Provisional Tax Payment Options

A reminder about Provisional Tax due 7 May for many clients.

Here are some payment options available to you:

Pay full amount due – Have funds put aside and can pay now

When you receive the tax payment letter from us:

  1. Log in to your internet banking and select tax payment
  2. Choose INC Income Tax and the correct year
  3. Schedule the payment for the due date.

Payment Arrangement – uncertain of income but can manage some payments (instalment)

If you don’t believe you can make the payment when due, we can help arrange a repayment schedule with IRD. The risk of this is that you will be charged some penalties and interest (see special rules currently for COVID-19 below).

Tax Finance – know you will have funds in future (lump sum)

This method suits those who have income coming in later months and want to use their current cash or working capital for other payments, or minimise interest on bank overdraft.

If you know you will have income coming in a later month (timing of sales, or receipt of customer payments) you can “book” in the tax payment then with TMNZ and pay a small interest fee for this service. TMNZ locks in the amount for you, and as long as you pay the tax by the date on time, there are no penalties and tax is transferred to IRD at the original date.

Tax Deposit – have funds but aren’t sure of required tax or require certainty (lump sum)

This method is useful for large groups of entities with a large total tax liability or when total tax is uncertain (farming clients, uncertain timing of completion of large projects or jobs), or you want certainty you have tax payments secured. If the tax you have deposited is no longer required, you can get the cashback more quickly than if paying to IRD, and earn interest on this.

Flexitax – catch up on old tax amounts as well as future commitments or want to make payments as cashflow allows (instalment)

This method suits those who are uncertain about the tax year ahead. If you have missed a tax payment (even by a day) or want flexibility in your payments. There are no set amounts or payment dates. You pay what they can and when it suits their business cashflow. Saves up to 30% on IRD interest.

 

It is important to keep your tax plan current. If circumstances change for your business, we need to adjust your plan. Let us know as soon as you can about the situation for your business.

Contact us tax@epplett.co.nz or (06) 878 8824 to discuss any of the above options or what may be most suitable for your situation.

 

COVID-19 and provisional tax

COVID-19 has created exceptional circumstances and some exceptional tax relief measures have been introduced:

  • The residual income tax (RIT) threshold for provisional tax increased from $2,500 to $5,000 from the 2020/21 tax year
  • Depreciation for commercial and industrial buildings is reintroduced from the 2020/21 income year. If you are a building owner, you will be able to adjust provisional tax payments immediately in anticipation of additional deductions that become available
  • If your business is affected by COVID-19 and:
    • you need to re-estimate your provisional tax as your income falls short of the estimate and provisional tax has been overpaid, it may be possible to arrange early refunds
    • you are unable to pay tax by the due date, Inland Revenue has the discretion to write-off penalties and interest. When in a position to do so, you should indicate when you can pay the tax, or request instalment arrangements. You may be eligible for a UOMI write off.

You can find more COVID-19 tax information here:

Hardship Application – unable to make payments

In a serious hardship situation where you cannot make any payments, and future income is uncertain, we can assist you with this process with IRD.

Business Cashflow Help

From the Government’s response to COVID-19

Tax relief measures for the government’s economic response to COVID-19 include:

Depreciation

Depreciation deductions for commercial and industrial buildings will be re-introduced from the 2020/21 income year. Available to all sectors, these apply to new and existing buildings on a permanent basis. Building owners can adjust provisional tax payments immediately in anticipation of the additional deductions.

Write-offs

As a two-stage incentive to encourage spending, tax write-offs will be available for more low-value assets. Initially, for the 2020/21 income year, assets costing up to $5,000 will be eligible for an immediate write-off. As a permanent measure, from the 2021/22 income year, the existing $500 threshold will increase to $1,000.

Provisional tax

Currently, taxpayers with a residual income tax of $2,500 or more pay provisional tax. From the 2020/21 tax year, this threshold will increase to $5,000, so fewer businesses will need to pay provisional tax.

Interest

Businesses and individuals who are struggling because of COVID-19 and can demonstrate they’re unable to pay tax by the due date may be eligible for a use-of-money interest (UOMI) write off. This applies to all tax payments including provisional tax, PAYE and GST due on or after 14 February 2020, for two years, unless the Government extends it. Inland Revenue will release details on how they will test this.

