Summer 2014 Newsletter

Be different, be better

S had a house built for him. The builder engaged painters who did such a poor job the paint started peeling off the outside of the house after about three years. S sued the painter successfully.
Meantime, he sought contractors to strip the paint off the outside of the house and start again. He chose his painting firm based on a recommendation he felt he could rely on. The price was high but the contract included a superb guarantee.
The contractor undertook to inspect the house every six months for five years and to make good any work which was not completely satisfactory. The painter gives the same guarantee on all jobs and he’s built up a tremendous reputation.
On the first inspection the contractor discovered some defective work. It wasn’t major but the job was not up to the contractor’s high standard. At the time of writing there is scaffolding on the northern side of the house.
“What’s wrong with the painting?” I asked the owner’s wife, surprised to see the scaffolding back.
She replied: “He said something about the finish on the window ledges not being good enough … I'm most impressed with this firm. You might like the story for your newsletter.”
Why is it so important?
•    It generates referrals.
•    It means the painter doesn’t compete on price.
•    It means a bigger income for the business owner.
•    It means this contractor gets work when the next recession comes while those who compete on price starve.
How does this affect you? It’s an extreme example of the value of a good guarantee. It's also a USP – a Unique Selling Proposition – something others don’t offer. Be different, be better and don’t compete on price.

Take care when setting remuneration

Rules exist to stop people paying too much salary or profit share to a family member, as a way of paying less tax.
Make sure any income you want to allocate to a relative, working in your business, can be justified.
If you get caught paying amounts you can't justify, IRD can reallocate the income. In most cases the consequence will probably be a Use of Money Interest charge going back three or four years and potentially penalties. For small companies, the company income is increased by the amount deemed excessive and the shareholder is deemed to have received a dividend, with no Imputation credits attached.
A defence against excess remuneration in a partnership or Look Through Company is to have an agreement, which must comply with these rules:
•    Be in writing and signed by all partners.
•    Binding for at least three years.
•    All partners or owners must be over the age of 20 when the contract was signed.
For partnerships, each partner must have control over their share of profits and be liable for their share of losses.




Recently my wife and I had an extended holiday, the first that we have had in 30 years of being in business.  You will see from the photo that I had an interesting and educating time.  While flying from Vienna to London I had occasion to sit beside a woman lawyer residing in Austria who on discussions told me that she was on her way to London as a representative of the European Central Bank.  She told me that the purpose of her trip was to draft up the necessary regulations to oversee 135 of Europe’s largest banks, including banks in London.  The purpose of the overview was to monitor the stress risks that are appearing in the European banking system.  She told me that the purpose of her visit to London would become clear in the newspapers over the next several days and this turned out to be the case.  However on questioning her closely she said that the European Union was extremely concerned about the possibility of a Lehman Brothers like collapse in Europe and went so far as to say that the financial stability of the European Union was at a breaking point.  I find this particularly interesting in the light of my own research on the current economic climate.  If you are interested in researching the matter further yourself, I suggest you go on to youtube and search for the name Project Prophecy 2.0. This is an interview with Jim Rickards a former economic adviser to the CIA.

It would appear that there has been a softening in the current interest rates and that at this stage we will probably not see any increases in interest rates until sometime towards to end of next year.

On a lighter note please ensure that you note the change to our email address which is now    and also be aware that any mail sent should be addressed to our box number, PO Box 27-596, Mt Roskill, Auckland 1440.  We do not have a postal delivery service for mail at our new premises.

On a closing note I would like to thank you for your business over the last 12 months and wish you all a very happy Christmas with your families.

Our office will be closing on the 23 December 2014 and reopening on the 12 January 2015.

Taking stock for your own use   

IRD says you should value stock taken for your own use at its market value.
If you take raw materials to be used for manufacture, market value is their cost, presumably because if you were to sell them, you probably couldn’t get a higher price for them. If you take goods you have bought for resale, market value is your selling price. A baker’s stale scones might be near valueless, depending on the location of the bakery.
A couple of IRD don’ts

Here are a couple of don’ts when dealing with IRD.
DON’T try to bend the rules. The boundaries might seem vague to you. We’re likely to have a better idea of what you can and can’t do, so consult us. For example, don’t try putting down a new pair of spectacles as a general expense of the business. Though you might think they are needed to work, the cost is personal. Similarly, if you’re employing staff and would prefer they were contractors, make sure IRD would agree with you. Ask us.
DON’T discuss your problems with IRD. The department is not bound by the advice its staff give. You might be dealing with an inexperienced person and get the wrong answer. It happens. IRD would say “If you get the wrong advice it’s your fault. We are not here to give tax advice. Relying on IRD advice can protect you from use of money interest, but if it is verbal you will not be able to prove what was said.
Tax law never sleeps

