Articles by John Heaslip
Hopefully the “post-Covid” reference in the title is not tempting fate, but at the time of writing New Zealand appears to be in an enviable position in terms of control of the public health side of the Covid pandemic. However, battling through the economic fallout is going to be just as challenging.
All readers will be aware of the government taking multiple actions across multiple different platforms to assist the public and employers as they work through the financial fallout. So I thought it would be useful to summarise some of the key tax measures that have been instituted in the past three months.
The wage subsidy was initially available for a 12-week period if you could demonstrate 30% reduction in revenue on a monthly comparison, and then extended for a further 8 weeks if there is a 40% drop. The payment of the wage subsidy is not taxable to the employer and not subject to GST. However, the employer cannot get a deduction when it is paid to the employee. If you are operating as a sole trader, the subsidy is taxable but not subject to GST or ACC.
Depreciation can be claimed on commercial buildings from the 2020-2021 income year, at either 2% diminishing value or 1.5% straight line. Note that there is a carve-out for dwellings that are rented out on a short-term stay basis. They are not regarded as commercial buildings unless there are more than four units providing separate accommodation on the same piece of land.
One-off write offs can be claimed for what would otherwise be depreciable chattels if the total cost is less than $5,000 and the asset is purchased between 17 March 2020 and 16 March 2021. This is a significant increase on the previous low-value asset threshold of $500. The threshold drops to $1,000 from 17 March 2021.
Tax losses produced in either the 2020 or 2021 income years can be carried back to the 2020 and 2019 years respectively. For example, if you are in business and anticipate a loss in the 2021 year, you can reduce your tax payable for the 2020 year by carrying back the estimated 2021 loss. You need to be careful not to overestimate, as it can lead to use of money interest being payable. Unfortunately, this concession does not extend to residential rental property losses. This is because residential rental property losses are ring-fenced and therefore unavailable as tax losses to carry back.
The IRD can write off use of money interest for late payment of tax due to the impact of Covid-19. If Covid-19 means you are physically or financially unable to pay tax on time, you can request that use of money interest is not applied.
While the above concessions are all welcomed, in our view the IRD could have gone further. We would like to have seen them defer the implementation of the ring-fencing rules until the current income year has finished. Consideration should also have been given to an exemption from the application of the bright-line rule where one is forced to sell a property due to financial difficulties caused by Covid. That said, given the government’s antipathy to property investors we can’t say we are surprised that such measures were not taken. An additional measure that would be welcomed by tourism affected people, would be tax concessions to spread redundancy payments across multi-tax years. There have been murmurings of this in the wind, but nothing yet.
Hi Mathew. Thanks for meeting with us. I took your advice and have started on Property 101 and more than half way through. I now realise why you advised us to stay where we are and look for properties with land in Hamilton or Waiuku. Information, calculations and case studies in this book are priceless. I'm so glad you decided to write this book and managed to find time to do it. Thanks very much for this and for advising us to check with you should we need to. Thanks - Helen - July 2015
If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.
Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.