Section Four: Micro Business Taxation
Report Section 4 (162 KB)
The title ‘Micro Tax’ is self explanatory – micro tax for micro businesses. Just the way it should be. We don’t need research to tell us how complicated and time consuming it has become for micro businesses to maintain tax compliance. This section defines a micro business, outlines the tax model we could adopt, and provides examples of how this tax model could practically work.
research paper writer - 17-Jan-2012 08:50 PM 
Micro business questions are really important now because there are more and more branches of it!
research paper writer
Karina - 18-Nov-2011 10:43 PM
This cheap essay is very important for me. I'll use this information in my work.
Louis Wright - 19-Nov-2010 03:39 PM 
I work in a small CA rural practice where we employe 8 staff. 90% of our client base fits into the 'Micro' category. The competitive nature of our industry, the increase in efficient technologies and the already low margin clients is naturaly reducing the fees charged to clients. Our client base is very lifestyle orientated i.e. only require tax compliance, no biz coaching, management accounting or other value adding accounting work is requested by the clients. If the Micro rules go through where to for rural CA firms?
Anonymous - 19-Nov-2010 03:32 PM
test
fitzgerald - 21-May-2010 04:43 PM
No feedback was left by this visitor.
Brian McCombe - 21-Apr-2010 10:31 AM
Far too "broad brush" in approach.
I agree with reducing costs but in small and start up phase Business people require help and hand holding via their Accountant.
Too many generalities and arbitrary cut offs
Good politically but not practically.
Antony Dean - 29-Mar-2010 04:13 PM 
On the whole, no, I think it'll be a complete mess and very unfair. I do see a lot of merit for "legalising" cash jobs where the calculation is completely automatic (eg on bank deposits as suggested), a kind of "lazy taxation" (for both taxpayer and state). But for "real businesses" (even micro ones like mine) the existing tax laws at their core are basically fine - fair and relatively easy to understand. The execution of this is what has become an unnecessarily complicated mess (provisional tax, depreciation, accruals basis, GST periods, double entry accounting, tax agents - things that have ZERO net effect on actual long-term tax take!). It has become an "institution" and that is the problem for the small guys - banks, software providers, accountants and IRD have no reason to change their antiquated ways (I've watched it evolve for several decades at a languishing pace). The report still mentions someone passing by a bank and filling in a deposit slip and ticking a box, or banking cash with some wish to pay tax to support education etc - alarming signs of a disconnect from today's reality - which is more along the lines of people doing business online, trying to balance the pangs of guilt from not paying tax or unwittingly doing something wrong against the cost and mental effort needed to actually do it. As for me, I often pay more in accounting costs than tax, then a few times more than that in lost income due to the time spent dealing with it all, something needs to be done.
Claudia McFie - 04-Dec-2009 03:48 PM 
My concern is with the flat tax on turnover. I think it would be fairer to base the flat tax on Gross Profit.
I am self employed direct selling cosmetics. My gross profit is based on the percentage discount that the supplier offers representatives, and averages about 25%. If I was then taxed 15% on my sales income, I would be effectively taxed at 60% of gross profit, without allowing for other expenses such as my advertising brochures, stationery and motor vehicle costs.
Perhaps another option would be making the flat tax optional, and people like myself could still calculate net profit and file and IR3 as I do now. This is fairly straight forward for my type and size of business, and I can do my own accounts without difficulty.
DP F - 02-Dec-2009 03:14 PM
Hmm....if it's opt-in, then they will need to look at how long micro-business opt-in for. If it's done on an annual basis, some (many? all?) micro businesses will still complete tax accounts, but then look at how much tax they will pay under the standard model, and how much tax they will pay under the turnover-ratio model, and choose whichever one is less. So they will still do all the work, and it just becomes a tax cut in disguise.
DP F - 02-Dec-2009 03:08 PM
Its all good, except there will be funny little things. For example a micro business is expecting be as such but has an unforeseen growth burst, just falling into a small business category. Their records may be insufficient (due to reliance on the micro business regime) to cope with this.
Also there of course would be additional anti avoidance provisions, otherwise one could structure their businesses so they all earned beneath $60,000 or alternatively could structure it in such a way that all profits went into the micro company, getting effectively a 15% tax rate, but with all costs being offset against income in the other company.
Also with it being a final tax, I guess there would need to be discompensation to the owners for dividends, ie: they not been seen as income. Otherwise double tax would happen.
All quite interesting but as always the devil is in the detail.
DP F - 02-Dec-2009 02:56 PM
About time this was looked at, anything that reduces the amount of time spent on basically irrelevant paperwork has got to be good.
DP F - 02-Dec-2009 02:54 PM
My initial reaction to the micro business idea was: this is brilliant. I have just consulted with a friend who is a microbusiness owner and she loves the idea too.
DP F - 02-Dec-2009 02:39 PM
I think the micro business option should be extended to businesses earning less than 500k per year
DP F - 02-Dec-2009 02:36 PM
I like the micro-business proposal especially. It really would only apply to people starting their business up, but that is when you want things to be simple.
