A Week in Review

Richard AshbyPartner, Gilligan Sheppard

Could Be NZ’s Warmest Month on Record…

A Herald article over the weekend reflected that January 2018 is already the 3rd hottest month ever recorded since 1909, and if, in the remaining 9 days, the average temperature rises another half a degree, it will surpass the existing two hottest recorded days which are both February dates.

It is with little surprise that the hotter than usual climate has caused drought in several parts of the country, and IR has now responded with a relief package for farmers in affected areas, extending the timeframe for making 2016-2017 income year income equalisation payments, and permitting early refund applications.

Introduced in 1965, the income equalisation scheme enables farmers to level out income from year to year (counter unexpected fluctuations), by encouraging them to put aside part of their income in good years, and to use this money for farm development expenditure in years when farm income falls.

Initially promoted as a scheme to iron out tax rates by permitting income averaging, the Government later stressed that this was not the aim of the legislation, instead being a regime introduced to assist farmers by effectively allowing them to apply income equalisation deposits on farm-related development without those funds bearing income tax. In the absence of the scheme, the costs of farm-development work would come from after-tax income (by the time the expenditure was required, the funding source had already been taxed). As a consequence of the income equalisation scheme, farm programmes could be carried out with the least possible interference from the effects of fluctuating incomes.

In a basic sense, the farmer makes a deposit into an account in their name with IR, and the amount deposited is treated as a deduction from the farmer’s income for the relevant income year, thereby lowering their income subject to taxation for the income year. While in the account the farmer receives interest on the deposits (3%p.a.). Subsequent withdrawals of the deposits are treated as income in the year of withdrawal, although the income amount is then often offset by a deduction in respect of the farm-related expenditure the withdrawals fund.

The income equalisation scheme is also available to those carrying on a fishing or forestry business, where specified conditions are satisfied.

First Public Rulings Work Programme Update for 2018…

A useful aid for gaining a level of insight into exactly where IR are presently focussing their attention.
Published monthly, you can quickly gauge (without having to dig into the detail, which is included later in the publication should you wish to know more) what items are currently in progress, what is on the agenda but has not been started, and what has recently been completed (just in case you missed its publication).

“Not currently being worked on” but I would like to see commentary released at some point during 2018, are the items:

  • GST & Income Tax – short-term accommodation issues;
  • Income Tax – excessive payments to spouses; and,
  • Income Tax – a number of “Land” related items.

The latest update can be found here – http://www.ird.govt.nz/resources/3/5/3552c4b0-9b98-4371-9c16-ea82d8ca6abc/2018-01-12+Public+Rulings+Work+Programme.pdf

Richard Ashby BBus, CA, CPA PARTNER
Em: [email protected] Ph: +64 9 365 5532 Fx: +64 9 309 5260 Mb: +64 21 823 464