Easier financial arrangements now available to more kiwis
The thresholds defining a ‘cash basis person’ have been increased for the first time in almost 30 years – a welcome change that will simplify tax for many New Zealanders and appeal to people seeking to move to New Zealand, says Chartered Accountants Australia and New Zealand.
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“A ‘cash basis person’ might be an unfamiliar term, but it’s quite simple. It’s all of us who pay tax on income when it is received, rather than having to pay tax on income when it is accrued or earned for tax purposes,” said CA ANZ Tax Leader John Cuthbertson FCA.
“No one enjoys paying tax on income they haven’t yet received - whether that’s interest paid at maturity on a term deposit or unrealised foreign exchange gains on offshore accounts.
“Foreign exchange can be particularly problematic. When exchange rates are volatile, taxpayers can end up paying tax on paper gains that may never be realised, creating uncertainty and undermining even the best provisional tax planning.
“Under previous rules, a cash basis person was someone with less than $100,000 of income from financial arrangements like bank accounts, term deposits and government or corporate bonds, or less than $1 million in total value of these assets.
“The limits have now been lifted to $200,000 for income and $2 million for financial arrangements like bank accounts and savings.
“In addition, the requirement to calculate the difference in income as between the two methods has been eliminated, for which taxpayers and their accountants will be eternally grateful.
“There was a requirement that the difference in income calculated on a cash and accrual basis could not exceed $40,000. A perverse requirement as you were virtually compelled to make the more complex calculation to confirm that it wasn’t required – then you were not required to return income on that basis.
“With inflation over time, the previous thresholds had become massively outdated, similar to our marginal tax brackets which were updated last year.
“These rules were imposing a lot of cost and complexity on affected taxpayers[LT2] , both in terms of the income calculations required and the resulting taxation payable, including on unrealised gains.
“With this change, more people will be able to pay tax when they receive income, rather than going through the rigmarole of complex tax calculations – and I say that as a specialist tax accountant.
“Now that the thresholds have been lifted, most people moving to New Zealand will have one less tax complexity dissuading them,” concluded Mr Cuthbertson.
