What a very eventful week we’ve had – one filled with earthquakes, tsunami warnings and thankfully, a change in COVID-19 Alert Levels on Sunday – all wrapped up with a win for both the Black Caps and Silver Ferns!
In some ways, we can draw a correlation between the challenges many kiwi businesses have faced of late and the Black Caps and Silver Ferns wins. Both are scenarios which involve fighting back from adversity, much like the ‘survive then thrive’ theme we have been talking about for the last year.
Our position at Grow NZ Business remains the same; we believe New Zealand is tremendously placed to bounce back from this adversity and I believe we are now at the ‘beginning of the end’ for the disruptive COVID-19 period. That, of course, does not mean it’s over, I’m sure there are a few more twists and turns to come yet, but every day is another day closer to the end of this disruptive global event.
Thank you to everyone who joined our monthly webinar last week on ’How to Increase Your Sales with Integrity Solutions’ and for the terrific feedback afterwards, it’s humbly appreciated and we are so pleased we are hitting the mark for you. The webinar Is now loaded up on your member’s portal for anyone who missed it.
Next month’s webinar is now open for registration and I believe it to be the ‘must attend’ webinar of the year: ‘How To Maximise Your Business Value’. – You can register here. All attendees will receive a complimentary copy of our eBook on the same topic. The code for complimentary webinar access for Grow NZ members is: GROWNZMEMBER.
Now, on to today’s topic, everyone’s favourite: Tax! Yep, in a classic case of ‘don’t shoot the messenger’, I’m here to remind you that the end of financial year is approaching and, in classic Grow NZ style, I’m also here to turn it into something to look forward to, not dread!
NOW IS WHEN YOU FIND OUT HOW GOOD YOUR ACCOUNTANT IS.
With the end of the financial year fast approaching, it is critical you are across all of the latest developments to optimise your business returns, pay the right amount of tax and ensure you are making fully-informed decisions to achieve all of this.
If you have a good accountant, they will have already engaged you with the topics below. If this is not the case, we strongly recommend you consider engaging the services of a Grow NZ Registered Accountant. These experts are about so much more than tax, compliance and reporting, they can be your business partner helping you achieve your business ambitions.
THE WINDOW FOR LOW-VALUE ASSETS IS ABOUT TO CLOSE.
The opportunity for business owners to take a full tax deduction for new assets costing $5,000 or less is rapidly disappearing. The temporary increase in the low-value asset threshold from $500 to $5,000 will end on 16 March 2021, at which time the threshold will reduce to $1,000.
The Government introduced the temporary increase as part of its COVID-19 support measures back in March 2020. The increase resulted in taxpayers being able to claim a tax deduction for asset purchases of $5,000 or less. Previously purchases over $500 had to be capitalised and, if depreciable, expensed over the life of the asset. In the case of non-depreciable items, such as building improvements to a residential rental property, no tax deduction was allowed.
If you are looking to upgrade some business equipment, office furniture, computer equipment etc, it may well be worth you doing so prior to 16 March rather than holding off until the new financial year.
PREPARE FOR THE RE-INTRODUCTION OF THE 39% TOP PERSONAL TAX RATE.
From 1 April 2021, individuals earning over $180,000 pa will be paying 39% tax on income in excess of $180,000.
Changes in legislation are often a prompt to review your current structure, check it’s still fit-for-purpose and reflect on any changes in circumstances that may require some future proofing.
At the very least, closely-held companies should be considering the level and timing of their year-end dividend to ensure it is completed before 31 March 2021, bearing in mind available imputation credits and the cashflow impact of the Resident Withholding Tax (RWT).
GET READY FOR YEAR-END.
Before you say goodbye to the 2021 financial year, make sure you work through a year-end process to ensure you maximise your tax deductions and minimise your tax bill. Here are the must-do items:
- Assets purchased prior to 17 March 2020 and costing $500 or less should be expensed. Assets purchased after this date, but before 17 March 2021 and costing $5,000 or less can be expensed. Assets purchased from 17 March 2021 and costing less $1,000 or less can be expensed.
