Tax question

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Forums › Finance and wealth management › Tax question

castor

7 posts

Wannabe Geek

#111806 15-Nov-2012 14:06

Hi there,

I am in the process of sorting out my taxes and was wondering, if anyone can give me some pointers:
First of all, I'm fairly new to this wonderful country; have lived in Germany and the US before and have managed to take care of my taxes there. If things are too complicated, I'll try to get an accountant to help me - any advise or recommendation here is highly appreciated, I live in the Palmerston North area.

My situation is as follows:

I work for a german company from my home here in NZ (I develop software). I get paid to my German bank account and until now have paid income tax to the German IRS. In Germany the fiscal year is from jan 1st - dec 31st.

Instead of paying income tax in Germany, I'd rather pay it over here. My tax situation in Germany is extremely complicated and I figured that matters might be less complicated over here in NZ.

What I want to do is:

- Pay income tax for 2012 over here with the fiscal year starting on jan 1st
- deduct a few things (landline, internet, rent for one room that I use as home office exclusively)

If anyone can give me any hints or point my to an accountant, Id really be grateful!

Thanks
C

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6434 posts

Uber Geek

#717747 15-Nov-2012 15:09

dont take hints from people here. get advice from an accountant (I dont know any sorry). seriously. it will be the best few hundred bucks you spend this year.

ideally one who specialises inimmigrants

melissa65

8 posts

Wannabe Geek

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#717756 15-Nov-2012 15:16

Hi C,

In terms of tax residency, you will need to check Germany tax residency rules i.e. you cannot necessarily ‘opt out’ of one tax jurisdication in favour of being a tax resident in another. NZ has a DTA (double tax agreement) with Germany which means there are opportunities to claim tax paid in Germany against NZ income and vice versa. Again, this will depend on whether or not you are classified as a NZ tax resident. As you have been in Germany for the majority of their fiscal year, it is my guess you will still have a duty to declare income there for the FY 12 year.

In terms of NZ tax residency, there are various rules surrounding this, primarily associated with the ‘183 day rule’. When did you arrive in NZ and have you resided here non-stop since that date (this will help determine tax residency). If you are determined to be a NZ tax resident, you will be able to claim any expenses relevant to your business operations i.e. mileage, UOHO etc. as per any normal NZ tax resident.

I think before delving too deep into this, the primary issue here is tax residency. I recommend checking with a tax advisor in Germany regarding your obligations to pay taxes over there, and also figuring out number of days residing in NZ between the date you arrived and the NZ financial year (ends 31 March 2013).

castor

7 posts

Wannabe Geek

#717770 15-Nov-2012 15:43

Thanks for the replies so far. I have the feeling that this is more complicated than I initially thought.
About the tax resicideny:

I have actually been in NZ since Mid-August 2011. I have paid income tax in Germany for 2011 though I haven't filed my tax return yet (I got an extension until end of December).

I have not returned to Germany since then, so I think I fall into NZ tax residency. My employer's accountant has talked to the German tax authority and they have told me that they would reimburse me for the income tax that had been paid for 2012 so far since they believe my income should be taxed over here in NZ.

Anyway, I really feel I should seek professional help here :)

Do you think it's a good idea to just walk into an accountant's office? Most of the people I know seem to take care of their taxes themselves, so I would not know where to get any recommendations.

Thanks

timmmay

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#717775 15-Nov-2012 15:55

If there's a Markhams branch in PN get in touch, they specialise in small business.

melissa65

8 posts

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#717776 15-Nov-2012 15:55

Ahhh ok, so you will definately fall under NZ tax residency so will be required to declare ALL sources of income here. In saying that, expenses can be claimed too - yay!

As you are a contractor, have you also considered GST implications? If your turnover is > $60k, you will also have to register for GST. I assume you have an NZ IRD number for this?

In terms of acquiring an accountant, they can be ridiculously expensive (but tax advice etc. negates this - a good accountant will ensure ALL expenses are claimed and will also reduce audit risks). First year set up fees can cost a lot however, especially if you haven't done much of the ground work yourself i.e. IRD registration, calculation of overseas income and conversion. Tax advice will also be imminent which is usually charged at several hundred an hour. Your industry (software development) has also come under IRD scrutiny in recent years so wouldn't recommend 'winging it' here.

I'd definately recommend doing your own registration and doing as much of the ground work as possible yourself to save on costs. Ask around, get quotes if you can. And in case you couldn't tell - i'm an accountant :-)

castor

7 posts

Wannabe Geek

#717821 15-Nov-2012 16:48

Hi Melissa,

thank you so much for your insights! - had I known that it gets that complicated I would have stayed in Germany! ;)

melissa65: Ahhh ok, so you will definately fall under NZ tax residency so will be required to declare ALL sources of income here. In saying that, expenses can be claimed too - yay!

As you are a contractor, have you also considered GST implications? If your turnover is > $60k, you will also have to register for GST. I assume you have an NZ IRD number for this?

I am an employee with my company back home in Germany. I exclusively work for them (I have a work contract), get paid a fixed amount monthly and don't issue any invoices or do contract work -> I don't run a business.

Also, I will probably stay < $60k this year

In terms of acquiring an accountant, they can be ridiculously expensive (but tax advice etc. negates this - a good accountant will ensure ALL expenses are claimed and will also reduce audit risks). First year set up fees can cost a lot however, especially if you haven't done much of the ground work yourself i.e. IRD registration, calculation of overseas income and conversion. Tax advice will also be imminent which is usually charged at several hundred an hour. Your industry (software development) has also come under IRD scrutiny in recent years so wouldn't recommend 'winging it' here.

