ACC levy for retired person has a rental income?

[Chelsea]

Hi there
My parents just received a 2020 ACC levy invoice.
They have a LTC company set up to manage the rental property, but both of them are retired and over 70, are they still liable to pay ACC levy? Is this because they are the owner of LTC so liable to pay ACC?
If the rental property is under their individual name, will they still need to pay ACC?
Also the amount of ACC levy rate (against their declared rental income) is around 3.6% , is this correct? Isn't ACC levy a flat rate 1.21%?

I've emailed ACC already but just want to have some insights. Thanks.

[McDuck]

Hi Chelsea.

The main thing to understand is the difference between Passive and active income.

Passive income is when you do no activity to get money.
Active income is when you have to do something to get the money.

Even simple repairs on a rental or just collecting the rent in person might be considered " activity"

The general way Landlords use the words "passive income",. or "money working for you:" is not the same way the Tax department use it.

The Tax department have a very narrow meaning for "passive income".

But there are ways to collect rents passively.

The right set up from the start is advised.

[Chelsea]

Hi thanks for the reply.
My parent's are the only two shareholders of LTC, they don't employee anyone so technically they shouldn't be liable for ACC levy (there are three types of levies).
They've had a property mgmt agent look after the rental so don't actively participate in managing it by themselves.
I'd say the rental should be classified as "passive income" but all subjection to ACC, thanks for your info anyway.

Hi Chelsea.

The main thing to understand is the difference between Passive and active income.

Passive income is when you do no activity to get money.
Active income is when you have to do something to get the money.

Even simple repairs on a rental or just collecting the rent in person might be considered " activity"

The general way Landlords use the words "passive income",. or "money working for you:" is not the same way the Tax department use it.

The Tax department have a very narrow meaning for "passive income".

But there are ways to collect rents passively.

The right set up from the start is advised.

[donna]

Have a look at this on the ACC site

cheers,

Donna

[Chelsea]

a quick update, just spoken to IRD. the reason why my parents' LTC rental income liable for ACC is I've filed it wrongly.
I should have selected "residential rental income" instead of "LTC income" , simple as that.

Residential rental income (under an LTC) is passive income, do not attract any ACC levy. You don't even need to explain anything, just tell IRD it's rental income, IRD will help to amend tax return. Once tax return amended and processed, ACC will issue a credit.
It's actually an easy fix.

the quickest way is to do it by yourself via MyIR, or you can ask IRD to amend it for you but take longer.

[Perry]

Ahhh, one of the perils of DIY-in-ignorance. As opposed to using an accountant.

[donna]

Phew it’s good to know the outcome.

An Accountant with investment property tax experience is ideally the way to go.

cheers

Donna

[Chelsea]

No worries, I like DIY and learn it thru the journey by myself.
Maybe will over pay some "tuition" but will gain more insights.

[donna]

Yeah far enough. Numbers are not my thing I’d cost us $$ if the accounts were left with me.