COVID-19 tax proposals

The Minister of Finance today announced a business package containing proposed measures to support businesses affected by the corona virus outbreak. The tax-related measures include:

Reintroducing depreciation on commercial and industrial buildings

Depreciation deductions will be reintroduced for new and existing industrial and commercial buildings, including hotels and motels.

Interestingly, this will enable the capital cost of seismic strengthening of buildings to be depreciated and therefore claimed as a deduction.  This wasn’t possible under the Governments previous approach that saw the seismic strengthening as a non-depreciable improve, not repairs and maintenance.

The law change will allow owners of commercial and industrial buildings to start reducing their provisional tax payments for the 2020-21 income year immediately. There is no application process as the increased deduction will be available as part of normal tax filing processes.

The rate allowed willed to calculated at 2% diminishing value basis.

This change is considered to be a permanent one starting with the 2021 tax year, rather than for a period of time.

Immediate deductions for low value assets

Taxpayers are currently able to claim an immediate deduction for the purchase of assets that cost less than $500. This threshold will be further increased to allow the immediate expensing of assets that cost up to $5,000, for a year (the 2021 tax year). The threshold is being permanently increased to $1,000 (from 2022 tax year onwards). This will reduce compliance costs for businesses and encourage businesses to continue investing.

 Fewer small businesses having to pay provisional tax

The threshold for having to pay provisional tax will moved from residual income tax of $2,500 to $5,000 for the 2021 tax year.  Your 2020 residual income tax will dictate whether you meet the criteria.

This is a permanent change with the $5,000 threshold continuing indefinitely.

Writing off interest on some late payment of tax

The Commissioner of Inland Revenue will be given the power to waive interest on late tax payments for taxpayers who have had their ability to pay their tax on time significantly adversely affected by the COVID-19 outbreak. Use of Money Interest (UOMI) is routinely charged on late tax payments.

Businesses and individuals will need to show an inability to pay tax by the due date as a result of being significantly adversely impacted by COVID-19. Detail on objective tests is yet to be finalised but will be in the coming days.

The relief will apply to interest on all tax payments (including provisional, PAYE, and GST) due on or after 14 February 2020.  This scheme will continue for a period of two years.

What does this mean for me?

The above are the one branch of a number of packages that the Government has announced.  We will be covering the impact of the other packages separately.

If you want to better understand your personal situation and how these changes impact on you, contact your Campbell Tyson Advisor, or drop me a line.

The Taxman won’t take a cheque

From 1 March 2020, the New Zealand IRD will stop accepting tax payments by cheque.  They’ve provided a helpful resource for online payment options (www.ird.govt.nz/cheques) but what do you do if you can’t get online?

Cash or Eftpos at Westpac

You can still pay using cash or Eftpos at Westpac, but be aware of your Bank Limits if not a Westpac customer.  You will also need to generate a bar code from 1 July 2020 to deposit the money with Westpac.  More details on this are at http://www.ird.govt.nz/barcode.

Automatic Payments

If you like to cash flow your tax payments with smaller, regularly amounts, may be automatic payments are for you.  Get an IR586 form from the IRD website, fill it out and send it in.

Or Get Online

My Father-in-law was a technophobe until he discovered the joys of TradeMe .  Once he dipped his toes in to the online World and stretched to online banking, he hasn’t looked back.  Sometimes it can look worse than what it is!  Check with your Bank.  They have Teams dedicated to helping you get online.

Growing your business in 2012

Hi there

This link will take you to a summary of a most excellent seminar that Campbell Tyson put on with BNZ, Perceptive and Co.7

Enjoy!  http://youtu.be/vuIYO8sicPA

Till next time.

Impending Year End

For those of you with a standard balance date (31 March), we have the financial/tax year end coming up fast.  The following are a number of ways you can legitimately manage your tax position.

