If you re a sole trader or in a partnership and you use your own vehicle in the business, you can claim the running costs for income tax.

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1 Business tax update Inland Revenue s tax news for businesses Using your own vehicle for your business Issue No 40 May 2013 IR 381 If you re a sole trader or in a partnership and you use your own vehicle in the business, you can claim the running costs for income tax. Logbook If you use your own vehicle for both personal and business use, you ll need to make an adjustment to claim the business-use portion for income tax. If you use the vehicle strictly for business only, you can claim the full running costs, without making any adjustments. If you use the vehicle to travel between home and work, or any personal travel, you ll need to separate the running costs of your vehicle between business and private use. There are three options you can use a vehicle logbook, a set mileage rate or using the actual cost. If you decide to use a logbook, you must keep it for at least three months every three years to work out the business share of your running costs. You ll need to record the distance, date and reason for the trip in the logbook. You can use the difference between the odometer readings at the start and end of the three months to work out the percentage of vehicle expenses you can claim. Example Ross uses his own car for his plumbing business. He recorded the following details in his logbook. Vehicle logbook (three-month period): 1/1/13 31/3/13 (continued on next page) Odometer reading at start of period: 15,165 Date Journey Odometer reading Reason for From To Start Finish Distance trip (km) 1/1/13 Workshop Porirua 15,165 15, /1/13 Workshop Levin 15,718 15, /2/13 Workshop Petone 16,485 16, /3/13 Workshop Waikanae 17,525 17, Final reading 17,775 Business distance 360 Total distance (17,775 15,165) 2,610 Seeing PU Ltd Plumber s Guild conference Supplier XYZ Call-out to Joe Bloggs Total distance travelled in three months is 2,610 km Distance travelled for business is 360 km 360 x 2, = 13.8% Ross can claim 13.8% of his vehicle expenses as a business expense. Welcome to Business Tax Update In this issue: Using your own vehicle for your business, paying bonuses and deducting the right amount of tax, Government consultation on targeting serious crime, publications update, follow Inland Revenue on Twitter, completing your EMS and EDF to reflect the 1 April changes, missed the 7 February payment?, "Tool for business" helps small businesses, helping you to do your GST on time reminder alerts, take a flying start with business.govt.nz and ANZ. If you have any suggestions for topics you d like covered in this newsletter, BusinessTax.Update@ird.govt.nz REMINDERS 7 May: The third and final instalment is due for provisional tax for the 2013 income tax year. GST returns and payments are due for the period ended 31 March. 31 May: The Fringe benefit ordinary employee annual tax return (IR 422) and the Fringe benefit tax quarterly return (IR 420) for the 1 January 2013 to 31 March 2013 quarter are due. 1

2 (continued from previous page) You can use the result of your three months recording to claim the business share of your vehicle expenses over the next three years, provided your business use of the vehicle does not change by more than 20%. You should still keep records of the total vehicle running costs and record the total distance travelled for the income tax year. Mileage rates Alternatively, if you travel 5,000 km or less for business use in an income year, you may use Inland Revenue s mileage rate of 77 cents a kilometre to make a claim on your vehicle. Go to (keywords: mileage rates) for information. Actual expenditure Instead of using the above mileage rate or logbook, you may claim deductions for the actual expenditure you incur. If you do this you must keep accurate records to work out the share of business use. Your records will need to show the reasons for the trip and the distance. If you don t keep a vehicle logbook, qualify to use the mileage rate or maintain actual expenditure records, you may claim the lesser of actual use or 25% of the vehicle running costs as a business expense. You could be asked to prove the percentage claimed. Note: When a company owns a car, it claims all the expenses without making a private-use adjustment. The company must pay fringe benefit tax if a vehicle is available for private use by employees or shareholder-employees. Paying bonuses and deducting the right amount of tax Bonuses or lump sum payments can include annual or special bonuses, cashed-in annual leave, backpay and retiring or redundancy payments. Overtime or any regular payments aren t lump sum payments. Follow these steps to find out what tax rate to use for a lump sum payment: 1. Work out what your employee has earned (before tax) over the past four weeks. 2. Multiply this figure by Add the lump sum payment to the figure in step Use the table below to work out what income bracket your employee is in. 5. Tax the lump sum payment at the tax rate shown in the right-hand column for that income bracket. You will also need to calculate student loan, KiwiSaver employee deductions and KiwiSaver employer contributions on lump sum payments (where applicable to the employee). You don t pay ACC earners levy on redundancy payments and retiring allowances. In these cases, you ll need to reduce the above rates by 1.70%. Redundancy payments and retiring allowances are exempt from KiwiSaver employee deductions and KiwiSaver employer contributions. If you tax your employee using a secondary tax code (SB, S, SH or ST), you ll need to use a tax rate to allow for the low threshold limit applicable to that tax code. Find out more about the low threshold limit and taxing lump sums at (keywords: lump sums). Income bracket $14,000 or less 12.20% From $14,001 to $48, % From $48,001 to $70, % Greater than $70,000, but less 34.70% than the ACC earners levy maximum threshold of $116,089 (for the 2014 tax year) Tax rate to use (including ACC earners levy) Greater than $116, % (excludes ACC) You can also apply the rate of PAYE at cents in the dollar if the employee asks you to use this rate. BUSINESS TAX UPDATE Issue No 40 May

