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How to Avoid Losing Out with Working for Families Tax Credits
Nick Roberts • July 20, 2015
For families with children, paying all the bills can be tough so it's important to make sure that your Working for Families Tax Credits are maximised. Here are a few tips so you don't lose out.
- No Automatic Receipt. The first thing to take on board is that receiving the tax credits is not automatic, you have to apply to the IRD and I have taken over several clients who are not claiming Working for Families because they did not realise they're entitled to claim. It is necessary to complete an application form which is several pages long which is not too bad. Once you've completed the form and are registered with the IRD then it's a case of making sure you receive your full entitlement in the tax years where you qualify.
- Income Limits. Click here for the current income limits. As you'll see, income limits are quite generous depending on the number of your children. It is quite common for business owners to have a bad year in which case it is necessary to remember to apply for Working for Families even though they don't normally qualify and you won't find the IRD going out of their way to make sure you don't lose out!
- Definition of Income. The income limits include income from all sources and in recent years the Inland Revenue have extended the definition of income to include things like the following:
- Trust income
- Fringe benefits
- Passive income such as interest and dividends over $500 derived by dependent children;
- Income from a portfolio investment entity (PIE) that is not sufficiently locked in until retirement
- Foreign-sourced income of non-resident spouses
- 50 percent of non-taxable private pensions and annuities;
- Other payments (besides those already included in the definition of family scheme income) used to replace income or to meet a family's living expenses if the total exceeds $5,000 a year per family.
So be careful to make sure you include all sources of income when working out your family income as there is nothing worse than having to pay back Working for Families that the IRD decide that you are not entitled to!
- Four Year Temporary Tax Exemption. There are loads of new migrants around and some will be aware of the four-year temporary tax exemption whereby you can receive income from overseas tax free for four years (excluding income earned by the sweat of your brow). If you are making use of this temporary tax exemption you can't also claim Working for Families so you need to work out which of the two is best for you.
- Incorrect Information Held by the IRD. Many families lose out because the IRD don't hold the correct information about families whether current information about children or spouses. I recently assisted a client who had been short-changed by the IRD because according to their records she was still living with her husband when in fact he had run off overseas.
- In-Work Tax Credits. A big component of Working for Families is the In-Work Tax Credits which you receive if you work 30 hours each week as a couple, e.g. one person works 5 hours and the other works 25 hours, or 20 hours each week as a single parent. For some reason the IRD often omit this element of Working for Families and it can cost you many thousands.
- Frequency of Payment. You can either receive Working for Families annually, fortnightly or weekly. If you're in business although it's tempting to get your hands on your tax credits as soon as possible it can be a mistake because if your income is more than the IRD estimate, then you will have to pay the excess credits back to the IRD which is not much fun.
- Dependent Child. You can receive Working for Families Tax Credits payments for each "dependent child". Dependent children are all children in your care who are 18 years old or younger, financially dependent (do not work more than 30 hours a week or receive a student allowance or a government benefit) and children aged 18 must be attending school or tertiary education and not be financially independent.
Like all things connected with the IRD, Working for Families Tax Credits are complicated so seek help to avoid losing out!
High, low or somewhere in the middle? Where to pitch realistic charge-out rates is a common question facing trades, service and professional businesses.
In fact it's probably one of the most difficult areas of business. You have to be careful not to underprice as this will reduce profits, but at the same time, overpricing could turn customers away.
Setting charge out rates is just as important as marketing and delivering a fantastic service. You can do these two things excellently and then undo the lot by setting charge out rates too low or too high. This means pricing is a complex strategy that should be carefully undertaken and reviewed.
Read more here
Do you wonder sometimes why your Council rates are so high and what they do with all the money? Especially when you see Council workers (as hard working as I'm sure they are) using leaf blowers on the Havelock North to Hastings cycle path?
Finding the money to pay your rates is hard enough as it is, but when you're in business and you have a bad year it's even harder, so did you know you can get a rates rebate if your income drops below a minimum threshold? The threshold level varies depending on your income and situation, but for example, a household with an income of $30,000 and one or two kids could get a $600 rates rebate. And then, even better, you can take the kids to Splash Planet and get in cheaply with a copy of your rates bill!
For further details click here, or email Nick for help if you're not sure what to do next.
n previous blogs we've talked about cutting ACC costs by switching to ACC Cover Plus Extra. However, you need to make sure that if you reduce the level of your ACC cover, that you have adequate life cover in the event of your untimely demise.
This is because ACC pay out Fatal Death Benefits, the amount of which depends on your income for ACC purposes and the amount of the ACC payout can be very substantial.
A spouse is entitled to 60% of the 80% ACC entitlement for 5 years whilst children (via the spouse) will receive the benefits until they turn 18 at 20% each up to 40% in total.
Take, for example, an earner on $80,000 income who dies an accidental death with a spouse and two children of 4 and 7. Collectively they will receive benefits of $1,049,600. If, on the other hand, the earner had reduced his ACC income to $22,464 the benefits would reduce to $368,410, a very substantial reduction indeed!
So, if you want to reduce your ACC premiums by switching to ACC Cover Plus Extra, you have three options:
Take care not to die accidentally!
Get adequate life cover
Stay single without any dependants!
If you need help with ACC, contact me at Accountancy + Business Advise Centre.
The availability of your annual financials is a wonderful opportunity to review your business performance. You can discover how to improve your business as well as refresh your enthusiasm and drive in the business.
Click here to read seven ways you can use your annual financials to improve your business.
Your annual financial statements have their uses, but by their very nature, they are far too historical to be of any use in managing or improving your business.
The most valuable financial accounts you can get your hands on are interim accounts prepared periodically - monthly for larger businesses or quarterly or bi-monthly for smaller businesses in line with your GST return periods. There is a strong correlation between the availability of interim accounts and business survival.
Find out here what having interim accounts to hand means for you
These are the four most common courses of action you can take if you can't pay your tax:
o get some advice (we'll be happy to help) and take action today!
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Preparing an annual cash flow forecast can tell you a lot about your business. It can warn you with plenty of time to spare that you're not going to have enough cash to survive the next year without getting additional working capital - which is vitally important to know. Or it could be the wake-up call you need to make some changes in your business. You might need to make a tweak or two, like increasing prices or shedding ineffective staff, or you could discover something more serious, such as you're in a twilight business and it's time to move on.
Read more on how to prepare and read your forecast here.
Just how much do you know about your business? No, not about what you sell, or how you make or deliver your products and services, I mean the really important things that determine whether you're going to make it through to retirement or maybe even successfully selling your business.
These are my top eight favourite things each and every one of us business owners should know about our businesses.
I've said this before (and no doubt I'll say it again) but I'm always surprised at the lack of simple systems utilised in owner-managed businesses. Using the word "systems" can be off-putting because people immediately think it's going to be too complex, too costly or too time consuming but a system can be very, very simple.
Using systems makes a huge difference to the way a business operate, read more here.