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‘Tax’ archive

How to avoid stress and save money on your New Zealand taxes

29.04.2010
by Mark
Gwilliam

A good accountant can save you money on your tax by helping you to organise your affairs properly and to take advantage of all the possible tax deductions that are available. If you are running a small business in New Zealand, you are unlikely to have the knowledge or experience to manage your own tax affairs. When you consider return on investment, the fees that you pay a top-flight accountant will probably be one of the best investments you make.

However, even the best accountant is no magician, and unless your financial affairs are recorded and documented properly, there is not much that they will be able to do. You should also remember that the New Zealand IRD prefers that you appoint a tax agent (normally a chartered accountant) to administer your tax affairs.

The first step is therefore to organise your accounting and recording system in a manner that will minimise the difficulties of preparing your tax returns.

Here are some simple tips on how to organise your paperwork instead of stuffing it into the nearest available shoebox or desk drawer:

  • Prepare and label folders for each month of the year. Place every piece of relevant paper in the appropriate folder. Whenever you have a little time, you can arrange the contents of a folder, and itemise income and expenses.
  • Consider acquiring a corporate credit card to which you can charge all your expenses. The credit card company will present you with comprehensive and neatly itemised bills, in effect doing your dirty work for you.

Let us now consider a few ways in which you can reduce your tax bill.  A chartered accountant is the best guide, so rely on their advice.

Bring forward planned expenditure: If you happen to be planning to spend money on marketing or refurbishment and redecoration, incur the expenditure immediately. You need to spend the money anyway and doing it immediately will give you a nice little tax break.

Take advantage of capital deductions: Bring forward expenditure you plan to incur on items such as machinery or other fixed assets. In consultation with your chartered accountant, pick items that will give you the highest possible depreciation benefits. If you plan well, it is possible to find items that will give you tax benefits of 100 percent.

Do you really want to go on paying more tax than you should? If not, employ the services of a high-quality accountant and start planning your New Zealand tax.

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Your simple guide to New Zealand tax

29.04.2010
by Mark
Gwilliam

If you are running a business in New Zealand, you are liable to pay tax on profits after deducting allowable expenses from your income. Many people have an irrational fear of tax issues but if you familiarise yourself with the process and the regulations and hire a competent accountant to help you with compliance and planning, you can maximise your tax efficiency.

The New Zealand Inland Revenue Department (IRD) expects you to submit a properly completed tax return every year and this is in turn based on your annual financial statements. The department prefers you to have a tax agent (normally a chartered accountant) to handle your tax affairs. If this is the case, they will normally allow you an extension up to 31st of March of the following year to file your return.

If you fail to meet this deadline, you will find yourself in an unpleasant situation with the following consequences:

  • You could face penalties and “Use of Money Interest”.
  • You will probably lose your “Extension of Time” with your tax agent.
  • If you continue to flout IRD regulations, you could face stiff monetary penalties and possibly criminal charges.

Instead of delaying or being paralysed by fear, take decisive action and contact your accountant or your tax agent immediately. The process is not as complicated as you think. And you should let your accountant take charge of the process. Here is a sample of the kind of information you should provide to your accountant for the preparation of the tax return.

  • The details of any major property transactions
  • Complete bank records and bank statements
  • The details of all cash transactions
  • Your general ledger, if you have one
  • The details of your accounts receivable and your accounts payable
  • Details of the inventories, fixed assets and motorcars

Your accountant will have more detailed requirements which you should fulfill scrupulously.  We generally send our clients checklists that help them collate the information we need and keep our fees down.

How to select a tax agent

Planning your tax affairs to minimise the strain on you and maximise your tax efficiency depends almost entirely on your choice of the chartered accountant to act as your tax agent. What you need is pro-active and efficient advice. Your accountant should:

  • Stay in touch with you to inform themselves of how your business is going
  • Provide you with input on major investment and financial decisions to maximise your tax advantage
  • Help you to prepare a business plan and to monitor the progress in accordance with the plan. This will ensure that you can take timely corrective action as required.
  • Help you to maximise your operating efficiency and streamline your cash flow.

Stop spending sleepless nights worrying about your tax affairs.  Find yourself a top-flight accountant who can shoulder some of your worries and assist in efficient management of your tax.

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Claiming NZ income tax deductions for travel expenses

14.04.2010
by Mark
Gwilliam

You’ll generally be entitled to claim a NZ tax deduction for all work-related travel, which may well include:

  • Business travel between business premises; 
  • Business travel overseas
  • Business travel to acquire assets and equipment

Note:  The Inland Revenue Department may request that you support your claim for business travel expenses with appropriate records.

One of the best ways to ensure that you can demonstrate that your travel is business related is to record the nature of your trip.  Keep a log of expenses and receipts. 

This is a good habit because IRD investigations/audits tend to occur sometime (often a few years) after a NZ tax year ends and you’re unlikely to remember the details of your trip then. 

Your overseas travel expenses are tax deductible if you “incur them in the course of your business”.  You will need to separate any element of your trip that relates to a holiday, as this is a “personal expense” and is not tax deductible.

So my tips to legally maximise your travel expenses are to:

1.  Establish correspondence with your business associates or “letters of introduction” well before your trip;

2.  Retain a full diary and/or an itinerary and keep it up to date;

3.  Keep as much contact information as possible from your overseas contacts, such as business cards, brochures and even photos.

Your business agenda/itinerary should, ideally, provide enough supporting information so you can easily calculate all expenses, and make a fair and reasonable apportionment between personal & business expenses.

