Tax has a lot of jargon. Below is an introduction to some of the most common terms and some of the things we need to know before completing a return.
Interest is what you earn when you have a deposit with a bank or other financial Institution. This is often paid into your bank account monthly but can be paid at different times depending on the type of bank account/deposit. At the end of the financial year you will be sent a Resident Withholding Tax (RWT) certificate which will show you the total amount of interest you received and the amount of RWT that was deducted by your bank.
When you are providing your interest details to complete a tax return, you need to provide the gross amount of Interest paid, the amount of RWT deducted and whether or not the account is a joint account.
If you have not received an RWT certificate from your bank, or this has been carefully filed away, you can often obtain the information you need from your online banking. You can also contact your bank to issue you a new RWT certificate.
Any interest over $200 may have to be included in your return so it is important to check on these amounts before completing your return.
For more information on declaring interest in your tax return, visit the Inland Revenue website.
When you hold shares in a company you may receive dividend payments from the company during the financial year. Dividends are a way of a company distributing its profit to shareholders.
If you have received a dividend payment you may need to include this information in your tax return at the end of the financial year.
You will typically receive a payment statement with the dividend. This statement will show the gross amount of the dividend, any imputation credits attached to the payment and the amount of RWT deducted from the dividend payment.
When completing a tax return you will need all three figures, gross amount, imputation credits and RWT.
If you have not received a dividend statement, you may be able to get a summary from the company you hold shares in. Alternatively, depending on who you have invested with, you may be able to obtain this information online through services such as Computershare or Link Market Services.
Maori Authority Distributions
When you receive a distribution from a Maori Authority, you should also receive a distribution statement that will include all the information required for your tax return.
This statement will confirm if the distribution is taxable, the gross amount paid, the amount of tax deducted and any Maori Authority credits that have been applied.
You can obtain a summary of any distributions you have received from the Maori Authority.
Income Protection Insurance
Income Protection Insurance (IPI) is a type of insurance that provides individuals with continuity of income should they suffer a long-term illness, disability or other loss of income that is not covered by ACC. Sometimes this is also called Disability Insurance.
For a premium to be tax deductible the benefit of the policy must be taxable. In other words, if you get injured and the policy pays you, do you need to pay tax on the payments you receive from your policy? If the answer is no you cannot include the premiums as an expense (Agreed Value). If they answer is yes then this can be included as an expense (Indemnity).
If you would like us to add this tax deductible expense into your assessment you will need to provide us with the total premium you have paid, per financial year. This information will be available from your insurance provider by way of a tax certificate/statement.
Portfolio Investment Entity (PIE)/ Prescribed investment Rate (PIR) Information
When you invest in a Portfolio investment entity you need to choose a PIR rate. This can be 10.5%, 17.5% or 28% depending on your income for the last two financial years. For more information on choosing the correct PIR rate please refer to the Inland Revenue website
If your PIE income was taxed at the correct rate, or at too high a rate, this information does not need to be included in your return.
If your PIR rate was too low during the tax year you would need to include your PIE information in any tax return.
You would need to include the gross amount of income and the tax deducted. This information should be available from your PIE provider at the end of the financial year.
Estate trust Income
If you receive beneficiary income from a trust you may need to include this information within your tax return as untaxed income. For more information on the types of distributions that are taxable you may need to seek the advice of an accountant or refer to the IRD website.
If you regularly receive distributions from the trust, you may receive a distribution statement or similar document confirming the amount of distributions you receive.
Self-employment Income/Income without tax
If you receive income from self-employment or income without tax deducted (under the table) this information needs to be declared in any tax return you complete. If you are a student loan borrower or receive Working for Families Tax Credits, this information may also impact any entitlements or repayment obligations.
If you do have self-employment income or income without tax deducted it is important that you keep good records of this income. At the end of the financial year you will need to total the income that you have received and include this in any return you complete.
Inland Revenue have information on keeping good business records.
Salary and Wage Earners
Salary and wage earners are limited in the expenses they can include within their return. A salary and wage earner can claim the followinghttp://www.ird.govt.nz/income-tax-individual/end-year/pts/iit-what-is-pts.html
- a fee charged by someone for completing your tax return (we will automatically include this if your previous returns have been completed by us)
- commission on interest or dividend income (but not bank fees)
- interest on money you borrowed to buy shares or to invest, as long as the investment will produce some taxable income
- premiums on loss of earnings insurance, provided the benefit from the insurance policy is taxable income
When a person is self-employed, or are receiving income from schedular payments (formerly withholding payments), you can claim expenses that are directly related to the generation of your income.
In general terms there needs to be a nexus between the expense and the income you are producing. For example if you have a lawn mowing business and you purchase petrol and a pie, you could claim the petrol as a deductible expense as this is required to generate the income but you could not deduct the cost of the pie as this is your lunch!
Common expenses include:
- Motor vehicle expenses
- Home Office expenses
- Business supplies Business-related travel expenses
- Premiums and levies
- Gross wages to employees
- Fringe benefit tax
- Entertainment expenses
In order to include any expenses you would need to be able to produce receipts relating to the expenses you are claiming. It is important that you keep these in a safe place as you need to retain them for up to 7 years.
Expenses are a complicated area – for more information on deductible expenses please refer to the Inland Revenue website.