Useful Articles on Business Accounting or Tax | JDW Chartered Accountants, Ellerslie, Auckland

Ten Top Tips for Easier Stocktaking

Wed, 11 Mar 2026 20:49:58 GMT

If you are a product seller, you need to count and value your unsold stock at year end. Here are our ten top tips for easier stocktaking.

What is a Stocktake and Why is it Important?

A stocktake is a count of inventory items held at certain date, combined with stock values to calculate the value of inventory on hand.

For accounting purposes, we align the cost of inventory with the period in which it is sold. If we don’t have an accurate closing inventory, we may be overstating our cost of sales and therefore understating our profitability.

We asked our JDW Team for their Ten Top Tips for Easier Stocktaking. Here are our ten practical tips to help make your next stocktake smoother and more accurate.

Tip 1: Plan Ahead

If your year end falls on 31 March, start planning at the start of March. Decide who, what, when and how and put the resources in place. Roster enough staff and train them before you start. Schedule your stocktake during the slowest period during the day or after hours to minimise disruptions for customers and staff. Clear a space to work, so you can bring stock off the shelves.

Tip 2: Sell Stock before the Year End

Wondering why some large retailers have stocktake sales a couple of weeks before the end of their financial year? A year end sale can achieve many aims for a business – a quick cash injection, less inventory to count, free up storage space. Trading stock is valued at the lower of cost and net realisable value. If you sell an item at below cost, then you can value the same item in stock at that lower value.

Make sure that any discounts or savings promotions that you are offering are genuine. Make it clear if your sales promotion is limited to certain products. For more information, see the Commerce Commission’s guidance on pricing your products or services. [i]

Tip 3: Remove Damaged and Expired Stock

Throw out damaged and expired stock. If safe to donate, contact a local charity to ask if they can use your stock that is nearing best before dates. Check Ministry for Primary Industries’ (MPI) advice on best-before vs use-by dates. [ii]

Tip 4: Don’t Rely on Computerised Stock Records

Even if you have an inventory system tied into your Point of Sale (POS) system, you should do a physical stocktake to check for shrinkage.

Shrinkage is when the physical inventory count is lower than the number on the stock records. This may occur due to errors, like scanning the wrong item code, but it may highlight theft by staff or customers. McKinsey offers an interesting perspective in its 2023 podcast on reducing retail shrinkage, highlighting the solutions as opportunities for a better customer experience. [iii] Examples include better security and training hosts to interact with customers at self-checkout.

Tip 5: Rolling Stocktake

If you carry a lot of inventory, do regular counts of smaller sections of your store, called a rolling stocktake. It’s an effective way to keep your stock records reliable throughout the year and makes it easier at year end. You can identify inaccuracies, system errors and make corrections. It may draw your attention to expiry dates, damaged goods, mislabelled products, shrinkage (see above) and slow-moving stock.

Even smaller businesses can benefit from a rolling stocktake. A few years ago, a restaurant client realised that they were short of two very expensive bottles of champagne. When they investigated further, they discovered that their culprit, a barman, was stealing cash and giving free drinks to friends.

Tip 6: Organise What You are Counting

Make sure your plan covers all areas where stock is stored: shop window, main shop, back rooms, basements, storage shed… Sort your inventory into product groups, matching their stock keeping unit (SKU) and count complete boxes and items separately.

Organise your stock tally sheet in the same order as your shelves, so you aren’t crisscrossing each other. Be systematic to ensure you don’t miss anything.

Remember to include stock in transit in your final inventory – goods which you have paid for but they haven’t reached the store.

Tip 7: Standardise Your Counting Procedures

Before you start, make sure everyone is counting in the same way. Set clear rules for things like open cartons, multipacks, and part boxes so there’s no confusion on the day. Use the same units of measure in your Point of Sale (POS) or inventory system as you do on your tally sheets.

If you use a 3PL, check that their counting methods match your own, so your physical count lines up with their records.

Tip 8: Use Technology to Reduce Manual Errors

A physical stocktake is still essential, but the right tools can make it quicker and more accurate. Barcode scanners, mobile apps and handheld devices reduce transcription errors and speed up the process.

If you run a warehouse or use a 3PL, ask about options like cycle counting, scanning workflows or system integrations that keep your stock records cleaner throughout the year.

Tip 9: Gamify

Make it fun, to keep the team engaged and focussed. Break the stocktake into zones, aisles, or product groups. At each checkpoint, offer a small reward — a stretch break, chocolates, or a “You nailed it!” moment. It gives people a sense of progress without rushing the count.

Work in friendly pairs, so one counts while the other records. They swap roles after each section. Two sets of eyes improve accuracy, and working with a buddy keeps spirits up.

Set up simple competitions which reward accuracy, rather than speed. Create a bingo card with boxes like “Found mislabelled stock”, “Identified expired item” or “Corrected a barcode mismatch”. If you run periodic stocktakes, track the average time per zone, number of discrepancies, number of perfect counts. Encourage staff to beat their own previous performance.

Let different team members choose the music playlist for each section completed. Upbeat music keeps the energy high, and rotating the DJ adds fun without distracting from accuracy. Place a few small surprises around the stock area, like stickers or coffee vouchers. Allow fun, simple dress ups, if they don’t interfere with the stocktake process and safety.

Have a small but memorable end‑of‑stocktake ritual. Whether it is a group photo, team clap‑out, or post‑count treats, it reinforces the message that the stocktake is a team achievement, not a chore.

Tip 10: Reconcile and Review Straight Away

As soon as the count is finished, compare your physical numbers to your recorded stock. Investigate any discrepancies while the team still remembers what happened. Was there a recent delivery, a return, or a product move?

Use what you learn to refine next year’s approach. If items caused problems, consider better labelling, reorganising shelves, or updating product codes.

Let’s Make It Count

The year end stocktake is an important process for every product seller. A little planning and organising makes the count smoother, more accurate, and far less stressful for everyone involved. A well‑run stocktake also gives you valuable insights into stock levels, shrinkage trends, and purchasing patterns — information that helps you make better decisions in the year ahead.

Treat it as a team effort, support your staff, and build on what you learn each year. With the right approach, stocktake becomes less of a chore and more of an opportunity to understand your business better.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists. Serena attended her first stocktake aged ten, when her parents sold their dairy.

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[i] https://www.comcom.govt.nz/business/dealing-with-typical-situations/selling-goods-and-services/pricing-your-products-or-services

[ii] https://www.mpi.govt.nz/food-safety-home/how-read-food-labels

[iii] https://www.mckinsey.com/industries/retail/our-insights/the-art-and-science-of-reducing-retail-shrink

The Power of Building a Saleable Business

Wed, 04 Feb 2026 20:41:36 GMT

You don’t need to want to sell your business to benefit from knowing if you could. This month’s guest blog is from Jing Seth of Kāhu Partners Limited.

Is My Business Ready to Sell?

For many business owners, the idea of selling their business sits somewhere between “Not yet” and “I’d rather not think about it.”

That hesitation is understandable. Selling a business doesn’t happen often; the process is full of unknowns and raises the question of what to do with yourself afterwards. When the business is closely tied to your identity, relationships, and livelihood, it’s an easy subject to put in the “maybe later – if ever” pile.

The problem is that avoiding the question often comes at a cost. Not because every owner should sell, but because not knowing your options can quietly limit them.

Why Making Your Business More Saleable Gives You More Options

Business owners need to know how to prepare a business for sale. It helps to separate two ideas that are often blurred together:

The EVENT of selling a business.

The CHARACTERISTIC of a business that is attractive to buyers.

A business that could change hands cleanly, even if it never does, is usually:

• Easier to run

• Less stressful to own

• More resilient to shocks

It does not rely excessively on any one person, and it does not unravel when the owner steps back. That’s not only a great business to sell – it’s a great business to own and run.

In other words, optionality or saleability is not about having an exit plan for the owner. It is about control.

Common Hidden Risks that Reduce Business Value

Many businesses perform well on paper while still being fragile underneath.

Common patterns include:

· decisions funnelled through the owner

· customer and supplier relationships held personally

· critical knowledge living in people’s heads rather than in documented systems

· a leadership team that executes, but cannot fully lead independently

None of these issues necessarily stop a business from growing. But they do affect how confidently someone else could step into the owner’s shoes, and how much risk the business carries if circumstances change.

In practice, otherwise strong businesses that are overly reliant on the owner are often discounted by 20–30% , and sometimes more. What’s more, those same businesses often have dramatically fewer interested buyers. What could have been a sale process measured in months becomes one that stretches into years.

Most owners only discover these gaps late in the piece, when options are narrower than expected, and prices insult the hard work they’ve put in.

How a Mock Sale Reveals True Business Value

Importantly, gaining this insight does not require deciding to sell. One approach we use is a mock sale , or external readiness review. It is not a sale, not a decision to go to market, and not a broker process. It is a controlled, anonymous simulation.

The exercise looks at the business through an external investor lens to:

· establish a realistic valuation range

· identify where and why discounts would likely be applied

· surface hidden walk-away risks that cause buyers to disengage

· highlight process and diligence issues that might slow down or kill a transaction entirely.

In effect, it simulates how the market would treat the business, without exposing it to the market.

For most owners, the benefit is not in the number itself. It is the clarity. Understanding where value leaks occur, what would concern an external party stepping in, and which changes would materially improve resilience and optionality.

Why Building a Saleable Business Strengthens It – Even If You Never Sell

Whether a sale ever happens or not, optionality gives peace of mind. A saleable business is one that can run without the owner. It allows owners to make decisions from a position of strength rather than urgency, and to step back, temporarily or permanently, on their own terms. That includes being able to take a real holiday!

If this is something you have been curious about or have been quietly avoiding because it feels too big or too final, a conversation can be useful. Not to push an outcome, but to understand how the market would really view the business, and what would give you more confidence in the options ahead.