3 Government consultation on targeting serious crime The Government is seeking public feedback on proposals for Inland Revenue to share information that will help prevent serious crimes. You can see the proposals, say what you think and follow the discussion online at targetingseriouscrime.ird.govt.nz Sharing Inland Revenue information could help other government agencies with investigating crimes like murder, wildlife smuggling, investor fraud and immigration scams. Before the changes are made, the Government wants to know what information you think is appropriate to share, and the controls you d like to see for safeguarding confidentiality and privacy of information. The forum makes it quick and easy for you to join the discussion. You can agree or disagree with proposals, post your comments and reply to others in just a few minutes. You can also read a copy of the discussion document on the Policy Advice Division website at and send a formal submission. Research completed by Inland Revenue over several years shows that most people are comfortable with agencies sharing information as long as rights to privacy are balanced with the benefits to society, and controls are in place. You can read more about the research at (keywords: serious crime research). Revenue Minister Peter Dunne, Police Minister Anne Tolley and Justice Minister Judith Collins have opened up the subject to wider public consultation, inviting people to join the discussion. The Ministers are keen to find the balance between continuing to value tax secrecy while considering outcomes that will benefit society. If you have difficulty accessing the internet you can write to Inland Revenue Policy Division, PO Box 2198, Wellington 6140, or call us on and ask for a copy of the Targeting serious crime discussion document. All views will be presented to the Government, which will make the final decisions on agency information sharing. The consultation closes on 21 May Publications update A number of our publications have been updated to include Budget 2012 changes that came into effect from 1 April Please dispose of old stock you may have and refer to the table below for the newest versions. Shoulder number IR 223 Title Version date April 2013 Student loans going overseas IR 224 Student loans making April 2013 repayments IR 255 Charitable organisations and April 2013 donee organisations IR 257 Overseas pensions and April 2013 annuity schemes* IR 258 Overseas social security April 2013 pensions IR 277 Retiring allowances and April 2013 redundancy payments IR 295 Taxes and duties guide April 2013 IR 296 Private operators April 2013 IR 320 Smart business April 2013 IR 322 Employer obligations quick April 2013 reference summary sheet IR 333 First-time employer s guide April 2013 IR 335 Employer s guide April 2013 IR 337 Completing employer monthly April 2013 schedules IR 356 IR 56 taxpayer s handbook April 2013 IR 688 Helping you understand your April 2013 employer forms KS 12 Self-employed your guide to KiwiSaver April 2013 KS 3 Your introduction to KiwiSaver April 2013 employee information KS 33 KiwiSaver a guide for April 2013 children and young people KS 4 KiwiSaver employer guide April 2013 KS 8 KiwiSaver for new employees April 2013 KS 9 KiwiSaver for employers April 2013 * The title of this guide has been amended along with the content. It used to be called Overseas private pensions. If you request a copy please refer to the shoulder number, IR 257. All our publications can be found online at Forms and guides. Follow Inland Revenue on Twitter for regular tweets on a range of tax and social policy matters, including our most recent media releases, due dates and consultations. BUSINESS TAX UPDATE Issue No 40 May

