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TAX •  28 APRIL 2022 • 14 MIN READ

Our most common tax questions in NZ

Our most common tax questions in NZ

Income tax
Do I pay tax on drawings?

The answer to this is an emphatic “no”.

You may have been told otherwise by friends and colleagues, but there is no tax on drawings. Never has been. They’re also not a tax deductible business expense.

Great! But why not?

When you take drawings, it’s a repayment of money you’ve already put into the business. Even if you take out more than you’ve introduced, there’s no tax on drawings.

What is taxed is any shareholder remuneration we allocate to you after preparing company financial statements. We include this in your personal tax return. This is covered in more detail in a separate blog – How business owners should pay themselves How business owners should pay themselves.

If you’re a sole trader or in a partnership, the business profit goes directly into your tax return. Drawings are not taxed.

Side note – although drawings are not taxable, they could be treated as income for the Working for Families Tax Credit. This may have an impact on claims.

How much money should you keep aside for paying New Zealand taxes?

We recommend putting aside 20% of everything you earn to make sure you have the cash there and ready when it is time for tax. If you’re registered for GST you’ll need to remember to keep around 15% aside also, to pay your GST bill.

What is New Zealand terminal tax?

This is the difference between what tax has been paid during the year (as provisional tax, PAYE or withholding tax) and what is actually owed.

If too much has been paid, then a refund is due. If too little was paid, then this is the terminal tax amount.  It’s a wash-up of total tax due for a year less what you’ve already paid.

Our blog Residual vs Provisional vs Terminal taxes – confused? may make things a little clearer!

When is New Zealand terminal tax due?

If you have an Extension of Time (EOT), terminal tax is due 7 April the following year. For example, terminal tax for the year ended 31 March 2022 is due 7 April 2022.

If you don’t have an extension of time, then this payment will be due by 7 February the next year.

* you’ll be automatically granted the EOT when linked to a tax agent (such as Beany). However, if you are late filing income tax returns and/or not paying your tax on time, the IRD may withdraw the EOT, even if you’re still with a tax agent.

When are New Zealand Provisional Tax payments due?

This depends on what method you use to calculate provisional tax, your balance date, and also whether you are GST registered.

Most people and businesses have a balance date of 31 March. Payments will be due on:

  • 28 August
  • 15 Jan
  • 7 May

Your final terminal tax payment will be due 7 April of the following year if you have EOT; otherwise it’s 7 February of the following year.

Exceptions

If you are on six-monthly GST basis, you will be required to make two payments, due on:

  • 28 October
  • 7 May

If you use the Accounting Income Method (AIM), then these payments will be due with each GST return – usually six payments a year.

Our blog Residual vs Provisional vs Terminal taxes – confused? may make things a little clearer!

* You’ll be automatically granted the EOT when linked to a tax agent (such as Beany). However, if you are late filing income tax returns and/or not paying your tax on time, the IRD may withdraw the EOT, even if you’re still with a tax agent.

How do I pay my New Zealand tax?

Paying your tax is easy. You can pay by phone using your credit card, through your myIR login using a credit or debit card, or by internet banking.

We recommend internet banking, as credit and debit card payments have additional fees attached.

The five main NZ banks all have details on their websites, showing you how to make tax payments. Most of the banks also have a separate “pay tax” function, distinct from making a normal payment. Below are instructions from the main banks on how to access this. (Please note, the following details are for using internet browsers, not for bank apps).

For all the details you need to enter, such as IRD numbers, tax type, tax period and due date, just refer to the “more details” link next to the payment amount showing on your Beany page.

What can I do about overdue tax?

If you have overdue tax, your first option is to just pay it!

If you’re unable to make the full payment now, we’d recommend setting up a payment plan with ATO – you can do that through your myGov login or chat to our friendly Support team. If things have gotten a bit out of control then it is best to get in touch with Support, and we can look to discuss your situation on your behalf with the ATO. 

We always recommend being up-front with overdue tax, as each day tax is overdue, further interest and sometimes more penalties can be added on. We understand that tax can be a bit overwhelming at times and we’re here to help!

Tax pooling

Another option we can look at is using tax pooling. Tax pools are registered third parties that can backpay your tax to the date it was due, and charge you a fee plus the tax to do this. The good thing is the fee is usually much less than interest charged by Inland Revenue, plus you avoid the late payment penalties. Two of the more common companies used are Take a look at the websites for TMNZ and Tax Traders. They have good explanations on their websites and happy to answer any questions via email or phone. There are no upfront fees and you only pay interest on the actual amounts you finance. You also don’t need to go through your accountant – you can deal directly with them.

Will the New Zealand IRD write off my debt?

Currently the IRD will only write off debt if it is applied for under financial hardship and many of those applications fail. Tax is only ever written off in a small number of cases.

Can I amend my New Zealand tax return?

Yes, you can.

You may need to amend your tax return if you have a mistake that needs to be corrected. This can include forgetting to include some income or forgetting to claim a deduction.

However, amendments can only be made for up to 4 years ago.

Get in touch with our upport team if you believe that an amendment is necessary and we will take care of this for you.

Will I get charged interest and penalties on Provisional Tax payments?

It depends.

If you use the Standard method and your total tax for the year is below $60,000, and you have made all of your Provisional Tax payments in full and on time, then you will not be charged interest or penalties.

If however you are late or underpay your tax, any late payments or outstanding tax, including your final terminal tax payment, will be subject to interest and/or penalties.

If you use the Standard method but your total tax for the year exceeds $60,000 then you could be subject to interest.

If you use the Estimate basis, and you have calculated this incorrectly then yes, you could be subject to interest.

If you use the AIM basis and you have taken reasonable care that the figures on your AIM return are accurate you will not be subject to interest.

We have a separate blog on When does Inland Revenue charge penalties and interest?, if you’d like to know why!

Goods and Services Tax (GST)

New Zealand Goods and Services Tax (GST)

Looking for information on GST?

Do I pay income tax or GST on government Covid support?

Covid-19 Support Payment (February 2022)

Declare for GST?

Yes

Pay income tax on amount received?

Yes

Leave Support Scheme for sole traders or shareholder-employees

Declare for GST?

No

Pay income tax on amount received?

Yes

Leave Support Scheme for employees on PAYE-paid wages

Declare for GST?

No

Pay income tax on amount received?

No – the money received offsets (reduces) the wage expense

Short-Term Absence Payment for sole traders or shareholder-employees

Declare for GST?

No

Pay income tax on amount received?

Yes

Short-Term Absence Payment for employees on PAYE-paid wages

Declare for GST?

No

Pay income tax on amount received?

No – the money received offsets (reduces) the wage expense

Small Business Cashflow Scheme

Declare for GST?

No

Pay income tax on amount received?

No, and the repayments are not considered tax-deductible expenses

Resurgence Payment Support (applications are now closed)

Declare for GST?

Yes

Pay income tax on amount received?

Yes

Wage subsidy for sole traders or shareholder-employees (applications are now closed)

Declare for GST?

No

Pay income tax on amount received?

Yes

Wage subsidy for employees on PAYE-paid wages (applications are now closed)

Declare for GST?

No

Pay income tax on amount received?

Yes

Who are Beany? 

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant world. ​

We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.

Tess, Problem Solver

Got any questions about Beany?

Chat to one of our friendly problem solvers today to get clarity.

Kim

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