Newsletter Summer 2016

Beware terms and conditions

MANY large suppliers seem to be using their terms and conditions in ingenious ways to take advantage of their customers.

It's been reported that TrustPower advertised unlimited broadband for $49 a month. However, customers needed to sign up for a minimum of two years and in the small print it stated that the second 12 months was to be charged at $79 a month. The Commerce Commission has filed charges under the Fair Trading Act.

Magazine publishers sometimes include a clause in their terms and conditions which says if you don’t say you do not wish to renew your subscription, the company automatically renews it for a further year.  

Be selective in choosing who you are going to allow to direct debit your bank account. If there is a dispute, you might find it hard to get your money back.
Unfortunately, none of us has enough time to read all the terms and conditions. About the best we can do is be aware they can be badly skewed against the customer.

New rules for mileage rates

A BILL is before Parliament which has a section dealing with tax deductions based on mileage.

The calculation at present is easy. The rate is 72c a kilometre and the maximum number of kilometres you can claim for is 5000. The self-employed, only, will be will be allowed to continue to use this basis for calculating their business mileage.

The new system proposed will be a two-tiered system. You’ll have to use a logbook and keep it for three months once every three years. Those who have relatively high business mileage should take advantage of this change.

It’s probably easiest to explain the system with an example. X travels 30,000km for both business and personal running in one year. His tier 1 calculation applies to the first 10,000km. Fifty-five percent of his running costs are for business. This means he can base his claim for tier 1 on 5500km. If the rate were 75c a kilometre his claim would be $4125.

He’s still got 20,000km of mileage left. Supposing the tier 2 rate is 25c per kilometre, his claim is based on 11,000km which entitles him to another $2750. That makes a total claim of $6875, which is much better than the maximum available under the old rules of $3600.

The Government plans to bring in these new rules from 1 April 2017. The actual mileage rates are likely to be announced sometime after 31 March 2018.

This new system provides a more accurate way of calculating mileage, but it is going to add to the amount of record-keeping. You're going to need to tell us the total number of kilometres you travel in each year. Therefore, please start now. Make a diary note to record your odometer reading when you finish work on 31 March 2017. Then make another diary note to do the same on 31 March 2018 and so on. If you change vehicles, you’ll need to get your odometer reading before you trade in your old vehicle and then make a note of the reading on the new vehicle. We hope you’ve got a good memory for this.

Andrews Corner

Well we have come to the end of another financial year which has not quite ended yet but which has had some significant developments in the last month.  Among them the resignation of John Key and  the emergence of Donald Trump as the President Elect of the America.  In the case of John Keys there has been a steady hand on the economic tiller in a rough economic environment including the Global financial crash of 2008, the Christchurch earthquake, the downturn in dairy prices and the significant price increases in the residential property market.  In the case of Donald Trust it would appear to be the start of a major change in US policies on a number of fronts both domestic and international.  Only time will tell how effective or otherwise his policies will be.  One thing for sure 2017 promises to be an interesting year.

Moving closer to home, as I dictate this final comment for the year I have received a report, just to hand, in which the Wall Street Journal has just surveyed top hedge fund managers and found a significant  belief that a fully fledged Global ruin is on its way.  Central banks both large and small are continuing to pump vast quantities of money into the financial markets as well as lowering interest rates until there are negative interest rates which has never happened before in our recorded history.  Only time will tell what the final implications or this monetary policy will be.  I suspect the final collapse will be the result of a sudden unexpected major bankruptcy or perhaps a country default.  There is one thing for sure there is no simple way out of the corner they have backed themselves into.  My apologies for the negative comments however these are realistic assessments in light of the current situation in Europe, China and the United States.  

On a more positive note the country’s economy continues to grow between 3-4%, to a large extent fuelled by immigration and the final completion of the rebuild in Christchurch.  Everybody has had a Christmas present with the major house price moves and there is plenty of spending in the economy.  A word of caution, it is anticipated that there will be a raise in interest rates in the next year or so.  Please ensure that you do not over borrow on your assets or else have a backstop position in case of this interest rate increase.  Factor in an interest rate increase of say 2 or 3% and ask yourself the question can I still avoid to pay my mortgage and live as I am today and this will give you some indication of your medium term exposure.

My family will be heading to the Coromandel peninsular for a short break.  Weather providing I hope to do some serious fishing and spend time with my grandchildren.

I would like to thank you for your business over the last year and I wish you all a merry and safe Christmas and prosperous New Year.  

Please note our office will close on the 22 December 2016 and reopen on the 16th January 2017.

