|Posted on 23 June, 2019 at 1:10|
How to reduce your tax bill
If wanting to reduce your taxes planning is required.
Timing involves paying taxes due at a later date, prolonging amounts due for as long as possible. Strategies include pre-paying expenses i.e. buying travel in advance; including accruals i.e. ensuring all accounts payable and trade accounts owing to suppliers at year end are included, weighing up payment basis vs invoice basis for GST, and if GST is even required. Timing is very important when it comes to taxes, for example if given a choice to make a large sale this year and pay 33%, or next year and pay 17.5%, given the choice it would be better to wait and pay tax on the sale at the lower rate. There are a number of other options such as GST payment periods 2, or 6 monthly, provisional taxes, and PAYE vs shareholder salary considerations that can all impact on the timing of tax payments. When ever possible paying tax later is the best idea to achieve savings.
Deductions include ensuring that all expenses are included, this may involve costs associated directly with your activity, together with overhead costs such as vehicle costs, depreciation on assets, and home office costs. There are a number of different categories of expenses to consider. In general the more information provided at year end the better. Include all expenses that allowed you to "continue in business" and to "earn your income". There are a number of tax rules that can be taken advantage of such as the FBT de-minimus allowing companies to make tax free distributions to staff of $300 per 3 months, for gym memberships, or the child de-minimus allowing $2,340 of income to be paid to school children without any PAYE being deducted.
Structure is an important consideration ,for example if expecting large losses on a start up a "look through company" is an ideal option. Losses should not be carried forward when paying tax on other income in the same year. Considering your structure can also ensure that income is available to be distributed to owners with lower personal marginal tax rates. Many small family businesses have both husband and wife as shareholders of the business. Trusts are a good option in some cases allowing income to be distributed to any of the beneficiaries and taxed at their marginal tax rates.
No CGT allows a significant advantage for asset owners to generate non-taxable income. How taxable income is spent is very important if wish to take advantage of the tax system. Property continues to be a very good option, tax losses resulting from investment property are available to be offset against all other income. Restructuring is available allowing your home to be mortgage free, and all debt applied against investments. Capital gains are not taxable if the timing of sales fall outside the "bright line test" period. Capital gains on business sales, shares, and other investments are also tax free. Investment in general is very desirable if looking for a greater return while minimising taxes.
The lack of a capital gains tax in NZ certainly provides a major advantage for investors to potentially make significant tax free gains.