- Jing Seth, Kāhu Partners Limited

Jing Seth is a founder and principal in Kāhu Partners Limited, a boutique consultancy firm in Auckland. Contact him by email jing@kahupartners.com or by phone 021 201 6910.

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An article like this, which is general in nature, is no substitute for specific accounting, business and tax advice. If you want more information about the issues in this article, please contact your adviser or the author.

Shareholder Loans in IRD Sights

Thu, 18 Dec 2025 03:45:30 GMT

IRD is seeking public feedback on proposed tax changes for loans made to shareholders. This could have significant implications for SME shareholders who have chosen not to pay themselves a shareholder salary or dividend.

Why is IRD Targeting Shareholder Loans?

IRD is concerned that shareholders are not paying their fair share of tax, when they borrow company funds for other purposes. This concern is particularly related to closely held companies, as sole traders, partnerships and look through companies pay tax at the owner’s marginal tax rates. Widely held companies do not typically distribute profits by way of loan.

A shareholder loan or overdrawn current account arises when funds are drawn out by the shareholder without being offset by repayments, salaries or dividends.

Another concern raised by IRD is when a shareholder withdraws funds prior to a company closing down, leaving creditors out of pocket.

Current Tax Treatment of Shareholder Loans

If a shareholder borrows from the company, the company charges interest at FBT prescribed interest rates or some other commercially based rate. Interest income is taxed at the company tax rate of 28%. If the company doesn’t charge interest, then the foregone interest is treated as a deemed dividend. Dividends are taxed at the shareholder’s marginal tax rate (up to 39%) but may have imputation credits and RWT of up to 33% attached.

If the shareholder’s loan is forgiven by the company or deemed unrecoverable, the loan amount is taxable income to the shareholder either as a dividend or under the financial arrangement rules and taxed at the marginal tax rate of the shareholder at the time of forgiveness.

When a company is liquidated, a company will usually declare dividends or distribution to shareholders to offset remaining loans or current account balances. Distributions from capital gains can be made tax free on liquidation. If a liquidator finds a company has insufficient funds to pay its creditors on winding up, there are mechanisms to enable the liquidator to claw back transactions, such as loans made to shareholders while insolvent.

The removal of a company from the Companies Register doesn’t result in income under financial arrangements because the loan becomes the property of the Crown, and it can take years for the loan to be consider unenforceable. The lack of clear data on unenforceable loans makes it difficult for IRD to assess whether the shareholder has complied with the requirement to declare the taxable income.

How is IRD Proposing to Tax Shareholder Loans?

Time Limit for Repayment

IRD proposes a 12-month time limit on new lending from 5 December 2025 for total amounts over $50,000 per company. It would apply to close held companies, where the shareholder is a natural person or a trust. If the loan is not repaid by the end of the tax year after the 12-month period, the loan will be treated as dividend income and tax at the shareholder’s marginal tax rate in that income year.

Even if IRD taxes the loan as a dividend, it doesn’t cancel the debt. You still need to repay the company. This means you could face a double hit: first, paying income tax on the amount as if it were a dividend, and second, still being legally obligated to repay the loan to the company. For shareholders who are already under financial pressure, this creates a cashflow squeeze and increases the overall cost of borrowing from the business.

Many small business owners choose not to pay themselves a salary or dividend, instead drawing funds as shareholder loans to manage cash flow or reinvest in the business. Under the proposed rules, any loan over $50,000 that isn’t repaid within 12 months could be taxed as a dividend—even though you still owe the company the money. This creates a double cost: paying income tax on the loan amount while also repaying the loan itself. For businesses operating on tight margins, this could put real pressure on cash flow and make borrowing from your own company far less attractive.

Shareholder Loans Treated as Income on Winding Up

IRD proposes that outstanding shareholder loan balances be treated as income to shareholders on winding up.

This could be an additional blow to shareholders who have made the difficult decision to wind up their companies and can’t afford to pay the tax when they have lost their revenue stream.

Record-keeping

IRD proposes additional reporting requirement for Available Subscribed Capital (ASC) and Available Capital Distribution Amount (ACDA). ASC is the money shareholders have invested in the company in the form of issued shares. It’s the original capital contributed by owners, not profits earned by the business. When you return this money to shareholders (e.g., during liquidation), it can often be paid back tax-free, provided you’ve kept good records.

ACDA is a newer concept IRD wants to introduce. It’s capital gains arising from the sale of an asset like investments or property, plant and equipment which is not trading property. ACDA can be distributed tax-free as part of a liquidation.

The proposal would require companies to maintain memorandum accounts for the life of the company or be deemed to have nil ASC or ACDA balances. Without clear records, IRD could assume balances are zero and charge tax on those shareholder payments.

How Can You Make a Submission?

Read more about the proposed changes in IRD’s issues paper [i] . Anyone can make a submission on the issues paper. You can make your submission by email to policy.webmaster@ird.govt.nz with “Improving taxation of loans made by companies to shareholders” in the subject line, or by post to:

Improving taxation of loans made by companies to shareholders

C/- Deputy Commissioner, Policy

Inland Revenue Department

PO Box 2198

Wellington 6140

Submissions must be lodged by 5 February 2026.

Further Steps for Companies to Take

Bear in mind that these proposed tax changes are not part of Tax Law yet, so they are subject to change after IRD has reviewed submissions. Consider carefully any new loans you are making to shareholders from companies, and whether they can repay those loans within 12 months, or whether you should be declaring dividends or salaries instead.

Start keeping clear records of shareholder contributions, Available Subscribed Capital (ASC) and capital gains, Available Capital Distribution Amount (ACDA), in preparation for the disclosure requirement.

- Serena Irving

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[i] https://www.taxpolicy.ird.govt.nz/consultation/2025/taxing-company-loans-to-shareholders

How Much Inventory Should I Hold?

Mon, 24 Nov 2025 04:13:14 GMT

In today’s volatile environment, inventory management isn’t just about efficiency—it’s about resilience. For manufacturers, logistics operators, and retailers, the right inventory strategy can mean the difference between thriving and struggling during supply chain shocks.

Why are inventory levels important?

Inventory ties up cash. Too much inventory increases holding costs, storage space, reduces efficiency, increases wastage and increases obsolescence. Too little inventory, and you risk lost sales and unhappy customers. The challenge is finding the balance between cost control and business continuity.

Work in Progress is the Hidden Trap

Recently a client came to visit with some good news. His sales forecast for the current year was 5% higher than the previous year, and the following year’s forecast indicated even higher growth, while maintaining gross profits at similar levels. But he was struggling with cashflow.

Growth often stretches cashflow. Where was the cash? There were jobs partly processed throughout the production facility, so work in progress was at the highest it had ever been. It’s not just raw materials and finished goods inventory. Work in progress (WIP) can lock up significant capital. Machine time and labour invested in unfinished jobs aren’t recoverable until goods are sold. If lead times blow out, WIP can balloon, choking cash flow. Tight job management and process efficiency are critical.

What is Economic Order Quantity (EOQ)? A Starting Point

Economic Order Quantity is the quantity of stock you should order each time to balance ordering costs and holding costs. Ordering costs are incurred every time you place an order, the administrative time and shipping freight or courier costs. Holding costs are the cost of storing goods, warehousing, insurance, security, depreciation and borrowing.

There are limitations to Economic Order Quantity. It assumes that demand and lead times are constant. It doesn’t allow for bulk order discounts or seasonal fluctuations in availability or price, like in horticulture.

Economic Order Quantity (EOQ) Formula

Where:

· D = Annual demand (units per year)

· S = Ordering cost per order

· H = Holding cost per unit per year

Example Calculation

If:

· Annual demand = 10,000 units

· Ordering cost = $50 per order

· Holding cost = $2 per unit/year

Source: Copilot

Should we use Just-In-Time (JIT) or Just-In-Case (JIC)?

What is Just-In-Time (JIT) Inventory Management?

Just-In-Time methodology was developed by Toyota Motor Corporation soon after World War 2. JIT’s core principles are takt time, the production pace required to meet customer demand; one-piece flow, continuous production instead of batching and accumulating inventory; pull-production, only producing what the following requires; quality at source, detecting and correcting issues at their origin rather than waiting on inspections; setup time reduction¸ minimising idle times to enable smaller batch sizes; kaizen, continuous process improvement encouraging all employees to reduce waste. [i]

Advantages of JIT Inventory Management

JIT’s demand-driven approach is essential for lean manufacturing. You have better efficiency and synchronization, shorter lead times, better quality and less wastage. You can be more agile to adapt to changes in customer demand.

Supply Chain Risk to JIT

The Covid-19 pandemic, Suez Canal closure and large scale weather events have exposed the shortcoming of JIT. When supply chains are majorly disrupted, you could find yourself short of key components very quickly.

Just-In-Case (JIC)

Many companies have adapted to JIT’s shortcomings by shifting to a hybrid model of combining JIT with strategic stockpiling. [ii] They hold larger stocks of key materials or components to boost their resilience against possible shortages.

[i] https://kaizen.com/insights/jit-efficiency-supply-chain

[ii] https://itsupplychain.com/from-just-in-time-to-resilience-how-covid-19-other-disruptions-are-redefining-supply-chain-management

Near Shoring or Onshoring

A survey of US companies showed that 80% want to increase onshoring or nearshoring, to improve their supply chain resilience. [iii] Bringing goods closer to New Zealand is less practical, given our geographic distance from other markets. Instead, we should look at regional partnerships with our nearest neighbours in Australia and the Pacific. Invest locally in advanced manufacturing and automation. Use digital tools for planning and enhancing our offerings.

