Articles

Legal Fees Deductible

As of April 1 2009 businesses will be able to claim a full tax deduction for legal expenses up to $10,000.

With effect from 1 April 2009 businesses can generally claim a full tax deduction for legal expenses up to $10,000 in the year those expenses are incurred. For expenses over $10,000 the usual (old) tax rules apply and legal expenses need to be split between those that are fully deductible and those that need to be depreciated because they relate to a capital purchase.

Example: A business purchases capital equipment with bank finance. The total legal expenses are $4,000 for the financing of the purchase and $4,000 for the legal work on the purchase. The full $8,000 will be deductible in this case. Under the usual (old) tax rules only $4,000 for financing would be deductible in the year incurred with the balance depreciated as part of the cost of purchase of the capital equipment.

NOTE:

1.    The amount of $10,000 excludes GST if the business is GST registered;

2.    The deduction is only for businesses where the total legal expenses in one year are $10,000 or less;

The relevant legislation is Section 4 of the Taxation (Business Tax Measures) Act 2009 which inserted a new Section DB 62 into the Income Tax Act.

 

Wages Paid to School Children

If your business employs a school child and their earnings do not exceed $45 per week, the employer is not required to deduct tax from the weekly earnings, and the child is not required to complete a tax code declaration form or lodge an income tax return. This also applies if the school child’s weekly earnings exceeded $45 per week, but the annual earnings are still not expected to exceed $2,340.  The exemption does not apply to infant children. Please contact us if you need any help with applying the child taxpayer tax credit, when the yearly income is likely to exceed $2,340 for each child employed by your business.

 

Inland Revenue Department – Use-of-Money Interest Rate changes

On 2 February 2009, it was announced their was a reduction use-of-money interest underpayment rate from 14.24% to 9.73% and the overpayment rate from 6.66% to 4.23%. These rate changes are effective from 1 March 2009.

 

Vehicle Mileage Reimbursement Rates

The Automobile Association (AA) has issued new reimbursement rates for car running costs as at June 2009. These are as follows: 

Kilometres per year      Up to 1500cc   1501 – 2000cc    2000- 3500cc        Over 3500cc

2009 Est on 14,000                  47.8c               57.4c                  71.5c                    90.3c 

2008 Est on 14,000                  52.2c               63.0c                  79.6c                    $1.00

2007 Est on 14,000                  48.2c               54.6c                  70.3c                    90.3c 

Mileage rates for employee reimbursement and self-employed people can vary depending on the annual kilometres travelled each year. For details of the Inland Revenue’s policy on motor vehicle reimbursement options go to: http://www.ird.govt.nz/business-income-tax/expenses/mileage-rates/emp-deductions-allowances-mileage.html Please contact us if you need any help in deciding the best way to structure your motor vehicle ownership or how to deal with motor vehicle reimbursement costs.

  

Associated Persons

The taxation landscape has changed when the long awaited broader “associated persons” tests were passed through parliament on the 18 September 2009.  The broader definitions especially relates to land sales. The aim of this legislation is to prevent people circumventing the law because of the closeness of the relationships of the parties involved.

Both directors at Soar Limited will be attending a TEO course on the 12 October 2009 to establish the impact of this new legislation and find out about any last minute changes to the passing of this legislation.  In particular we will be interested in the implications of deem dividend risks and future corporate restructuring issues for our clients. 

It will be important that all property investors keep a register of properties held prior to the passing of this legislation to identify which properties will or will not be caught out under the new “associated persons” legislation.

 

Start-Up Business Protection Insurance Start-Up 

Business Protection Insurance looks after your business while you’re getting established. It provides a fixed monthly payment if you’re totally disabled and unable to work due to sickness or injury. No evidence of your financial situation is required.

Benefits of Start-Up Income Protection Insurance.

·         Fixed monthly payment, after a waiting period, for a period for six or 12 months.

·         The monthly payment can be either $2,500 or $4,000 per month.

·         Choose a waiting period of four or eight weeks.

·         The premium is automatically waived while you are on claim.

·         At any time after 12 months, you can choose to upgrade to Sovereign’s TotalCareMax Disability Income Protection, providing you have

          two  full years of financial evidence.

 

To be eligible for Start-Up Income Protection, you must:

·         Be self-employed for less than 18 months in occupation classes 1–4

·         Have only one business

·         Be actively involved in your business on the risk commencement date

·         Be residing and working in New Zealand at all times during the policy term.

If you would like to know more or want to apply for this product, please call Deidre or Phillip to set up a meeting.