Here are a few suggestions:

1. Do something about your accounting records – You may have been working with bits of paper and spread sheets up to now and in the back of your mind you know there is a better way but time and money are in short supply.

Well, a resolution to sort this out is one that is easily achieved.  The www.xero.com  online accounting system is the one we use and we do not hesitate to recommend it to all our clients.  It is easy, clear and once set up, is well supported and trouble free.  The advantages are many, you can see all your financial details immediately without dealing with banks or ‘accountants’.  Accounts payable and receivable are easily processed and reporting can be done on a daily basis.

2. Review your structures

Is your business structured to your best advantage?  Sole trading, Partnership, Company, ‘Look Through Company’, Trusts – are you sure you are operating under the best structure to meet your needs for income and your obligations for tax.  Speak to Brad at Wise Advice about this for reassurance or for making a change. www.wiseadvice.co.nz

3. Manage your stock

Are your stock control methods the best they can be, or could you benefit from a new approach?

Ask yourself a few questions and see if you are controlling your stock to your best advantage.

• Are you able to establish how much stock you need to have at any one time?
• Could you establish ‘just in time’ stock, which reduces costs to a minimum?
• Do you review stock regularly to see if you can adjust how much you hold?
• Do you practice a Batch control system – getting one ‘batch’ completed before ordering for the next?

4. Reduce costs

Take a close look at where your money is going – can you reduce daily costs (telephones, postage, leases) or have you thought about establishing a budget for each project or for your monthly expenditure – you will be amazed at how much you can save by looking closely at what you spend.

5. Improve sales

What about your sales figures – these are the starting point for improvements.  Have you thought about drawing up a sales forecast?  Look at the pattern of your sales – are there particular times when you lose/gain new customers; work with the information you have to make a plan for improvement.  Have you looked at your website recently – would changes attract more sales? 

6. Look at the new Cloud technologies – Would you want an opportunity to optimise your resources, creating virtual desktops, smart phone mobility solutions, web portals?  If these sound intriguing to you then make a resolution to investigate the new Cloud technologies available – these have the power to radically change the way you do business and can offer you flexibility, process streamlining, reduction in your bills for infrastructure and achieve real economies of scale – just to begin with…

Even if you can only choose two of these New Financial Year resolutions and make some changes now, you and your business will benefit in 2013.

Like us, our clients are getting older and some have been struggling to make it up the 2 flights of stairs at 703A!  So you will all be pleased to know that our new premises are on the ground floor!

There is the added benefit of being just off the Gillies Ave and Market Road Motorway Exits, with client parking at the rear of the building.

We have made sure that the move will cause no inconvenience to our customers; telephone numbers, emails and website are all the same and there will be no interruption to our usual prompt response to your  enquiries.

We look forward to seeing you at our new office.

Brad Golchin

Director

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Do you rent out your holiday home or bach?

The new rules on mixed-use assets could affect you

From the beginning of the 2013/2014 income year, if you are using a property for mixed use, i.e. you sometimes live in it and sometimes rent it out, then the new formula for working out the effect on your income has changed.

Now this is all to do with the ability to deduct associated expenses and whether income is exempt from tax. It only relates, however, to land (including buildings) and assets that cost $50,000 or more and the asset must be used both privately and earn income, and not be used for at least 62 days (or 62 working days if that is typical of the normal use of the asset) of the income year.

These rules relate to assets held by an individual, a trust, or a partnership, or a small (close) company.

Don’t worry though – your car is not included and your home office, or the extra bedroom used by a boarder should be fine as in the office or bedroom you will already be apportioning their use as to size in your income tax calculations.

‘Private-use’ is defined as the owner, or anyone associated with the owner, even if the use of the asset is non-exclusive, or the amount of income received is in line with market value, or where the amount received is more of a token amount.

The mixed-use of holiday homes can be really varied – Inland Revenue is basically only interested where there is a definite attempt to rent out a home to the public – not just friends who want to pay you something for the privilege of using your house by the sea. The deductions for expenses are allied to the number of days of official renting of the house at a market rent and private use – e.g. an owner spends $5,000 on general repairs and maintenance to a holiday house used by his family for 28 days a year and rented out to a third party for 14 days over the Christmas/New Year period for $2,000.

If the owner wants to work out how much of the deductible costs he can claim for 2013/2014 he will calculate it as $5000 multiplied by the income earning days (14) divided by the income earning days plus private use days (14 + 28). This can be applied to hours or nights if it is a fairer apportionment.

i.e. Income earning days

Expenditure x _____________________________

Income earning days + private days.