[iii] https://www.bain.com/insights/nearshoring-overcoming-the-obstacles

Technological Solutions

There is a move towards using AI predictive analytics to forecast demand and predict disruptions. Smart warehousing and the Internet of Things (IOT) allows you track your inventory from anywhere in real time. Blockchain systems track goods along the supply chain, improving tracking, fraud protection and compliance to standards and regulations.

Improving Your Inventory Management

You can improve your inventory management by using an iterative approach, but you also need to review your system holistically. Do you have the right systems in place to identify and solve issues?

My client decided to add new equipment to reduce his production bottleneck. Some businesses may need to redesign their process and factory layout to reduce stock movements and improve efficiency. Others need to work on workplace culture to instil the tenets of continuous improvement, quality at source and getting the job done.

Calculate your EOQ and review safety stock levels. Identify and mitigate supply chain vulnerabilities. Research into technological solutions to improve your agility, planning and product offering. It’s not a cost cutting process. Find your balance between efficiency and resilience, so that you can grow with confidence.

- Serena Irving

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What are the 2025 Holidays Act reforms about?

Fri, 24 Oct 2025 03:23:51 GMT

The Holidays Act 2003 is getting a shake up and employers are hoping the reforms under the Employment Leave Bill will make it easier for them to calculate work entitlements.

What’s wrong with the Holidays Act 2003?

Employers have struggled with the current Holidays Act 2003 (“the 2003 Act”) since it was introduced into law. The main difficulties have arisen from entitlements being calculated in weeks, but worker having variable hours between weeks.

There have been several high-profile large employers who have underpaid employees, often inadvertently and despite having sophisticated payroll systems in place. In 2018, Bunnings New Zealand acknowledged it owed $11m to current and past staff members going back as far as 2004 [i] . Health New Zealand Te Whatu Ora took over more than 20 separate payrolls when it was formed, and it will take years to resolve the annual leave payments shortfalls. As of 10 October 2025, they have paid over $647.7m to over 86,000 current employees and are about to start payment to former employees [ii] .

The 2003 Act penalises workers returning from parental leave, as the pay rate is affected by unworked periods. The 2003 Act grants the same amount of sick leave to part-time workers as full-time permanent workers, but worker in fixed contracts for less than 6 months have no entitlement to sick leave.

Before the new Act is passed, the 2003 Act still applies. You need to be aware of these:

2003 Act - Annual Leave Entitlement and Hours

A worker is entitled to four weeks’ annual leave after twelve months’ continuous employment. If a worker’s weekly hours change then their leave is scaled up or down in proportion. If a worker increases their weekly hours, their leave balance increases in hourly terms.

Casual workers and employers can agree to “pay as you go” 8% of gross earnings but it isn’t mandatory.

2003 Act - The Impact of Extra Hours on Annual Leave

Employers must pay the higher of Ordinary Weekly Pay (OWP) vs Average Weekly Earnings (AWE) [iii] . A waged worker who works extra hours will have a higher leave pay rate when they make their entitlement claim.

Some salaried workers are compensated for extra hours by additional pay. This is reflected in a higher leave pay rate.

2003 Act - Using Annual Leave and Cashing Up

A worker can take portions of weeks of annual leave. Employer and worker must agree on the portion of leave taken.

A worker can cash up one week of annual leave in each 12 months, by request.

2003 Act - Sick Leave and Other Entitlements

A worker is entitled to 10 days’ sick leave after six months’ continuous employment. A new entitlement of 10 days arises after a further 12 months, capped at 20 days unless the employment contract increases the capped days. The 10 days is not apportioned for people working fewer than 5 days a week.

Sick leave is taken as a full day. The 2003 Act doesn’t allow for parts of a day.

Casual workers are unlikely to benefit from sick leave entitlement due to impracticality and compliance issues.

Workers are eligible for bereavement and family violence leave after 6 months, and the 2003 Act only provides for a full day’s leave.

2003 Act - Leave Entitlements Accrue during Unworked Periods

Annual leave continues to accrue while on leave and when receiving ACC compensation and in the first week of other unpaid leave.

When a worker takes annual leave soon after returning from parental leave, the average earnings calculation gives them a very low pay rate for that leave.

2003 Act - Public Holiday Leave and Entitlements for Working

Workers are entitled to paid leave on a public holiday if it is an otherwise working day (OWD), considering a range of factors. It can be confusing for workers who don’t have a set weekly pattern.

If the worker works on a public holiday, they earn 1.5 times their usual pay rate for the hours worked and receive a whole day alternative holiday in lieu, even if they only work for part of the day.

Changes under the 2025 Employment Leave reforms

There will be a transition period of 24 months to allow employers and payroll providers to adapt their systems to the new Act, after the Bill has passed. If you have underpaid your employees under the 2003 Act, you still have an obligation to make up the shortfall. The following changes have been proposed in the Employment Leave Bill but may change before the final reading.

2025 Reforms - Annual Leave Based on Hours Worked

A worker is entitled to annual leave from the first day of employment, including workers on fixed term contracts. It is calculated at a rate of 0.0769 hours per “contracted hour” (being equivalent to 4 weeks / 52 weeks). The leave hours are locked in and are not scaled up or down if the worker subsequently changes their weekly hours.

2025 Reforms - The Impact of Extra Hours on Annual Leave

A waged worker who works extra hours will not accrue additional annual leave or sick leave hours. Instead they will receive a “leave compensation” payment at the time the extra hours are worked. The rate of leave compensation is calculated at 12.5% of a worker’s ordinary hourly rate.

Some salaried workers are compensated for extra hours by additional pay. The rate of leave compensation is calculated at 12.5% of a worker’s ordinary hourly salary rate.

2025 Reforms - Using Annual Leave and Cashing Up

A worker can use annual leave hours to take any part of a day off work. Employer and worker must agree on the portion of leave taken.

A worker can cash up 25% of their annual leave as at their last employment anniversary, by request. This give more flexibility for cashing up balances and reducing leave liability.

2025 Reforms - Sick Leave Based on Hours Worked

A worker is entitled to sick leave from the first day of employment, including workers on fixed term contracts. It is calculated at a rate of 0.0385 hours per “contracted hour” (being equivalent to 10 days / 52 weeks at 5 days a week). It will be capped at 160 hours. A worker can use sick leave hours to take any part of a day off work. It doesn’t have to be a full day off.

2025 Reforms - Bereavement and Family Violence Leave

Workers will be eligible to take bereavement leave and family violence leave from their first day of employment.

2025 Reforms - Casual Workers’ Leave Compensation

Casual workers will receive a “leave compensation” which is a combined annual leave and sick leave payment, set at 12.5% of an ordinary wage rate and paid in every pay period. The leave compensation is a replacement for accruing annual leave or sick leave and starts from the first day of employment.

2025 Reforms - Leave Accruals during Parental Leave Only

Annual leave and sick leave continue to accrue while on paid leave. It doesn’t accrue when receiving ACC compensation and other unpaid leave.

Workers earn leave during parental leave. If annual leave is taken soon after returning from parental leave, they will receive similar leave pay as if they hadn’t been on parental leave. This increases their minimum entitlement compared to the 2003 Act.

2025 Reforms - Notional Leave Rosters

This is a new concept. If the employment agreement doesn’t specify the days and times of the week worked or the number of hours for a salaried employee, then the employment agreement must include a notional leave roster.

2025 Reforms - Public Holiday Leave and Entitlements for Working

Workers are entitled to paid leave on a public holiday if it is an otherwise working day (OWD), as set out in their employment agreement. If the employment agreement is unclear then the OWD test is based on 7 of the previous 13 weeks.

If the worker works on a public holiday, they earn 1.5 times their usual pay rate for the hours worked and alternative holiday hours in lieu, not a full day. If they only work some of their contracted hours that day, the unworked hours are paid at regular leave pay rate.

2025 Reforms - Pay Statements Required

Employers will be required to provide pay statements to workers every pay period, itemising pay and leave balances.

Conclusion

We think that the Employment Leave Bill will provide welcome relief to both employers and workers, by making leave calculations easier to understand. Casual workers, fixed term workers and parents returning to the workforce will have better access to leave entitlements. The disparity for sick leave between part-time and full-time workers will be resolved. The Bill may undergo changes before being enacted, so check with your chartered accountant or HR advisor before updating employment contracts and payroll systems.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

An article like this, which is general in nature, is no substitute for specific accounting, HR and tax advice. If you want more information about the issues in this article, please contact your adviser or the author.

[i] https://www.rnz.co.nz/news/business/359845/bunnings-to-pay-staff-11m-for-holiday-pay-miscalculation

[ii] https://www.tewhatuora.govt.nz/for-health-professionals/employment-relations/holidays-act-remediation

[iii] https://www.employment.govt.nz/assets/uploads/documents/pay-and-hours/Holiday-Act-Guidance-tools-4-Ordinary-Weekly-Pay-vs-Average-Weekly-Earnings.pdf

NZ Tax Changes for Digital Nomads

Mon, 06 Oct 2025 01:59:35 GMT

New Zealand is making it easier for foreign visitors to enjoy our beautiful country which continuing to work remotely for their overseas employer, as signalled in the recent August 2025 tax bill.

What is a Digital Nomad?

The Oxford Dictionary online describes a digital nomad as “a person who earns a living working online in various locations of their choosing (rather than a fixed business location).”

Digital nomads can work from anywhere, as long as they have their laptop, smartphone and excellent internet bandwidth. This allows them the flexibility to travel the world continuously or take short hops away from home, while still working for a business in their home country. I’ve met analysts, radiologists, mortgage brokers, software engineers, bookkeepers, community managers and social media marketers who have travelled to New Zealand while still employed or contracting to a business overseas.

Digital Nomad Visa

All visitor visas applied for on or after 27 January 2025 allow travellers to work remotely while in New Zealand while here for another purpose, such as visiting family and friends, study or sightseeing. [i] Visitors can stay up to 6 or 9 months.

