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  1. Post
    mistere wrote:
    Hi Brand,

    Thanks for that. Some more detail to help out. I'm on salary / PAYE. We are looking primarily at business where my wife can work from home. How we would split ownership of the business is one of the things I would like to understand.

    At the moment we are still looking at options but it will likely be something where the majority of the work can be done from home such as a small import business to begin with.

    At the moment some general advice would be much appreciated. One of the drivers for us investigating this option is the potential tax benefits that come with owning a business. Is this blown out of proportion or is there a reasonable opportunity for me to offset my PAYE bill by going down this path? Also, is that really enough of a driver or is the concept of having a side business to help offset your tax bill a thing of the past these days?
    If you are on salary/PAYE there isn't a lot that can be done. That salary is yours it can't be split with your wife.

    We can set it up where losses from the business help offset your income but that means the business is making losses which is not what you want your business to be doing...

    People have been doing this with rental properties but they were relying on the capital gain and taking advantage of the tax refunds to help service their loans. That is in the past though. Capital gains aren't guaranteed anymore and rental losses are now ring fenced and can only be offset against future rental income.

    A business can be a good sponge for expenses which might otherwise be personal e.g. a home office will let you claim a portion of rates, power, insurance etc. Business assets like laptops and mobile phones might have some incidental personal use.

    However at the end of the day you have to be running a business with the intention of making a profit otherwise you risk being deemed not a business at all.

  2. Post
    Hi Team,

    I have a simple question I hope. I know you can write off mortgage repayments against rental property income but wanted to ask if the purpose of the home loan matters at all.

    My Dad owns two flats and also owns his own house. He owns everything outright. He just took out a forty thousand dollar loan as he needs some money for reasons that his own personal business. He asked the bank person "Should we secure the loan against the house or the flats? and they said the house,"
    I was mad when I heard this story because I thought this might mean now he can't claim the loan repayments against the rental income of the flats. Is this correct? i guess my question is does the purpose of the home loan matter. The loan/mortgage was not taken out to buy the flats - he just wanted cash for his own reasons (which I don't want to get into).

    Please let me know

    If the bank person poorly advised him I want to complain and get him to switch the security for the loan over to the flats.

  3. Post
    wrighty wrote:
    Hi Team,

    I have a simple question I hope. I know you can write off mortgage repayments against rental property income but wanted to ask if the purpose of the home loan matters at all.

    My Dad owns two flats and also owns his own house. He owns everything outright. He just took out a forty thousand dollar loan as he needs some money for reasons that his own personal business. He asked the bank person "Should we secure the loan against the house or the flats? and they said the house,"
    I was mad when I heard this story because I thought this might mean now he can't claim the loan repayments against the rental income of the flats. Is this correct? i guess my question is does the purpose of the home loan matter. The loan/mortgage was not taken out to buy the flats - he just wanted cash for his own reasons (which I don't want to get into).

    Please let me know

    If the bank person poorly advised him I want to complain and get him to switch the security for the loan over to the flats.
    Unless it's in a company for interest to be claimable it's got to be for a business purpose. It doesn't matter what the loan is secured on, it's the purpose of the loan that matters. So don't go getting mad at the bank, even if they were wrong, it's not their place to be giving out tax advice anyway!

  4. Post
    aitkenmike wrote:
    Unless it's in a company for interest to be claimable it's got to be for a business purpose. It doesn't matter what the loan is secured on, it's the purpose of the loan that matters. So don't go getting mad at the bank, even if they were wrong, it's not their place to be giving out tax advice anyway!
    Ok - thanks Mike.

    Please confirm you are saying that if the loan is taken out for personal reasons and for not for reasons of generating rental income then you can't claim the loan interest as an expense even if it is taken out against the flats.

    Let's say for arguments sake the loan is so my Dad can travel around the world ie definitely nothing to do with generating rental income.

  5. Post
    wrighty wrote:
    Ok - thanks Mike.

    Please confirm you are saying that if the loan is taken out for personal reasons and for not for reasons of generating rental income then you can't claim the loan interest as an expense even if it is taken out against the flats.

    Let's say for arguments sake the loan is so my Dad can travel around the world ie definitely nothing to do with generating rental income.
    Correct. There is no nexus with income, so no claiming the interest expense on a loan for personal reason.

  6. Post
    aitkenmike wrote:
    Correct. There is no nexus with income, so no claiming the interest expense on a loan for personal reason.
    Thanks - and My Dad is happy too. Appreciate your help.

