Welcome to Business Advisory Accounting & Tax Services Limited

Your simple guide to New Zealand tax

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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Planning for success in your New Zealand business using your accountant

Your accountant will tell you that small business enterprises are the backbone of the New Zealand economy and are the biggest employers in the country.

Ninety percent of these enterprises employ less than 20 people each. This is not surprising, as New Zealanders are highly entrepreneurial and willing to give new business ideas a go. However, many of these entrepreneurs will lack knowledge and experience in business planning, and should turn to an accountant for help.  An accountant will provide input on a variety of issues and will express your ideas in meaningful financial terms.

A business plan is both a route-map and a blueprint. You can plan the best possible route to your objective and use milestones to measure your progress. Some people believe that business planning is akin to crystal ball gazing but this is not strictly true. If you can create a proper business plan with the help of a chartered accountant, you will be prepared for any unpleasant surprises or eventualities along the way.

Reaching the milestones that you created will let you know whether or not you are on course, and if not, what corrective action is required and when.

Business plans may be created in various ways depending on the advice of your chartered accountant but the following three elements will need to be addressed:

• Business Objective: This is what you are trying to achieve.  Since the purpose of starting a small business is to make money, a business objective should best be defined in financial terms. Common measures of business objectives include return on investment, return on capital employed, return on net worth, growth and so on. Your chartered accountant will help you to devise the appropriate measure.

• Business Strategy: Strategy is one of the most misused terms in business terminology, so be sure to understand it clearly.  If the objective is what you are trying to achieve, the strategy is how you are going to achieve it. Clearly, strategy has no meaning without an objective and vice-versa. If you cannot find a strategy to achieve your business objective, there’s a good chance that your objective is over ambitious.

• Business Behaviour: It is important to recognise that businesses behave just like people, and the objective and strategy must be in consonance with the behaviour. For instance, there is little point in forcing aggressive objectives and strategies on a highly conservative business.  If you must be aggressive, make sure that the right people with the right attitudes are in place first.

You can see for yourself that a sound business plan is an essential prerequisite for success. Why don’t you get started today by hiring a good firm of accountants?

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A guide to tax deductible expenses for the New Zealand property investor

Expenses that are deductible for tax for investments in New Zealand property follow the general principle that the expenses should have been incurred in connection with the property.  Thus expenses of the following nature would be fully deductible for tax:

- Accountancy fees for the preparation of property accounts,

- Bank charges both for loan applications and administration fees provided they relate to the property

- Small items of routine repair say for less than $5oo

Certain expenses, to be eligible for tax deductions, require some explanation.

Home office expenses: This is the claim for a tax deduction if you are running your property business out of your home. The costs that can be claimed include proportionate amounts of mortgage interest payments, insurance, utilities and so on.

The New Zealand IRD department is unlikely to allow home office expenses in the case of properties that are passively managed. In other words, your property investment needs to be actively managed and to qualify as a business. To qualify, the home office must not include a bed.  Apparently, the IRD department have been known to check. Consult a chartered accountant if you have any doubts.

Insurance: Any legitimate expenses in connection with insuring your home and its contents are fully deductible for tax purposes. Many property investors take out home and contents insurance on their income properties because many items are not covered by the replacement cover of a home insurance policy. Banks often stipulate mortgage insurance cover in the case of a high loan to value for income properties. These premiums are also fully deductible.

Legal fees: There are two elements to the fees – mainly fees for property conveyancing and fees for mortgage registration. The IRD will allow the deduction for mortgage registration but considers the conveyancing costs to be a capital cost and therefore not deductible. It is advisable to ask your lawyers to bill separately for the two elements. If no split is readily available, the normal practice is to claim a deduction of 50 percent of the total bill.

Interest costs: This is by far the highest cost that a property investor is likely to incur and therefore requires careful consideration. The cardinal principle is that the borrowing on which interest deductions are being claimed should have been used for the sole purpose of acquiring the income property.  If the borrowing for the acquisition of the income property is not properly structured, there can be a considerable loss of tax efficiency. The situation is quite complex and you should consult your chartered accountant before structuring the finances.

Investing in New Zealand property can be a rewarding experience but before you begin to do so, retain the services of a top-notch accountant to handle your tax.

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How your accountant can help establish the right business structure

You should involve the expert services of an accountant as soon as you have decided that you are going to set up a business in New Zealand.

You will need to take a number of key decisions right at the beginning and your accountant can help you get these decisions right. Not that many of these decisions cannot be rectified later, but, if you get them right in the first place, you can get on with establishing your business.

You should note that the Inland Revenue recommends that every business owner has a business agent (normally an accountant) to oversee tax affairs.