Remote work may include answering emails, phone calls, coding and testing, writing reports, creating social media content, attending meetings or giving presentations to colleagues outside of New Zealand. Remote work cannot include working for a New Zealand employer, with a New Zealand business or person in exchange for goods or services, or work that requires you to be in New Zealand. If you want to do any of these things you may need apply for a visa that allows you to work in New Zealand.

Do Digital Nomads Pay Tax in New Zealand?

You can work remotely tax-free for up to 92 days or 183 days, depending on whether your home country has a double tax treaty with New Zealand. This period will lengthen under the changes in the August 2025 Tax Bill.

92-Day Rule

Right now, digital nomads are exempt from tax under the 92-day rule if their visit is not more than 92 days in each 12-month period, their income is taxable in their home country, the services they perform are for non-residents and they are not a public entertainer. [ii] The days they arrive and depart are included in the number of days present.

183-Day Rule

If a digital nomad’s home country has a double tax agreement (DTA) with New Zealand, the number of days in New Zealand can be extended from 92 days to 183 days. Each DTA is slightly different so check the wording for the specific country of origin. These agreements typically state that the digital nomad must be in New Zealand for 183 days or fewer in any 12-month period, their employer is not tax-resident in New Zealand and doesn’t have a permanent establishment in New Zealand and their employer can’t claim a tax deduction in New Zealand for the cost of the digital nomad’s salary and wages.

Digital Nomad’s 275-Day Rule under the August 2025 Tax Bill

A new bill was introduced in August 2025, extending the tax-free period for digital nomads. The Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Bill has not yet passed into Law so there may be technical changes before being enacted.

A natural person will qualify as a “non-resident visitor” for tax purposes if they arrive in New Zealand on or after 1 April 2026 and are present for 275 days or fewer in an 18-month period, including the day of arrival and departure. They cannot be a New Zealand resident or transitional resident immediately prior to arrival. They would be lawfully in New Zealand under the Immigration Act 2009 and tax resident in a jurisdiction with similar tax laws to New Zealand. They would not be receiving a family scheme entitlement like Working for Families Tax Credits (nor their spouse, civil union partner or de facto partner).

The type of remote work is the same as described above. The digital nomad would not be working for a New Zealand resident or New Zealand branch of a non-resident. They would not do work for goods or services from persons or businesses in New Zealand. They would not do work which requires the person to be physically present in New Zealand.

The August 2025 Tax Bill extends the concessions to entities associated with a “non-resident visitor”. This means that the presence of the non-resident visitor won’t make an entity tax resident in New Zealand under the centre of management test or director control test.

The New Zealand Government hopes that the new 275-Day Rule for Digital Nomads will encourage more tourists to stay and spend in the New Zealand economy for longer. [iii] Tourism is New Zealand’s second biggest export earner, with visitors spending $16.9b in the March 2024 year and 1 in 9 New Zealanders directly or indirectly employed in tourism [iv] . Is your business poised to welcome more international visitors?

- Serena Irving

Download a PDF version here or contact the author by email. Like our Facebook page for regular tips

[i] https://www.immigration.govt.nz/visit/checking-or-changing-the-conditions-of-your-visitor-visa-or-nzeta/working-remotely-in-new-zealand-on-a-visitor-visa

[ii] https://www.ird.govt.nz/roles/non-residents/non-resident-employees

[iii] https://www.beehive.govt.nz/release/tax-bill-grow-economy-and-ease-cost-living

[iv] https://www.tourismnewzealand.com/news-and-activity/tourism-plays-vital-role-in-economy-as-new-zealands-second-largest-export-earner

Am I Paying the Right Amount for ACC Levies?

Thu, 25 Sep 2025 02:55:03 GMT

NZ residents are covered for injury by Accident Compensation, whether your injury takes place at work, home or when you’re out. This scheme is funded by levies you pay as an employer, shareholder-employee or self-employed person.

How are ACC Levies Calculated?

Levies are calculated on income in three ways: earners’ levy, work levy and working safer levy.

The Earner’ levy is a flat rate assessed each year currently $1.45 for every $100. If you receive PAYE income, the ACC Earners’ Levy is part of the PAYE deductions. If you are self-employed or receive a non-PAYE shareholder salary, then you are invoiced after you file your income tax return.

The Work levy is based on the risks involved in your industry and your claims history as well as the size of your payroll.

The Working Safer Levy is a flat rate collected to fund WorkSafe New Zealand.

There is an optional Cover Plus Extra (CPX) scheme for self employed people to get an agreed level of cover. This is described further below.

ACC also charges Motor Vehicle levies, as part of the cost of petrol and vehicle licence fees.

Am I Paying Too Much ACC Levies?

You may be paying too much ACC levy, if you have not chosen the correct business industry classification, your liable earnings are over the maximum threshold or you have ceased activities.

Choosing the Right ACC Business Industry Classification

You are asked to provide your business industry classification (BIC code) when you lodge your income tax return. If you don’t declare a classification, ACC defaults you to Manufacturing, which may be a higher rate than your actual industry rate. Look for your BIC code here , estimate your levies here or download the 150-page guide here .

Be specific about the type and extent of the activity you do to find the closest match. Even within an industry like construction, there are a multitude of choices.

Multiple Business Activities

If you have a business which includes office workers as well as labourers or factory workers, then the highest Worker Levy rate applies to all their earnings. If there’s more than one description at the highest rate, use the BIC code that relates to the largest liable earnings at that rate.

If you’re self-employed, the highest Worker Levy rate came from less than 5% of your self-employed earnings, then you can use the next highest Worker Levy rate.

As subcontractors pay their own ACC levies, you don’t have to include their activities in your choice of business industry or your liable earnings. For instance, if you are a building developer and engage subcontractors to do your labouring, then you don’t need to choose the more expensive levy codes but the lighter “Construction services and property developer – all trades subcontracted”. A word of warning here, don’t handle any tools on the worksite!

In limited circumstances you can apply to ACC to use multiple Classification Units (CUs), when your business operates in different industries. You need distinctly independent activities, each activity has different external customers, one can operate continuously without the other. Producing raw materials in one factory to supply to your manufacturing factory would not be considered separate. For instance, we have a client which earns income from a pilates studio and a flooring consultancy and has applied successfully to use multiple CUs. We were able to show earnings for employees under each activity and produce management accounts for each activity with separate sales and cost of sales data.

Passive Income Partnership

Partnership income is automatically assumed to be from a liable activity. The BIC code should describe the activity of the self-employed person within the partnership rather that the activity of the partnership. But if your partnership is only earning income from passive activities like interest, dividends or residential rental income, then let ACC know this, so they can flag your income as non-liable.

Earnings Over the Maximum Threshold

If an employee or shareholder-employee receives income over the maximum threshold, you will only be levied up to the maximum. The maximum earnings threshold for 31 March 2026 year is $152,790 [i] .

If an employee has multiple employers, or some combination of PAYE, shareholder earnings and self-employed income then the employee may be levied in full, from all these sources.

You can apply directly to ACC for a review and refund of your overpayment here .

Self-Employed Part Time

There is a minimum levy charged to self-employed people. It’s not published on the usual websites, but we know from recent client invoices for 2024-2025 year, it was based on $44,250 earnings. If you are self-employed and work less than 30 hours a week, your status can be marked Part Time. Your levy is calculated on your actual earnings not the minimum levy amount. You will need to advise ACC of your part time status.

Ceased Trading

Each ACC levy invoice includes a washup for the previous year and a provisional amount for the current year. When you cease trading, you can apply to ACC to assess a final levy and to refund provisional levies overpaid [ii] .

Am I Not Paying Enough ACC Levies?

Underpaying ACC becomes an issue at claims time for self-employed people. If you have an accident and can’t work, ACC will compensate you up to 80% of your taxable income after the first week, based on the most recently completed financial year [iii] .

Recently Started Trading

“The most recently completed financial year” is problematic if you have an accident in your first year, as you have no earnings history.

Recent Increase in Earnings

Similarly, recent increases in current profits won’t be reflected. Compensation is based on the previous complete year.

Unfiled Tax Return

If your income tax return is not yet filed at Inland Revenue, that can cause delays in calculating your correct compensation claim. You could be spending your injury time searching for records to give to your chartered accountant, instead of resting and recovering.

What is CoverPlus Extra (CPX)?

CoverPlus Extra (CPX) is an ACC insurance product for self-employed and shareholder employees, which lets you choose upfront how much of your income you want covered if you have an accident and can’t work [iv] .

It is useful for those who are new to business, with no earnings history, as you don’t have to provide proof of income. It is also useful to those who have fluctuating incomes, as you have some certainty.

Some self-employed and shareholder employees work with their insurance advisors to cap their level of ACC cover through CoverPlus Extra and use those savings for other insurance products: income protection, medical, disability, trauma cover and include cover for non-accident events.

It Pays to Review your ACC Cover Annually

Talk with your insurance adviser to ensure that you have the appropriate cover for your current circumstances. This may include CoverPlus Extra (CPX). If you have just started or stopped a business, then it is even more important that you choose an appropriate level of ACC cover. At the same time, take the opportunity to review your other personal insurances with them, like income protection, medical, trauma and life insurance.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

An article like this, which is general in nature, is no substitute for specific insurance advice. If you want more information about the issues in this article, please contact your insurance adviser. JDW does not offer insurance advice, but we are happy to recommend a good insurance adviser to you.

