Tax Update

The new Government is on a roll and are looking to push through a lot of changes in the immediate future.  Here is a summary of the key changes:

Bright-line period to be extended to 5 years

On 29 March 2018 the Government passed the bill to extend the bright-line period from 2 to 5 years.  The 5-year period only applies to residential land where the date that the person acquires an estate or interest in the residential land is on or after 29 March 2018.

The 2-year period will continue to apply to land where the interest was acquired before 29 March 2018.  In most cases, the date that a person acquires an interest in land is the date that the Sale and Purchase Agreement is signed.

Ring Fencing Rental Losses

The Government has announced their intention to have losses from rental activities ring-fenced as a means to making the tax system fairer while improving housing affordability for owner-occupiers. 

This will mean that investors will no longer be able to offset tax losses from residential rental activities against other income to reduce their tax liability.

This legislation will be in the next tax bill presented and will go through the usual channels so it is still a wee way off but it is likely to have a significant impact on the affordability of investment property moving forward.  We will keep you posted as information becomes available.

New Provisional Tax Option - AIM

You may have heard of or received information from the IRD regarding a new way to pay your provisional tax from 1 April 2018.  AIM or Accounting Income Method is available for small businesses (turnover under $5m) to work out their provisional tax obligations on a bi-monthly basis with their GST returns.  

Once you have opted into AIM you will only pay provisional tax when your business makes a profit which may help you avoid cash flow problems.  As long as you make your payments in full and on time, there is no exposure to use-of-money interest.  If your business makes a loss you can get your refund straight away rather than waiting until the end of the year.

Use of AIM is NOT compulsory.  While the method is being sold by the IRD as a way to make your life easier, there are plenty of complications with the calculations and the way that the program is going to be administered.  Our view is that unless their is a compelling reason to participate in the program that you are better off continuing under the existing provisional tax program and ensuring that your tax position is monitored and managed throughout the year.

Get in touch with us if you want to discuss whether AIM is right for your situation or you want to ensure that your tax obligations under the existing provisional tax program are monitored more closely in 2019.