Your Four-Week End of Financial Year Checklist

To keep tax time low-stress

Week 1: First things first

Talk to your accountant or bookkeeper.

They’ll tell you what you need to do before 31 March including what you can claim for and what you can’t. Remember, tax time is busy for them too, so the more prepared you are, the smoother the process, and the better the result.

File your return on time.

Don’t waste your hard-earned cash on unnecessary interest and penalties. Get your accounts up to date, tidy up loose ends and file on time.

Week 2: Your assets and stock

Review your inventory.

The value of your stock affects your business’s taxable profit. Do a meticulous stocktake before year-end. Get rid of any out-of-date or damaged items and write them off.

Extra assets on board?

Year-end is the time to ditch surplus assets. If you can sell them, great, otherwise write them off.

Week 3: Your spending

Sooner rather than later.

If you’re planning to buy any new equipment or assets, do it on or before 31 March (rather than 1 April) to reduce your taxable income and gain a full month’s depreciation.

Got invoices and receipts for your expenses?

It can be tricky to keep track of everything so if you’re not already, go digital. Scanning receipts and saving electronic invoices in the cloud saves time and space.

Week 4: Your staff

Payroll up to date?

Now’s the time to check your payroll system only includes current staff and that all their details are correct. Ensure former staff don’t have access to company systems.

Remember tax on bonuses:

Special bonuses this time of year can be a great way to reward and motivate staff, just remember to get the tax right on any lump sums made. Also, keep in mind any bonuses for the current year, and holiday pay or long service leave paid out within 63 days after 31 March can be deducted against your current year income.

Remember – we are just a phone call away. Give us a call on (06) 878 8824 if you would like any advice on preparing for the end of financial year.

Claiming Motor Vehicle Expenses

Are you using your car for business purposes?

Here is a quick reminder on the process for claiming tax on your work vehicle expenses:

  1. If you’re using a vehicle for business purposes, you can claim tax back on expenses.
  2. If you use the vehicle only for business, you can claim the full running costs. If you use the vehicle for any personal travel, you’ll need to separate the running costs of your vehicle between business and private use.
  3. There are two ways to calculate business usage:
    • Actual costs mean keeping accurate records, including details of private and work-related expenses. You also need to show the reasons for business travel and the distances involved.
    • Use a logbook to record all business trips and then calculate an actual business use percentage for each period. Or keep a logbook for at least 90 consecutive days to work out the business use of your vehicle, which you can then use for the next three years (as long as the nature of the business varies by less than 20% over that time).
  4. Once you have the business proportion, you can use the Inland Revenue’s kilometre rates to work out how much you can claim:
    • Tier One is calculated as a combination of the vehicles’ fixed and running costs. It applies for the business portion of the first 14,000km travelled by vehicle in a year.
    • Tier Two accounts for running costs only and applies for the business portion of any travel in excess of 14,000kms.
  5. To make claiming your business usage easier, make sure you record odometer readings at the end of every year to help determine your business mileage vs personal mileage.

If you are a company and provide vehicles to staff (including yourself!), you will need to make sure you’ve got your fringe benefit tax position right.

Give us a call on (06) 878 8824 as there are exemptions that may apply for specific types of vehicles or where restrictions are placed on the use of company-owned vehicles.

A Guide to Claiming Festive Functions, Events and Entertainment

How to enjoy all the bells and whistles without the tax headache

Parties are part of the festive fun but they can cost a small fortune.

Here’s a list of the rules around entertainment expenses so you know what’s deductible and non-deductible before you fork out for your staff, clients and customers:

Entertainment

When you’re entertaining clients or colleagues, some entertainment expenses are tax deductible while others aren’t. It can be tricky working out what’s deductible as a business expense and what isn’t.

The basic idea is that an expense is business-related if you spend the money to help your business earn income. Most business-related expenses are fully deductible. If the expense doesn’t help your business earn gross income, it’s private and you can’t claim it as a tax deduction.

It becomes a little trickier when there’s an element of private enjoyment. You might think that the firm’s Christmas party for clients is a business related expense and should be fully deductible because it’s promoting your business, products or services. However:

  • if your clients or employees have a greater opportunity to enjoy the entertainment than the general public, you can only deduct 50% of the costs
  • if anyone associated with the business has a greater opportunity to enjoy the entertainment than the general public, you can only deduct 50% of the costs

Generally speaking, if there’s an element of private enjoyment, the expenses (in addition to the food and drink) associated with events where you entertain clients and/or staff will only be 50% deductible. For instance, this would include the hire of crockery, glasses, waiting staff and music.

