IBBZ Accounting

Chartered Accountants & Tax Specialist

 

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Modifying the 63-day rule on employee remuneration Section EA 4 of the Income Tax Act 2007

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What is 63-day rule

A person is allowed a deduction for the amount spent on employing people. Payment related to employment could be in the form of wage and salary or payment of leaves. Section EA 4 says payment must be made within 63 days after the end of the income year. Any payment not made within 63 days after the of the income year, becomes income of the person for tax purposes. It means deduction is not allowed for the unpaid portion.

 

Extension of payment period for shareholder-employee

Subsection EA 4(3) extends 63 days rule. For employment income paid to a shareholder-employee, the 63 day period for payment in subsection (1)(b)(i) is extended until the last date by which the person could file a return of income for the income year if the time for filing were extended to its maximum under section 37(5) of the Tax Administration Act 1994.

It means payment to shareholder employee can be made until 31-03 of the next year. Assuming 31st March is end of year date. Once payment had been made the amount can be used as deduction.

 

Modifying 63 day rule

A new section was inserted EA 4 (1) (b) (ib) on 1-04-2017 for 2017-18 and future years to modify existing 63-day rule. Current rule increases the compliance cost as the person must maintain record of payments made with in 63 days. With the new rule person can choose to apply the existing rule or use new method. Under new method person can claim a deduction for expenditure on employment income paid within the income year. Unpaid portion shall not be allowed as deduction.

The modification is mainly targeted for very small businesses and I believe this is done to fix loose ends in the Act. Majority of business would be keeping track of payments made within 63 days as they would be using payroll software. If, person wants to claim additional deduction they can do so by keeping track of payments made with in 63 days. Else they can do nothing.

 

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IBBZ Accounting Limited


 


Our key focus is on:



  • Tax advisory for small and family operated businesses on a wide range of taxation issues.

  • Legitimate tax saving structures.

  • Advising on range of new business issues.

  • Ensuring business growth is attained.

  • Effective cash flow planning.



Awards



2014 IBBZ Accounting won the award of Best Small Business 2014. 


2015 Saurav won the award of Best Accountant of the Year.


2017 Saurav was appointed as a committee member to New Zealand Public Practice Board of CPA Australia. 


2018 CPA Australia filmed Saurav Wadhwa and IBBZ Accounting for their marketing campaign to showcase successful accountants in New Zealand Public Practice.  


2018 IBBZ Accounting was Finalist in Westpac Auckland Business Awards: Strategy and Business Planning 2018


 


News Paper Articles.


Sunday Star Times -Fairfax Media -12-08-2018


InTheBlack Aug 2018 issue - CPA Australia In Practice Publication 



Contact us on info@ibbz.co.nz  or 09 272 8050

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Guest Sunday, 26 May 2019