Some contractors to choose their own tax rate

FROM 1 April 2017, the Government is proposing to allow contractors whose income is subject to withholding tax deductions, to choose their own tax rates.

Those who have typically been over-taxed might want to choose a lower rate. The minimum for New Zealand residents has been set at 10%. Others, who have a lot of year-end tax, might be more comfortable having higher deductions.

The maximum number of times you will be entitled to change your rate during the year is twice. After that, the payer will have to agree to your request to make the change.

If you haven’t been complying with your tax obligations, you might not be allowed to choose your own tax rate.

Trustees need to minute their decisions

IF you have a family trust, be fussy about recording trustees’ decisions.

One problem that arises is taking money out of the trust for your own use. This can be:

  1. a reduction of money owing to you
  2. a distribution of some of the trust income
  3. a payment out of the capital of the trust
  4. reimbursement for trust expenses paid by you
  5. a beneficiary loan

It’s important to clarify these withdrawals. This is done by means of a trustee minute.

If there could be any doubt about the reason for a transaction, be sure to prepare a trustee minute and make sure all trustees sign it before it is actioned.

Contractors to labour hire firms

IF you contract to a firm hiring labour, from 1 April 2017, the withholding tax deducted from your income will be at the rate of 20%. This will mess up your provisional tax payments from 28 August 2017 and the next two payments. Even if you are trading as a company, you will still have withholding tax deductions from income. You will be allowed to choose your own rate so long as it's not less than 10% – see article on page 2 in this newsletter entitled “Some contractors to choose their own tax rate”.

Voluntary withholding agreements

SOME contractors don’t have to have withholding tax deducted from their income. As a consequence, they have substantial provisional tax liabilities. Some people prefer to have some tax deducted as they go. It's proposed that from 1 April 2017 they will be entitled to require the payer to deduct withholding tax at a rate they choose, so long as it's at least 10%.

Important Business Advice

Computer backups

HERE’S a checklist to help you keep your data safe.

  • Are you backing up your computer at least daily?
  • Are you sending data off-site to protect against fire?
  • How do you know you could retrieve information from your backup?  Do you test your backups regularly?
  • Are the files you keep in your email system also being backed up?

How to reduce bad debts

PREVENTION is better than cure when reducing the number of bad debts.

  • Avoid giving credit to a stranger, without undertaking a credit check.  
  • If you have to give credit without doing a proper check, be sparing.
  • Giving credit can help you gain customer loyalty, but be careful.
  • There is no obligation to give credit to anyone. Try to make it a habit, if your type of business will permit, to assume you will be paid on the spot.
  • If it can’t prevent bad debts then:
  • Jump on new customers who start to abuse your credit arrangement.
  • Make notes of every conversation you have with a debtor.
  • If you have to make follow up calls, quote back to the customer what he/she undertook to do.
  • Immediately after you have made a call, make a note in your diary of the day on which you will next call if the money has not been received and keep a record of what was said.
  • Discontinue giving credit to the chronically bad payers.  The time you put into them will destroy your profitability.  You could be doing better things with the same time.

What about the big customer who will not pay on time?

Small businesses often find their biggest customer is their worst payer. You feel you can't afford to be too demanding, in spite of the fact you're entitled to your money. What should you do?

The answer is not to have one major customer that dominates your business. You will always be vulnerable while you let this continue.

Set a maximum percentage of total sales from any customer and do your utmost to see this is not exceeded. If your big customer goes broke it could take your business with it. 

Always check your ACC account

YOUR ACC account could easily be wrong. Always check it.

Typical areas where the wrong premium can be charged include:

  • Selecting the wrong industry for your type of work.
  • Levying ACC payments in excess of the maximum threshold. Currently, you should not be paying ACC on earnings of more than about $120,000. Sometimes, people receive a PAYE salary and then a non-taxed salary on top of this. These are the type of people who can be overcharged.

Some activities are what is known as passive. However, the income from them sometimes sneaks into ACC files and is treated like earnings.

Rental income from a partnership is an example. If it is recorded in the tax return as partnership income, it can get through to ACC and be levied by mistake.
We read in a recent publication by another accounting practice that 30% of clients in a sample were paying too much ACC.

Tax Calendar

November 28 2016
1st instalment of 2017 provisional tax
(June balance date).

January 16 2017
2nd instalment of 2017 provisional tax
(March balance date except for those who pay provisional tax twice a year).
Pay GST for period ended 30 November 2016.

April 7 2017
Terminal tax for 2016
(March April, May and June balance dates)
For all clients except those who have lost their extension of time privilege

 

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.

 

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