For most wage and salary earners, tax deductions will be correct and the Inland Revenue Department’s (IRD) annual automatic tax assessments will ensure that any refunds find their way into taxpayers’ bank accounts automatically.
It’s worth checking that you’re on the right tax code. If you selected the wrong tax code when starting a job, have multiple income sources or changed from being an employee to a contractor, check your tax code.
Parents should check if they qualify for Working for Families Tax Credits. This is calculated on the previous year’s earnings and should be applied automatically.
If your earnings go up, check with the IRD so that you don’t have to repay your credits with interest, advises accountant Garreth Collard of EpsomTax.com. Or if your income goes down, you may want the credits earlier.
If you don’t qualify for Working for Families and earn between $24,000 and $48,000, the IRD will automatically calculate your Independent Earner Tax Credit (IETC), Collard said.
If your income goes down during the year, it might be worth contacting the IRD to claim the IETC – or if it goes up, to cut it off.
Salary sacrifice, where you take benefits in lieu of a pay rise, can reduce tax. That could be health insurance, company vehicles or even increased employer KiwiSaver contributions.
The aim is to keep your earnings from rising into the next tax bracket, Collard said. Your employer may have to pay fringe benefit tax, so this would need to be negotiated.
If you’re investing money for the future then it makes sense to do so in a tax-efficient manner. For every dollar you contribute to KiwiSaver, up to $1,042.86 per year, you get a 50c member tax credit added to your KiwiSaver fund. Employer tax contributions are tax-efficient compared to salary increases.
If you pay 30% or higher tax and have term deposits or managed funds, try to choose the “Pie” versions of these investments. The investments are often identical, but having a Pie wrapper means they are taxed at a lower rate.
Anyone donating over $5 to registered charities can claim 33.33% tax back. If you’re donating that money anyway, you may as well get that tax credit – or roll it into your donation for the charity to do even more good.
If you were going to donate anyway, claiming the credit makes sense. Claims are made on the IR526 form.
Business owners have more ways to reduce their taxes than their employed counterparts. It does make up for the lack of sick pay, paid holidays, bereavement leave and so on. It’s not a rort.
They can claim for running a home office, which can include anything from buying desks and computers to tea and coffee, as well as power and internet.
If you use a personal vehicle for work purposes, you can claim a portion of the running cost. People who have started side gigs and may not be earning a lot of money so far can still make claims for costs against other income, Collard said.
Business owners can save tax by registering for GST and claiming it on purchases.
Salary splitting is an option that some business owners use if their spouse is on a lower marginal tax rate. It’s easier to employ the spouse as a self-employed contractor.
But make sure the spouse is actually doing the work and being paid a market rate. “If not, that’s a bit of a Tui ad,” Collard said, referring to the “Yeah right” campaign by the beer maker.
“It has to look like a duck, walk like a duck and talk like a duck, not a thinly disguised camel.”
Property investors could consider owning properties in a look-through company or other structures. Although there are fewer deductions for depreciation than there used to be, make sure you are claiming on chattels. Property investors will benefit from using an accountant, who normally will save more than they cost.
