Te wiki o te tāke: more details on cost of living payments, mileage claims – and one-off wealth tax?
The taxman now has published more details on the requirements for receiving the cost-of-living payment and how it will be administered.
First, there is no need to request payment. It will be made automated automatically if a person is eligible. The main thing is to make sure the Inland Revenue has your correct bank account to which payments can be made. Apparently Inland Revenue only has records for just over 79% of potentially eligible people
As previously announced, it would be three payments, which we made on August 1, September 1 and October 3, the first business day of that month. Each payment will be made after verification of a person’s eligibility.
In summary, a person will be eligible to receive this payment if:
- they earned $70,000 or less for the year ended March 31, 2022;
- are not eligible to receive the Winter Energy Payment, meaning they receive either a New Zealand Super or an Eligible Benefit;
- they are 18 years of age or older;
- are both New Zealand tax residents and present here and are not in prison or deceased.
People who receive student allowances will receive the payment if they meet the other eligibility requirements.
So, the main thing is, as stated before, to have had your income tax assessment for the year up to March 2022 established. So that means the taxman has self-assessed it or you have filed an individual income tax return that has been processed.
Eligibility is measured before each payment, so it is entirely possible that a person may not qualify for one payment, but become eligible for a subsequent payment. For example, the person turns 18 after August 1 and will therefore be eligible to receive the second and third installments. Alternatively, the person receives one payment but then starts receiving New Zealand Super, in which case they are no longer eligible to receive the second and third payments.
The payment is not taxed and does not count as income for:
- Work for families
- student loans
- work and income benefits and payments.
The Inland Revenue also said it would not use the payment to pay off any debt someone may have with it, which is a welcome step.
The Inland Revenue will continue to check eligibility until March 31, 2023, but you will have until March 31, 2024 to provide your bank account details to the Inland Revenue. The Inland Revenue website has helpful examples of where people are eligible and how they will administer it.
Travel expenses by car
Briefly, Inland Revenue also released the mileage reimbursement rate for the 2021-2022 income year for business motor vehicle expense claims.
These rates can be used by businesses and self-employed people to calculate the tax deductions available for the business use of a vehicle. They are also often used by employers to reimburse employees for the use of their own car for work purposes.
As expected, rates have increased, but not significantly from previous years, the Tier 1 rate is now $0.83 per kilometer for the business portion of the first 14,000 kilometers driven , including trips for private use (a point that is often overlooked).
Incidentally, the difference between Tier 1 and Tier 2 rates is due to the fact that Tier 1 rate is a combination of fixed and running costs of the vehicle and Tier 2 rate is only for running costs.
Windfall taxes? Wealth tax?
Speaking of cost of living payments, in the UK the government has also announced cost of living support measures. What is interesting is that in order to pay for the £15 billion package, it takes announcement a 25% energy profit levy on the profits of oil and gas companies operating in the UK and on the UK continental shelf.
This exceptional tax will apply to profits made from May 26 of this year. It is a temporary tax that will be phased out when oil and gas prices return to “historically more normal levels”, with the expectation that the tax will expire after December 31, 2025.
The UK actually has a history of windfall taxes: famous tax cutter Margaret Thatcher imposed one on the banks in 1981 (dare I say a similar tax here would be popular) and in 1997 the government Tony Blair’s newly elected Labor party raised £5.2bn. on the increased values of companies previously privatized to fund a welfare-to-work program.
The idea of a windfall tax here in New Zealand has never been seriously discussed in recent years, but it crossed my mind when the question of taxing billionaires arose after the publication of NBR rich list earlier this week. There are now 14 billionaires in New Zealand with an estimated global wealth of around $38 billion. Inevitably, the question of how much tax they pay arose. I reiterated my long-held view that some changes to our tax system to include greater taxation of capital are both necessary and inevitable.
talk about it with The Panel on RNZ, Max Harris asked about a wealth tax. My favorite answer is Fair economic return Professor Susan St John and I suggested. But there may be a case for a single wealth tax to capture the huge, largely untaxed growth in property values over the past two years as a result of government initiatives around COVID.
If something like this happened, I think all the funds raised there should be used to accelerate the transition to a low-emission economy, for example, by providing greater subsidies for low-emission vehicles and helping communities to leave areas threatened by climate change. . This is something I think we were going to see a lot more of, and particularly once (not if) insurers start to withdraw their coverage.
In the UK, a Wealth tax office suggested in December 2020 that a single wealth tax was feasible. This proposal provided for a one-time wealth tax payable on all individual wealth over £500,000, which, at 1% per annum for five years, would raise £260bn. Incidentally, the tax was to help restore the UK government’s finances in the wake of the COVID 19 pandemic. The proposal hasn’t gone anywhere yet, but it’s an example of some of the current thinking that we see around the subject of taxation of wealth.
As I have said before, the debate about taxing wealth will continue. In my opinion, when you look at the 2021 Treasury Statement by He Tirohanga Mokopuna on the long-term fiscal position, some tax hikes seem inevitable.
The dangers of tax shortcuts
And finally, this week, another reminder about the dangers of taking tax shortcuts. I received a call from a somewhat alarmed tax agent trying to unravel a GST scenario. This appears to have arisen because someone attempted to avoid being registered for GST on the rental of land to a related party. At the same time, this related party claimed GST in respect of a school building from which it operates a school. The problem has now boiled over because the school business is for sale and it is unclear who owns the building from which the school will operate, whether a proper lease is in place for these buildings and if so, what is the annual value of this rent? The result is that the potential sale of the business may not occur.
I’ve seen similar impacts when a business failed to record cash sales to evade GST and income tax, only to find that when the business is for sale, buyers don’t do not have a faithful image and the selling price disappoints. Alternatively, the owner applies for a loan, but because he has cut his income, he does not have the necessary level of income. The lesson in all these cases is the same. Short-term decisions to avoid tax consequences can often have longer-term and much more negative consequences.
And on that note, that’s it for this week. I’m Terry Baucher and you can find this podcast on my website www.baucher.tax or wherever you get your podcasts. Thanks for listening and please send me your feedback and tell your friends and customers.
Until next time kia pai te wiki, have a great week!
*Terry Baucher is an Auckland-based tax practitioner with 25 years’ experience. He works with individuals and entities that have complex tax issues. Before starting his own business, he spent six years with one of the ‘big four’ accounting firms, including a period advising Australian businesses on how to do business in New Zealand. You can contact him here.