END OF YEAR TAX REMINDERS

Now is a great time to consider tax issues and planning opportunities in relation to the end of the financial year at 31 March.

 

If you're into the property market and trends in financing options,  an interesting article in this weeks Herald,

with results from Consumer research Canstar's survey of home loans on offer from 10 NZ banks.

Checkout your bank's ratings and some good recommendations in Canstar's full Home Loans report.

http://www.canstar.co.nz/wp-content/uploads/2015/03/Home-Loans-Star-Ratings-NZ-2015.pdf

 

HIGHER INCOME

Is your income significantly higher than the previous year?

If so, you should consider whether an additional voluntary provisional tax payment may be appropriate. or alternatively it may be beneficial in aligning your tax payments with turnover. Please discuss with us.

 

DEFERRED INCOME

Some income can be deferred until next year.

Deposits received for services not yet done.

Income subject to a dispute may be able to be deferred until the issue is resolved.

Retentions should be returned in the year the retention period expires.

Construction contracts – provide full details as its important the income is returned in the correct year.

 

BAD DEBTS

Bad Debts to be written off

Individual trade debts should be reviewed and actually written off in your debtor ledger prior to balance date for them to be allowed as a deduction in the financial year. A debt is considered bad if a 'reasonable and prudent' business person would be of the view it is unlikely that the debt will be paid. Factors to consider are the length of time the debt is outstanding, and the efforts that you have taken to collect the debt and information on the debtor. A debtor does not need to be insolvent for the debt to be bad, so you can still pursue the debtor for payment.

 
TRADING STOCK            Valuation options available

   In general terms, trading stock, including work in progress, is valued at either cost

  using a cost valuation method (such as first in, first out) or discounted selling value 

   if this  is lower than cost.

   To claim a deduction for obsolete or slow moving stock, this should be disposed of   

   on or before 31 March  or valued at market its selling value - if lower than cost.

 

 

PREPAY EXPENSES

Some types of prepaid expenses can be claimed when incurred, regardless of the fact that the goods or service will not be used until a future time. That means that we are not required to adjust the pre-paid portions, within certain limits in value or time.  The following prepaid expenses can be claimed, and therefore provide a useful deferral of the timing of tax obligations.

Advertising - up to $14,000 prepaid for up to 6 months from your balance date.

Insurances - premiums for up to 12 months from balance date if < $12,000.

Rent - up to 6 months in advance, not exceeding $26,000 in total.

Rates - to the extent of that invoiced prior to balance date.

Travel & accommodation for business, advance bookings to be used within 6 months & <$14,000 in total.

Consumable aids (that do not form a component of the finished stock) not exceeding $58,000 in total.  eg. packaging, chemicals, oils ...

Service or maintenance contracts for plant & equipment for up to 3 months if the annual contract does not exceed $23,000.

Vehicle registration & road user charges - unlimited.

Telephone & other communication equipment, use/maintenance -  unlimited up to 2 months in advance.

Subscriptions, memberships, professional fees up to 12 months in advance if < $6,000.

Stationery, post, courier, newspaper & magazine subscriptions - unlimited.

Other services can be claimed up to 6 months after balance date, not exceeding $14,000

In other cases it is sometimes necessary to add back unexpired expenditure.

 

REPAIRS & MAINT

 

 

Repairs & maintenance expenses are deductible only to the extent that they have been incurred - the work done.   Be aware of the fine line between R&M that is deductible and Capital Expenditure (non-deductible).

 

LEGAL FEES

DONATIONS

Not all legal fees are deductible by a business and for that reason we like to view your legal invoices.  eg.  Some legal fees in relation to the formation of a company or trust are non-deductible as they are capital by nature.   In saying that, this capital limitation can be ignored, allowing an automatic deduction for tax, if your total legal fees are less than $10,000, excluding GST.

Companies are allowed a deduction for gifts of money to charitable organisations which are approved for donation tax credit purposes. Donations are deductible only to the extent of the company's taxable income for the year. Individuals can claim a 33% rebate on all charitable donations, limited by their income.

 

EMPLOYEES REMUNERATION

Employee related expenses (holiday pay and bonus provisions)

A business can obtain a deduction for employee related expenses (eg. Bonuses, or long service leave), providing payment is made within 63 days after year-end. Therefore, a deduction is permitted if the payment is made by the end of 2nd June (for a 31 March balance date). We can credit a bonus to your equity account rather than making a physical payment, however the PAYE remains payable IRD.

Redundancy payments must be paid by year end for the employer to be able to claim a Reduction. That is, the 63 day rule doesn't apply.