[i] https://www.ird.govt.nz/income-tax/income-tax-for-individuals/acc-clients-and-carers/acc-earners-levy-rates

[ii] https://www.acc.co.nz/for-business/update-your-business-details/stopped-business

[iii] https://www.acc.co.nz/for-business/understanding-your-cover-options/types-of-cover-for-self-employed

[iv] https://www.acc.co.nz/for-business/understanding-your-cover-options/optional-cover-coverplus-extra-cpx

Why “Cost Plus” Might Be Costing You

serenai@jdw.co.nz (Serena Irving) — Sun, 13 Jul 2025 21:20:07 GMT

A Pricing Wake-Up Call for Small NZ Businesses

If you’ve built your pricing strategy around “cost plus,” you’re not alone. It’s a simple, logical place to start. Tally up your costs, add a margin, and you’re done. Easy, right? The uncomfortable truth is that this approach is starting to fall apart in today’s environment, and it’s putting pressure on small product-based businesses across Aotearoa. Margins are tighter, customers are more selective, and retailers? They’ve never been pickier.

So, if you’ve ever thought “My margin used to work, but now there’s nothing left,” or “I’m selling more but making less,” it might be time for a pricing reset.

Let’s dig into what’s going wrong, and what you can do about it.

What is Cost-Plus Pricing, and Why It’s Not Holding Up Anymore?

Cost-plus pricing is the classic “add 40% to my costs” model. The idea is that by marking up your input costs, you’re guaranteed a profit. The reality? It rarely works like that, especially in FMCG (fast-moving consumer goods).

Here’s why it’s getting harder:

You’re underestimating costs. Freight, packaging, storage, and even retailer terms often get overlooked. A “healthy margin” evaporates fast when you factor in free fills, promo funding, or volume rebates.
Your margin doesn’t match the category. Retailers expect specific margins by category. If you don’t know what the margin hurdle is you could be pricing yourself out of contention, or into trouble.
Your RRP (recommended retail price) might not make sense to the shopper. Just because your maths says $5.90 doesn’t mean shoppers will agree. And in tough economic times, price sensitivity is real.

5 Questions Every Business Owner Should Ask Before Setting Price

Whether you're a startup launching your first SKU or a seasoned operator preparing for a range review, these questions will save you time, and possibly your business:

What are my true costs including everything from freight to free samples and price discounts?
What gross margin am I left with after retailer margin?
What price does the category expect - and can my brand support it?
Am I building in profit to fund marketing, growth, and future investment?
If my costs go up, do I have room to absorb it, or will I have to panic hike prices later?

What to Do Instead: Smarter, Strategic Pricing Moves

Let’s not throw the calculator out entirely, just upgrade how you use it. Here’s what to focus on:

1. Start with Value, Not Just Cost

Work backwards from what the market will pay. What are similar products selling for? What does the shopper expect to pay for your type of product? If your product has a point of difference (like clean ingredients, functional benefits, or sustainability claims), then own it, but be sure you can defend it at shelf.

2. Build in Fat - Then Test It

Every growing business needs margin “fat” to absorb shocks. That might mean starting with a 60% margin instead of 40%. Don’t assume you can always pass cost increases on, plan to protect your margin instead.

3. Model Different Scenarios

Use a basic spreadsheet to test multiple pricing scenarios. What happens if your ingredient costs rise 10%? What if your retailer asks for an extra 5% trade spend? What does that do to your bottom line?

4. Align Pricing With Channel Strategy

Your direct-to-consumer pricing can’t just be “same as supermarket.” You need to build enough margin in your wholesale price to cover trade spend, promotions, and agency support. Too many brands set their retail and wholesale pricing too close together, then get stuck when retailers want margin they simply can’t offer.

5. Don’t Wait for your Annual Accounts

Pricing isn’t just a finance task, it’s a business strategy. Waiting until year-end to realise your products aren’t profitable is a recipe for burnout. Review your pricing quarterly, especially if you’re launching new products or scaling up.

A Note to the Optimists

If this sounds like a harsh reality check, good. Because pricing should feel uncomfortable. It’s where value meets vulnerability and it’s one of the most powerful levers in your business.

But here’s the good news: once you get it right, everything else starts working better. You can afford better packaging. You can fund marketing without fear. You can grow with confidence, not crossed fingers.

Your pricing strategy doesn’t have to be a guessing game or a guilt trip. It just needs a bit more rigour than “cost plus 40%.”

TL;DR (Too long; didn’t read)?

Here's Your Pricing Health Checklist:

✅ I know my full cost breakdown

✅ I understand what margin my retailers expect

✅ My RRP makes sense to the shopper

✅ I’ve modelled margin at full price and promo price

✅ I have a clear reason why I charge what I do

Need help pressure testing your pricing model? Ask your chartered accountant to run a margin model with you, or book a working session with someone who understands retail mechanics, margin maths, and market realities.

Because the quickest way to go broke in business? Is to price for hope, not for profit.

- Janine Chamley https://www.pitchfork.co.nz

We’re delighted to bring you a guest blog from Janine Chamley, at Pitchfork FMCG Consultancy. In her 25 years+ of working across a huge range of brands and business, she’s learnt a whole lot about what works (and what doesn’t) along the way. Her career has been a journey from category analyst through to Head of Marketing, and Global Innovation & Category Manager for some of New Zealand’s largest organisations. Switching sides to work as a retail Category Manager (Buyer) for over three years, and managing a $30m+ portfolio of brands & suppliers - gave her the insights on where small brands often get lost dealing with big retailers.

JDW Chartered Accountants Limited is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists. We partner with our clients throughout the year, not just at year end.

Preparing Your Business For Sale

serenai@jdw.co.nz (Serena Irving) — Fri, 27 Jun 2025 02:14:11 GMT

What is your business exit strategy? Selling a business at the best value takes planning and preparation.

Plan to Sell Your Business Before You Need to Sell

Selling a business is often one of the biggest financial decisions a business owner will make — it’s the sale of a major asset they’ve spent years building. Early planning and preparation can make a huge difference in the outcome. Some business owners leave it too late, and they (or their estates) are disappointed at the price they get.

Here are a few key areas that business owners can focus on during the planning stage — areas that can help maximise the value of the business and also make it more attractive and easier to sell when the time comes.

Maximise Profitability

Profit is often the first thing buyers look at. Buyers often comment “Our family spends $120,000 a year — we just need a business that earns at least that.”

The earlier you plan for this, the better — because you can’t go back and change the numbers on your financial reports. Once your GST return and tax return are filed, those figures are final. Buyers often ask for the past three years’ annual reports. If you’ve padded your expenses to save tax, they may look less attractive to a buyer.

One of Serena’s clients targeted a printing company to purchase. The previous year’s annual report had not been completed, company assets included a hangar, and aeroplane and the running costs of the aeroplane were included in business expenses. The client had several meetings with the seller to verify what the real costs of the business were, and each expense category was evaluated, before an offer was made.

One of Grace’s retail clients had 35% gross profit margin on the financial report shown for this year, and 23% for the year before. When she asked why, the answer was simple: they didn’t do a stock count at year-end.

Review your financials at least a couple of years before going to market. Look at how you can increase sales, reduce unnecessary costs, and clearly separate personal expenses from business ones. Consistent revenue and profitability over the past two to three years not only attracts more buyers — it also gives them confidence to make a strong offer.

SOP Manual & Upgraded Systems

Next, make sure the business isn’t dependent on you, the owner. If all the business goodwill is because of the owner’s connections and experience, then that goodwill evaporates when the owner is gone.

We’ve seen businesses continue operating the same way they did ten years ago — no written procedures, outdated software, and everything in the owner’s head.

On the other hand, we’ve worked with owners who have introduced cloud-based tools. — where they can instantly see what’s in stock, what products are moving, and what isn’t. That data helps them make better decisions — and helps buyers see the business is well-organised and can run without the owner’s daily involvement.

A proper SOP (standard operating procedures) manual and upgraded systems make a business more scalable, easier to manage, and far more attractive to buyers.

Identify, Reduce, and Mitigate Risk

Red flags don’t go unnoticed. For example, review your lease document which you might signed years ago and completely forgot what the terms are.

Check how long is left on the lease? When is the final expiry date? When is the next rent review? If the lease is expiring soon, check if the landlord likely to offer a longer term? If a rent review is imminent, what is the new rent? This will impact profitability. In most cases, it’s better to find this out early — rather than leave it to the buyer to negotiate.

Serena’s client found out the landlord of the printing company did not want to renew the lease, despite the representations made by the seller. The purchaser walked away from negotiations at that point. Several months later, the seller came back with a new offer for a substantially lower figure, provided that the purchaser paid the cost of moving the printing equipment to its new home and agreed to employ key staff.

Other things to consider include:

• Ensuring key staff have proper employment contracts in place

• Documenting supplier or customer agreements

• Reviewing how much stock is held

• Checking that all equipment is in good working condition

Tidying these up before going to market can significantly reduce buyer hesitation — and may even improve your negotiation power. The goal is to present the business as stable, low-risk, and well-managed — something a buyer can confidently step into and grow.

Bonus – A Good Handover Builds Buyer Confidence

One last point that often help to seal the deal is offering a good handover and post-settlement support. When the seller is willing to stay on for a few weeks to train or support the buyer, it gives the new owner confidence. Especially if they’re a first-time buyer or new to the industry, that support can make all the difference and smooth the process. This shouldn’t be open-ended. Agree on a fixed term, hours, working conditions and pay rates for the support and make sure it is in a written employment agreement.

Conclusion: Don’t Leave It Too Late

If selling is part of your eventual exit strategy, don’t wait until you must sell. Serena recently met the adult children of a retailer who passed away suddenly. While grieving, they’ve been forced to step into the business with no preparation—trying to decipher old paper records, manage suppliers, and deal with rooms full of unsaleable stock. It’s been overwhelming and heartbreaking.

Contrast that with a planned sale: tidy systems, a clear handover, and a good price that lets you retire on your terms.

