At Zest Accountants, we understand the unique challenges and opportunities that accompany your dynamic career. From fluctuating income streams to navigating complex international tax regulations, we know that managing your finances can feel like a daunting task. That’s where we come in.
Below provides an overview of key areas that New Zealand digital entrepreneurs need to consider to ensure they are meeting their tax obligations in New Zealand, even when working remotely.
We at Zest work closely with Digital Nomads and would love to help you and be a part of the journey.
Tax Residency
A person who is a tax resident in New Zealand will be taxable on income even if they earn this income from overseas (outside NZ). Therefore, it is likely expected income will be reported as income to the IRD regardless of the countries source or even when you’re outside of New Zealand. It is also important to note that being a NZ tax resident is different from immigration status. For example, a person who has a visa for NZ but is not a citizen, is likely to be a tax resident, if they meet the threshold. In simple terms, this threshold usually means when the first of these happens:
1. they have a permanent place of abode (eg: a house, rental, flat share);
2. have not been away from New Zealand for more than 325 days in any 12-month period.
If you meet the above, you are a tax resident and are liable for tax.
Side Hustle vs Business
Firstly, it is necessary to determine what is the difference between a side hustle/hobby versus a business activity that will require tax paid to the IRD.
The IRD recommend to avoid using labels such as ‘Hobby’ or ‘Side Hustle’ but to instead consider the following:
1. How often you receive payments and whether they are regularly received
2. The relationship between you and anyone who pays you for your content creation work
3. The reason you received the payments.
The IRD also state that “If you receive more than $200 untaxed total income during a tax year from any source, you need to tell us about it. You do this on an Individual tax return”
Therefore, if you perform work online and receive regular payments in connection with your work, then the amounts are likely income and taxable.
What is Income?
Taxable income can include income from: working including salary, wages or self-employed income. benefits and student allowances. assets and investments including KiwiSaver and rental income. overseas income.
Keeping good records
You should keep records of all your income and expense receipts and maintain these for the last 7 years in the event of audit. The IRD state that it is important for online content creators to keep good records. Failing to keep good records is risky. In some cases, failing to keep good records can result in Inland Revenue:
- treating a person as having more income than they actually do (for example, if their income needs to be determined based solely on deposits in their bank account or assets they have acquired);
- disallowing deductions for expenses a person could have claimed if they had kept a record of their expenses; or
- imposing penalties and use of money interest for underpayment of tax.
Expenses
The following are examples of expenses that could be incurred by an Digital Entrepreneurs as part of their work:
So What can I Deduct?
The key thing to look at is whether the expenses incurred have a relationship to your income earning activities, if it is, there’s a good chance you can deduct these costs and reduce your tax bill.
For an expense or loss to qualify for deduction, it must be associated with generating income, indicating a connection between the cost and the business or income-generating endeavor. In the context of a business, deductible expenses are permissible, even if the business is not currently profitable, provided there is an evident intention to generate a profit.
Understanding what qualifies as a legitimate business expense and what does not is crucial. The challenge arises in the realm of being a digital nomad, where expenses often extend beyond conventional business-related items and are personal in nature (eg: travelling to a new location for fun).
To be eligible for deduction, an expense must have been specifically acquired for use to generate income.
If a digital nomad is very likely to be undertaking a taxable activity, they are also able to claim deductions for expenses and depreciation losses. What this means in simple terms is that expenses used to create content can be deducted from your total income, resulting in a lower tax payment. Eg: A digital nomad earns $50,000 NZD a year, but incurs $20,000 NZD of expenses in connection with their content. This leaves a total of $30,000 NZD of income that will be taxed at the digital nomads individual tax rate or company tax rate.
Goods and Services Tax – GST
GST is a tax in New Zealand that is charged on the supply of goods and services. Digital nomads are usually have a service or providing a product. A digital nomad, generally only needs to register for GST if their total income exceeds or is expected to exceed $60,000 in a 12-month period. Once the threshold of $60,000 is met, a digital nomad will likely be required to register for GST and file GST returns as part of their accounting requirements. In many cases, New Zealand tax residents who are digital nomads do not provide goods and services to New Zealand customers, and therefore are likely to have zero rated good and services. We at Zest offer GST services to help you understand this and undertake your GST returns.
When are Taxes due?
If you do not have a tax agent, you will need to file your tax return by the 7th of July. If you however use Zest Accountants as your tax agent we have an extension of time, this will give you the benefit of working with Zest and completing this with additional time if required.
Why use Zest as your Accountant?
You can perform your own returns, however it can certainly be a minefield of complexity, and without expertise, there is risk that it will not be performed correctly or you’re missing out on tax benefit opportunities.
At Zest Accountants, we understand the unique challenges and opportunities that accompany your Digital Nomad pursuit. That’s where we come in. We work with entrepreneurs like you and know the common pitfalls that they face. We also have expertise in ensuring digital nomads are taking advantage of possible benefits that is available to them, particularly through the complex areas of expense deductions.
Your Accountant
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