V. T. - 30-Nov-2009 02:55 PM
A flat 15% tax on turnover (not profit), making the assumption that they make a profit of 50% and are taxed at 30%. This seems to target sole traders who can't be bothered with compliance and do cash jobs. As it would be optional to adopt these rules, only those making good profits will use it to keep out of trouble with the Inland Revenue. This is not suitable for businesses with small profit margins.
G Boyd - 30-Oct-2009 01:45 PM
I don't think either of the ideas will benefit the micro or small businesses concerned.
For micro businesses, a number of them will be taxed on deemed income while they actually make losses. The last thing we need is another deemed rate of return system.
For small businesses, it will remove their ability to chose the legal form in which they operate their business, and may well cause them to pay more tax they previously did.
Irmelin Lee - 20-Oct-2009 09:21 PM
Although I am living in Europe for quite a while now, I have always been interested in tax matters, in NZ and in Europe. I think the Micro Tax idea is brilliant and I would like to pass the idea on to the German Liberal Party (FDP), who are negotiating to form a coalition as junior partner with the Conservatives. The FDP has always stressed the importance of tax simplification in Germany. But I am not sure that they really know how to go about it and how to sell it. The NZ proposal would be a very good guide for them.
Paul King - 18-Oct-2009 06:40 PM
Simple is best. The tax system is so complicated that MOST of our money goes into trying to save tax or figure out how to pay it without getting told off for doing it wrong. Now Cullen and Klark are gone there is no reason to delay changing the system.
Kirsten Ballantine - 16-Oct-2009 09:41 AM
I am really impressed with the proposal. I am currently an at home mum with two small children . I have been offered the opportunity to do some contract work and looked into setting up a small business so I could do more of this type of work in the future. However, when I looked at the ongoing compliance costs it just wasn't worth it. While I could do the work as an employee, I will also soon be starting another job for a few hours a week, hence I'd then be hit with the horrific secondary tax rate despite my total annual earnings being low. Yes I can claim the extra tax back eventually, but in the meantime I'll be hit with childcare costs upfront. People like me are therefore totally discouraged from attempting to balance work and raising a family - it's pretty much return to work full time and place my children in childcare or stay at home and not utilise my five years of university education the taxpayer largely funded.
This proposal would also be beneficial for ensuring that regular on-line traders have an easy way of paying tax on their sales. If there are easy ways for cash jobs to be taxed, then people will have no excuse not to pay tax and it becomes a much fairer system for everyone.
Mike - 14-Oct-2009 05:57 PM
I have operated a ‘micro enterprise’ since 2003; single shareholder/ director, having made a profit six out of seven years. The business provides both products and services. I strongly support your lobbying action however I feel some of the proposals are misguided:
1. 15% flat fee of turnover is manifestly excessive. Consistently my profit is in range of 20-25% of turnover – and I run a tight ship
2. Arriving at a profit figure for a micro business is not difficult – by my reasoning, if someone can’t manage to do this, they should seriously reconsider if they should operate a business
3. Re “Eliminated would be the need to pay the proprietor/s a salary for tax reasons, or provisional tax (since tax would be paid two-monthly anyway) and the complexities of dividends and imputations” – I think this is a moot point. I can’t imagine a micro/small business owner not taking the entire profit as a shareholder/employer salary.
4. With the above in mind – here are, I believe, the most important issues:
a. GST threshold is set too low at $60k – it should be at least $70k (in line with Australia), or better – higher still
b. Less emphasis (by various parties) should be placed on getting micro/small businesses into the GST system
c. I have dealt with a number of other ‘micro’ businesses and sole traders, most of whom are GST registered and I don’t comprehend why. When asked, the trader has no idea of what the (negative) implications are for cash flow/profitability of being registered, and they think it’s something you just have to do.
d. My company was GST registered from 2003 to 2008 – it was one of the worst decisions I made.
e. The IR4 should be simplified.
f. I agree that it is a good idea to align GST and provisional tax, as they do in Australia with BAS
g. Assets that have fallen below the depreciation threshold of $500 should be depreciated of the whole value in one hit. It is crazy that I should still be writing off items at comparatively small deductions per year just because I paid over $500 for it (or $200 prior to the change).
These are my initial comments. Most likely I will have more feedback as this discussion continues.
george wilkinson - 14-Oct-2009 04:44 PM
The proposal would be tax negative for Government.Those with little or no expenses will use it and pay much less than before.Those with significant expenses will ignore it.
I have doubts about how it would save compliance time for those who will choose to use it.As it will only be those with little expenditure,the current time and cost of Annual Accounts should not be great.Instead they will have to file returns and make payments monthly,which most will hate.
It is difficult to see why you think this will bring about taxpayers being more honest about receipt of income.The so-called Cash economy will continue to conceal Cash receipts and avoid even more tax.
We want to hear from you: Make a comment.