Expenses are classified as subject to this apportionment if they relate to the private and income-earning use. If however they are incurred solely for income earning purposes – advertising or building requirements for non-private use they may be fully deductible. If however they are incurred solely for the private use of an asset, they are non-deductible.

It is worth knowing too that if the income for your holiday home is less than $1000, you can elect not to be part of this rule and your income will be exempt from tax and any expenses will be non-deductible.

Happy Holidays….

What is a Fringe Benefit?

Fringe benefits are often called ‘perks’ and include most benefits given to employees in addition to their salary or wages.

As an employer, if you provide fringe benefits to your employees, or other people associated with your business, you must generally pay FBT on the value of these benefits.

There are also ‘Attributed benefits; which are fringe benefits of which an employee has the principal use or enjoyment during part of, or the whole year. For many categories of fringe benefits, a threshold value exists, meaning that benefits over this value must be attributed.

But the basic problem for employers is around the definition of a fringe benefit as opposed to an entertainment expense and the easiest way to break this down is to look at the ‘perk’ and decide whether the employer uses or enjoys this perk at their discretion – that is, not as part of their normal work duties – e.g. memberships of clubs (golf, sports) or partial payment towards gym membership – these benefits would be subject to tax. These costs, being subject to FBT are fully deductible by employers.

Entertainment Expenses

If however, the cost of the perk is not able to be enjoyed at the employee’s discretion but forms part of their normal work routine – Christmas parties, in-work celebrations “shouts” etc. or entertaining customers, then these expenses are Entertainment and are 50% or 100% deductible for tax purposes.

They can include food and drink provided at venues like corporate boxes, corporate yachts or business related accommodation and the food and drink consumed for the purpose of business activities, staff morale or goodwill e.g. parties or receptions on your business premises, or the Friday ‘shout’ at the pub or the executive dining room used to entertain clients.

The types of entertainment that are 100% deductible are for entertainment expenses incurred in carrying on your business, for example the cost of your meal while travelling on business – (not those bought for yourself and the business contact you are entertaining though, they are only 50% deductible); your business conference food and drink if the conference is of four hours duration or more; some meal allowances for overtime work; entertainment associated with a promotion or trade display, in other words, entertainment costs that are part of ‘growing your business’.

The following checklist is a guide to the rules regarding tax treatment of Entertainment Expenses (50% & 100%) and Fringe Benefit Tax – don’t forget also, that FBT expenditure is fully deductible.

This definition excludes anything new, and second hand goods consisting of any fine metal of any degree of purity plus primary produce and livestock plus goods supplied under a lease or rental agreement.

If you are GST registered and you buy second hand goods from someone who is not registered for GST you can make a claim for credit for GST purposes, as long as you have paid for the goods before you make the claim.

In this case you must also keep a record of the following:

• the name and address of the supplier
• the date of the purchase
• a description of the goods
• the quantity of the goods
• the price paid

With regard to land, which is classed as second hand in the GST Act, if it is purchased from an unregistered vendor, the registered purchaser may be able to claim GST on the purchase price. The GST credit will be available only for that part of the land related to a taxable activity – if a farm then not the area occupied by a house, but only the land used as farm land, for example.

You have to be able to show that the second hand goods have been used and previously owned by someone – not just owned, as ownership alone does not make things second hand.

You also need to hold a valid tax invoice for the goods at the time of filing the GST return – where the supplier is unregistered for GST you need to obtain a written confirmation that they are not registered.

Even if you are normally on an invoice basis – you have to pay for second hand goods before making a claim, the claim is limited to the actual amount paid within the period.

If you purchase second hand goods from an associated party (partner, relative, company you own etc.) and they are unregistered, you cannot make a claim unless that associated party paid GST when they bought the goods.

The IRD focus is on potential property speculation such as land banking, off-plan sales and property swaps. They use a targeted audit system to alert them to property transactions by customers who continue to be non-compliant; the system monitors the properties for future activity. They can also identify instances of masked ownership of traded properties – which constitutes evasion. Sometimes a tax customer fails to do the right thing accidentally by not realizing the tax obligation exists. The best practice is always to ask, either the IRD, or a professional adviser and if you have overlooked tax – a voluntary disclosure is the best option.

Some of the factors to consider when determining whether or not the profits from the sale of a property are taxable include:

Are you a property investor or a property dealer/trader?

