Tax Updates: 10 June 2024

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Rate updates for the 2024 income year

Well, your sleepless nights are finally over. Inland Revenue (IR) has released various ‘rate’ updates that you can now use to prepare your clients’ 2024 financial statements/tax returns.

First up, it’s the square metre rate for the dual use of premises, which is used in the formula contained within section DB 18AA, to determine the deduction claim when business premises are only partly used for business purposes. Having already established the area in square metres used for business purposes (and corresponding percentage, therefore), you first take what I’d call your ‘fact-specific’ costs – rates, mortgage interest and/or rent – and multiply those total costs by the business use percentage, and then add to that sum, the sum of the formula ‘business square metres multiplied by the square metre rate’ – which has been set at $53.10 per square metre for the 2024 income year.

Next are the 2024 rates for the ‘standard-cost house service,’ as they apply to childcare providers, short-stay accommodation providers, and boarding service providers.

The childcare providers rate applies to those natural persons (although how long before AI takes over?) who provide childcare services in their own homes. Using the rate removes the need to get the calculator out to total up all the costs incurred in providing the service. Additionally, using the rate results in any gross income derived to the extent of the deduction calculated as exempt income. The rate has two components – the variable component is directed at per-child costs such as food, electricity, laundry and transport costs. In contrast, the fixed component covers administration and record-keeping type costs such as telephone, postage and the use of computers, etc. With respect to the 2024 income year, the hourly standard cost per child will be $4.45, with the annual fixed administration and record-keeping standard cost being $435. Some complexities surround the calculations, so refer to DET 09/02 for the full details.

The short-stay accommodation rate can be used by clients who provide short-stay accommodation services in their homes if they do not rent out rooms for more than 100 nights in the year. Using the rate again avoids the need to troll through your annual records to determine actual expenses incurred. If a client chooses to use the standard costs, income from providing the short-stay accommodation service will be exempt up to the amount of those costs. Income from providing the accommodation will only need to be returned to the extent it exceeds the standard costs. Any additional costs related to providing the accommodation cannot be deducted if they relate to an item covered by the standard costs. It should be noted that there are limitations to using the rate; for example, if your client provides the service as part of a GST taxable activity, do refer to DET 19/02 for all the specifics first. However, once you have ticked all the boxes, the 2024 income year rates are a per guest, daily standard cost of $61.00 if the client owns the accommodation, and $55.00 if the accommodation is rented.

Last but not least, the boarding service provider rate applies to clients who provide private boarding services in their homes if they have no more than four boarders at any time during the income year. This rate has three components (weekly standard cost per boarder, annual housing standard cost, and transport standard cost). Again, the income from providing the private boarding service will be exempt up to the amount of those costs. Therefore, the income from providing the private boarding service will only need to be returned to the extent it exceeds the standard costs. As for short-stay accommodation providers, check out any restrictions first in DET 19/01, but once you have the green light, the 2024 income year rates are a weekly standard cost per boarder of $231.00. Note that the other two components are calculated based on formula items included in DET 19/01 – the transport standard cost, for example, using the kilometre rate – which is the final rate update for today.

So, having already spoiled the surprise, the final rate update is in respect of the 2024 kilometre rate, and you can find all the details within OS 19 04. This rate is published in accordance with section DE 12(4), and can be used as an alternative to making deduction claims based on actual vehicle expenditure incurred. I expect you are already aware that the kilometre rates have a Tier One rate, which reflects total vehicle expenditure in relation to the business portion of any travel up to 14,000 km per year. Meanwhile, the Tier Two rate reflects running costs only, so for the 2024 income year, for a petrol/diesel vehicle – T1 $1.04, T2 35 cents; for a petrol hybrid – T1 $1.04, T2 21 cents; and for electric – T1 $1.04, T2 12 cents.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.