Questions we’ve been asked lately:

Q: Which tax code should I use?

Rental Property

Q: I have a rental property which has been vacant for a month between tenants. Am I able to claim the expenses while it is not let?

A: Yes, provided the property has still been available for rental.

Your family home in a trust

Q: We set a family trust two years ago. The trust owns our family home, but has no other assets. Do we have to file a tax return for the trust?

A: No, a trust which only owns your family home and has no taxable income is not required to have an IRD number nor file a tax return. If the trust later receives any income, it will then have to register with Inland Revenue and start filing tax returns. Remember that records of gifting and trustee decisions must be kept for all trusts.

ACC Updated – Directly from the Accident Compensation Corporation

An area of ACC legislation which often causes confusion concerns shareholders, and what levies must be paid (either by them or their employer) on their earnings.

To help clarify any misunderstandings in this area, we’ve answered three of the most common questions below.

Q: What is passive income, and can shareholder-employees have passive income?

A: ACC treats some types of self-employed income as ‘passive’, and does not charge any levies on this income.

What is passive income? It’s income that is not dependent on a person’s personal exertion, whether physical (eg, manual labour) or mental (eg, management, administration, planning, strategising etc). Examples of passive income include interest received on investments, rent received from rental properties and royalties paid to a musician.

Regardless of whether a company’s income is generated from a passive source, however, earnings as a shareholder-employee not subject to PAYE (under section RD3 of the Income Tax Act 2007) are by definition liable for ACC levies.In other words, the ‘personal exertion’ test cannot be applied to earnings as a shareholder-employee.

The reason for this is that while a company’s income may be generated from a passive source, earnings as a shareholder-employee are usually paid as a salary. As soon as remuneration is paid to a shareholder-employee as a salary, it changes from being ‘company income’ to being ‘earnings paid’, and therefore cannot be deemed passive.

Q: What is a ‘non-natural shareholder’, and can they be charged ACC levies?

A: A non-natural shareholder is a shareholder such as a trust or company, which is not a ‘natural person’.

Under the Accident Compensation Act 2001, income received by a non-natural shareholder is exempt from ACC levies.

Q: Do non-resident shareholders have to pay ACC levies?

A: The Accident Compensation Act 2001 states that employers must pay levies to fund the Work Account and these levies are required to be paid on earnings paid to employees. ‘Earnings’ include earnings as a shareholder-employee.

There is no provision under the Act to exclude (for levy purposes) any income declared as shareholder-employee earnings, on the basis that the shareholder-employee is non-resident in New Zealand.

The key point here is that liability for the levy rests with the employer. So when it comes to residency, the pivotal question is whether the employer – not the employee - is ‘resident’ for tax purposes.

The fact that a shareholder-employee doesn’t live in New Zealand does not absolve their employer from liability to pay a levy, based on earnings paid to their employees (including any non-resident shareholders).

Q: Need more information?

A: If you have any questions about the above topics, or other aspects of ACC legislation relating to levies, please get in touch any of the team.

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