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New Zealand’s Budget 2020 was promised to be the “jobs budget” by the Prime Minister just prior to its announcement.  Unfortunately, it is difficult to see how this budget saves or creates many jobs in the short to medium term.  Of course, it must be noted that there is $20Billion+ in COVID-19 recovery spending yet to be announced and some of this additional funding could be well-targeted.

There are a few announcements that will certainly save or create jobs in the long-term.  These include:

An existing $12Billion infrastructure fund has been increased by an additional $3Billion. This $15Billion will be used to fund soon-to-be-announced infrastructure projects.  Some 1,500 projects, totaling $136Billion, have applied for a share of this funding. This suggests we may see less than 200 projects actually break ground nation wide.

This additional $3Billion will help to plug the gap that will inevitably be left by private and council infrastructure schemes that are deferred or cancelled. So this will likely save jobs as opposed to create many new ones.  However, while changes are being made to the Resource Management Act to fast-track these projects, it is still safe to assume that it will take some time for these projects to commence. This will add to short-term pressures in the infrastructure sector with skilled workers in high demand globally.

8,000 additional public/transitional homes will be built. This will undoubtedly help save the jobs of builders as some private sector projects will likely be delayed. We have already seen some developments delayed till next year at the earliest based on the prospect of falling house prices making them less economical in the short term. Like with the infrastructure boost, this will not happen overnight. The government has already demonstrated how difficult it is to build even 1,000 homes over the past two years. This suggests we may be waiting at least 8 to 16 years to see the outcome of this announcement.

11,000 “green jobs” will be created in the regions.  These will be for the likes of pest and predator control and in upgrading DOC tracks and huts.  These initiatives will add real value to the nation, but again these jobs will not be created overnight. Many of these jobs will also not be long-term. With predator free targets in place and limited land for planting trees, once the work is done what will these jobs evolve into?

$1.6b towards training – a significant investment will be made in training.  Long-term this will definitely benefit New Zealand, but it will do little to solve the immediate problems created by the pandemic.  It is also questionable whether jobs will exist for these newly up-skilled people in a potential recessionary environment. The infrastructure spending and target of 8,000 homes will give some work. However, policy and legislative pressures on other sectors to benefit from the training boost, like farming and the primary sector, will likely see less demand for jobs in this sector over time. This investment needs to be targeted to the future of work or the government needs to change its legislative agenda towards the primary sector if it wants these trainees to have somewhere to work.

Policy consultants and bureaucrats. While very little funding has been allocated towards assisting the private sector, the Government sector has been sprayed with “helicopter money”.  This will certainly support the Wellington job market and economy.

What is in Budget 2020 for Small and Medium Businesses?

Disappointingly, there is very little in this budget in the way of near-term support for businesses. However, Government spending is stimulatory and there is certainly no shortage of new Government spending in Budget 2020! There is no doubt that this additional spending will help support the economy in the long term. However, it will take some time for the stimulatory effect of that spending to filter down into the wider economy and many small businesses are crying out for help now.

In terms of short-term relief, there really isn’t much for businesses (yet).  However, here are some of the measures that were announced:

  • An 8-week extension to the Wage Subsidy for businesses that have suffered a 50% decline in revenue for 30 days prior to applying for the extension when compared to the same 30 days last year.  See below for more detail on this.  This will be a welcome relief to the accommodation, hospitality and tourism sectors who are really hurting.
  • A $400m tourism recovery fund.  This seems to be aimed mainly at accessing advice around adapting tourism businesses towards domestic and Trans-Tasman markets. There also appears to be a focus on marketing New Zealand to Kiwi’s. Unfortunately there was limited detail in the budget announcements and it seems this fund is destined to be ‘working grouped’ over the coming weeks.
  • $150m in loans to R&D providers.
  • Additional funding for WINZ to place 10,000 primary sector jobs.
  • Financial support for businesses to retain apprentices.

Overall, the $50Billion COVID-19 recovery fund includes just $4Billion in business support. With $3.2Billion of this being consumed by the extension to the wage subsidy there is certainly not a lot to be optimistic about in the short to medium term. These announcements have simply bought the government a few more weeks to come up with some targeted, practical support for the sectors most damaged by the economic shutdown.

Extension to the Wage Subsidy Scheme

From the 10th June 2020, businesses who continue to be severely affected by COVID-19 will be able to apply for another 8 weeks of Wage Subsidy. Applications will be open for the extension for 12 weeks from the 10th June 2020.

