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  1. Post
    #51
    brand wrote:
    The loss is actually to the Real Estate Agency because they have to pay GST on the commission they charge the vendor but are unable to claim back the GST on the portion they pay to you.
    If the agency is charging commission + GST then the "loss" is to the vendor, really.

  2. Post
    #52
    Egor wrote:
    If the agency is charging commission + GST then the "loss" is to the vendor, really.
    Well yes -GST has always been a tax on the end consumer but we're not here to argue social policy

  3. Post
    #53
    I've always wondered how small businesses work.

    Lets say I have a SB selling wooden tables and I initially deposited a few thousand for wood, nails etc. That would be called Owner's Equity and not taxed right?

    Then when it comes the time to take profits out of the company for personal drawings, how would you get taxed?

    Lets say the company for 6 months since it started has earned $10,000 (before tax) and you want to take out $2000 to pay yourself. Can you just take the $2000 minus the company tax rate (was it 28%?) . Or can you just withdraw it as an expense and then do your income tax as per normal for the financial year? E.g. For the whole year you only withdraw that $2000 and it was your only income, so your tax rate would be 10.5%.

    Thanks

  4. Post
    #54
    gumden wrote:
    I've always wondered how small businesses work.

    Lets say I have a SB selling wooden tables and I initially deposited a few thousand for wood, nails etc. That would be called Owner's Equity and not taxed right?

    Then when it comes the time to take profits out of the company for personal drawings, how would you get taxed?

    Lets say the company for 6 months since it started has earned $10,000 (before tax) and you want to take out $2000 to pay yourself. Can you just take the $2000 minus the company tax rate (was it 28%?) . Or can you just withdraw it as an expense and then do your income tax as per normal for the financial year? E.g. For the whole year you only withdraw that $2000 and it was your only income, so your tax rate would be 10.5%.

    Thanks
    The answer is going to differ based on what the business structure is (company, sole trader etc.) and what the business is.

    If it is a sole trader there is no difference between you and the business it is all your money and it is all your income.

    If it is a company the money you put in can be treated as:
    1. Share capital
    2. A Shareholder Advance
    3. A Loan from the Shareholder to the Company

    It doesn't have to be one or the other it can be a mix of all the above.

    If its a Shareholder Advance or Loan then you can take money out of the company as repayment of the Advance/Loan -this is tax free as long as the company is only repaying you for the money you put in.


    After that it gets complicated...

    The company can pay you:

    1. A Shareholder Salary
    OR
    2. PAYE Salary/Wages (but not both)

    3. Dividends

    If you're paid a Shareholder Salary there is no tax attached so if the company made $10k and paid you $2k as a shareholder salary then the company pays tax on $8k ($10k - $2k) at 28% and you would pay tax on $2k at 10.5%

    PAYE Wages works the same way except that the company would have already paid the tax for you as PAYE

    Dividends are from the tax paid profit of the company. The company pays tax on the full $10k profit but it "attaches" the tax paid as imputation credits to your dividend and you can claim them in your tax return. E.g. the company pays you a gross dividend of $2k attaching $660 of tax credits with it, your actual tax on $2k at 10.5% is $210 the difference $450 ($210 - $660) is a refund to you.

    NOTE: This isn't strictly accurate I am simplifying enormously to get the general concept across -in practice you have to worry about ICAs, RWT, Solvency Tests, Excess Imputation Credits carried forward etc. etc.


    There are other things you have to worry about too...

    The Penny & Hooper decision. If you are the one making the tables and the income is generated largely from your personal efforts then the company has to pay you at least 80% of the profits from the business i.e. $8k not $2k

    Attributed Income, Deemed Dividend, Excessive Remuneration etc. etc.


    In practice of course you only have to understand the general concepts (and not even that if you don't want to) and leave me to work the rest out for best tax advantage while staying within the law

  5. Post
    #55
    brand wrote:
    The company can pay you:

    1. A Shareholder Salary
    OR
    2. PAYE Salary/Wages (but not both)

    3. Dividends
    Isn't there also a fourth option? Correct me if I'm wrong.

    4. Director's Drawings (assuming you're a director)

    In this case the money you take from the company is not considered an expense for the business and remains taxable as part of the company profits. There is no tax to pay for the individual taking the drawings. This is of course rarely a good idea as the company tax rate works out higher than the marginal tax rates for individuals.

    brand wrote:
    If you're paid a Shareholder Salary there is no tax attached so if the company made $10k and paid you $2k as a shareholder salary then the company pays tax on $8k ($10k - $2k) at 28% and you would pay tax on $2k at 10.5%
    Just to clarify for others, what brand is saying here is you pay personal marginal tax rates on the $2k. It would only be 10.5% if $2k was the entirety of your personal income for the year.

    Another thing to be aware of is if you have a small, closely-held company, you can assign all of the company 'profits' to the shareholder(s) as shareholder salary (taxable at individual tax rates) and avoid paying company tax at all.