Preparing now gives you options later—whether that’s stepping away entirely, taking on a new business partner, or simply knowing your business is ready for sale when the time comes.

- Grace Zhang and Serena Irving

Grace Zhang is from LINK business brokers in Ellerslie, Auckland. If you know anyone who’s thinking about selling “one day,” Grace offers free, confidential appraisals to help them understand where they stand and what steps to take next.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

An article like this, which is general in nature, is no substitute for specific business broking, accounting and tax advice. If you want more information about the issues in this article, please contact your adviser or the authors.

Investment Boost – NZ Budget 2025

serenai@jdw.co.nz (Serena Irving) — Wed, 11 Jun 2025 04:55:39 GMT

Budget 2025 has landed - and with it, a new tax incentive for business investment.

What is the Investment Boost?

From 22 May 2025, businesses can claim an immediate 20% tax deduction on the cost of eligible productive assets, with the remaining 80% depreciated as usual. This provides an early tax benefit, accelerating the depreciation claimable in the year of purchase.

The Government is hoping to increase business productivity by encouraging investment in capital assets.

What counts as a Productive Asset?

Machinery, tools, equipment, vehicles and technology count as productive assets. Even commercial buildings are included. The inclusion of commercial buildings is interesting, because they have not been allowed a depreciation deduction since 1 April 2024.

What is excluded from Investment Boost?

Land and residential property are excluded from Investment Boost, though you may be able claim some improvements like fences. Second-hand assets previously used in New Zealand are excluded from the Investment Boost, but you could choose to import second-hand plant and equipment from overseas.

Investment Boost excludes trading stock, fixed-life intangible assets like patents, and assets fully expensed under other rules.

You can read more about Investment Boost on the Budget 2025 factsheet [i] .

Why You Shouldn’t Just Go Out and Spend, to Save Tax

A tax saving is not going to recoup 100% of your spending on a productive asset. If your company spends $10,000 excluding GST on a new machine, the immediate tax saving is $560 ($10,000 x 20% x 28% tax rate). The rest of the tax saving follows depreciation, so you have a tax saving of $2,800 over the life of the machine.

If you later sell the machine for more than book value, you will need to declare depreciation recovered as income. Even if part of the depreciation recovery was part of the investment boost deduction.

What Questions Should I Ask before Buying a Productive Asset?

How Does this Purchase Align with Our Business Strategy?

If your business is expanding to new products or markets, you need the resources for the expansion. Remember to factor in the costs associated with expansion such as installation, hiring new staff, training, management, inventory growth.

Will this Purchase Positively Impact Efficiency or Output?

Consider your current production capacity. If you are currently at full capacity on a production bottleneck, then adding another resource may help to reduce that bottleneck.

On the flip side, you may need to invest because obsolescence will negatively impact productivity. At JDW, we are investing in new Windows 11 computers and laptops because the old Windows 10 computers are not being supported after October 2025.

Can We Make a Purchase with Current Cashflow or Finance Arrangements?

Review your cashflow and decide whether you can use cash or look at financing options. Cash is better suited for maintaining working capital. Financing options may involve your regular banking options or using asset finance lenders.

What is the interest cost of borrowing? What is the opportunity cost of buying a capital asset? Does it mean you must make cuts elsewhere to fund it? Compare your expected return on investment with the cost of capital.

Tax Saving is one consideration

The Investment Boost is a great incentive for business, but before you rush out to spend, remember to ask yourself: Will this asset improve efficiency or output? Can you afford it without straining cashflow? What are our financing options and how does it compare to our return on investment? Does the timing suit our overall strategy?

If you’re considering a big purchase, let’s talk it through. At JDW, we can help you weigh the pros and cons – tax-related and otherwise – so you invest wisely.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

[i] https://budget.govt.nz/budget/pdfs/releases/l25a-factsheet-investment-boost.pdf

NZ Budget 2025 - Key Takeaways

serenai@jdw.co.nz (Serena Irving) — Tue, 27 May 2025 04:15:40 GMT

On 22 May 2025 the Coalition Government released its second budget, dubbed the fiscally conservative “no BS budget”. Below are the key takeaways:

Investment boost

A new tax incentive which allows businesses acquiring productive assets to immediately deduct 20% of the cost of a depreciable asset in the year of acquisition, in addition to normal depreciation. This means businesses will face a lower tax bill in the year of purchase.
The incentive applies to all new assets purchased in New Zealand, as well as new and used assets imported from overseas. It applies to new commercial buildings (even those not ordinarily depreciable) but does not apply to residential buildings.

KiwiSaver

Government KiwiSaver contributions halved to 25 cents per dollar contributed, capped to a maximum of $260.72 p.a.
Removing the Government contribution for members with taxable income over $180,000 p.a.
Increase the default employee and employer contribution rate from 3% to 4% over a 3-year period:

- 3.5% from 1 April 2026

- 4% from 1 April 2028

Members who are under financial stress can apply to Inland Revenue for a temporary reduction of their contribution rate to 3%
Extending the eligibility to receive employer and Government contributions to 16- and 17-year-olds.

Thin capitalisation

To encourage foreign investment into New Zealand, $65m has been set aside for changes to the thin capitalisation rules, pending the outcome of consultation on the details.

Employee share schemes

Allow employees to defer the tax liability that arises on income from certain employee share schemes, e.g. start-up companies, to be deferred until a liquidity event occurs, such as the sale of the shares.

Increased funding for audits and tax collection

Increased funding of $35m has been allocated to Inland Revenue for compliance and tax collection. This is expected to have a return of 4:1 in 2025/26 and 8:1 in 2026/27 and beyond, being a mix of increased tax revenue and decreased debt impairment.
Pay equity overhauled, increased spending in health, education, law & order, and defence
Government spending slashed by an average of $5.3bn p.a. for the next four years.
Half of the savings result from the overhaul of the pay equity thresholds.
New spending of $6.7bn a year - mostly through increased budgets for health, education, law and order, and defence.

Other changes

The Government will proceed with FBT reform proposals to modernise the rules and reduce compliance costs.
Best start child payments to be fully means tested.
Welfare for 18–19-year-olds now subject to a "parental assistance test" to prove their parents cannot support them.
Student loan repayment thresholds frozen.

Our view

The Investment boost brings a depreciation tax saving forward. It has a positive cashflow effect for businesses, but it means that there will be less depreciation tax saving in later years. Before you rush out and spend, stop and check if this fits with your strategic priorities. This policy benefits investors in new commercial and industrial buildings most, because they will get a 20% tax deduction in the year of construction, even though commercial and industrial buildings are not normally depreciable from 2025 income year.

Kiwisaver balances will increase because of the increase in employee and employer contributions, and it’s good to have the scheme extended to working 16- and 17-year-olds. Employers will need to find further productivity gains to cover the additional labour costs. We are sad to see Government cutting back its own support for Kiwisaver, when its only saving $261 per person per year.

Don’t get me (Serena) started on changing the Pay Equity goalposts! It’s a good way to alienate 51% of the NZ voter base, by throwing out 33 pay equity claims and making them reapply under the new law [i] . It was not tested in a general election and should have been.

Means testing for Best Start child payments is welcome, but the abatement kicks in at quite a low threshold of $79,000 per household [ii] . Average annual household income was $134,599 at June 2024 [iii] , so this will hit most new parents. On the flip side, some of these families will recoup some of their reduction by the increase in Working for Families thresholds. Means testing for Jobseeker and emergency benefits, may mean our kids will live at home longer.

It’s no surprise that IRD is receiving a boost in funding for audits and tax collection. With a return on investment of 4 to 8 times, it is a winner for the Government coffers. What is a surprise is that the Government surplus is getting pushed out further every year. Or is it? Maybe we should be prepared for more tax audits and fewer takeaways.

- Commentary from Knowledge Shop New Zealand Limited, with additional views added by Serena Irving, JDW Chartered Accountants Limited.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

[i] https://www.rnz.co.nz/news/political/560849/pay-equity-claims-what-they-are-and-how-they-re-changing

[ii] https://www.rnz.co.nz/news/political/561888/tens-of-thousands-of-families-will-be-worse-off-under-budget-changes-to-best-start-tax-credit

[iii] https://www.stats.govt.nz/information-releases/household-income-and-housing-cost-statistics-year-ended-june-2024

Mastering Month End

serenai@jdw.co.nz (Serena Irving) — Sun, 04 May 2025 22:42:27 GMT

Still working late at month end? Would you like to have your monthly accounts closed off by Day 3? Preparing financial reports requires a balance between accuracy and timeliness. Read on for our tips to reducing month end stress and influencing better decisions.

Why close monthly accounts by Day 3?

How long does it take you to close each month? If we can shorten the time it takes to prepare monthly management reports, we can get the information to make better decisions sooner. We tie up less time making out-of-date reports and we reduce stress. We have more time to analyse the results and make recommendations.

There’s no use holding up month end because you’re missing a $30 mobile phone bill. On the flip side, if you miss out $30,000 of unbilled work in progress you will skew your results for the month. These larger sums are more material to your report, so how can you make sure that you have this data available?

Keys to Mastering Month End

The keys to mastering your accounting month end are consistency, timing, communication, templates and automation.

Consistency

Regular attention to accounting tasks throughout the month, means less rush at month end.

Invoice your customers when the job is completed. This helps your cashflow too! Contact overdue debtors the day after due date. Reconcile your bank account daily. Follow up on bank queries and errors as they arise.

Record credit card expenses as spending happens rather than waiting for the credit card statement. Remind team to submit their pay records as they go. Make it easy for them to clock in and out, and record against client jobs. Close payroll as soon as wages are prepared.

Timing

Start your month-end cycle before the end of the month.

Count stock and compare to stock records during the month. Hold a WIP (work in progress) meeting before month end to understand project expectations, so you can rapidly determine WIP as soon as the purchase ledger is closed.