1. Consider prepaying certain expenses – Some expenses can be prepaid in March and claimed as a tax deduction in the year to 31 March 2012, regardless of their amount.  These include stationery, postage and courier charges, vehicle registration and road user charges, rates, subscriptions for papers or journals, and even audit and accounting fees!Other expenses have limits on the extent to which they can be claimed if prepaid.  These include rent, consumables, insurance premiums, professional or trade subscriptions, travel and accommodation, advertising, periodic charges and other services.  The rules surrounding prepayments are quite complex, so if you’re planning this type of expenditure, please contact us.
2. Trading Stock– Trading stock (excluding livestock) must be valued at the lower of cost or realisable value.  General adjustments for obsolete stock are not acceptable to Inland Revenue.  It’s important therefore to perform a physical stock take at year end and actually dispose of any obsolete lines or alternatively write that stock down to its net realisable value.Clients with an annual turnover of less than $1.3m can value their closing stock at the opening stock value, but only where closing stock can be reliably estimated to be less than $10,000.
3. Loss offsets and subvention payments – 2011 loss offset or subvention elections must be filed with IRD on or before 31 March 2012.  Subvention payments relating to the 2011 income year must be paid by 31 March this year.  The IRD changed its practice of requiring an actual physical payment, and now accepts that a subvention payment can also be made by book entries so long as the payment obligation is discharged. 
4. Write off any bad debts – To claim a deduction for a bad debt you need to physically write the debt off in your debtors’ ledger prior to the end of your financial year.  For most clients that’s 31 March 2012.  There should also be evidence that you have taken reasonable steps to recover the debt prior to writing it off.
5. Employee expenses – Any amounts owing to employees at year end (such as holiday pay, bonuses, long service leave, redundancy payments) can be claimed for tax purposes in the current year as long as they are paid within 63 days of balance date.
6. Review last years fixed asset register – The book value of assets can be written off for tax purposes if the asset is no longer in use by the business, the business has no intention of using that asset in the future and the cost of disposing that asset is expected to be greater than the proceeds from its sale.  Actually, it’s simpler than that.  Scan your asset schedule from last year’s accounts and you’ll probably notice assets that no longer exist (the mobile phone that you dropped in the tide at Christmas time), or simply don’t work.
7. Retentions – Retentions on building contracts are generally taxable in the year the contractor becomes legally entitled to receive them.  This can result in significant deferral of income.
8. Discount Reserves – A deduction for a discount reserve, to cover for example prompt payment discounts, is allowable where debtors are entitled to such a discount.  In the first year a deduction of the actual discount percentage is allowed and in subsequent years a calculation is made to maintain the discount reserve at that percentage level.  If the credit period offered to customers exceeds 93 days, different rules apply
9. Repairs and maintenance – General adjustments for repairs and maintenance reserves are not allowed as a tax deduction.  Instead it may be worthwhile to undertake any necessary repairs and maintenance on key assets prior to the end of the financial year to ensure a full deduction.  Deciding whether expenditure on an asset is deductible as repairs or maintenance or should be capitalised is not always cut and dried, so please contact us if you aren’t sure.
10. Imputation credits and dividends– Companies that have imputation credits for tax paid at 30% have until 31 March 2013 to distribute dividends with those imputation credits attached up to the previous maximum of 30:70.  But tax paid at 28% for the 2011-12 income year and onwards can only be attached at the new rate of 28:72.In addition, imputation credit account balances must not be overdrawn as at 31 March each year.  If so, they attract penalties.

    We realise the subject for imputation credits is complex for many of our clients.  Rest assured we will contact you regarding any necessary dividend and taxation planning before 31 March.

11. Income – Be sure to review any credit notes issued to customers following balance date that can be applied to the previous year, i.e. 31 March 2011.  In doing so, you will be entitled to effectively reduce your current year’s taxable income.

If you are uncertain on any of the above issues, or had a query concerning what you are able to do to plan for the year end, don’t hesitate to drop me a line.

Till next time.

Expensive Funding

When cash flow gets tight, we all look for ways to delay payments, use financing that is available, and do everything possible to ensure the business (and household) keeps on running.

Sadly, the IRD is sometimes seen as a potential financier.  In NZ we rely on self assessment, and the filing of returns is seen as something separate to the payment of the tax.  In my experience, some tax payers believe that this provides a possible avenue of funding when things get tight. 

Unfortunately, the cost of this “finance” is almost always the nail in the coffin for a struggling enterprise.  As the following graph indicates, your debt grows at a rate most likely faster than the profits you retaining the cash has created resulting in a bigger car wreck in the end.

 

 

 

 

 

From the graph you can see that sometime during the 3rd to 4th year, your debt will have doubled.  Thats expensive whatever way you look at it.

If you are getting in to difficulties with your cash flow, talk with your professional advisor about what you could be doing differently, the sooner the better.  If you are already behind with the IRD, get in touch with us and we can talk about strategies before things get out of hand.

Till next time.