking to reassess across all tax types, including ‘social policy’ areas such as child support, Working for Families, student loans and KiwiSaver.  Interest and late payment penalties will apply and shortfall penalties may also be imposed, particularly where tax avoidance is alleged (penalties for abusive tax positions are imposed at 100% of the tax shortfalls).

Contact Kelvin Scoble at Johnston Associates South to discuss this issue further, or find out more here…

As part of Kelvin’s role with us he’ll be keeping you updated with events in the world of tax, offering topical tips and tax articles, the first snippet from Kelvin covers off some changes to employing school children.

• From 1 April 2013 employers must deduct PAYE from salary or wages paid to primary and secondary school children (this includes deductions from scheduler payments) all details will need to be included in your Employer Monthly Schedule filed with the IRD.
• Children will need to complete a tax code declaration (IR330) by 1 April 2013 so that the correct rate can be applied.
• If your employee is a Kiwi Saver member you may also need to start making employee deductions at 3%.
• If the employee is less than 18 years old you don’t need to make employer contributions.

Thankfully our friend’s at Xero have just made it easier for you to keep an eye on what’s coming in and what’s going out of your accounts, because you can now reconcile on Xero Touch.

Visit the Xero blog to find out more about the new release, and if you’re  an iPhone user, don’t despair, iOS is currently in testing and coming soon, but needs to go through App store approval.

As your Nelson and Marlborough based Chartered Accountants we would like to remind you about an important date coming up. Do you have an end-of-year bill to pay for your income tax, Working for Families Tax Credits, or student loan? To avoid penalties and interest it’s important that you pay before the deadline.

If you’re not sure how much you owe and and when your payment is due, as a Johnston Associates South client, you can find out by asking us to check your account details against those held with the Inland Revenue.

As a client of Johnston Associates South you might have more time to pay. Call us if you are at all unsure.

Why do you have to pay?

If you have a bill due 7^th February it will be for income tax, Working for Families Tax Credits or your student loan. There are a few common reasons why you might have an end-of-year bill to pay.

• You’re earning either a salary or wages or are on a benefit
• You’re self-employed or earning business income
• You receive Working for Families Tax Credits
• You have a student loan

1. From 1 April 2012 – Employer contributions to Kiwi Saver will no longer be exempt from Employer Superannuation Contributions Tax(ESCT). Instead, they will be taxed at an employee’s marginal tax rate. E.g. if your employer pays 2% of your salary into your Kiwi Saver and the employee marginal rate of tax is 30%, then 1.4% will now be contributed instead. This means that you’ll see less go into your Kiwi Saver from your employer during the 2012 financial year.
2. For the year to 30 June 2012 and beyond – The Member Tax Credit rate halved from $1 to 50c for every $1 that members contribute. Therefore, the maximum level of the Member Tax Credit was halved from $1,042.86 to $521.43 per annum. This means that instead of matching your first thousand dollars or so of contribution each year, the Government will only contribute just over $500 for your first thousand.
3. From 1 April 2013 – The minimum employee contribution will rise from 2% to 3%.
4. From 1 April 2013 – Compulsory employer contributions will also rise from 2% to 3%.

What do these changes mean to you?

Briefly, the Government is now contributing less to your Kiwi Saver, by removing the ESCT exemption and halving the Member Tax Credit rate.

From April 2013, both you and your employer will have to pay more into your Kiwi Saver – a total of 6% of your salary, evenly split. The additional 1% in contributions by both employers and employees may not make much difference to those on medium or high salaries, but people on basic wages will probably feel the pinch in their pay packets.

For the majority of people, these changes will mean an increase to the total amount being paid into their Kiwi Saver accounts, with the higher minimum employee and employer contribution more than offsetting the reduction in Member Tax Credits and removal of ESCT exemption.

But for those people who previously chose to make employee contributions of 4% or 8% of salary, and whose employers are contributing at 4%, the changes will see a reduction in contributions credited, given the impact of the ESCT exemption removal and Member Tax Credit changes.

If you are an employer, the increase in minimum compulsory employer contributions will place pressure on your salary budget – although you do have some breathing space before this begins on 1 April 2013.

Just a reminder that your provisional tax and student loan interim payments are due on 15 January, that’s just seven days away.

To find out more about provisional tax, you might want to review our previous post…… Provisional Tax, Five Questions Answered.

If you would like more information on student loan repayments the IRD have produced booklet IR 224, download a copy here.

A great way to stay on top of tax due dates is to download the full tax year calendar here.

If you need any help getting things in order to meet your deadlines, just give us a call we’re here to help.

Our office is closed from 12pm Friday 21 December 2012 and will reopen on Monday 7 January 2013.

We look forward to helping you with all your Chartered Accounting requirements in 2013.

Dean, Ben, Brad, Julian, Karen, Angela, Janine and Brent