The qualifying criteria around turnover has been substantially tightened from the first phase of the scheme. To qualify, a business must have suffered a 50% turnover reduction for the 30 days before the application is made compared to the same period last year (or a comparable period for a business that is less than 12 months old or experiencing high growth before COVID-19).

The same full-time rate of $585.80 and part-time rate of $350 will apply. At this stage, we understand that all other criteria will remain broadly the same.

Hospitality and Tourism Sectors

It goes without saying that two of the worst affected sectors are tourism and hospitality.  The shift to Level 2 is only a partial relief in these sectors so the extension to the wage subsidy will be much welcomed news for these businesses struggling for survival. While the wage subsidy scheme is not without its flaws or critics, there is no doubt that so far it has saved jobs and businesses, especially in the hospitality and tourism sectors. However, many employers in these sectors are going to need more than just the wage subsidy to survive long enough to be around for the recovery.  Presumably, there will be some more targeted relief in the coming weeks, but what these sectors need the most is some certainty about when restrictions will be loosened so that they can properly plan ahead and take necessary steps to mitigate the losses until they can begin trading again.

Tax Changes in Budget 2020

No tax changes were announced in budget 2020. However, New Zealand’s debt is forecast to balloon from $118Billion to over $317Billion in the next 4 years. Core crown debts alone will be well over $200Billion, 54% of GDP. This massive increase in Government debt and makes future tax increases a very strong possibility, if not ineviatble.

Where will the Additional $20Billion+ in Spending Go from Budget 2020?

As we mentioned earlier, there is still approximately $20Billion+ in funding to be allocated. The Finance Minister suggested that there will be further announcements in the residential housing space but hasn’t really signaled where the rest will go.

Perhaps the Government wants to stand back and get a feel for how much of a positive impact shifting to Level 2 has before deciding how to spend this money.

Considerable Room for Improvement

While the government has moved quickly with things like the wage subsidy to help save jobs in the immediate term, the recent announcements in budget 2020 have very little impact where it is most needed. We will continue to monitor announcements closely to see if some targeted, long-term relief is announced to support the hundreds of thousands of small and medium businesses across New Zealand. These businesses are a lifeline for countless families and the backbone of local communities across the country. While large organisations benefit from hundreds of millions in loans and large infrastructure projects, the government has so far overlooked the little guys in their long-term plans.

We’re Here to Help

At MBP, we’re here to help. The government’s additional COVID-19 funding for the regional business partner network has already dried up after helping less than 1% of the businesses desperately in need. That’s why we partnered with local business leaders to fully fund a range of our services that are essential for business survival and success in the face of the challenges we are presented with.

If you and your business need a hand, reach out and book in a chat with our team. We’re happy to help however we can.

What you can and can’t claim as an expense when buying a rental property is a hot topic of conversation. The confusion around this issue is likely inflamed by the recent changes to the rules that the IRD has quietly made without much publicity.

Below are some of the most common questions we get asked with property purchases. If your question isn’t below, get in touch with our team of property tax pros and we can help get you sorted.

Can I Claim for Legal Fees When Buying a Rental Property?

Yes. The IRD has recently accepted that their previous opinion on these fees was incorrect. You are now permitted a deduction for legal fees related to the purchase of a rental property, up tot he standard maximum of $10,000.00 in any tax year.

You can also claim for fees related to taking legal action to recover unpaid rent.

You can only claim the legal fees for selling a property if you are in the business of providing residential rental accommodation. This means that your intention needs to be clearly long-term rental and not speculative.

Can I Claim for Due Diligence When Buying a Rental Property?

Mostly, yes. This is a grey area as it depends entirely on the intentions for the property and the outcome of negotiations. Builders and LIM Reports are always treated as capital expenditure and so are not deductible. However, other due diligence costs might be.

If you go ahead and purchase the property and then operate it as a rental, then the due diligence is most likely deductible. The deduction depends on whether the due diligence is in the form of advice, coaching and support with regards to the management of the property as an income generating rental. Due diligence with regards to financing, general property education and leveraging advice would not be deductible. These items are considered more to do with the acquisition of the property than the generating of income from it and so they are deemed to be capital in nature.

Can I Claim for Builders Reports When Assessing a Rental Property?

No. Builders reports are considered to be capital in nature and so are not deductible. This is because the builders report is solely for the purchase and not for the ongoing rental income generation. A deduction is allowed only when there is a direct link to the income generation.

Can I Claim for LIM Reports When Assessing a Rental Property?

No. LIM Reports are directly related to the purchase of the property, not generating income from it. An income tax deduction is only available for expenses incurred in the generation of the taxable income. LIM Reports are therefore deemed to be a capital expenditure.