There are exceptions. Entertainment supplied for charity is 100% deductible. For instance if you throw a Christmas party for the children’s ward at the local hospital, this is fully deductible. Entertainment enjoyed outside New Zealand is 100% deductible. If you take the team to the Gold Coast for Christmas (lucky them) it will be fully deductible. However, if they contribute towards the cost of their airfares (or anything else), you will need to reduce your expense claim by the amount of the contribution.

Functions and events

Some entertainment expenses are fully deductible but some are not. Use these examples as a guide.

50% deductible

  • Christmas drinks for team members or clients in the office
  • Christmas drinks for team members or clients in the pub
  • Hire of a launch to entertain clients
  • Restaurants providing food and drinks to team members at a social function in their restaurant
  • Staff Christmas party on or off the business premises
  • Function hosted in a marquee at the races or in a corporate box at the rugby (includes the cost of tickets and any food and drink provided.)
  • A weekend away for the team at holiday accommodation in New Zealand (includes any food and drink provided.)

100% deductible

  • Donating food to a Christmas party in a children’s hospital
  • Providing morning and afternoon tea for your team
  • Providing entertainment, including food and drink at your promotional stand for the Cracker Christmas Festival
  • Holding the Christmas party in Fiji (woo-hoo!)

0% deductible

  • Taking your family (who don’t work with you in your business) out for dinner to thank them for being patient while you worked long hours and paying for this using the business credit card

 

REMEMBER: to keep your invoices and receipts for business entertainment expenses.

 

GST

If that’s not enough to think about, you will need to make a GST adjustment for entertainment expenses which are 50% deductible. This adjustment will be required to be made at the time your income tax return is filed. Of course, we can help and advise you on this.

Click here to download a printable PDF guide to claiming Christmas functions, entertainment and gifts.

If you’d like to chat with us about how these rules apply to your circumstances, call us on (06) 878 8824

A Guide to Gifts for your Clients and Employees

The rule of thumb with gifts is that if they consist of food or drink, you can only claim 50% of the expense as a tax deduction.

If you are giving out gift baskets or hampers and some of the contents are food or drink, but not all, the food or drink items are 50% deductible but the other gift items are 100% deductible.

When you come to claim the tax deduction, you will need to apportion the expense between the 100% deductible items and the 50% deductible items.

Gifts to Clients

If your Christmas giving includes gifts to clients, remember that some gifts will be fully deductible while others will be only 50% deductible. Use these examples as a guide.

50% deductible

  • Bottle of wine or six pack of beer
  • Meal voucher
  • Basket of gourmet food
  • Box of chocolates/biscuits
  • Christmas ham

100% deductible

  • Calendar
  • Book or gift voucher
  • Tickets to a rugby game (but not corporate box entertaining)
  • Movie tickets
  • Presents (not food or drink)

Fringe Benefit Tax (FBT) on Gifts

If you are giving gifts to your team you may also be liable for fringe benefits tax. There’s a $300 exemption from paying FBT per employee per quarter so if the value of the gift is less than $300 you may be exempt. However, if the value of total benefits for an employee goes over $300 for the quarter year (and provided the total value of all benefits doesn’t exceed $22,500 for the year), the full value of the benefits is subject to FBT.

Top Tip:

If you run out of time to organise Christmas gifts for customers, why not surprise them with a ‘Welcome back to work’ prezzie in the New Year?

Remember to keep your invoices and receipts for business entertainment expenses. If you have any questions about what’s deductible and non-deductible, give us a call on (06) 878 8824.

Cashflow Tips for the Holiday Period

Depending on your industry, the holiday period can be a slow time of year for business. Despite a dip in cashflow you still need to meet your expenses.

Ensure your bases are covered before you clock off for the year.

1. Plan ahead

Update (or create) a budget to figure out how just much you are going to need to cover your expenses. This is especially important if it’s going to be several weeks before you are generating income again. Maybe businesses close down for weeks over the holiday period. If this is your business, planning ahead is essential.

