This pages covers frequently asked questions from tax agents, accountants and advisors.
Are premiums for ACC CoverPlus Extra tax deductible?
Premiums are tax deductible for self-employed people.
If you are a shareholder-employee and covered under ACC CoverPlus Extra may be able to claim this as an expense if your employer company pays your CPX levy or reimburses you for payment of these levies. The amount paid / reimbursed (excluding the earner levy) will be tax deductible as an expense to the employer company.
When someone is newly self-employed and they’ve come from an employee position, are their previous employee earnings taken into consideration in the event of a claim?
Yes, if a person was an employee in the 12 months prior to their change of status (and they are covered under ACC CoverPlus) they will continue to have a weekly benefit based on previous 12 months’ earnings.
If the newly self-employed person elects to switch to ACC CoverPlus Extra then his or her previous earnings will only be included in negotiation if they are relevant. For example, a former teacher now selling real estate is not likely to have their previous income considered. However, the earnings of a truck driver who is now an owner–driver contracted to his past employer, might be considered.
Would ACC consider basing cover on average self-employed earnings across an occupation or industry for newly self-employed people?
No, cover is based on individual circumstances. Basing cover across an occupation or industry would be unlikely to accurately reflect the newly self employed person’s earnings. This may also affect compensation if they have an accident in their first year of self employment.
Are recoverable depreciation costs considered as liable earnings?
Usually yes, as depreciation would have already been claimed as a deduction (reducing liable income) in the previous years, consequently it is included as liable income when the asset is sold.
The exception is if a self-employed person stops work in one financial year and declares the depreciation recovered income in the following financial year, it is treated as passive income. This is because if your client has an accident in the following year the depreciation recovered income is not considered when assessing lost earnings compensation entitlement.
My clients are shareholders and managers of a business entity and their staff are in a different occupational group. Why do they all have the same occupational code for their ACC levy?
Each business entity must be classified under a single classification unit that most accurately describes what the business entity does. Therefore, this classification is defined at a business entity level and not an individual employee level. There are exceptions where multiple classification units are required, contact us on 0800 222 991 or visit www.businessdescription.co.nz for more information.
My client receives earnings from more than one income source. Do I need to inform ACC every year and send in a Summary of Earnings?
Yes, ACC needs to confirm all earnings, particularly if earnings are received from multiple income sources. We encourage you submit a Summary of Earnings, so that ACC can determine the correct levels of cover, levies and adjustments for your clients.
What should I do if my client has an injury?
You should encourage them to seek medical treatment as soon as possible. Their health provider will ensure the correct forms are completed and sent to ACC. From there ACC will register their claim and if eligible, help them with support for treatment, rehabilitation and if eligible, compensation for lost earnings.
My client runs a small business. They have four staff who are in the office all the time and never face the risks that the other staff do. Can we classify them separately?
No. ACC operates by setting an average rate to cover all the staff in each business. It does not classify different occupations within the same business separately.
My client is one of two people in a partnership operating a plumbing business. One partner does the fieldwork, and the other does the bookwork. How are they each classified?
Each of the partners is classified (for their earnings ‘as a self-employed person’) according to their personal input into the business. In this case, one partner would use an ‘administration’ classification. In prior years, all the partners were required to classify themselves according to the business of the partnership. The change does not have any retrospective effect.
My client owns a farm and employs a sharemilker. Is the farm owner’s income ‘passive’, or do they need to pay ACC levies on the income they receive?
If your client has absolutely no involvement in the management or operation of the farm, their income is considered ‘passive’, and they pay no ACC levies on income from the farm. If they are involved in the management or operation in any way, their income is liable for ACC levies, under the classification 77301 – Holder Investor Farms and Farm Animals.
My client is planning to change their business status from a partnership to a trust. He will be a beneficiary of the trust as well as an employee. Will all of his earnings be taken into account by ACC?
ACC does not recognise the beneficiary income from trusts as ‘active’ income. However, any earnings your client receives as an employee of the trust (ie earnings subject to PAYE deductions) will be used for levy assessment and as the basis for lost earnings compensation.
My client works part-time for a real estate company and also has several rental properties. Is the income derived from the rental properties considered to be liable earnings?
If your client is in the business of residential rentals, the answer is likely to be yes, unless it can be proved otherwise.
My client’s tax year is non-standard (ie more than 12 months), and they pay levies based on their liable earnings for the non-standard period. If he is injured what is the lost earnings compensation based on?
If your client has negotiated a longer tax year, ACC takes this into account when calculating lost earnings compensation. To calculate your client’s average weekly earnings ACC divides your earnings in the most recent tax year by the number of weeks in the tax period (eg 64 rather than 52 weeks, if you have negotiated a 64-week tax year).
What happens if my client is new to self-employment or a new shareholder-employee?
Without ACC CoverPlus Extra the cover offered by ACC can be very limited.
ACC CoverPlus Extra will be the best option available in almost all situations. If an ACC CoverPlus Extra application is made the Underwriters will either accept or contact and discuss your client’s options.
Published: 1 June 2010