Can I Claim for a Registered Valuation When Buying a Rental Property?

Yes. But only if the cost is for the express purpose of securing finance for the rental property. You can’t claim for valuations that are for insurance purposes or to help you identify a reasonable offer/ purchase price. Many banks require a registered valuation before they will finalise your mortgage so it helps that this is a tax deductible cost.

Can I Claim for my Travel Expenses to View a Rental Property?

No. If you have to drive, fly or sail to an open home that cost is unfortunately not deductible.

Once you own the rental property, you can claim for your travel costs to inspect the property, you just can’t make the same claim for inspecting it before you’re the landlord.

However, some costs of acquisition, like loan fees, can be deducted.

Can I Claim for Loan Fees When Financing a Rental Property?

Yes. Fees for arranging the financing of a rental property are deductible.

This can be confusing as the purchase price itself and most of the associated costs (like the capital portion of the loan) are not deductible. However, there is specific guidance from the IRD allowing the deduction of loan fees.

Can I Claim for Finders Fees Paid for a Rental Property?

No. This type of expense is deemed to be capital in nature and therefore not tax deductible. Finders fees are a cost associated with the acquisition of the property rather than the operation of the property as a rental. As such, they have no direct link to the generation of taxable income.

Capital expenditure such as this can be claimed as a deduction against any tax on capital gains, such as a CGT/ Bright Line Test tax, so it still helps to keep a record of it.

Can I Claim for Property Mentoring, Coaching or Education?

Mostly, yes. This is a bit of a grey area and depends on the specific program and nature of the advice and support.

Property investment education that is centered on how to find and finance a property is likely to be considered capital in nature. This is because this type of education is not directly related to the generation of taxable income. Rather its advice for the accumulation of wealth and the leveraging of any existing wealth.

Property investment advice, mentoring and education that is focused on managing your rental, setting and maximising rents and dealing with ongoing property issues would be deductible. This type of expense is directly related to the income you generate from the rental property.

Most often, the costs of chatting with your MBP Advisor are totally deductible. If you’re on one of our rental property packages then chatting with us about your rental portfolio is totally FREE. So reach out to your advisor today for tailored, expert advice and support. Don’t have and advisor? Get one today by reaching out to the team at MBP.

 

Note: The above information is general in nature and accurate at the initial time of publication. Every effort is made to keep this page updated but you should always get specific advice tailored to your unique situation, so don’t hesitate to get in touch with our team of property tax professionals.

Many businesses need to get their employees around the place to do their jobs. This often means that they need to either have company motor vehicles for their employees to use, or reimburse their employees for the use of their personal cars.  Much of the motor vehicle expense claim methods have undergone some changes in recent years so its important to keep up with what you can now claim. In this article we’ll be taking a quick look at the three main options you have available; personal vehicle reimbursed, company car and third party motor vehicles.

Personally Owned Motor Vehicles

If you or your employees are required to use your personal vehicles for business, you can pay a mileage rate reimbursement.

The IRD has recently overhauled the mileage rate calculation method and pay-out per kilometer, you can read more from them here. Previously, you could only claim up to 5,000km of travel per year at their annually adjusted rate per km with minimal records. Now you can claim an unlimited number of kilometers at variable rates, as long as you keep records to back up your mileage claims.

No matter what your vehicle type, you can now claim up to 14,000km of business travel at

Vehicle TypeFirst 14,000 kmsOver 14,000 kms
Petrol or Diesel$0.76 per km$0.26 per km
Hybrid$0.76 per km$0.18 per km
Electric$0.76 per km$0.09 per km

Record Keeping Requirements

You must keep a record of the number of kilometers traveled for business in order to make accurate reimbursements. There are many apps and fleet management software solutions available that allow you to do this effortlessly.

If you do not keep accurate or reliable records of business use, then the reimbursements permitted are severly limited.

The $0.76/km rate is only allowed for the first 3,500km of undocumented travel. Beyond 3,500km the reimbursement rates are limited to the tier two rates (e.g. $0.26 for a petrol or diesel). If you drive a lot for work it pays to keep good records.

For Example
Steve uses his personal diesel ute for work. He drives 15,000km per year for work. If he keeps accurate records of his business trips, he claims the first 14,000km at $0.76/km and and the final 1,000km at $0.26/km. This is a total reimbursement of $10,900. However, if no proper records are kept to back-up the claims, then the rates drop. He can claim the first $3,500km at $0.76 and the final 11,500km at $0.26/km for a total claim of $5,650. Bad record keeping almost halves his reimbursement and leaves him $5,250 out of pocket.