A budget or a cashflow forecast will help you identify any issues before they become problems.

2. Increase your cashflow where possible

Look for opportunities to increase your cashflow in advance of the holiday break. Ways to do this include:

  • Prioritising jobs you can complete quickly so you can invoice clients straightaway.
  • Incentivising early payment for completed work by offering a discount.
  • Chasing all outstanding invoices.
  • Seeing if you can re-negotiate payment terms with suppliers.
  • Reducing unnecessary spending.

3. Don’t forget taxes

IRD expects GST and Provisional Tax payments to be made on 15 January 2020. Interest and late payment penalties can apply if you don’t.

If paying both GST and Provisional Tax is going to hurt the bank account, prioritise paying the GST. You can utilise the services of an IRD-approved tax pooling provider such as Tax Management NZ to pay the provisional tax later. They reduce IRD interest by up to 30% and eliminate late payment penalties.

As always, we’re happy to work with you so you have nothing to worry about while you enjoy your summer break. Feel free to give us a call on (06) 878 8824.

Building a Productive Nation

Innovation is seen as the key to assist New Zealand industries in the transition to an economy high in productivity but low in emissions. The challenge is for businesses to be more innovative and New Zealanders to adapt to changing job markets.

The R&D legislation born out of last year’s budget has passed and it’s up to Kiwi businesses to take up opportunities there. The Budget allocates $157m to support the “Commercialisation of Innovation” package of initiatives to invest in research and science. An “Innovative Partnerships Programme” seeks to attract globally leading firms and innovators. “Business Connect” establishes a cross-agency digital platform of business-focused services.

New start-up businesses have been spotlighted as likely to run with some of these initiatives, the Minister for Research, Science and Innovation calling them “the ultimate champions of innovation that often introduce more radical, disruptive innovations than more established firms”.

But how does a start-up expand? The Budget establishes a $300m fund to support venture capital investments taking “mid-size” start-up businesses to the next level. This is designed to stimulate growth and help businesses remain onshore, reducing pressure on companies to sell prematurely to overseas buyers.

The initiatives also fund vocational education and training. These include reforms to boost apprenticeships and trade training, increased subsidies to Tertiary Education Organisations, wage subsidies, and funding for an “Industry 4.0” demonstration network to help businesses embrace smart technologies and data driven solutions.

Tax and the Budget 2019

Further developments with digital services tax and collection of the International Visitor Levy were announced and the Government remains committed to modernising and simplifying the tax system.

Pre-Budget

The major announcement pre-Budget was that Capital Gains Tax is now off the table and that has pretty much overshadowed any tax announcement since. The Government also announced two specific pre-Budget tax measures:

  • GST on telecommunications, and
  • repeal of racing totaliser duty

GST on telecommunications

The Government has announced a proposal to change the GST of telecommunications so that these would be aligned with the treatment of other remote services and based on the residency of the supplier. The main implication of this new proposal concerns roaming services provided by telecommunications providers in that:

  • outbound mobile roaming services to New Zealand residents overseas are proposed to be subject to GST (currently they are zero-rated), and
  • inbound mobile roaming services provided to non-residents in New Zealand would no longer be technically subject to GST.

Repeal of racing totaliser duty

The racing totaliser duty or betting levy will be phased out. It represents 4% of betting profits, amounting to $13.9 million in 2018. This sum will be redistributed to the racing codes and Sport New Zealand, with a proportion set aside to reduce gambling harm.

Meanwhile, the tax policy work programme is still progressing and the next stages of Inland Revenue’s Business Transformation programme look at the administration of student loans, KiwiSaver and child support. We’ll keep you updated.

10 Smart Year-End Tax Tips

The end of the financial year is fast approaching.

Check out our 10 smart year-end tax tips to make sure you are ready come 31 March.