Unless you have a substantial amount of business experience, you are going to need a lot of help in establishing a successful business. You will find that a good accountant is a one-stop shop for a whole host of business services that you may require. Their services range from accounting & taxation to business advisory services such as business planning and business organisation.

Obviously, your accountant is going to charge for their services, just like any other professional. But don’t be afraid of asking about their fees in advance so that you know exactly what their advice is going to cost.

Set up an appropriate business entity with the help of your chartered accountant. The three most common business structures in New Zealand are sole traders, partnerships and limited companies.  Here are just a few salient features for each one:

Sole trader

The owner or proprietor owns the business outright and is completely in control. The owner is entitled to all the profits (or suffers all losses) of the business and is personally liable for the business’ debts. There are much less registration formalities and business can generally commence immediately.

Partnership

Two or more people “join hands” to run the business and they share the investment and management duties. They share profits in a predetermined percentage and each partner is personally liable for all the debts of the partnership. It is always advisable to draw up a partnership agreement in writing so that there are no ambiguities or disputes later. Here again, only minimal registration is required.

Limited Liability Company

The company is a separate legal person and trades in its own right. The legal process known as incorporation and the reservation of the company’s name needs to follow procedures laid down in the Companies Act. The liability of the shareholders and directors is generally limited to their investment in the shares of the company, unless they’ve provided personal guarantees to lenders or can be proven to have traded recklessly.

So, with the help of your chartered accountant, you’ll be able to choose the structure that suits your business objectives. If you are about to start a business in New Zealand, all the best. Get the best start possible by hiring a top-flight accountant.

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Safeguard yourself against reckless trading with the help of your accountants

Have you considered asking your accountants for help if you are a director of a New Zealand business that is in trouble?

Does the thought of your personal liability in the event of reckless trading bother you?

No New Zealand business is immune to the global economic downturn and this may be a good opportunity for you to review your responsibilities with the guidance of your accountants. Read the rest of this entry »

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How your accountant can help you become a successful property investor

Your accountant should, at the very outset, help you to determine your investment goals in acquiring investment properties.

You may be looking for high rental yields (often at the expense of capital appreciation) or for high capital appreciation (with a sacrifice in the yield). Your accountant will help you to plan the correct mix of investments in a well balanced portfolio. Your portfolio should probably be tilted towards rental yields since you will see returns on your investment almost immediately. Investing for capital growth takes a lot of patience since you can never be sure how long you will need to hold the property. Your accountant will also almost certainly advise you to settle for the bird in hand.

Get your chartered accountant to explain yields

If you are investing for rental yields, the underlying assumption is that the value that you are willing to pay for a property depends on how much rent you will receive.

With the guidance of your accountant, establish a minimum yield below which you will not consider buying a property. You may decide that a minimum yield should cover all of your borrowing costs, assuming that you are borrowing 100 percent of the value of the property.

If mortgage rates are running at seven percent per annum, rental yield should be seven percent plus. In other words, let’s assume that you are considering a property for $400,000. You would only consider buying it if you can rent it for at least $28,000 per year. If you spend some time scouting out rentals for similar properties, you can arrive at a pretty accurate estimate of your yield.

Ask your chartered accountant about internal rate of return (IRR)

IRR is a more complex calculation but there are a number of spreadsheet software packages that will perform the calculation for you. Factors such as capital appreciation, rental, and expenses (like taxes and insurance and tax benefits) are included in the calculation.

The internal rate of return will be the return that you achieve on the capital that you have actually invested. For example if your return is $28,000 per annum on an investment of $360,000, your IRR is 7.78%.

IRR versus yield

Whilst IRR can produce a more accurate investment appraisal, subjective factors such as capital growth can render it unreliable. You are probably better off staying with the simple and easy to understand yield method. Concentrate on maximising rental returns and treat any capital growth as a bonus.

Rental properties have been an excellent investment for many Kiwis. You should consider them as an integral part of your investment portfolio. Get started on your investment plans today by getting in touch with your accountant.

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How top-flight accountants can help businesses navigate financial troubles

High quality accountants are not generally the first thing that comes to mind when your business is in financial trouble and that’s a pity.

Inevitably, your focus is on trying to resolve your cash problems and to raise enough money to stay solvent. If you can get accountants to help you at an early stage, you can approach your problems in a planned and sensible fashion, instead of stumbling from crisis to crisis. Your accountants should also provide you with an informed and unbiased view of your situation and likely solutions.

Your over-riding emotion is likely to be embarrassment at having to share your problems with your creditors, your employees and so on. It is amazing how little helpful content is available for businesses in financial difficulties. Unsure about what to do, most people simply let the situation drift in the hope that somehow a solution will magically appear.