Your Company Owned Motor Vehicles

If your company owns the vehicle you can claim deductions for its running costs. These costs includes things such as fuel, road user charges, repairs and maintenance, and insurance.

Logbook-Based Motor Vehicle Expense Apportionment

If the vehicle is used by you, the business owner/shareholder, then you can apportion the expenses based on your usage. This means that you keep a logbook for three months to track all of your business versus personal trips. This will allow you to calculate the proportion of the vehicle usage that is business related. This business portion of the motor vehicle expenses is the deductible portion. This logbook determination remain in place for up to three years, or until your usage fluctuates by 20% or more.

For Example:
You drive 10,000km over the three months you are keeping the logbook. 8,000km was for business related travel and 2,000km was for personal travel. 80% of your motor vehicle expenses can be claimed as a deduction against your business. If the business is paying all of the running costs, your 20% personal portion can be split off through your shareholder current account. This essentially treats this benefit you get the same way your cash drawings are treated.

As the vehicle is owned by the company, any depreciation of the vehicle as an asset will also have to be adjusted. Therefore, with the vehicle in the example above, only 80% of the depreciation is deductible. Likewise, with a financed or leased vehicle there will be adjustment to make. The interest expense on any finance arrangement and the payments on any operating lease will have to be adjusted. The personal portion of the depreciation, interest and lease payments will be treated in the same way as the other personal portions.

If you have employees using the company vehicles, the shareholder account apportionment method will be inappropriate.

Tax Adjustment for Employee Use of Company Motor Vehicles

As with an owner used vehicle, you can claim for the business related motor vehicle expenses when your employees use the company car.

However, if the company car is also available for personal use by the employee, you will need to pay tax on that added benefit. This tax is called Fringe Benefit Tax (FBT). This is because the use of the motor vehicle is an added (or fringe) benefit to the employee of their employment. The purpose of FBT is to treat this added benefit as if it were a salary. FBT is added to the net value of the benefit provided, usually at a rate of 49.25%. This might seem like an extremely high tax rate but it is designed so that the added tax liability equates to approximately 33% of the gross fringe benefit.

For Example:
You provide a vehicle to be used by an employee. The employee is allowed to use the vehicle personally. The calculated value of this added personal benefit is $10,000. At 49.25%, the FBT on this benefit is $4,925. This makes the total gross benefit $14,925. The added tax portion is 32.998% of this gross. This means that the tax is therefore roughly equivalent to the income tax payable if that non-cash vehicle benefit had otherwise been paid in cash as a salary.

There will also be GST adjustments to make along with the FBT compliance. This is a lot of added tax to take into account when considering how to structure your vehicle policies and arrangements. Ensure that you have properly discussed the matter with your tax or business advisor.

Proper compliance does have its perks. You can claim 100% of the motor vehicle expenses when you are properly complying with the FBT regime. These expense claims should be enough to offset the added GST and FBT taxes through GST claims and Income Tax deductions. If they aren’t, you will need to consider the benefit of the vehicle to the business and the other options you may have to reduce or eliminate the added burdens.

Check Out Our Definitive Guide to FBT Compliance

FBT can be a complicated issue and it’s important that you get it right to avoid running foul of the IRD. This is a key area that they are focusing on as kiwi businesses love a company car but often skip over proper tax compliance with those motor vehicles. We will publish a more definitive guide to FBT compliance at a future date so keep an eye out or subscribe to our newsletter, MBP Business Briefing, to keep up to date.

You Don’t Own Any Motor Vehicles

For many businesses, owning vehicles and accounting for the added usage, benefits and taxes is just too much of a burden and distracts them from what their core focus should be. These businesses are instead turning to third parties like Uber or corporate cab companies. This is a growing trend, especially in larger cities. Services like Uber for Business are changing the way that teams travel, offering affordability, convenience and professionalism that is often hard to imitate with a dedicated company car.

Since you are only paying for what you use, this can be a far more affordable option, especially for larger teams or ones that don’t travel regularly. Not only do you have access to a car whenever you need it but you get picked up at the front of the office and never have to worry about parking. Overall, less time and money wasted on non-value adding activities and more timely and reliable service for both employees and your customers or clients.

This has been a really quick (as quick as it could be) run through of these three options. There are some other options and methods so please get professional advice, preferably before you make any big and potentially very expensive decisions.

This advice is general in nature and should not be relied on as a recommendation. Every situation is unique and requires tailored advice. Get in touch for a free consultation by emailing mailbox@mbponline.co.nz or call us free on 0800 86 85 86.