Train your suppliers to invoice you by Day 1 or 2 of following month. If you are reliant on supplier information for customer invoices, ask your key suppliers to bill you earlier e.g. 25th instead of 30th. Start your month-end creditors run before the 28th.

Templates and Automation

Save time with templates and automate tasks where possible.

Prepare repeating standard journals for insurance prepayments, supplier accruals, depreciation, interest on finance leases. Create a template for your graphs and monthly report pack. Make notes on variances during the month as they occur, such as production issues.

Communication

Accounting reports are reliant on inputs from other departments. Impress upon production department managers the importance of them providing their inputs on time. You can help them with timely analysis, so they can manage their departments better.

Reports that Matter

Review the financial results and think about the story that it tells. Why do I need to mention this? What needs to be done about it? Write your insights and provide the financial information to support your insights. Consider your audience, by including simple graphs and explanations and by avoiding jargon. If a material change happens after your month end report is prepared but before the next Board meeting, note it in your summary.

Answer key questions: are we profitable? Are we meeting budgets and strategic goals? If sales and gross margin are down, is it a volume or price issue? What are the trends and exceptions?

Month End doesn’t need to be a Drama

The keys to mastering your accounting month end are consistency, timing, communication, templates and automation. Plan your time wisely, focus on material items and key metrics to support your business’s strategic goals. Disclose insights in a report for a non-technical audience to understand and drive better decisions. You can do this and reclaim your evenings.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

Proposed FIF Rule Changes 2025

serenai@jdw.co.nz (Serena Irving) — Wed, 26 Mar 2025 22:59:42 GMT

The Government announced its intention to introduce a revenue account method of calculating Foreign Investment Fund (FIF) income in March 2025.

What is the Proposed FIF Revenue Account Method?

The Foreign Investment Fund rules target NZ resident investors with offshore investment holdings, where their interest is below 10% of that entity. It calculates a taxable income for those holdings even when the investor does not receive a dividend or other distribution in that year.

The proposed Revenue Account Method is calculated as follows:

Dividends received + 70% of realised capital gains.

70% of any realised capital loss would be offset against Revenue Account income in the same or a future year. There may be an exit tax if the person ceases to be a NZ tax resident, but the details have not yet been published. You can find an example calculation on the IRD factsheet [i] .

This proposed method differs from the other methods in that it doesn’t tax unrealised gains. If the taxpayer didn’t sell their foreign investments, they would only pay tax on dividends. This would be an optional method. Taxpayers could choose to use an existing calculation method if they wished (see below).

Who the Proposed Revenue Account Method Applies To

The proposed Revenue Account method would apply from 1 April 2025 to new or returning migrants who became fully tax resident (at the end of their transitional tax resident exemption period). The transitional tax resident exemption period of four years applies to new migrants and returning tax residents who were not tax resident in the 10 years before returning. It can also be used by trusts if the principal settlor was able to use the method.

For most people, the proposed Revenue Account method only applies to FIF investments in unlisted entities they acquired before becoming NZ resident. But the proposed Revenue Account method can be applied to all FIF investment for those taxpayers subject to tax on a citizenship basis.

Current Foreign Investment Fund Rules

If the FIF exemptions do not apply, you may use the lower of Fair Dividend Rate (FDR) or Comparative Value (CV) if you are an individual or a trust. Companies must use FDR except in some circumstances. If market value is not readily available, you can use the Cost method (CM). You cannot claim losses using FDR, CV or CM, except for Forced CV investments. There are two other methods which are rarely used: Deemed Rate of Return (DRR) method and Attirbutable FIF Income method, so we have not explained them here.

This is a brief summary. You can download a detailed IRD guide [ii] for more details.

FIF Exemptions

The following foreign investments are exempt from the FIF Rules. You need to include dividend income in your tax return.

FIF investments costing less than NZ$50,000 – this de minimis exemption applies only to individuals, not companies or trusts.

ASX-listed Australian companies – Affected companies are on the official ASX list [iii] , is Australian resident, maintains a franking account and offers stocks that are not stapled.

Foreign superannuation schemes – that are not “FIF Superannuation interests” (acquired when NZ tax resident, or prior to 1 April 2014 when non-resident). Tax is payable when a lumpsum or pension is received, or if the interest is transferred to a NZ or Australian superannuation scheme.

Income interests of more than 10% in a controlled foreign company (CFC) - In active businesses you are not taxed on controlled foreign company income or losses. You may be taxed on providing some personal services. In non-active businesses you're taxed on your proportional share of passive income and losses.

Fair Dividend Rate (FDR) method

FDR is calculated as 5% of the opening market value + quick sale adjustments.

Quick sale adjustment is calculated when a taxpayer buys and sells the same FIF in the same income year and makes a gain. The adjustment is the lower of the actual gain and the peak holding amount, which is 5% of the difference between the maximum holding compared to the start or end of the year (which ever is higher) times the average cost.

Comparative Value (CV) method

CV is calculated as closing market value + gains – (opening market value + costs).

Gains include dividends received during the year. Costs include brokerage fees.

Cost method (CM)

CM is calculated as 5% of the opening value plus quick sale adjustment.

The opening value is zero in the year you acquire the FIF. The following year the opening value is arrived at by independent valuation or net asset value in public audited financial statements. The year after that, the previous year’s FIF income is added to the opening value. The quick sale adjustment is the same as the peak holding method used for FDR.

The Proposed Revenue Account Method is not yet Law

The proposal still must pass through several stages before becoming Law. It will be included in a tax Bill mid-year 2025. There will be a select committee process including public submissions. The proposal may go through several changes before it becomes Law.

If the proposal is passed, it will be a far simpler method to adopt than others, and kinder to investors as it doesn’t tax unrealised gains.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

[i] https://www.taxpolicy.ird.govt.nz/-/media/project/ir/tp/publications/2025/fs-fif-fund-rule-changes.pdf

[ii] https://www.ird.govt.nz/-/media/project/ir/home/documents/forms-and-guides/ir400---ir499/ir461/ir461-2024.pdf

[iii] https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-income/foreign-investment-funds-fifs/foreign-investment-fund-rules-exemptions/foreign-investment-fund-australian-listed-share-exemption-tool

Is Your Incorporated Society Ready for the New Act?

serenai@jdw.co.nz (Serena Irving) — Tue, 25 Mar 2025 02:48:20 GMT

Incorporated Societies must reregister by 5 April 2026, or they will cease to exist. We have put together a checklist to help your Incorporated Society prepare for re-registration.

We wrote about the key changes in our June 2022 blog “Better Governance for Members Inc.” The key changes were an increase in the minimum number of members, introduction of a governing body, officer duties, AGM and financial reporting deadlines, audit requirements depending on size, and disputes resolution. [i]

What financial reporting standards apply to Incorporated Societies?

An Incorporated Society’s financial statements must be filed with the Registrar within 6 months of balance date, under the Incorporated Societies Act 2022. In addition, the Incorporated Society must file an annual return, updating key information about the entity, such as address, officers and contact person details.

There are no changes for Incorporated Societies that are registered charities. They file their financial statements with the Charities Register.

A small society can prepare simple financial statements using cash or accrual basis accounting methods. It does not have to follow XRB accounting standards. Your society is a 'small society' if it is not a registered charity or donee organisation for tax purposes, and in each of the previous 2 financial years has total operating payments of less than $50,000, and total current assets of less than $50,000.

Large societies which are not charities follow XRB accounting standards under one of four Tiers [ii] .

Tier 4 - total operating payments less than $140,000 a year. Simple cash accounting.

Tier 3 - total expenses less than less than $2m. Simple accrual accounting.

Tier 2 – total spending $2m - $30m.

Tier 1 – total spending over $30m.

Charities follow XRB accountinf standards under the same four Tiers, but with different thresholds.

Tier 4 - total operating payments less than $140,000 a year. Simple cash accounting.

Tier 3 - total expenses less than less than $5m. Simple accrual accounting.

Tier 2 – total spending $5m - $33m.

Tier 1 – total spending over $33m.

Does our Incorporated Society need an Audit?

If an Incorporated Society is not a charity, it doesn’t need an audit until total expenditure of society and controlled entities exceed $3m.

If an Incorporated Society is a charity, it doesn’t need an audit until total expenditure of society and controlled entities exceed $1.1m.

You can include an audit requirement in the Constitution, even when expenditure is below the threshold. This increases running costs but will provide a greater level of comfort for your members and sponsors.

When do Incorporated Societies need to reregister under the Incorporated Societies 2022 Act?

Incorporated Societies must be reregistered by 5 April 2026 .

The steps to reregister involve:

A. Drafting a compliant Constitution

B. Identifying Committee (governing body)

C. Make decisions at an Annual General Meeting or Special General Meeting

D. Prepare officer paperwork

E. Prepare to keep society records

F. Apply to reregister

What Happens to an Incorporated Society which doesn’t want reregister?

If an Incorporated Society decides not to reregister under the 2022 Act, then it may appoint a liquidator or apply to be dissolved. It will need to follow its current rules to liquidate or be dissolved. After 5 April 2026, the society will be removed by the Registrar from the Incorporated Societies Register, if not previously liquidated or dissolved. After being removed from the Incorporated Societies Register, the society will no longer have a separate legal entity, limited liability, ability to sign contracts or name protection.

Where to find out more

Our reregistration process checklist is attached as a PDF . Incorporated Societies will need to work with their members and lawyers to update their constitutions. MBIE has a handy Constitution Builder to help you to draft a compliant constitution [iii] . You can also contact MBIE for guidance, but they can only give general advice not expert legal advice. [iv]

Your incorporated Society will need to re-register within the next twelve months, and you can expect that MBIE will be very busy in early 2026, so start the process now.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

Download a PDF version with checklist here or contact the author by email . Like our Facebook page for regular tips.

