Happy New Financial Year, Happy Easter, Happy April Fools, Happy Thursday! It’s all go today as we steam into the first of the month ready to kick start another lap around the sun. The fast-changing environment over the past few weeks regarding Government’s tax policy changes has triggered some good discussion nationwide. As we roll into the new financial year, it’s essential that business owners are aware of the new tax policies that come into play at today’s date, as well as look forward to any possible future changes throughout the year. So, what do you need to know as we step into the new tax year? Here are the latest tax policy changes that may impact you as a business owner:
Last week’s housing policy announcement caused some good discussions as property investors are now subject to a new group of tax laws. Here’s the rundown:
Bright-Line Test: Residential property purchased after 27 March 2021 is now subject to a 10 year bright-line test. This replaces the previous 5-year test. Essentially, this means that if you purchase a residential rental property and sell it within the 10-year mark you will be subject tax on the capital gain you receive when selling. Note, this does not apply if it’s the owners’ main home. ‘New Builds’ however, will still be subject to the 5-year Brightline test.
Interest Deductions: Interest deductions are no longer allowed for residential rental properties purchased after 27 March 2021. This will work in conjunction with a 4 year ‘phase out’ of interest deductions for properties acquired before the cut-off date with the 'phase out' period finishing on 1 April 2025.
Note that the government has also applied a ‘change in use’ rule, where if the property moves from the main home to a residential rental and is on sold within the 10-year mark, then the gain will be taxable on the apportioned usage of the home as a rental.
Another hyped-up Government tax legislation that falls into effect today is the new top marginal tax rate of 39%. As you will know, you qualify if you earn above $180,000 annually. Trust income is still taxed at 33% and companies are still taxed at 28%. However, if you are receiving dividends from say your company then your overall income might tip over $180,000 and any income over $180,000 is taxed at 39%. As usual, beneficiary income will continue to be taxed at your own marginal tax rate, so this will change depending on where you sit against the threshold.
Today also marks the start of a new minimum wage rate - an increase from $18.90 to $20.00 per hour for adults, and $15.12 to $16.00 per hour for those who are being trained. So, how should you approach this change? Check over your payroll systems and ensure that the change has been updated. It’s also a good idea to check all employment contracts are current and update these if need be. If you’re a keen budgeter, ensure these changes are accurately updated so you fully understand the impact this will have on your business. We strongly recommend all businesses have a cashflow forecast/budget. This helps business owners understand when there might be a pinch on cashflow giving them time to plan or come up with a strategy to get through a tough period.
As of the 17th of March 2021, the fixed asset threshold changed from the temporary $5,000 down to the permanent $1,000. This means that any business assets purchased over the $1,000 mark must be depreciated over the asset's useful life. As usual, anything below this amount can be expensed in the year it was incurred.
As everyone clocks off for the long weekend, please remember set some time aside to reconcile your Xero before Tuesday 6th April. Provided April is a big tax month for many, it’s better to get your Xero reconciled sooner, rather than later - just so you’re in the know of your tax obligation.
Your Outside team, Ruby and Rocket