Doing nothing while your business is collapsing around your ears is poor management to say the least and will totally destroy your credibility with creditors and employees alike.

Timely and decisive action is the key to solving your problems but you are unlikely to have the know-how or the experience to know what to do and when to do it.

Call in your accountants immediately and proceed to do the following:

Establish where you stand: Ask your chartered accountant to establish your current financial position, the underlying causes of your problems and whether your business is viable.

Establish if the problems can be resolved with the help of your chartered accountant: address the causes of your problems to ascertain if they can be fixed. Also determine what else you need to do in order to make your business viable.

At this stage, two alternatives will emerge. If your business is potentially viable, you can go on to:

Establish a business revival plan: This is a plan that will identify in detail what is required to be done to turn around your business. Specific actions and timelines need to be established.

If your business is not potentially viable, you should move on to:

Establish an exit plan: This may involve winding up your business and planning to sell assets in an orderly fashion. The objective will be to extricate you with the minimum possible damage.

You are unlikely to succeed in either revival or exit without the wholehearted cooperation of your creditors and your employees. The above plans will provide you with a solid basis for negotiation. Your accountants should also be able to negotiate on your behalf and save you considerable personal embarrassment.

If you feel that all is not going well with your business, you must act decisively and quickly. Commence the process today by hiring an outstanding firm of accountants.

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How your accountant can help you go into business for yourself

Can your accountant help if you are planning to go into business?

Yes, they can and in many more ways than you think. There are many reasons why you might choose to go into business for yourself. Perhaps you like the freedom of being your own boss.  Or you would like to make money on a scale that may not be possible if you were working for a salary.

Whatever your objective, the help of your accountant will be invaluable in achieving it. Your accountant is likely to bring knowledge and insight that you are unlikely to possess. Always keep in mind that your own contribution is critical in making a success of your business though it will take its toll in terms of time, effort and personal sacrifice.

Investigate feasibility with the help of accounting services providers You probably have a business idea in mind already.  But what you need to do before making any irrevocable commitments is to carry out a feasibility study.

Your accountant can help.

You will need to determine:
*  If there’s a market for your product or service?
*  What kind of investment is required?
*  When is your business likely to start making profits?
*  What are the risks involved and are they manageable?

If at any stage, you have doubts about the viability, or if the risk appears to outweigh the reward, walk away from the project.

Research market potential and potential customers:

This is one of the most difficult parts of the process and even large companies find it difficult to predict reaction to new products and services.

Hire a market research specialist if you like, but it is often useful to discuss your data and findings with your accounting services provider.

It is also useful to distribute questionnaires to a few potential customers to determine:
*  Whether they would buy the product or service?
*  If so, at what price?
*  What they would look for in the supplier?

Profile your potential customer:

Put all your findings together and create a profile of the customer that you are targeting.  This will help you create a marketing plan in terms of communication, promotion and pricing.

Create a business plan:

This is where your accountant is going to be invaluable. You’ll need to take all of the above and create a business plan with objectives, strategies and timelines. Your accountant will help you to translate all of your findings and ideas into meaningful financial terms. 

You will benefit in the following ways:
*  You will create a route map and a blueprint
*  You will create strategies for risk management
*  You will create a solid basis for approaching potential investors and lenders

So, are you planning a new business?  Get started on your project straightaway by finding a top notch accountant.

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Brief overview of Goods & Services Tax (GST)

GST is a tax on the supply of goods & services in New Zealand by a GST registered person on any taxable activity that they conduct out. The current rate for GST is 12.5%, although it may be zero-rated for exports.

Some supplies of goods and services are ‘exempt supplies’ and may include:

>  Some financial services

>  Sale proceeds or rent from residential properties

>  Salaries & wages and nearly all Directors’ fees

GST registration will be compulsory if your business’ annual earnings/income for a 12-month period exceeds (or if you estimate that it will exceed) $60,000. 

Generally, you can choose whether to file yoru GST returns on a monthly, bi-monthly or 6-monthly basis.  There are certain requirements about who should or can file monthly GST returns and who may file 6-monthly GST returns.

There are 3 methods to account for GST:

>  Invoice basis

>  Cash basis

>  Hybrid basis

If your revenue exceeds $2million you are not permitted to use the Payments basis alternative.

If you’re selling or are considering selling your services or goods via your website, please refer to the IRD’s section on GST & E-Commerce.

For additional information on GST & how you can register, please call us or visit the IRD’s website.

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Claiming NZ income tax deductions for travel expenses

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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