9 March 2007

NEWSLETTER FROM PAUL ENOKA CHARTERED ACCOUNTANTS LTD

YEAR END TAX PLANNING :

31 March is fast approaching. Now is the time to be thinking about the tax risks and opportunities that surround the end of another financial year.

We have provided a list of things to do, some of which can be used as tool to lower your taxes for the current year.

(Please note that this is not an all inclusive list, and that some items have restrictions on the amount and or date by which they must be done.)

If you have a query, please contact us on 939 7977.

Issues To Consider Before 31 March 2007

a. Bad Debts

Bad debts MUST be physically written off your Debtors Ledger before 31 March 2007, if you are going to claim them as an expense for the current year.

b. Obsolete Stock

Dispose of any obsolete stock, where possible, before 31 March 2007.

Closing stock must be valued at “ cost ”, unless there is a lower “ market value ”.

However if you have obsolete stock, for which there is no current market value, then IRD says you must value that stock at its original cost price.

c. Assets under $500

Remember that business assets costing less than $500 ,

(or less than $562.50 if your business is GST Registered),

can be claimed as an expense in the year of purchase.

E.g. Buying a phone for $499 would be deductible in the current year.

Assets over $500 are capitalised, and you can only claim the depreciation for the number of months that you have owned it.

E.g. Buying a $599 in March would qualify for only one months depreciation.

BUT Beware

- You must buy one item only, per day, from the same supplier.

E.g. buying a phone for $400 as well as $200 printer on the same day from the same supplier counts as a single purchase of $600!

- Part invoices for the same asset, are added together to get the total cost.

E.g. As above a single phone invoiced over two months, for $400 and then $300, counts as a single purchase of $700.

d. Review your fixed assets register

Scrap or dispose of assets that are no longer used in your business, but are still showing on your assets register.

e. Employee Holiday Pay & Bonuses (paid before 2 June)

Bonus payments or holiday pay paid to employees (including shareholder employees) are deductible if:-

- The liability to pay existed before 31 March 2007

- The amount is physically paid before 2 June 2007

f. Consumable Aids

Consumable aids are used in the manufacture or production process but do not form part of the final product.

IRD will allow a deduction for all consumable aids which:-

- are purchased and physically on hand at 31 March 2007 and,

- do not exceed a total value of $58,000.

Examples of consumable aids are:

Manufacturing – coal or oil stocks.

Commerce – Printing and stationery supplies, (fax paper, pens)

Farming – stocks of hay, feed, fertiliser, fence posts and wire.

g. Prepayments

IRD requires that prepaid expenses are required to be added back, to your income at year end, but only for that portion not “used”.

However there are some specific exemptions, which do not need to be added back.

- Stationery

- Rates

- Audit Fees

- Postal and Courier Services

- Vehicle Registration and drivers licence fee

- Insurance Premiums (but only if the total premium is less than $12,000)

- Land rental (but only if for less than six months and the amount is less than $23,000)

h. Travel and Advertising Prepayments

Two of the more useful prepayments exemptions, relate to travel and advertising.

Prepayments of Travel and Advertising are deductible where:-

- The amount paid is less than $12,000 and,

- The travel or advertising is “undertaken” within six months of balance date (ie before 30 September 2007) and,

- The expenditure is business related.

Now could be a good time to prepay that Mid-winter trip to see your overseas suppliers, property etc!

 

TAX STRUCTURES AND FORWARD PLANNING

a. LAQC ELECTIONS MUST BE MADE BEFORE 31 MARCH

If you wish to change your company, so that it becomes an LAQC (Loss Attributing Qualifying Company) next year, then 31 March is the last day to apply.

b. REVIEW YOUR CURRENT SHAREHOLDING STRUCTURE

If your personal income circumstances have changed, it may

be beneficial to look at ways of maximising tax benefits to the shareholders.

This is especially important for LAQC companies, where losses are attributed based on the percentage of shares owned.

BUT

Please contact us to discuss this, as shareholder changes have the potential to:

- lose “prior year losses brought forward”.

- lose “imputation credits”.

- and in some instances, lose a companies “LAQC” status.

c. NEW BUSINESS STRUCTURES

Now is also a good time to look at restructuring your business,

this can be beneficial where:-

- you own high value assets and/or,

- you are in the highest tax bracket.

Again, please call us to discuss your needs.

3) IMPORTANT – FROM APRIL GST PAYMENTS DUE ON 28 ^th of MONTH

From 1 April 2007, GST Return payments will be due on the 28 ^th of the Month following or the next business day where that falls on a weekend.

Special dates will apply to the following periods:-

GST Returns ending on 30 November – Are still due on 15 ^th January

GST Returns ending on 31 March – Will be now be due on 7 May

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

PO Box 31-348 Lower Hutt

Phone (04) 939-7977