Tax law is evolving at an ever increasing rate.
In addition to regular tax Acts, we have counted seven regular publications the IRD uses to tell us their interpretation of the law. New tax interpretations, which affect small businesses, are coming out constantly.
What should you do?
If you’ve any doubts about what you're permitted to do, ask us.
If you listen to what others say, don’t assume they are right, even if they tell you their accountant allows them to do it. We’ll back our advice with written authority, if you need it.
If you start something new or different, ask if there are any tax implications before you begin.
A contract is a contract - no ifs or buts

In our culture, once you have entered into a contract, it is not renegotiable. You can’t add conditions after the event.  
Here's an example. A customer wanted to buy a new fridge.  As part of the deal he was offered a replacement if the one he purchased went wrong, rusted etc within the first six years.  He paid $150 extra for this.  
The fridge was delivered and that afternoon he found a letter in his mailbox.  It was the invoice and a copy of the details of the special offer for which he had paid the $150.  He looked inside.  There he found a long list of the exceptions, which would not entitle him to the new fridge. These were so extensive as to make the $150 investment almost valueless.
When he ordered the fridge on the phone, he was never told there were any exclusions.   
He rang the supplier. As predicted, he was told he could cancel the contract and have his money back. He refused.  Instead, he insisted the supplier honour his side of the bargain, exactly according to their contract, and that the exclusions should be deleted.  After some wrangling, the retailer gave in.
If you're the seller and you do this, in most cases you’ll probably get away with it because not many people know they can contest it. If you're the buyer, stand your ground, if you wish to.
The retailer missed a golden opportunity.  When faced with a situation like this, give in gracefully and quickly (and even better, never renege on a contract in the first place). The customer is much more likely to tell people what a wonderful firm yours is, instead of bad mouthing you and warning people about your business practices.
A contract does not have to be in writing. The extra $150 paid was sufficient evidence of the agreement.
Statutory records

If you run your business through a company, keeping good statutory records to comply with the Companies Act 2013 is important. When we give you minutes to sign, please get them signed quickly. Changing directors, shareholders etc is not a DIY job. There are both tax and company law implications. Get help from us. 

NZ business number  

Gurus are working on a way to give a number to every business, trust and state sector organisation in the country. If your business is a company, you already have a NZBN. It is interchangeable with the company number. The plan is to “enable government to provide more consistent and joined-up services, saving businesses time, and enabling greater e-commerce between businesses”.

Bank email scams

Bank email scams are becoming increasingly sophisticated and very common. How about this one? “Dear Customer. Your access will expire soon. For security reasons, please use our website below to restore your account.” The website address often looks legitimate, but one giveaway is if you hover your cursor over the address (don't click it), the actual address it wants you to go to will show up – it's likely to be nothing to do with the bank.  Anyway, banks never send these types of emails.
Seven tips for email senders

Here are seven tips which will help email readability.
1. Keep emails concise. Think about the message you want to convey, and do it in as few words as possible. Long emails don't get read.
2. Draw attention with the subject line. Like a headline in a newspaper it should entice the reader to look for more details.
3. Avoid attachments – they should only be what someone requests. Never try to convey a message with an attachment. Opening an attachment is an extra step readers are unlikely to take. Say what you want to say in the body of the email.
4. Check the text. Proof read before you hit the send button. Spelling mistakes and 'text-speak' are unprofessional.
5. Double-check forwarded messages. Beware forwarding a message with a thread deep down in the email that might have been sent to you in confidence.
6. Never assume privacy. Assume that your email will be read by others; after all you have no control over what happens to your email once you send it. So be courteous and respectful.
7.    Take a breath. Never send an email in anger. If you receive an annoying email, never respond immediately. Put the email aside and reply when you are calmer. Consider always leaving those difficult emails until next day. You’ll be more rational.
Tax Calendar 

November 28 2014
1st instalment of 2015 Provisional tax
(June balance date)
January 15 2015
2nd instalment of 2015 Provisional Tax
(March Balance date except for those who pay provisional tax twice a year)
Pay GST for period ended 30 November 2014
April 7 2015
Terminal Tax for 2014
(March April, May and June Balance dates)
All information in this newsletter is, to the best of the author’s knowledge, true and accurate. No liability is assumed by the author or the publisher for any losses suffered by any person relying directly or indirectly upon this newsletter.   You are advised to consult professionals before acting upon this information.

Copyright © 2015 Jacobsen Associates Chartered Accountants, All rights reserved.
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About Us

We are a full service Chartered Accountancy firm based in Mt. Eden, Auckland, New Zealand.  We provide full tax accounting, management accounting, trust accounting services.

Member, Institute of Chartered Accountants