 

INTEREST PAYMENTS

Have you paid more than $5,000 in interest to someone other than a bank?

If you have, you may be required to withhold resident withholding tax from your interest payment.

 

DIVIDENDS

Imputation credit account debit balances

Irrespective of the company's balance date, it is essential to ensure your company's imputation credit account is in credit at 31 March. Failing this will result in a 10% imputation credit account debit penalty. As a solution you may wish to consider early payment of provisional tax payments prior to due date.

 

 

FIXED ASSETS

Assets no longer used in the business

We recommend you review your assets annually. For tax purposes fixed assets can be written off if:

· The asset is no longer in use by the business; and

· Is not intended to be used in the future; and

· The cost of disposing the asset would be more than its disposal value..

Low value assets

Low value assets, with a value of $500 (GST exclusive) or less can be written off immediately, providing it is not part of a larger value asset. Its useful for us to hold a copy of invoices for asset purchases, as we analyse all asset these to maximise your claims and allocate appropriate depreciation rates, if applicable

 

Purchases and sales

A full month's depreciation can be claimed for any part month that an asset is owned and used. In the case of high value assets, good timing can be a worthwhile tax planning tool. It may be worth buying replacement assets on or just before balance date to obtain one month's worth of depreciation deduction.

If you expect to make a loss on sale, consider selling prior to balance date. If you expect to make a gain on sale, consider deferring the sale until after balance date. This will accelerate any available deduction or decelerate the requirement to return taxable income. We can calculate your position in respect of an asset you intend to sell, so don't hesitate to phone us if you'd like advice.

Commercial fit-out

The rate of depreciation on buildings for tax purposes is now 0%. To maximise depreciation deductions it is important to separately identify, wherever possible, commercial fit-out (on which depreciation deductions can be claimed) from the building proper. Chattel values will be important for residential rental properties.  

Mixed Use Assets
The tax treatment of real estate (mainly holiday homes), water craft and aircraft (with a purchase price of more than $50,000) where the asset is used for both private use and income earning use and is unused for 62 days or more per year has changed.  The new rules came into effect from 1 April 2013 for real estate, and from 1 April 2014 for water craft and aircraft.  Certain losses will be quarantined and a deduction may only be claimed when the asset returns income

 

 

LOOK THROUGH COMPANIES (LTC)

Elections – in and out

Broadly, LTC elections must be received before the start of the income year from which status is required (with the exception of new incorporated companies). If you wish to revoke an LTC election it must also be received before the start of the income year in which it is to apply from. NB: There can be significant tax implications of electing into and exiting the LTC regime, i.e forfeited losses.

 

SHAREHOLDERS REMUNERATION

In light of the Penny and Hooper case decision, it is important to ensure that in closely held businesses, commercially realistic salaries are paid to any shareholder-employees. Please contact us if you need further help in this area.

 

COMPANIES

Structural changes in shareholdings

The ability to carry forward tax losses is subject to maintaining shareholding continuity of 49%. The ability to carry forward imputation credits is subject to shareholding continuity of 66%.

Companies forming part of a 66% commonly owned group may offset profits and losses against each other. An election must be made with the relevant tax return (and payment made under certain circumstances). If you are anticipating shareholding changes and believe you will breach continuity, forfeited losses can be minimised by accelerating income recognition and minimising deductions where possible. Also, consider the payment of a dividend to use imputation credits before they are forfeited.

We recommend a review of inter-company charges be conducted to ensure documentation is in place

to support any deductions and also to minimise any potential tax risk.

 

FOREIGN SUPERANNUATION SCHEMES

 

 

 

 

 

 

 

 

 

 

PAYING ACCOUNTING FEES

Legislative Changes

A law change from 1 April 2014  sees most Foreign Superannuation Schemes taxed under a new regime. Lump sum distributions from Foreign Superannuation Schemes will be taxed, with the precise amount to be included as income determined using either the schedule or formula methods. Generally, the longer that a taxpayer has been in New Zealand, the higher the amount of the lump sum distribution that will be taxable income.

The law change provided a concessionary measure for taxpayers who have not returned income from Foreign Superannuation Schemes in the past. 15% of any lump sum distributions made between 1 April 2000 and 31 March 2014, able to be included as taxable income in either the 2014 or 2015 income tax returns. This concession applies where an application was made to transfer funds to NZ - prior to 31 March 2014.

 

We welcome clients opting to make payments for accounting services by regular monthly automatic payments.  Many clients enjoy the opportunity to spread their accounting costs over the full year, rather than paying a lump sum at completion of an annual job.   Feel free to contact Diane to discuss this option.