  7. Post
    What are some of the things you can claim as an expense when you're an independant contractor?

  8. Post
    aitkenmike wrote:
    Correct. There is no nexus with income, so no claiming the interest expense on a loan for personal reason.
    Could it not be structured in a way that would make the interest expense deductible?

    For example, lets consider the rental properties as a business. The business obtains a $40K loan for leverage purposes or working capital (this would mean interest would be deductible). The owner then withdraws $40K drawings from the business for personal reasons.

    I guess the IRD may look at this as tax avoidance though so a better approach would be to never fully pay off the mortgage for a rental property.

  9. Post
    labcat wrote:
    Could it not be structured in a way that would make the interest expense deductible?

    For example, lets consider the rental properties as a business. The business obtains a $40K loan for leverage purposes or working capital (this would mean interest would be deductible). The owner then withdraws $40K drawings from the business for personal reasons.

    I guess the IRD may look at this as tax avoidance though so a better approach would be to never fully pay off the mortgage for a rental property.
    This is not possible if the rental property is owned personally but yes a Company could borrow to repay shareholders or declare a dividend and the interest would be deductible.

    In this case you would have to re-structure by selling the rental to a Company and having the Company draw down a loan to pay you. You can then use the proceeds to pay down your personal loans and whatever else you want.

    However the bright line test now applies so think carefully if you think you may sell within the next five years.

  10. Post
    brand wrote:
    This is not possible if the rental property is owned personally but yes a Company could borrow to repay shareholders or declare a dividend and the interest would be deductible.

    In this case you would have to re-structure by selling the rental to a Company and having the Company draw down a loan to pay you. You can then use the proceeds to pay down your personal loans and whatever else you want.

    However the bright line test now applies so think carefully if you think you may sell within the next five years.
    You'd also need to consider whether the tax savings from the interest on a 40k loan are worth the costs (initial and ongoing) of setting up a company and transferring the asset to it. I would say not, unless you were wanting to do it for other non tax purposes anyway, or the loan was much bigger.

  11. Post
    Hi guys,

    Classical family trust

    2 questions

    a. For the tax year I have less than $2500 of income, what method of provisional tax estimation should I use S, E ,R?

    b. Lets say I want to transfer some cash into the trust, and this money has already had income tax(personal) taken off it, does it get treated as income for the trust and taxed again?

    Thanks
    Last edited by Afghan Monster; 10th July 2019 at 12:11 pm. Reason: Grammar

  12. Post
    Afghan Monster wrote:
    a. For the tax year I have less than $2500 of income, what method of provisional tax estimation should I use S, E ,R?
    If you only have $2,500 of income you won't be a provisional tax payer. So standard will set your provisional tax at nil. Don't mess around with estimate or ratio if you don't have to.

    Afghan Monster wrote:
    b. Lets say I want to transfer some cash into the trust, and this money has already had income tax(personal) taken off it, does it get treated as income for the trust and taxed again?
    No this will be treated as a loan from you to the Trust that you can then subsequently forgive.

  13. Post
    Hey brand, got a simple one for you. My partner was slack updating details on myir, which resulted in missing payments from working for families. Once details were updated payments continued, but no word on missed ones. Do we need to call ird or can we rely on them to eventually push them through to us? There's nothing on myir about it.

  14. Post
    mintyOnion wrote:
    Hey brand, got a simple one for you. My partner was slack updating details on myir, which resulted in missing payments from working for families. Once details were updated payments continued, but no word on missed ones. Do we need to call ird or can we rely on them to eventually push them through to us? There's nothing on myir about it.
    Give them a call -you can't assume they will just do something...

  15. Post
    Hey Brand really appreciate your contribution here.

    I actually have a question for you, seems you would probably know and save me having to look it up.

    I got restructured and secured some pretty lucrative contract work right away @$800 / day gross.
    This contract is 2 months, and then after that I am not sure what I will be doing. Possibly more contract work at hopefully the same rate.

    I have heard that if you earn more than $60k from contracting it becomes better to register as a sole trader than do it through a company or something?

    What do you recon the best structure would be? - given I might be contracting for quite some time.

    Thanks!

  16. Post
    stacrafty wrote:
    Hey Brand really appreciate your contribution here.

    I actually have a question for you, seems you would probably know and save me having to look it up.

    I got restructured and secured some pretty lucrative contract work right away @$800 / day gross.
    This contract is 2 months, and then after that I am not sure what I will be doing. Possibly more contract work at hopefully the same rate.

    I have heard that if you earn more than $60k from contracting it becomes better to register as a sole trader than do it through a company or something?

    What do you recon the best structure would be? - given I might be contracting for quite some time.

