Read these tips to make your life easier come tax time — and find out what to do if you make a mistake on your return.
For all taxes and levies, make sure you know how much you’re due to pay and when to pay it. Set money aside regularly in a separate account — the interest earned may be enough to cover expenses such as tax agent fees or your ACC levies.
It’s important to pay in full and by the due date. If you’re struggling, it’s best to call Inland Revenue as early as possible on 0800 377 772 — or get in touch with ACC if it’s your ACC levies you’re having difficulty paying.
Explain your position and explore what support might be available. If you bury your head in the sand and just don’t pay, you’ll be charged interest and may face a penalty.
0800 377 772 — Inland Revenue
“Lots of people underpay their tax by mistake,” says tax expert John Shewan, formerly of PwC. “The key question they often ask people like me is ‘What do I do? Do I put it under the carpet and just hope it goes away?’ Clearly no.”
It’s best to own up quickly, says Mr Shewan. “Inland Revenue is very approachable about these things. They encourage voluntary disclosures and, in fact, the tax legislation contains quite big concessions if people voluntarily disclose. Generally, if you offer up the tax that you have mistakenly not paid, the only penalty might be some use-of-money interest that Inland Revenue will charge you and that’s legitimate under the law.”
See Interest on tax (external link) on the Inland Revenue website.
Mr Shewan recalls helping a business owner who underpaid his tax by $20,000 after using out-of-date information to claim depreciation deductions on a number of business assets. “They were very worried about the penalty implications, even thinking about leaving New Zealand. We rang Inland Revenue and said we would like to come and have a talk to them.”
Inland Revenue waived the penalties and arranged for the business owner to pay the $20,000 shortfall in instalments.
“That taxpayer, having learnt the lesson, put in place new procedures and actually had a much more robust business going forward,” says Mr Shewan.
Making a minor mistake on your Individual tax return (IR3) isn’t the end of the world and you needn’t send in a corrected return. You may be able to simply correct the mistake in your next return, or call Inland Revenue to discuss your situation.
How to correct an IR3 error (external link) — Inland Revenue
If you’re self-employed or run a business and have areas in your house set aside for work, you’re likely to be able to claim some of your expenses. Examples might include portions of your power, phone and internet bills, as well as your rates.
In your first year of trading you don't pay tax until after you’ve filed a return at the end of the tax year (31 March). Budget for your tax bill so this payment doesn’t catch you out.
Provisional tax is tax paid in several instalments throughout the year. Inland Revenue will tell you if you need to pay in this way — it often applies to businesses in their second year of trading.
If you’re asked to pay provisional tax, make sure you set enough money aside as you'll be paying the provisional tax instalments for the current year, as well as your previous year’s tax.
For self-employed contractors who usually pay provisional tax, new tax laws offer a way to reduce these lump sum instalments:
Tax rate estimation tool for contractors (external link) — Inland Revenue
Trading via an auction or classified site
If you use an online auction site like Trade Me to sell first or secondhand goods, or to advertise your services, you might be considered a business and have to pay tax on money you receive. If in doubt, contact Inland Revenue (external link)
If you’re an e-commerce business that trades overseas, and are paying income tax in both New Zealand and abroad, check with Inland Revenue if New Zealand has a double tax agreement with those countries. If so, you could be eligible for a tax credit.
Tax treaties (external link) — Inland Revenue
Or you can ask your accountant to do this on your behalf.
You may not need to register for GST straight away, unless you think you’ll earn more than $60,000 in your first year of business.
Find out if you need to register (external link) — Inland Revenue
If you’re registered for GST don’t forget to charge it, even if your turnover is low. Until you deregister for GST with Inland Revenue, it’s important to keep collecting and paying it.
Don’t just send a new return. If your error is less than $500, you may be able to account for it in your next return. If the error is for more than $500, contact request an amendment to your return through your myIR account.
How to correct a GST error (external link) — Inland Revenue
If your business pays less than $500,000 a year in PAYE and employer superannuation contribution tax (ESCT) and you outsource your payroll services — you may be able to get a subsidy through Inland Revenue's PAYE intermediary scheme.
Fill out an employer monthly schedule amendments form or, for minor amendments, call Inland Revenue.
Employer monthly schedule amendments (IR344) (external link) — Inland Revenue
0800 377 772 — Inland Revenue
For the self-employed
You have to pay ACC levies even if you work for yourself. The amount is based on a number of things, including your liable earnings.