  1. Fill your drawers: Can you stock up on stationery, postage and courier bags before 31 March? Claim now and save.
  2. Staff expenses: If you owe employees holiday pay, bonuses, long service leave or redundancy payments, you can claim for these now – as long as they are paid within 63 days of the balance date.
  3. Can you fix it? If you’ve got any significant maintenance or repairs on the cards, do it before year end and save on tax.
  4. Turn fun into savings: Do you know which entertainment expenses of which you can claim 100%? It’s worth finding out – ask us if you need clarification.
  5. Look at your fixed assets: Do you have any you’re no longer using or don’t plan to use in the future? If so, you may be able to write off the book value.
  6. While you’re at it, check your stock: Look at your stock as well, especially obsolete stock. There may be an opportunity to write some of this off as well – check with us on what could be done in this area.
  7. Income boost: Earned a lot more this year? Consider making a voluntary provisional tax payment.
  8. Logging car use? Remember to jot down your odometer reading at year end and if you’ve kept a logbook of business and personal use, mileage and costs, good work!
  9. Home office: It’s also a good time to review what home office expenses may be available for deduction, especially your home office. We can help with calculating this.
  10. Saving time saves money! Accountants are required to ask for information to comply with anti-money laundering obligations plus the IRD may ask you, via your Accountant, for extra information in relation to your end of year tax. Having your identification and tax documents collated and correct saves your accountant time, which saves you money, so get started this week.

If you have any questions as we approach the end of the financial year, call us anytime on (06) 878 8824.

What’s New in the World of Tax?

It’s important to stay on top of your tax obligations, especially if you don’t have a great team like Epplett & Co. helping you plan and manage your personal and business financial interests.

Here are the latest updates in the world of tax:

Payday filing

We have mentioned this in the past, but don’t forget payday filing for employers is compulsory from 1 April 2019. Please contact us if you need any help with complying with the new process and rules.

No more cheques for IRD

Do you send post-dated cheques for tax payments? It’s time to go digital!

From now on you’ll need to use online banking to make future-dated payments as the IRD no longer accepts post-dated cheques. Plus, if you’re one to put your tax payments in the Inland Revenue’s dropboxes, you’ll now have to head to an IRD office reception area during office hours to do so.

Writing off bad debt?

If you’re expecting a tax break from writing off bad debt, you may also expect to hear from the IRD asking you to prove the debt is, in fact, bad. A new ruling means the IRD could request evidence of any steps you took to recover the debt (before writing it off) and proof there is no reasonable likelihood the debt will be paid. So, get your paperwork in order!

If you have any questions about these updates or would like to discuss your own tax obligations, call us anytime on (06) 878 8824.

Financing Business Growth with Provisional Tax

There are several options available when it comes to accessing money to invest in your business.

However, did you know that provisional tax payments are also a source of finance?

Tax Finance, an option offered by an IRD-approved tax pooling provider such as Tax Management NZ (TMNZ), lets you free up working capital by deferring a provisional tax payment to a later date, without incurring IRD interest of 8.22 percent and late payment penalties.

The cost is cheaper than using your business overdraft or an unsecured loan. Approval is guaranteed, and no security is required.

Who might Tax Finance suit?

It will suit those who:

  • Are looking for funding that doesn’t affect other lines of credit or who want to keep headroom in their existing lending facilities.
  • Don’t wish to go through the rigmarole of the normal lending process.
  • Want a fixed interest cost.

How does Tax Finance work?

  1. You pay TMNZ an upfront finance fee, which is based on the amount of tax due and the future date you wish to pay, and TMNZ puts a date-stamped tax deposit aside for you in its tax pool account at IRD.
  2. At the agreed upon future date, you pay TMNZ the tax owed.
  3. TMNZ arranges for your date-stamped tax pool deposit to be transferred to your IRD account. IRD treats this as if the tax was paid on time once it processes the transfer, eliminating any interest and late payment penalties incurred.

Call us today on (06) 878 8824 for more information on how Tax Finance might help your business grow.

Get up to Speed

New Rules for Motor Vehicles.

Did you know the mileage rate we’ve been referring to for years is now the kilometre rate?

If you’re a sole trader or in a partnership (and use your own vehicle for business), you can claim your running costs as an income tax deduction. Traditionally, if you own a company you’re liable for FBT any time you provide non-cash benefits (like motor vehicles) to your staff. Recent amendments to the income tax legislation, however, now allow close companies to use the kilometre rate (where one or two motor vehicles are provided to shareholder employees for their own use) to calculate deductions for motor vehicles instead of paying FBT.

We’d love to talk you through these changes over coffee, but in the meantime, here’s a summary.

