Your 2014 annual tax returns
To meet your tax compliance requirements for the financial year end 2014, you need to complete an information questionnaire and provide it to us along with any required documentation. Please ensure that the forms are completed in full and that page 1 is signed.
You may be required to complete more than one type of questionnaire depending on the entities that are applicable to you. For example, if you own more than one business you need to complete one form for each of the businesses that you own. If you are unsure of the form that applies to you, or how many forms you are required to submit, please contact us.
You can download our 2014 questionnaires from our website.
Here is our link: http://www.enoka.co.nz/annual_questionnaires
If you are a company, sole trader, trust or Not for Profit organisation, please complete the sections of this questionnaire that apply to you.
If you are required to submit an individual tax return this year, please complete the sections of this questionnaire that apply to you
Why complete questionnaires
We are often asked why we need our clients to complete questionnaires and here are just some of the reasons:
Inland Revenue Department - A number of the questions we ask provide us with information we need to have on file to fulfil your income tax requirements should an audit be undertaken by the IRD.
Statutory Requirements - There are a number of Acts that Business's, Directors and Shareholders are subject to. These include the Companies Act, Financial Reporting Act, GST and IRD legislation which we need to ensure compliance with.
Turnaround - From our experience, missing information is the most common cause of delay in completing a set of Financial Statements. The questionnaires are designed to help you provide all the information we need to enable us to prepare your Financial Statements and Tax Returns in a timely manner.
Accuracy - If you provide the information we request, your Financial Statements and Tax Returns should reflect more fairly and accurately the results experienced for the year.
Year End Tax Reminders 2014
With the tax year end fast approaching for most taxpayers, there are a number of steps (see below) that you can take prior to balance date that can assist in maximizing tax efficiency. The list below identifies some of these steps together with important tax reminders. This list is not intended to be exhaustive or a comprehensive account, please contact us for further detail and/or clarification.
Have you written off all debts that you consider are 'bad'?
Individual trade debts should be reviewed and actually written off in your debtor ledger prior to balance date for them to be allowed as a deduction in the financial year. A debt is considered bad if a reasonable and prudent business person would be of the view it is unlikely that the debt will be paid. Factors to consider are the length of time the debt is outstanding, and the efforts that you have taken to collect the debt and information on the debtor. A debtor does not need to be insolvent for the debt to be bad, so you can still pursue the debtor for payment.
Shareholder continuity must be maintained for tax losses and imputation credits to be carried forward; continuity thresholds are 49% and 66% respectively.
Group offset elections?
Companies forming part of a 66% commonly owned group may offset profits and losses against each other. An election must be made with the relevant tax return (and payment made under certain circumstances).
Imputation credit account debit balances
Irrespective of the company's balance date, it is essential to ensure your company's imputation credit account is in credit at 31 March 2014. Failing this will result in a 10% imputation credit account debit penalty. As a solution you may wish to consider accelerating provisional tax payments prior to due date.
Companies are allowed a deduction for gifts of money to charitable organisations which are approved for donation tax credit purposes. Donations are deductible only to the extent of the company's taxable income for the year.
EMPLOYEE WAGES AND LEAVE
Employee related expenses (holiday pay and bonus provisions)
An employer can obtain a deduction for employee related expenses (for example holiday pay, bonuses, long-service leave and gratuities), providing payment is made within 63 days after year-end. Therefore, a deduction is permitted if the payment is made by the end of 2nd June (for a 31 March balance date).
Have you paid more than $5,000 in interest to someone other than a bank?
If you have, you may be required to withhold resident withholding tax.
Sale of taxable land
Profits arising from the sale of land subject to tax are taxable on settlement. To defer taxable income, you may, therefore, wish to consider extending settlement dates beyond balance date (i.e. 1 April and beyond for standard balance dates).
Assets no longer used in the business
For tax purposes fixed assets can be written off if:
•The asset is no longer in use by the business; and
•Is not intended to be used in the future; and
•The cost of disposing the asset would be more than its disposal value.
We recommend assets be reviewed for use, to determine whether or not a deduction would be available.
Low value assets
Low value assets, with a value of $500 (GST exclusive) or less can be written off immediately. This is providing that:
•The asset is not an upgrade or part of a wider asset; or
•The acquisition is not part of a wider acquisition of the same asset from the same supplier, with the same depreciation rate.
Purchases and sales
A full month's depreciation can be claimed for any part month that an asset is owned and used. It may be worth buying replacement assets on or just before balance date to obtain one month's worth of depreciation deduction.
If you expect to make a loss on sale, consider selling prior to balance date. If you expect to make a gain on sale, consider deferring the sale until after balance date. This will accelerate any available deduction or decelerate the requirement to return taxable income.