  6. Post
    #56
    Flux wrote:
    i'm about to be employed as a 6 months independant contractor and this will be my first contract job

    i was wondering how does the tax work ? Would appreciate if you or someone else can shed some light here. Do i also need to setup a company ?

    I read briefly here that if the annual income before tax is lower than $60,000 , I do not have to pay tax ? Can't be true, right ?



    http://howto.yellow.co.nz/careers-an...-a-contractor/
    You might qualify for this depending on your situation.

    http://www.ird.govt.nz/technical-tax...ment-discount/

  7. Post
    #57
    Cheers, that gives me a good understanding. Looks like it is better just to leave it to accountants.

    Egor wrote:
    Another thing to be aware of is if you have a small, closely-held company, you can assign all of the company 'profits' to the shareholder(s) as shareholder salary (taxable at individual tax rates) and avoid paying company tax at all.
    In other words ,does it mean you can add family members onto the company and split the profits. Therefore you will be taxed less.

  8. Post
    #58
    all good thanks for the quick response

  9. Post
    #59
    gumden wrote:
    In other words ,does it mean you can add family members onto the company and split the profits. Therefore you will be taxed less.
    No -this isn't a good idea given IRD's current attitude. I know it has been pretty widespread in the past and "older" accountants are still doing it but it can get you into trouble.

    Shareholder Salaries still need to be justified.

    If they are working in the business then fair enough but if they don't have anything to do with the company other than holding a couple of shares why would you pay them a salary? It's even worse if they have a full time job elsewhere -that means they definitely don't have time to be involved in the company.

    If IRD comes along and asks you why you are paying them a shareholder salary what are you going to say?

    This also applies for companies earning passive income (e.g. investments, rentals) if you have professional managers looking after everything - are you doing anything to deserve a salary?

    FYI
    I should point out that my answers are all based within the facts you give me -you need to be careful when applying them generally.

  10. Post
    #60
    gumden wrote:
    In other words ,does it mean you can add family members onto the company and split the profits. Therefore you will be taxed less.
    Nah. What brand said.

    The golden rule is, you can't structure your affairs in such a way that it reduces your tax liability, without being able to justify why you have done it for some other legitimate reason.

    Paying shareholder salaries to people who don't do any work in the business would likely not be justifiable. Therefore: tax evasion.

  11. Post
    #61
    brand wrote:
    If they are working in the business then fair enough but if they don't have anything to do with the company other than holding a couple of shares why would you pay them a salary?
    What if they were the ones who provided the initial means to start-up the business? Therefore you repay them by giving them a part of the company. i.e. shares.

    Not necessary a salary but when the time comes to pay yourself, the profits are split.

    Am I missing something here or the wrong wording? Because that seems completely reasonable.

  12. Post
    #62
    gumden wrote:
    What if they were the ones who provided the initial means to start-up the business? Therefore you repay them by giving them a part of the company. i.e. shares.

    Not necessary a salary but when the time comes to pay yourself, the profits are split.

    Am I missing something here or the wrong wording? Because that seems completely reasonable.
    A share in a company gives you part ownership of the company which is something by itself. However that doesn't automatically entitle you to a share of the company profits at least not directly.

    Shareholders can receive dividends but the company is under no obligation to pay out dividends.

    I have seen family owned companies where all the profits are deliberately paid out via shareholder salaries so that nothing is left for the other family shareholders.

    I have seen family owned companies where dividends are paid regularly to keep family shareholders in the lifestyle they are accustomed to.

    It all depends...

  13. Post
    #63
    gumden wrote:
    What if they were the ones who provided the initial means to start-up the business? Therefore you repay them by giving them a part of the company. i.e. shares.

    Not necessary a salary but when the time comes to pay yourself, the profits are split.

    Am I missing something here or the wrong wording? Because that seems completely reasonable.
    Then you would pay shareholder dividends (which have an intricate tax treatment of their own, as brand outlined above), not shareholder salaries. Salaries imply doing work, not just investing money.

  14. Post
    #64
    I never said salaries, hence the confusion.

    Thanks for the replies, gives me a good idea now.

  15. Post
    #65
    What's the difference in tax ME SL v M SL.

    EDIT: I mean amount taxed not differences as in who has which one.

    Thanks in advanced

  16. Post
    #66
    DT BlindSniper wrote:
    What's the difference in tax ME SL v M SL.

    EDIT: I mean amount taxed not differences as in who has which one.

    Thanks in advanced
    SL (student loan) tax code is no more come 1 April...

    ME simply means you are eligible for the independent earner tax credit (i.e. you earn between $24k - $48k and aren't on working for families, NZ Super or other benefits).

    The credit works out at $10/week or $520 for the year.

    The trick is you don't get given it automatically you have to be proactive and either:

    Get your tax code changed to ME

    or

    Claim it in your Personal Tax Summary/Tax Return

  17. Post
    #67
    brand wrote:
    SL (student loan) tax code is no more come 1 April...
    It's the ML and MLSL codes that are getting dropped. SL codes are (sadly) still around.