You can now claim a deduction based on a kilometre rate method. This method uses set rates, which are divided into two tiers:

  • First tier – recovery of both the vehicle’s fixed costs and its per kilometre running costs, for the first 14,000 kms.
  • Second tier – recovery of the vehicle’s per kilometre running costs only, after 14,000 kms.

The following rates per kilometre will apply for the 2017/2018 income year:

Vehicle type Tier 1: First 14,000 kms Tier 2: After 14,000 kms
Petrol or diesel 76 cents 26 cents
Petrol hybrid 76 cents 18 cents
Electric 76 cents 9 cents

As an aside, note where employees are reimbursed for work travel using their own vehicle, a transitional rate of 76c / km is available for the 2018/2019 income year to calculate their tax-free reimbursement amount.

The legislation can be tricky, but with a little advice from an expert (like us!) you can rest assured you’re paying the correct amount of tax and staying onside with the IRD. Call us on (06) 878 8824 to discuss today.

The Fringe Issue

Given the importance of keeping your PAYE and GST record-keeping and payments in order, it might be tempting to think that Fringe Benefit Tax, or FBT, is a relatively minor thing. But don’t be fooled. In 2017, Inland Revenue created a dedicated audit team to focus on this issue.

One of the team’s aims is to ensure employers have the right business structures and documentation in place. And it turns out that many don’t.

If this sounds like you, now’s a good time to put things right. Regardless of whether you’re acting correctly or not around FBT, a lack of proper records leaves you in a weak position and liable to negotiated settlements (that is, having to pay more than you expected) or, worse, serious penalties.

Most FBT revolves around company vehicles, so let’s look at what IRD expect from you if you provide one to any of your staff:

  • The employee’s job description and employment contract
  • The company policy on motor vehicles
  • Any private use restriction letter in place, signed by the Directors and the employee
  • Documentation that shows regular checks on the vehicle to ensure it’s not being used for private matters
  • The employee’s performance review notes confirming they’re sticking to company policies.

So, what can you do?

For an SME owner, that’s quite a daunting list, and a good reason to talk to your accountant. An expert, independent set of eyes will help you determine what you need to do in all cases, what you don’t need to do, and also how to go about doing it (including creating proper documentation).

The value of expert advice is heightened by some of the finer points of FBT legislation. For example, did you know that if an employee takes a vehicle home one evening and returns to work with it the next morning, the laws says it’s been available for private use on two days?

Did you know that IRD expects you to check that employees are adhering to restricted use policies at least once every quarter?

Did you know that just because a vehicle has your company logo on it, that doesn’t automatically make it a work-related vehicle, which then means it doesn’t automatically become exempt from the usual requirements of FBT?

Did you know there is also a new option for some companies that have one or two vehicles to elect to use the motor vehicle expenditure rules rather than pay FBT in certain circumstances?

If you didn’t know all those things, take a bow – you’re in great company! FBT is complex, to say the least!

The good news is that IRD also recognises this and will work closely with you to help you comply. The best approach is to get professional advice (that’s us) and, where appropriate, go to IRD for a written opinion on any matters that aren’t crystal clear.

That way, even if IRD disagrees with your FBT return, they’ll see that you’ve taken reasonable care to get things right and may not impose penalties.

So, when are you liable for FBT? Any time you provide non-cash benefits to your staff – which means the list is potentially endless. In practice, however, most non-cash benefits fall into one of these categories:

  • Insurance premiums
  • Motor vehicles
  • Subsidised transport
  • Staff vouchers
  • Offsite carparks

If you would like to discuss FBT for your business, call us today on (06) 878 8824.

To Claim or not to Claim

Planning a business trip with a personal holiday tacked on the end? Renting out the bach and unsure what expenses can be claimed? Whatever your situation, we want to make sure you’re getting the expense claim tax break you’re entitled to.

Here’s the lowdown on legal costs for trust admin, travel expenses, mixed-use assets and sponsorship.

Facing a legal bill for your business or trust? Good news.

Generally speaking, you can deduct any business-related legal expenditure carried out by your company and/or trust if total legal expenses incurred are less than $10,000 in a tax year.

Examples of deductible claims include: expenses relating to protecting trade secrets of the business, opposing the extension of a competitor’s patent, defending an allegation of an infringement of copyright, defending traffic infringements brought against company employees while on company business, and costs for appointing company directors.

Travel expenses – what can I claim?