The rate of depreciation on buildings for tax purposes is 0%. To maximise depreciation deductions it is important to separately identify, where possible, commercial fit-out (depreciation deductions can be claimed) from the building proper.
Is your income significantly higher than the previous year?
If so, you should consider whether an additional voluntary provisional tax payment may be appropriate or alternatively it may be beneficial in aligning your tax payments with turnover. Please discuss with us before balance date. If you have underpaid your provisional tax for the year then it may be possible to use a provisional tax intermediary to save Inland Revenue use of money interest costs.
LOOK THROUGH COMPANIES (LTC)
Elections – in and out
Broadly, LTC elections must be received before the start of the income year from which status is required (with the exception of new incorporated companies). If you wish to revoke an LTC election it must also be received before the start of the income year in which it is to apply from. NB: There can be significant tax implications of electing into and exiting the LTC regime.
Certain types of expenditure can be claimed as a tax deduction in the year in which they are incurred regardless of the fact that the good or service will not be used until a future year, but only if they have also been expensed for financial reporting purposes. Some of these prepayment concessions have a dollar limit and/or a limit on the length of the period after year-end. The following prepaid expenses could be claimed in the 2013/2014 income year:
•Advertising for up to 6 months after the balance date and not exceeding $14,000 in total;
•Insurance for up to 12 months after the balance date as long as the premiums incurred during the year for the contract do not exceed $12,000;
•Rates to the extent of the amount invoiced on or before balance date;
•Rent for up to 6 months after the balance date and not exceeding $26,000 in total. There is no monetary limit for rent that is prepaid not more than one month in advance;
•Subscriptions or fees for membership in any trade or professional association, for up to 12 months after the balance date as long as the expenditure incurred during the year for membership in the association does not exceed $6,000;
•Advance bookings for travel and accommodation, to be used within 6 months after balance date and not exceeding $14,000 in total;
•Service or maintenance contract for plant, equipment or machinery, for up to 3 months after balance date, as long as the expenditure incurred during the year for the contract does not exceed $23,000;
•Use or maintenance of telephone and other communication equipment for up to 2 months after balance date (amount is unlimited);
•Consumable aids (i.e. items that do not become a component of the finished stock, e.g. oil, grinding wheels, chemicals, wrapping and packaging) not exceeding $58,000 in total;
•Audit fees and mandatory accounting fees (unlimited);
•Stationery, subscriptions for newspapers, journals or other periodicals, and postal and courier services unlimited).
•Vehicle registration fees, drivers license fees and road user charges (unlimited);
•Other services for up to 6 months after balance date, and not exceeding $14,000 in total;
•Other periodic charges for up to 12 months after the balance date, and not exceeding $14,000 in total.
REPAIRS AND MAINTENANCE
Broadly, repairs and maintenance expenditure is deductible only to the extent it has been incurred. There is also a fine line between a deductible repairs and maintenance expense (deductible) and capital expenditure (non-deductible). You may wish to consider accelerating repairs and maintenance expenditure to claim deductions.
Trading stock (excluding livestock) on hand at year end must be valued, subject to meeting the relevant criteria, using one of the prescribed methods: cost; discounted selling price; replacement price or market selling value if lower than cost. Generally, these methods must be applied consistently. Provisions for obsolete stock or stock write downs are not generally allowed as tax deductions. Therefore prior to year end it is important to perform a stock take and to ensure that all obsolete stock is physically disposed of or is valued using one of the prescribed methods. Concessional rules apply to small taxpayers (annual turnover of $3 million or less). A further concession is that a person with turnover of less than $1.3 million per year can value their closing stock at the opening stock value, as long as the closing stock can be reasonably estimated to be worth less than $10,000.
If you have a vehicle which has not been used 100% for business purposes, have you kept a logbook?
A logbook test period can be used to establish a business use percentage for tax, GST and FBT purposes. A new test period might be needed if there has been a significant change in business usage. However, sometimes a representative period may not even be possible, and a permanent logbook will need to be kept.
Not all legal fees incurred by a business may be claimed as a deductible expense, for example fees in relation to forming a company or trust and capital asset purchases; these are considered capital in nature for tax purposes ("capital limitation"). Legal fees should be reviewed for deductibility.
The capital limitation is ignored for legal fees of $10,000 or less (excluding GST), i.e. there is an automatic deduction for tax
Although every effort has been made to ensure the accuracy of this newsletter, the information is necessarily generalised. Clients are therefore requested to seek specific advice and not rely solely on the above, if they are interested in any matters mentioned.
Paul Enoka Chartered Accountants Ltd
Level 1, 2 Pretoria Street , Lower Hutt
PO Box 31-348 Lower Hutt 5040 ,New Zealand
Phone (04) 939-7977