I'd definately recommend doing your own registration and doing as much of the ground work as possible yourself to save on costs. Ask around, get quotes if you can. And in case you couldn't tell - i'm an accountant :-)

All the setting up business sounds a bit steep - esp. since I plan to go back to Germany next year anyway. I feel that this is more complicated as it should.
I don't have an IRD number yet - until yesterday I thought it would be sufficient to continue paying taxes in Germany. Oh and of course I definitely don't want to wing it.

Maybe it would be easier to just get an IRD number and file my income and forget about the expenses, I don't think they would matter too much anyway (taking into consideration all the hassle/fees).

Also I could just make an appointment with the IRD and talk to the people there - do you think that would be a good idea?

Thanks again
C

chevrolux

4962 posts

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#717830 15-Nov-2012 17:32

We look after a few of accountants systems in Palmy. My recommendation is go and see M R Curd accountants on Broadway Ave or Stuarts Accountants on Main St. Those are my favourite firms to deal with as they are just generally decent people. We have other firms we look after but I don't want to recommend because frankly I don't like them.
Harrison Senior at M R Curd is a personal friend as well so can highly recommend.

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Dratsab

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#717847 15-Nov-2012 18:16

NonprayingMantis: dont take hints from people here.

This includes you and your counter-the-point-of-forums suggestion. You do realise there's people here that know what they're talking about don't you?

NonprayingMantis: get advice from an accountant

This I do agree with.

lokhor

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#717970 15-Nov-2012 21:36

Probably a good idea to ring Inland Revenue as well

http://www.ird.govt.nz/international/residency/

All comments are my own opinion, and not that of my employer unless explicitly stated.

networkn

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#718003 15-Nov-2012 22:28

Yah IRD are much more approachable than before and I would get the advice from them.

DonGould

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#718011 15-Nov-2012 23:03

networkn: Yah IRD are much more approachable than before and I would get the advice from them.

+1

I've had these sort of conversations with the Small Business Team within the IRD before.

You don't need a local accountant at all to get a good grounding in your obligations and a very good idea of what direction you need to head in.

The benefit of an account in my view is that they may be able to help you maximise your understanding of your tax deduction entitlements across both countries.

Like purchasing any service, I really would ring around. In your case I would summerise this thread into a brief that you actually give to some accountants and ask for some indication of their fees to help you. Last year I dropped our annual accounting fees from $1200 to $700, but my neighbour has dropped his to $400 and has a far more complex requirement than I do.

The IRD have done a lot of work in this space in recent years because a lot of people have been side stepping their obligations, so it is well understood and a far more common question than you might think.

Given your situation, good on you for being up front and sorting it rather than just flying under the radar until you leave.

D

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castor

7 posts

Wannabe Geek

#718027 16-Nov-2012 00:02

networkn: Yah IRD are much more approachable than before and I would get the advice from them.

DonGould:
The IRD have done a lot of work in this space in recent years because a lot of people have been side stepping their obligations, so it is well understood and a far more common question than you might think.

Thanks for the advice. I really appreciate it! I think I'll just make an appointment at the local IRD office in Palmy and see how it goes from there...

DonGould:
Given your situation, good on you for being up front and sorting it rather than just flying under the radar until you leave.

flying under the radar is just not my cup of tea... I could not get a good night's sleep knowing some government agency might knock on my door at some point and also I don't think there is anything wrong with paying taxes, (back home university education is "free" and mostly payed for by tax-money), so now that I am in a position where I actually earn some money, I feel that I have the moral obligation to give something back - but I'm getting totally OT in my own thread here...:D

networkn

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#718151 16-Nov-2012 10:27

Castor: Sensible response. Nothing more certain than Death and Taxes. It's not worth the stress and the IRD are the definitive source when it comes to your responsibilities.

One of the benefits that can be gained by having someone like an accountant look after you, is your are sometimes entitled to tax extensions and the like which means you can pay your tax later without penalty.

The other facet of an adviser is just general business consulting, advice on how to structure your finances and business practices to make the most of your resources.

geek4me

843 posts

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#718209 16-Nov-2012 12:06

castor: - deduct a few things (landline, internet, rent for one room that I use as home office exclusively)

Most people have commented on the question of which country you pay tax to. You also need to be aware of any consequences of deducting costs for a room in your house. Be sure to ask an accountant about this too.

The room has to be used exclusively for your business to deduct costs. You are renting so perhaps not an issue, however if you owned the home and made lots of tax deducted improvements to your "office" it becomes complicated when you sell the house.

melissa65

8 posts

Wannabe Geek

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#718232 16-Nov-2012 12:44

This is not entirely true. "Exclusivity" is generally not an issue. There are two methods in calculating UOHO (Use of Home Office), being direct/actual costs, or an estimate. To ease complexity, a standard procedure is to just claim a percentage of UOHO. Depending on your level of usage, from an IRD perspective, 20% say, is considered reasonable. Of course if you use more and can justify it, then no harm in pushing this higher.

Renting = claim 20% of rent, power, phone etc.
Own House = claim 20% of mortgage (interest portion only, not principal), rates, power, phone (unable to claim depreciation on buildings now so no major issues there when it comes to selling own home). There is also an option to calculate office space over total property space, however for an operation of your nature an estimate as stated above would suffice.

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