Most property investors reluctantly acknowledge that they have to repay depreciation claimed if they sell their investment property for a profit, but many don’t believe they should pay income tax on the profits. It all comes down to your intent when you purchased- if you purchased an investment property with the intent to keep it long term and generate income from the rental then you don’t have to pay tax on the profits. If however you developed the property or bought it with the intent of selling it for profit then you would be considered a property dealer and would need to pay tax on your income. The IRD will also take into consideration other factors such as the length of time you owned the property and the number of properties you have bought and sold.

Are you associated with someone who trades in properties?

The situation can be further complicated by the associated persons rules – even if you were not a property dealer yourself you could be tainted by a partner, trust or business you are involved in if they have property dealings. It can be difficult to understand the complexities of the tax legislation so it is best to seek advice from your accountant on these issues.

Getting advice

Ignorance is not a defense, it is your responsibility to find out your tax obligations. You need to do your homework and get advice on whether or not you need to pay tax on your property sale. Its far better to do so at the time than have IRD come after you later on and impose additional penalties. Anyone can make a voluntary disclosure and it is the only option if you discover you have made an error or filed an incorrect tax return. Remember the old saying you cant escape death and taxes! So contact us on 639 1004 today to discuss whether or not you need to pay tax on your property dealings.

There are numerous ways people avoid tax, none of which is a sensible approach because there are also numerous ways that the IRD can obtain information on avoidance to stop this practice in its tracks. These ‘ways’ are wide ranging and designed specifically to address non-compliance.

Continual evasion of taxation obligations has serious consequences for those who deliberately flout the rules – the document tells of a client who deliberately set out to avoid GST and PAYEcompliance and ended up with a four year jail sentence and another who refused repeated requests to comply with GST returns and was eventually charged with 30 counts and sentenced to home detention for four months and ordered to do 150 hours of community service. Another taxpayer who knowingly helped a company avoid filing PAYE returns was sentenced to 11 months of home detention and 300 hours of community work plus costs. So the clear message is compliance with tax obligations and avoidance will be detected and depending on the extent of evasion, heavily penalized.

You will note that we are not drawing attention here to big-time fraud and the company directors who practice major evasion. These are cases of GST and PAYE avoidance, taxes that every small business deals with on a daily basis.

PAYE debt remains a focus for 2012-2013 and the specific focus is employers who are not including KiwiSaver deductions for employees on their Employer Monthly Schedules (EMS) and not paying or showing the employer contributions they are obliged to make. These obligations are straightforward if complied with regularly but become a major problem if ignored over time, which is why Employer Monthly Schedules are another major focus for this period.

As mentioned above, the timely and accurate filing of the schedule is mandatory. Inaccurate filing or late filing can affect the accuracy of employees’ summaries of earnings and personal tax summaries, KiwiSaver and child support payments, student loan balances and Working for Families Tax Credits. Even just getting the IRD numbers wrong or forgetting to include them can lead to employees being disadvantaged as can failing to advise when an employee leaves. From a small business point of view there are software technologies that can prepare and file these returns online, as does the IRD, and tax agents like Flexipayroll offer payroll that can save you time and money in accurate preparation of EMSs.

The Hidden Economy

During the 2011/2012 year the IRD focused on the sectors known for failing to record all cash income or who are unaware of their obligations. The sectors involved tended to be hospitality, and construction and now include the scrap metal industry and people conducting businesses through online trading and particularly last year those who were providing rentals and accommodation for big events (the RWC) – with over 1000 taxpayers being contacted after advertising residential properties for rent – there were tax implications in these short-term rentals.

The IRD continues to use the funds budgeted in 2010 to increase understanding within the vulnerable sectors in the need to keep accurate records and declare cash income. The IRD also has the ability to collaborate with other tax authorities and private organizations to match data to identify individuals who have not declared all their income – because their methods for detecting this are improving all the time and their advisory team make direct calls on businesses to check, this is an obligation every taxpayer needs to make sure of. Paying wages ‘under the table’, not reporting trade of goods and services, skimming takings from the till and not declaring cash jobs or offshore income are direct contraventions of the tax laws and the IRD has declared it is determined to get on top of this problem.

Taxation can be stressful, it is not deliberately designed to be, but it becomes so if obligations and compliance are ignored. In most cases remedial action is straightforward and the IRD attitude is not punitive but they expect tax to be filed and paid on time, with the right information and if not then they will take action to achieve this. In all cases there are plenty of ways to gain help with taxation issues and a using the services of a tax agent is a good place to start.