  18. Post
    #68
    zoltuger wrote:
    It's the ML and MLSL codes that are getting dropped. SL codes are (sadly) still around.
    Yes, you're right I got my ME SL and M SL mixed up with my ML and ML SL -I hate it when that happens

  19. Post
    #69
    Just a heads up to everyone

    It looks like scammers have started a new round of cold calling people and pretending to be from IRD.

    If you are unsure if they are really from IRD don't give out any personal information instead ask them to put everything in a letter and send it to you.

    Don't give them your address either if they ask -just ask them what address they have on file for you.

  20. Post
    #70
    Not a business question but something ive never been sure of:

    My wife and I have a joint bank account that earns interest.
    I have a fulltime job while she stays at home causing us to have different tax rates (though i assume the same would apply to any married couple with differing tax rates, or in fact any two people with a joint bank account, working or not)

    Due to the account being created by her i believe that her IRD number is associated with the account.
    Due to being joint i think the bank set it up to pay the higer tax rate by default.

    Who should pay what tax on interest from this account ?
    Do we pay tax on half at my rate and half at hers ?

    I assume that she can claim back the overpaid tax on her part of the income ? but i assume that she only claims half of the income as 'hers' ?
    If so since my IRD num is not linked to the account, was i to file a tax return, do i declare my half as income and if so, how will the ird know that we chave already paid that tax ?

    am i overthinking this .... i suspect so... but its something i've never really been sure of

    Cheers for your time

  21. Post
    #71
    how much interest are we talking about and what is the RWT rate on the account at the moment?

  22. Post
    #72
    ne0 wrote:
    how much interest are we talking about and what is the RWT rate on the account at the moment?
    not much, which is why ive never been overly concerned, but ive always wondered what the 'correct' way for it to be handled is.
    about $80-$100 a month before tax
    looks like the RWT is currently 33% for that account (i believe we can change this, though dont know if we should)

  23. Post
    #73
    CriLmAn wrote:
    Not a business question but something ive never been sure of:

    My wife and I have a joint bank account that earns interest.
    I have a fulltime job while she stays at home causing us to have different tax rates (though i assume the same would apply to any married couple with differing tax rates, or in fact any two people with a joint bank account, working or not)

    Due to the account being created by her i believe that her IRD number is associated with the account.
    Due to being joint i think the bank set it up to pay the higer tax rate by default.

    Who should pay what tax on interest from this account ?
    Do we pay tax on half at my rate and half at hers ?

    I assume that she can claim back the overpaid tax on her part of the income ? but i assume that she only claims half of the income as 'hers' ?
    If so since my IRD num is not linked to the account, was i to file a tax return, do i declare my half as income and if so, how will the ird know that we chave already paid that tax ?

    am i overthinking this .... i suspect so... but its something i've never really been sure of

    Cheers for your time
    Technically you should split it 50/50 in a PTS return if the difference in tax deducted is more than $200.
    I don't imagine this would be the case here, so I wouldn't worry about it.

    I.e. $1,200 interest x 33% = 396 - $1,200 x 17.5% = 210 = 396 - 210 = 186 difference.

    I would still file a PTS return anyway as your wife will likely receive a refund due to overpaying RWT on her share of the interest.

    Of course you could do nothing about it and the IRD will automatically include the bank interest in her PTS return and not yours (banks send RWT certs to IRD), your wife being the only IRD listed on the bank account - she would likely receive a bigger refund than if you filled them 'correctly' yourself.

  24. Post
    #74
    CriLmAn wrote:
    Not a business question but something ive never been sure of:

    My wife and I have a joint bank account that earns interest.
    I have a fulltime job while she stays at home causing us to have different tax rates (though i assume the same would apply to any married couple with differing tax rates, or in fact any two people with a joint bank account, working or not)

    Due to the account being created by her i believe that her IRD number is associated with the account.
    Due to being joint i think the bank set it up to pay the higer tax rate by default.

    Who should pay what tax on interest from this account ?
    Do we pay tax on half at my rate and half at hers ?

    I assume that she can claim back the overpaid tax on her part of the income ? but i assume that she only claims half of the income as 'hers' ?
    If so since my IRD num is not linked to the account, was i to file a tax return, do i declare my half as income and if so, how will the ird know that we chave already paid that tax ?

    am i overthinking this .... i suspect so... but its something i've never really been sure of

    Cheers for your time
    You are correct in your assumptions. Interest on a joint bank account is usually treated as half each and any over/underpaid tax on each person's share is dealt with in their personal tax summary/tax return.

    As for how IRD know... the short answer is they don't.

    The tax system works on a voluntary disclosure basis. They rely on you to be honest and file your tax returns accurately.

  25. Post
    #75
    Thanks for the replys.

    So assuming that my desire is to do this correctly it sounds like the correct approach is to have any joint accounts use the highest rate of the two of us and then have my wife claim back the overpaid tax on her half ?

    If doing this do i need to also file a PTS return or just her (assuming there was no other reason for us to file these) ?