But remember, that if you are GST registered, you must treat the GST correctly.  Typically, overseas travel is zero rated, unlike domestic travel.

NZ tax rules can be relatively complex, so we recommend that you seek advice that’s specific to your individual circumstances.

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A few straightforward tax planning tips for the small business owner

22.02.2010
by Mark
Gwilliam

For many, tax is a sizeable “expense” of doing business.

Business owners have always had opportunities to lessen their tax bill, legally. The focus has always been on the small business owner to “find” an accountant who is prepared to help them. Until they did, they were repeatedly oblivious of what “clever” business owners have already been claiming all of these years.

Every month, I notice entrepreneurs who fritter enormous time, effort and funds setting up and growing their business ventures but facing contant pressure with poor cash flow. When they do ultimately earn a return and have capital to spare, the prize for the success is a tax demand!

Like you, I regard my time as being valuable and I don’t enjoy the thought of working more than I have to, only to pay the tax office. Simply envision how many days you toil for each year solely to settle your tax bill! Simply imagine how many “bonusr” days you would have if you didn’t shell out so much tax.

Time and time again, I have seen too many people pay too much tax due to a lack of know-how, information, and terror from the tax department. How often do you squabble over whose round it is at the pub; or that you have been overcharged 50 cents at the check-out?

Yet extraordinarily, countless entrepreneurs aren’t ready to scheule any time to understand how they can lessen their income tax bill. As a chartered certified accountant who has worked in the UK, Europe and now New Zealand, I have been honored to become involved with many small business owners.

However, many of them have never had the faith to pose demanding questions to their accountants and have never challenged the “status quo”. That’s a shame as so many have taken risks, worked incredibly hard and made countless sacrifices along the way with little remuneration.

Just imagine what you would buy with an extra few thousand dollars if you did not pay as much to the government!

Recently, I had a conversation with a very upset ex-small business owner (who was not one of our clients) who informed me she’d recently gone out of business. As we talked about her business in more detail, it became noticeable that she hadn’t deducted anywhere near all of the expenses that she could have done over the years.

As tax laws changes regularly, every small business owner should engage a competent accountant. Whilst several small business owners try to organise their own tax affairs and think that they could save expert accounting and tax consultants’ bills, a skillful tax accountant ought to be able to save you cash. Tax planning is often broken down into two types:

The 1st one involves identifying the effects of accounting for either one separate business transaction or a group of similar transactions; the 2nd one relates to looking at the overall business structure, either when it’s being set up or at a later stage.

Although, the same tax law applies in both cases, tax planning steps for each will possibly be distinct.

The effect of tax planning is more often than not to either reduce or remove (legally) any tax liability and 2 important steps to do are by allocating income to a taxpayer who may attract a smaller tax consequence; and increasing the amount of taxable deductions you get. So, as the 2009/2010 income tax year draws to a close, take some time to ask your accountant the “tough questions”.

Remember: You may be paying more tax than you need to!

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Tax on private boarders

01.08.2009
by Mark
Gwilliam

In the current economic climate, you may be tempted to take in some private boarders or student homestays to top up your income.

This article aims to give you an overview of the tax implications if you do so.

If you receive income from private boarders, including student homestays you can choose one of 2 methods to work out whether you have to pay tax on the income:

1. The standard-cost method

The standard-cost method uses an average price for basics such as the cost of food, heating, power and transport. The amount is an average across the country and is inflation -adjusted annually.

If your income from boarders is less than the standard cost allowed, you will not have to file a tax return, keep records of related expenditure, or pay tax.

For the year ended 31 March 2009, if you have 1 or 2 borders, then the standard cost is $227 a week for each boarder.  For 3 or 4 boarders, the standard cost is $227 each for the first two boarders, and then $185 for each subsequent boarder.

Let me provide a couple of examples:

Example 1: If you have two boarders and they pay you $215 each a week, you do not need to file a tax return or pay tax.

Example 2: If you have two boarders each paying you $250 a week, you may need to file a return and pay tax, depending on your circumstances.

Note: If you have five or more boarders you cannot use the standard-cost method.  You are required to complete a tax return and include all payments received as income. You may claim actual allowable expenditure but you must keep records to support your claim.

2.  Actual-cost method

You may choose to keep full records of your actual income and expenses (i.e. food, etc) for the year. If you choose this option you will need to complete a tax return to declare any profit or claim any loss.

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The new IRD mileage rates

13.07.2009
by Mark
Gwilliam

The IRD recently amended the mileage rates that can be claimed for business use of a motor vehicle expenditure.  The new mileage rates apply for the 2009 income year, ended 31 March 2009.

Self employed business owners may use one of the following methods to calculate the proportion of business use of a motor vehicle:
*  Actual records
*  A logbook, or
*  A mileage rate

The mileage rate applies in respect of:
*  Self employed taxpayers
*  Up to a maximum of 5,000 kilometres of work-related travel each year
*  Motor vehicles irrespective of engine size whether they are powered by petrol or diesel.  It does not apply to motor cycles

The rate set for motor vehicles has been increased from 62 to 70 cents per kilometre.
 
If business related travel of self employed persons is over 5,000 kilometres per annum then they should use one of these two methods:
*  Actual Expenditure – you will need to keep accurate records to determine the proportion of business use.

*  Log Book Method – You must keep a log book for a test period of at least 90 consecutive days, and then apply that proportion for the log book term (up to 3 years).

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