Business and Tax Updates June 2023: IBBZ Accounting

Summary:

As June comes to a close, we're reaching the halfway point of the year. Let's dive back into key updates and developments for the month. 

 Business Updates 

1. The government has announced that NZ has entered into a ‘technical recession’ which can be defined as two consecutive quarters of contraction.

2. This contraction was driven by production declines in agriculture, transport, and warehousing. The adverse weather events occurring earlier in the year contributed to this significantly.

3. With the official cash rate at its all-time high of 5.5% and inflation recorded at 6.7%, cost of living concerns continue for kiwis as well as rising crime rates. Business and household confidence remains low. Unemployment currently remains stable at 4.8% but may increase depending on the impacts of recession in NZ.

4. Business NZ with a collaboration of Xero and MYOB added couple of videos on dealing with stress. If you feeling stressed it would be a good idea to watch this couple of webinars on managing stress during tax time, and Mental wellbeing.

5. When you should hire a staff. If your business is consistently growing and your earnings are repeatedly on or above target, you might be thinking it is time to get some extra help. Read more here to weighing options on when to hire a staff member.

6. Business NZ made this tool to help small businesses to do cash flow forecasting. A useful tool to help small businesses. 

Tax Updates

Renting to Flatmates

IRD have released draft QWBA which discuss renting to flatmates. The publication confirms that a homeowner living in their home and renting a room to a flatmate, can claim deductions on costs incurred in deriving rental income. The expenditure will need to be apportioned between the homeowner’s private use areas, common shared areas, and the flatmates exclusive use areas. Read More here

Employee Travel Allowances Exempt

The publication highlights that an allowance for ‘additional’ transport costs can be exempt income. ‘Additional’ transport costs are the costs to an employee of traveling between their home and place of work that are more than what is ordinary. In order for the allowance provided to be exempt, the requirements highlighted by IRD must be met. You can read full article detailing the exemption here.

Interest Deduction of Holding Costs for Land

IRD has released a draft IS which covers the deductibility of holding costs for land and whether the land being taxed on sale has any influence on deductibility.
Holding costs refers to expenses incurred in the ownership of land. These include interest, rates and property insurance. The do not include the costs of capital improvements to the property or expenses related to the use of the property.
In order for, holding costs to be deductible, there must be a sufficient connection between the holding costs and the derivation of income. This will be determined by the use or uses of the property and how it used in each income year.
 
Income earning uses of the property include renting it out and holding it on the revenue account. If the property is held on the capital account, it is not for income earning use even if the sale of property ends up being taxed. This is because to determine deductibility, you must look at what the taxpayer was seeking to gain from the expenditure at the time it was accrued. If the taxpayer had bought the property to keep on capital account, then they have not been incurring holding costs in order to derive an income. Read More Here

Foreign Investment fund: deemed rate of return

The deemed rate of return for taxing interests in foreign investment funds is 8.15% for the 2022-2023 year. This is up from the previous year’s rate of 6.01%.


IBBZ Update


-So far we have submitted 30% of 2023 tax returns. And 100% 2022 tax returns.

-Our project on writing a book on Cash flow problems and solutions for Small Business owners is going well. First three chapters draft is getting ready. And we are looking out for a publisher.

-We had end-of-year party at Fisher House.