Autumn2012

Well here we are about to send out an Autumn newsletter, it appears like we haven't really had a summer yet. In spite of the bad weather I was able to spent some time in the January break fishing, this included the three day Whangamata Classic Fishing Competition. The weather was perfect and as you can see the fishing wasn't too bad either. For the records this Kingfish weighed in at 16.5kg or 36.3lbs.
THE financial year end is approaching. Now is a good time to get your financial records in order, and to prepare plans and budgets for the ensuing year.
 
THE financial year end is approaching. Now is a good time to get your financial records in order, and to prepare plans and budgets for the ensuing year.
 
Avoid the temptation to implement your own accounting system without first consulting us. Client-created accounting data are often more expensive to process than starting from scratch. This includes proprietary brands. Spreadsheets are mostly a disaster. Please answer all the questions in our questionnaires. They help us to make sure we don't overlook anything. Sorry, but we have to ask you the same questions every year in case there have been changes. Please repeat your answers rather than refer us to last year's file as it saves us time.
 
Rental properties
For those owning rental properties, there will be no depreciation claim on buildings this financial year. Those who pay annual tax of more than $50,000 may need to top up their 2012 provisional tax to allow for this. If in doubt, discuss the matter with us. IRD has also revised what it considers is a separate depreciable asset. For example, fitted furniture now forms part of the building and, therefore, there is no depreciation.
 
Look-Through Companies
Those with Look-Through Companies who are paying the owners a salary, must have an employment contract with the company which:
• specifies the terms and conditions of the services to be performed by the working owner; and
• specifies the amount payable to the working owner for the performance of the services; and
• is in writing.
 
Shareholder remuneration
If you are new in business and operate through a limited liability company, make sure the working directors have authorised income for themselves for the 2012 year. This means written authority to comply with the Companies Act 1993. If you fail to authorise shareholder salaries in the proper way (see us for details) and your company fails, your drawings are repayable to the company. There could also be an argument with the IRD as to whether your current year's salary is tax deductible. Putting yourself on a PAYE salary does not get around the need for written authorisation. This is because PAYE
relates only to tax law.
 
Putting yourself on a PAYE salary does not get around the need for written authorisation. This is because PAYE relates only to tax law.
 
PROFITS in a Look-Through Company (LTC) are automatically shared by the shareholders in proportion to their ownership.
 
Unfortunately, this does not mean a couple with one working partner can simply share the company income equally. If they were to do this, and there was a tax saving it likely to be tax avoidance. The sole working owner should generally be paid a market salary.
 
Working shareholders must also enter into an employment contract with the company (see Time to get financial records in order, page 1) If you fail to have a signed employment contract which complies with the LTC law, you are not an employee for tax purposes and the wages paid become non deductible for tax purposes.
 
Further, as you are not an employee, fringe benefit tax does not apply. Therefore if you use a business vehicle partly for private purposes, you would have to keep a log book. Costs would need to be apportioned between business and private.
 
Make sure you have employment contracts if your company is going to pay wages to its working owners. Last September the IRD proposed to do away with FBT on cars used for private running by owners. They would have to keep a log book and apportion running costs, regardless of whether they were on PAYE. This change has not yet become law.
 
It was incorporated in the last tax Bill and may yet get dumped, hopefully.
 
What if your LTC is an investment company? You are not permitted to pay one of the owners a salary even if this could be justified. Assuming your investment is a rental property, if you need to use a car, you could only claim a share of the costs, based on mileage disclosed by a log book, or you could claim kilometres run at rates permitted by the IRD.
 
Don't get caught with capital gains tax
 
PART of Labour's capital gains proposals during the last election included taxing transfers of assets into trusts. The idea of a capital gains tax has been bubbling away for years. Most of our big trading partners seem to have it. If you are considering forming a family trust, don't get caught with a capital gains tax because you have delayed your decision for too long.
 