- Claim depreciation from the first day of the month of purchase.
- Ensure assets traded in are disposed of and the replacement asset depreciated at its full cost.
- Claim depreciation on commercial property from 1 April 2020.
- Ensure assets sold, stolen, scrapped, destroyed or no longer used are removed from the asset register and loss on disposal calculated.
- If an asset sale is expected to result in depreciation recovery, consider deferring the sale until after 31 March.
- Ensure deductible feasibility and R&D costs have been expensed.
- Value closing stock at market selling value if lower than cost.
- Carry out a stocktake on 31 March to ensure an accurate closing stock figure.
- Write-off obsolete stock.
- If trading stock is less than $10,000, and turnover is less than $1.3m, use opening stock value as closing stock figure.
Accruals and Provisions
- These are not deductible in the current year, unless you are definitively committed to the expense at year-end and the amount can be reliably estimated.
- Keep a record of employment provisions paid out between 1 April and 2 June, as that portion of the provision is deductible at 31 March.
Repairs and Maintenance
- A one-year warranty purchased with a fixed asset can be deducted as an expense rather than capitalised, providing the cost of the warranty can be separately identified.
- Review fixed asset registers to ensure genuine R&M has been expensed and not capitalised to fixed assets.
- Consider carrying out R&M work before year-end.
- The debt must be physically written off the debtors’ ledger by 31 March to be deductible.
- Retain documentation to support the debts as not recoverable.
- Claim the GST adjustment.
- Some expenses paid in advance (e.g. rent, insurance, advertising, service contracts and subscriptions) can be tax deductible in the current year if not treated as a prepayment in the accounts.
- ACC levies are deductible when paid.
- Cash donations paid to donee organisations or registered charities are deductible up to the level of net income. If the business is in a tax loss position, consider the owner making the donation and claiming the donation rebate.
- Follow year-end cut-off procedures to ensure sales, stock, expenses etc. are accounted for in the correct year.
- Consider paying a dividend or shareholder salary if there is an overdrawn shareholder current account.
- Check the company has sufficient imputation credits; consider bringing forward a tax payment if necessary.
- Dividends for the 2020-21 year should be paid or credited before 31 March 2021.
- Dividend withholding tax is payable on 20 April 2021.
- Review shareholding changes throughout the year to ensure shareholder continuity has been maintained.
- If a dividend is being paid to a non-resident, non-resident withholding tax may need to be considered.
- Interest deductibility may be impacted by the thin capitalisation rules if there is control by a non-resident, or offshore investment.
- Cross-border related party transactions need to be at an arm’s length price, or will be at risk of being restated by the IRD under the transfer pricing rules.
- The third instalment of 2021 provisional tax is due 7 May 2021 based on actual results to 31 March, so it is important to have your records in order to determine this.
- If you wish to use the AIM provisional tax method, you must be using the correct accounting software by 1 April 2021.
- If you have not yet filed your 2020 income tax return, ensure it is filed by 31 March otherwise late filing penalties will be charged, your extension of time to file 2021 may be lost and the 4-year statute bar periods extends a further year.
- A loss offset subvention payment for the 2020 income year must be paid by 31 March 2021.
- Where assets are used for both business and private use, make your year-end GST apportionment adjustment in the 31 March GST return.
MAKE IT COUNT.
Take this financial year-end for the opportunity it is: A chance to assess your business structure, fully understand how the last year has been for your business and work together with your accountant to set yourself up for success for the year to come. I personally look forward to the financial year-end for these reasons. It’s a bit like getting a WOF for your car or an annual health check-up; a necessary ‘evil’ that’s sometimes tinged with an element of anxiety but not usually as bad as you’re expecting and never something you regret doing!
There’s quite a bit to consider over the next week or two if you’re going to do this process justice, and it again reinforces the importance of having a great accountant as your business partner, helping you achieve your business ambitions, not just your tax, compliance and reporting obligations.
If you are not currently getting what you deserve and need from you current accountant, we can connect you with one we know can deliver the goods.