    Thanks!
    I'm about to be in the exact same boat, and surprisingly at the same rate! (Maybe we're colleagues, bud). I'm also expecting to be in the contract for some ~9 months at this rate, with the potential for it to extend to 3 years quite easily.

    Another one of my colleagues who has contracted for a while suggested that I set up an LLC, as my role is one of an 'advisor', so I could be held liable. And while I will have PI, I should still hold an LLC so that if things go completely wrong I am not personally in the firing line.

    Looking forward to seeing responses to your question too!

  17. Post
    stacrafty wrote:
    I have heard that if you earn more than $60k from contracting it becomes better to register as a sole trader than do it through a company or something?

    What do you recon the best structure would be? - given I might be contracting for quite some time.

    Thanks!
    I think you're conflating two different matters:

    a) If you earn over $60k per year as a non-salaried contractor you must register for GST regardless of structure (i.e. sole trader or as a company/partnership/whatever). There are benefits for registering for GST below this threshold (e.g. if you have work-related expenses the GST can be claimed back), but it is additional accounting/paperwork that must be done so some people choose not to until they reach the threshold

    b) Structure of your business - a company structure requires a lot more paperwork, and whilst the company tax rate is lower than the top personal tax rate, any company drawings end up getting taxed (less the tax already deducted) at your personal tax rate, so in terms of cash in your pocket it doesn't make too much difference. There are opportunities for income splitting under a company/partnership model, but you need to be careful about what work you do - i.e. if the company derives income outside of the work that you are personally doing then income splitting may be appropriate; however if the company is just a vehicle to avoid tax by splitting income you have personally done, then the IRD may not be too happy.

  18. Post
    People often think they need a Company when it may not necessarily be the case.

    As mentioned a Company provides limited liability but requires extra administration and cost.

    Limited liability acts as a barrier but it isn't absolute. PI insurance is a good backup but if you are really worried then you should look at putting your assets into Trust.

    So it depends on how "risky" you think your work is...

    There may be some advantage to keeping income in a Company at 28% rather than at the top personal tax rate of 33%. However that only works if it stays in the Company.

    If the income is generate primarily from your personal effort and expertise then we are required to allocate anywhere between 80%-100% (depending on circumstances) of the Company profit to you personally.

    So for the basic contractor there isn't a huge difference between operating as a Company vs a Sole Trader.

  19. Post
    brand wrote:
    People often think they need a Company when it may not necessarily be the case.

    As mentioned a Company provides limited liability but requires extra administration and cost.

    Limited liability acts as a barrier but it isn't absolute. PI insurance is a good backup but if you are really worried then you should look at putting your assets into Trust.

    So it depends on how "risky" you think your work is...

    There may be some advantage to keeping income in a Company at 28% rather than at the top personal tax rate of 33%. However that only works if it stays in the Company.

    If the income is generate primarily from your personal effort and expertise then we are required to allocate anywhere between 80%-100% (depending on circumstances) of the Company profit to you personally.

    So for the basic contractor there isn't a huge difference between operating as a Company vs a Sole Trader.
    I don't know if its that risky, I am just going generic market strategy + financial / investment analysis stuff. But would be generated from personal effort and expertise.

    Seems like sole trader is the way to go.

  20. Post
    stacrafty wrote:
    I don't know if its that risky, I am just going generic market strategy + financial / investment analysis stuff. But would be generated from personal effort and expertise.

    Seems like sole trader is the way to go.
    I feel like offering financial advice is inherently risky activity, but as Brand points out a company structure isn't necessarily going to protect your assets. Presumably you've also considered licensing requirements?

  21. Post
    KevinL wrote:
    I feel like offering financial advice is inherently risky activity, but as Brand points out a company structure isn't necessarily going to protect your assets. Presumably you've also considered licensing requirements?
    Its not personal financial advise or anything, but will be determining business strategy and what they should invest in, so then it kinda is.

  22. Post
    stacrafty wrote:
    Its not personal financial advise or anything, but will be determining business strategy and what they should invest in, so then it kinda is.
    Not my area of expertise but I'm fairly certain you'll need to be authorised and registered, unless you're restricted to category 2 products e.g. consumer loans, term deposits, insurance (in which case you'll still need to be registered).

  23. Post
    KevinL wrote:
    Not my area of expertise but I'm fairly certain you'll need to be authorised and registered, unless you're restricted to category 2 products e.g. consumer loans, term deposits, insurance (in which case you'll still need to be registered).
    Nah its not like telling them to invest in any financial products or anything, its generic insight and strategy stuff any commerical analyst would do at any corporate