Currently, trust law is being reviewed and is likely to change. Your lawyer will be able to tell you the extent to which these changes are likely to affect a family trust.
 
IF YOU, or anyone you know, work in Australia, be careful. The tax laws are tricky.
 
Double tax
For example, while you're there on an assignment you look for follow-up jobs and successfully negotiate new deals. The income would probably be taxable both in Australia and New Zealand.
"No problem," I hear you say. "Isn't there a double tax agreement which prevents me being over-taxed?"
Yes, but the top tax rates in Australia are higher than here, so could cost you money if your income is high. Also, if you are trading through an ordinary company, the tax the company pays overseas doesn't count when it comes to paying company dividends. In the long run, you will are likely to be double taxed. Please ring me if you are contemplating business in Australia.
 
Travel costs
You can often justify travel costs between the two countries. However, if you decide you are not going to use your company when working in Australia, you could find travel costs are not tax deductible. This is because, if you then start up as a sole trader, you have a new business. The new business requires you to go from your home to Australia to start work. Travel between home and work is not tax deductible. On the other hand, if you have an on-going business (through your company for example) the travel is part of your ongoing business operation and is likely to be tax deductible as the travel is between work places while you are on work.
Which costs are deductible? Now there's another problem, which is too complex to discuss here.
There are ways around these difficulties – getting which country you are in right, when you negotiate, is a good start.
Talk to us and we'll put you on the right track
 
UOMI is such a monster we make no apologies for repeating advice we have given in an earlier newsletter.
We meet many of you just once a year. By now you should have a fair idea of how well you have done for the year. If we see you so infrequently, we cannot monitor your income and potential tax liability. In most cases this does not matter. However, if your business is a company which does not distribute all the profit to shareholders, or you have a trust, be careful. If you anticipate either of them is going to have a much bigger profit than in the previous year, you should check your tax situation.
 
You may be exposed to the Use of Money Interest penalty for success. Unless your business is short of funds, it is better to pay some more tax now than to wait until we see you later in the year. The current interest rate is 8.89% and it may have been accumulating, on a small scale, since you paid your
first provisional tax payment for the year. For March balance dates this is 28 August 2011.
 
UOMI also applies to individuals whose income generates $50,000 or more annual tax to pay. For most people this
 
cuts in at a taxable income of $179,030.
Call us if you need any help.
 
OUR client has an interest in a couple of companies and a family trust. Sometimes, when it is convenient to do so, she grabs whatever cheque book she can lay her hands on to pay the bill in front of her. Thus personal bills get paid by the trust and trust bills get paid out of the company. We have to correct the situation manually. It takes a lot of time. Surprise! The accounting fees go up.
 
Recently we struck an extreme case of this. Paying bills out of the wrong account is a nightmare. Never do it.
 
As we've said before, make a loan if needed to the entity which has to pay the bills. By the way, loans from one company to another can also be a headache unless the two have identical shareholdings.
 
THE most valuable asset on your computer should be your database of customers and prospective customers.This assumes you wish to have a real business you run as opposed to being a self-employed person. A real business is one you can walk away from and it will run itself while you sneak off for a quick six months holiday to explore Europe.
 
You should be constantly growing your database. Use it to keep in touch with customers, clients and prospects. One of our clients, a consultant, sends newsletters religiously every quarter. He generates a steady flow of new business. His problem is how to handle it all. He's on the road to owning a business as opposed to being self-employed. He told me about a famous salesman, who is so paranoid about preserving his database, he uses three
different methods, each day, to back it up. He's a car salesman. Grow your database through networking and other means available to you and look after this most valuable asset.
 
Tax Calendar
 
April 7th 2012
2011 Terminal Tax (March balance date) 
 
May 7th 2012
3rd installment 2012 Provisional Tax (March balance date)  
GST for March 2012
 
May 28th 2012 
1st Installment 2012 Provisional Tax (December balance date)
GST for April 2012
 
 

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