In 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.
ACC is a major business cost, especially for those in trades or lines of business where accident rates are high, yet many business owners just pay ACC bills willy-nilly without checking their correctness or looking for the many ways to reduce ACC. Here are some pointers to get you thinking.
- Even the new simplified ACC bills are difficult to understand so get your accountant to check the bills before you pay them. Many ACC bills contain errors that go undetected, such as incorrect trade classification. For example, recently a client’s wife was billed $870 for one year’s ACC for her $1,050 pin-money very part-time self-employment income!
- If you have good Income Protection Insurance it’s pointless paying full ACC as well so reduce the ACC premiums to the minimum by switching onto ACC Cover Plus Extra — it can save you thousands. Some insurance brokers are great and reduce your ACC as part of the package, but many don’t care or are inexperienced. Choose a good broker or get your accountant to sort it out.
- Make sure ACC know whether you’re part or full-time. If you work less than 30 hours per week, your ACC will be based upon your actual profits — not the minimum income as set by ACC — and thus much reduced.
Don’t take excessive ACC bills for granted or be put off by the complexity of ACC; seek advice and treat yourself with the savings made! Read the full article on ACC here.
Do you have income from rental properties? You may be wondering about why and whether ACC collects levies from rental income. It comes down to whether your rental income is classified as ‘active’ or ‘passive’. ACC levies active rental income but not passive rental income.
The difference? Rental income is classified as active when you put in some effort for it. For example, that might be mental and/or physical work collecting rents, inspecting the property, arranging for maintenance, finding tenants and so on. Where there’s not this degree of effort – for instance, where you have a property manager in place – the income is classified as passive. Isn’t that a crazy distinction?
If you’re running the rental property through a company, and distribute the income as shareholder salary, this would also be levied as active income. Where income from ‘passive’ rental has been distributed to the shareholder as dividends, these are not subjected to ACC levies.
If you have income from rental properties but you’re unsure whether it’s considered active or passive, contact Nick on 0800 ASK NICK or via firstname.lastname@example.org.
ACC has recently changed the way it invoices self-employed clients with regard to their full or part-time status, dependent on whether you work 30 hours or more a week.
Information on your full or part-time status no longer flows through to ACC’s database on the IRD IR3 form. If you held part-time status last year and this year your earnings crossed the threshold you will receive a letter from ACC automatically confirming your change to full-time status. In all other scenarios it is up to you to formally confirm a change of status with ACC.
It would pay to check your invoice this year and call us if there’s any confusion. You could get stung, for instance, if you have been paying levies on the basis of part-time status, have an accident, and then declare full-time status. In such a case ACC may query it and can backdate invoices levies up to four years – ouch!
The other point about being part-time is that then you will only pay ACC premiums on your actual earnings whereas if you are regarded as full-time, you will pay ACC premiums on the current level of minimum earnings as set by ACC, currently $26,520. In these recessionary times $26,520 is a lot to some!