If your business involves hitting the road, you can claim business travel as an expense. The best way to prove the business portion of your travel expenses is to keep a diary of your travels. Hang on to your itinerary, invoices and tickets. Jot down the reasons for the trip, date of the trip, and costs of any car hire, air/bus/taxi fares, accommodation, meals and incidentals, as well as the time spent on business and non-business activities.

Mixing business with pleasure? If your trip is primarily for work purposes, but contains a private or capital element, you can claim a deduction (e.g where the holiday aspect is incidental to the work element) or an apportionment (where there are two purposes for the trip, both truly separate). If the work side of things is just incidental to the holiday, no deduction can be made.

Got a bach? Claim away.

If your holiday home is being used privately and for income-earning purposes (and is also unused for 62 days or more) you can claim mixed-use expenses. There are three categories to be aware of:

  • Fully deductible expenses: You can claim 100% of any expense solely for the income-earning use of the asset. For example, costs of advertising for tenants for your bach.
  • Non-deductible expenses: You can’t claim any expenses for the private use of the asset. For example, the cost of a jetski stored in a locked garage that’s unavailable to bach renters. You also can’t claim expenses such as improvements (adding on a carport, or upgrading the bathroom).
  • Apportioned expenses: If an expense relates to both income-earning use and private use, you need to apportion it using this formula:

Apportioned expenses formula

These rules can be a little complicated, especially if a company is involved in the mix, so it may pay to come and have chat to sort out how they apply to your business specifically.

When is sponsorship fully deductible?

For sponsorship to be fully deductible, your business must be promoted and any element of private enjoyment must be incidental.

Sponsorship examples that are fully deductible:

  • Sponsoring $2,000 towards the local hockey team’s new uniforms and in return, the team agrees to display your business logo on the uniforms.
  • Sponsoring $10,000 towards the Taupo Relay for Life and in return, the organisers agree to advertise your business across all promotional materials.

If you would like to talk to us about what you can and cannot claim, call us today on (06) 878 8824.

AIM to please?

Is the new Accounting Income Method (AIM) right for your business?

The new Accounting Income Method (AIM) seeks to allow small businesses to pay provisional tax as you go.

Provisional tax has traditionally been the bain of many business owners, and one of the big hurdles for new businesses in their 2nd year of “double tax”. Not only does the traditional provisional tax method have odd payment dates, you have also previously been penalised with interest for guessing the wrong amount of tax to pay during the year, or penalties for missing payments.

AIM seeks to alleviate some of these issues, by offering an activity statement aligned with the GST return. This means a “mini tax return” is filed every 1 or 2 months and will calculate an amount of tax to pay based on a) the current period you have completed and b) how the picture stacks up for the year to date. Depending on how your income and expenses flow, you will pay more or less, and this should align with your cashflow, not some predefined amounts and dates that bear no relation to your business cycle. IRD’s premise on this is that everyone pays the right amount of tax, at the right time with no big bill at the end of the year.

Sounds good, right?

Who will AIM work for?

  • Sole traders or small companies
  • Turnover of less than $5m
  • Those wanting to keep their tax obligations up to date
  • Have previously struggled making provisional payments or keeping tax up to date
  • Using accounting software (Xero, MYOB, Reckon APS)
  • Have minimal end of year adjustments and coding corrections

Who CAN’T use AIM?

  • Trusts and partnerships
  • Those that don’t use accounting software
  • Those who have lots of adjustments at year end (e.g. livestock valuation, large inventory variations, loans etc.)

Things to consider:

  • Once you opt in (by filing an AIM activity statement with your first GST return this financial year) you are IN for the rest of the year
  • As long as you pay what your accounting software says, no use of money interest will be charged at year end for under payments
  • Those with seasonal income, especially at the end of the financial year, will only pay when they earn their income
  • The form will require some accounting input, so will be an additional (but minor) cost for businesses in choosing this method

The jury is out in the accounting community as to whether AIM will become another provisional tax method used by a minority. The form and rules have certainly made what was INTENDED to simplify tax, a whole lot more complicated, but for those it will work for, offers multiple benefits and certainties that provisional tax doesn’t currently provide.

Visit the IRD website for more information on AIM. Or give us a call to see if AIM is right for you. (For those with 2 month GST you will need to opt in by 28th June.)