4 Completing your EMS and EDF to reflect the 1 April changes The following steps will help remind you how to complete your EMS and EDF. Step 1: After you ve made your last pay for the month, work out the total earnings and deductions for each employee. Copy the totals to the monthly summary in your wagebook. Step 2: Transfer each employee s monthly totals from the monthly summary in your wagebook to your Employer monthly schedule (EMS/IR 348). Step 3: Transfer the total monthly PAYE/schedular tax, child support, student loan, KiwiSaver deductions and net KiwiSaver employer contributions from Boxes 3 to 7 to the EDF/IR 345 employer deductions form. Transfer all employees ESCT totals from your wagebook to Box 8 of the EDF/IR 345. Student loan deductions are shown as one total on the IR 345. ML and ML SL no longer available As of 1 April 2013 the ML and ML SL tax codes are no longer available. You ll need to deduct PAYE using the M or M SL rates for these employees, unless they give you a new Tax code declaration (IR 330) form. Employers of primary and secondary school students As of 1 April 2013, schoolchildren who earned less than $2,340 and had no tax deducted from their wages prior to 1 April 2013 must now have tax deducted from their wages. They ll need to complete a Tax code declaration (IR 330) form and give it to you so you can deduct tax from their salary or wages. BUSINESS TAX UPDATE Issue No 40 May

5 Missed the 7 February payment? If you have an end-of-year income tax, Working for Families Tax Credits or student loan bill for the 2012 tax year, this was due on 7 February 2013 or (7 April 2013 if you received an extension of time from your tax agent). If you missed the payment due date you can make payments to us by: internet banking credit or debit card automatic payment or direct debit going into a branch of Westpac bank posting a cheque. If you re not able to make the payment in full, you may qualify to set up an instalment arrangement with us. Any late payment penalties you ve been charged will still stand, but if you keep to the terms of the arrangement, no further penalties will be charged. However, use-of-money interest (currently 8.40%) will still apply over the term of the arrangement. You can request an instalment arrangement, by completing the Instalment arrangement proposal at under Get it done online. We will contact you to advise the outcome. Tool for business helps small businesses Our online Tool for business can help get your small business tax issues sorted quickly and simply. It covers all stages of a business cycle: How to start your business Now you ve started, what s next? How to manage your business tax Goods and services tax (GST) Are you an employer? You ll find in-depth information under each heading and links to free electronic tools and online services. Go to (keyword: TFB). Helping you to do your GST on time reminder alerts As part of our ongoing efforts to improve our digital services, we ll soon be launching a new GST alert service for those who file their GST returns through their myir secure online services account. This alert service will send you an to let you know when your GST return is available in myir for you to file. It also sends a reminder three days prior to the filing due date if you haven t already filed. We ll start this new service soon. If you currently file through your myir account you may still receive a reminder letter during the changeover period. How to activate the alert You don t have to do anything right now. The GST return in myir will prompt you to activate the alert by providing the address where you (as the GST-registered party) prefer to receive them. Any others who file GST through myir on your behalf can also activate the alert so they can also receive the s. Take a flying start with business.govt.nz and ANZ The ANZ Flying Start Business Plan Competition is back for If you re in the start-up phase or running a business with a turnover of less than $1 million, enter for a chance to win a share of over $80,000 in prizes. It s all about stimulating business growth around New Zealand and promoting the practice of robust business planning. All you need to do is submit a business plan showcasing a fresh and viable business that is set for growth and sustainable revenue. Simply go to and use the online form to submit your business plan. Stage 1 of the competition opens on the Business.govt.nz website on 14 May, with entries closing on 25 June. You may be interested in getting support and assistance in putting your business plan together. Go to to find your Regional Business Advisor, or find a list of ANZ Flying Start Workshops and get in touch with your local ANZ Regional Business Banking Manager by calling Business Tax Update comments generally on topical tax issues relevant to businesses. Every attempt is made to ensure the law is correctly interpreted, but articles are intended as a brief overview only. The examples provided are not intended to cover every possible factual situation. BusinessTax.Update@ird.govt.nz BUSINESS TAX UPDATE Issue No 40 May