An article like this, which is general in nature, is no substitute for specific legal advice. If you want more information about the issues in this article, please contact your lawyer or MBIE.

[i] https://is-register.companiesoffice.govt.nz/law-changes-for-societies/key-changes

[ii] https://www.xrb.govt.nz/standards/accounting-standards/not-for-profit-standards/standards-list/explanatory-guide-eg-a1

[iii] https://isb.companiesoffice.govt.nz/constitutionbuilder/startscreen

[iv] https://is-register.companiesoffice.govt.nz/help-centre/reregistering/getting-ready-for-reregistering

Commercial Lease – What Every Landlord Needs to Know

serenai@jdw.co.nz (Serena Irving) — Wed, 12 Mar 2025 22:47:53 GMT

Taking on a new tenant in your valuable commercial or industrial property is a major step. Whether you're negotiating a new lease or renewing an existing one, it’s essential to understand the key terms before committing. This guide breaks down the critical factors every landlord should consider—so you can secure a long-term tenant for your property.

How to Choose a Commercial Tenant

If a prospective tenant has been in operation for a few years, then you can check how they behave in their current tenancy. Do they take care of the premises? Do they pay rent on time? Find out their reasons for shifting. For first time businesses, ask to see their cashflow forecasts, and what business experience they have.

For all prospective tenants, obtain a business credit report to find out the business’s credit history, who the key players are in the business, and whether they have been involved in failed businesses or had judgements rule against them. Do an internet search on the key players.

Securing Your Interests as a Landlord

You can register your interest on the PPSR website if the business lease is for at least one year. This can help you recover unpaid rent if the company can’t pay its bills. [i]

If this is the first time that a business has entered into a tenancy, then you may need to obtain additional security, such as a monetary bond which is refunded at the end of the tenancy. Or a personal guarantee from shareholders, directors or associated parties.

Presenting Your Commercial Property for Prospective Tenants

Finding a decent tenant is a bit like dating. Not only does your tenant need to be attractive but you need to present your property in its best light too. How can you make your property more appealing for prospective tenants?

First Impressions – Is the entryway clean, well lit and accessible? Do you have clean windows, have you cleared the space of rubbish? Is the paintwork and carpet in good condition?

Structural integrity – Have a seismic engineering assessment available to show that you do not have an earthquake-prone building, or that you have completed seismic work on the earthquake prone building. [ii]

Use of Space – Is there flexibility in the site’s use? Are there partitions marking out usable spaces? Do the kitchen and washroom facilities work? Are there onsite carparks, loading docks?

Subletting or Assignment

Subletting - If the tenant wants to bring in another business to help pay the rent, you need to give consent first.

Assignment – assigning the lease to a new tenant also needs your consent, even if the tenant is selling your business to the new tenant.

You need to do the same due diligence on subtenants and assignments as for your original tenants.

Permitted Use

The lease will define the business activities that are permitted on the premises and what limitations or restrictions. Sometimes the limitations are to support neighbouring tenancies. For instance, preventing two hamburger outlets next to each other. Or allowing office parking to be used for restaurant patrons after 5:30pm and weekends.

Your tenant should also check your local Council regulations around signage, business licences for their industry, waste management, opening hours, use of outdoor spaces in front of your premises and noise. As a landlord you need to be aware of the regulations, in case of complaints. This is particularly important for hospitality businesses, but also health and beauty and industrial production.

Insurance

You will need to ensure that you have adequate building insurance, public liability insurance and loss of rents insurance. Make sure that your insurance excess aligns with what you can recover from the tenants. You should also ensure that your tenant insures its fixed assets, stock, and has public liability and business interruption cover.

Is Leasing and Renting Commercial Property the same?

When we are talking about the formal contractual document, we usually talk about a commercial property lease for longer term arrangements and renting for short-term arrangements such as pop-up shops or co-working spaces. But in everyday business language we often use “rent” informally when talking about the expense and use rent and lease interchangeably in conversation.

Lease Period and Rights of Renewal

A lease period is the number of years and months that your tenant will be obliged to pay rent for the use of your premises. If the period is too long, they may have to continue to pay rent long after the business has ceased operating or moved to a larger premises. If the period is too short, then you will be looking for a new tenant and have longer periods of vacancy.

Rent reviews allow for changes to the rental charge. Decide how often reviews will be undertaken. Decide what method you will use, CPI indexing, flat rate, fixed percentage, independent assessment.

A right of renewal allows the tenant to extend the lease period under similar conditions but usually has a rent review built in to allow the landlord to adjust the amount for market conditions. A 3x3 lease is more flexible for the tenant than a 9-year lease, because at the end of each of the 3 years they can decide not to renew.

Rental Income and Outgoings

Commercial leases aren’t always the same rent each month. Some leases have a percentage rent calculation, which means that a percentage of sales is charged periodically on top of the base rent. This typically happens in malls. You may also have marketing levies and business association levies.

A commercial lease is different from residential, as the tenant is liable for costs in addition to rent. Operating expenses (Opex) often includes rates, building insurance, administrative costs, building management, repairs and maintenance. It’s worth getting an explanation of what’s included in opex upfront, to avoid surprises.

Financial Incentives and Key Money

Rent free period – A Landlord may offer a rent-free period to give a tenant access to the building to set up before they start trading.

Contribution to Fitout – This is where a landlord offers to reimburse the tenant all or some of the cost of fitting out the building. Alternatively you might offer a cash payment to induce a tenant to sign a lease with you. These are tax-deductible expenses.

Guarantees – You may ask the tenant to provide a personal guarantee as additional security for the landlord, as either a director or shareholder of the company. This means that if the business defaults on its rent or other obligations, the landlord can make a demand on the guarantor. You should get legal advice to understand the scope of the guarantee, what it means for you if a tenant defaults and when you can invoke the guarantee.

Key Money – This is a fee the tenant pays to the manager, landlord or current tenant to secure a lease, generally in a desirable area. It is not the same as a bond, as bonds are refundable at the end of the tenancy. Consider it as part of your rental income. Usually it is spread across the term of the lease.

Maintenance and Repairs

Commercial tenants are usually responsible for the maintenance and repairs of the building interior they occupy, and the landlord for the structural repairs. But check your contract, particularly if there are shared spaces with other tenants. Have regular inspections of the property, and periodic maintenance programs, so you aren’t reliant on the tenant to report faults. If your tenant advises you of a maintenance issue, get onto fixing it promptly.

When they exit their tenancy, tenants are usually responsible to “make good” the property, which involves returning the property to the state it was in when they first leased it. This may involve doing the actual work of removing fittings and painting, or it may involve a financial settlement with the landlord. If you decide to retain some or all of the fitout, negotiate a value for the fitout with your exiting tenant. The cost to you is considered depreciable property.

Consult with your Lawyer about Commercial Leases

You need excellent legal advice when you review your lease agreements before signing. They can explain terms that are in the agreement from your landlord that we haven’t touched on in this blog, such as access, demolition clauses. They can also advise you on what to add, remove or modify in the agreement to suit your business needs.

A well-negotiated commercial property lease can save you money, reduce risk and provide the flexibility your business needs to grow. Before you sign, take the time to seek professional advice, understand the terms and the financial commitment you are undertaking. Be prepared to negotiate either directly or through your lawyer, to prevent major headaches later. Whether you’re entering a new lease or renewing an existing lease, the lease terms need to work for the life of your business.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

An article like this, which is general in nature, is no substitute for specific accounting, legal and tax advice. If you want more information about the issues in this article, please contact your legal adviser or the author.

[i] https://ppsr.companiesoffice.govt.nz/help-centre/getting-started/why-you-might-use-the-ppsr

[ii] https://www.building.govt.nz/managing-buildings/managing-earthquake-prone-buildings/about-the-earthquake-prone-buildings-system

Commercial Lease – What Every Tenant Needs to Know before Signing

serenai@jdw.co.nz (Serena Irving) — Thu, 30 Jan 2025 01:22:36 GMT

Signing a commercial property is one of the biggest financial commitment a business can make, sometimes eclipsing labour costs. Get it wrong, and you could face unexpected costs, restrictions, or even legal headaches. Whether you're negotiating a new lease or renewing an existing one, it’s essential to understand the key terms before committing. This guide breaks down the critical factors every tenant should consider—so you can secure a lease that works for your business, not against it.

Is Leasing and Renting Commercial Property the same?

Lease Period and Rights of Renewal

A lease period is the number of years and months that your business will be obliged to pay rent for the use of the premises. If the period is too long, you may have to continue to pay rent long after the business has ceased operating or moved to a larger premises. If the period is too short, then you will be looking for a new premises before you are ready to move.

Rent reviews allow for changes to the rental cost. Check how often reviews will be undertaken. Check what method they will use, CPI indexing, flat rate, fixed percentage, independent assessment.

A right of renewal allows you extend the lease period under similar conditions but usually has a rent review built in to allow the landlord to adjust the amount for market conditions. A 3x3 lease is more flexible for the tenant than a 9-year lease, because at the end of each of the 3 years they can decide not to renew.

Permitted Use

You should also check your local Council regulations around signage, business licences for your industry, waste management, opening hours, use of outdoor spaces in front of your premises and noise. This is particularly important for hospitality businesses, but also health and beauty and industrial production.

Subletting or Assignment

Subletting - If you want to bring in another business to help pay the rent initially, this can help you with rental costs. You do need to ask the landlord for consent first.

Assignment – assigning the lease to a new tenant also needs the landlord’s consent. Even if you are selling your business to the new tenant. We have seen a few business sales fall over recently, because they haven’t secured the lease assignment or the remaining lease period was too short.

Rental Costs and Outgoings

Financial Incentives and Key Money

Rent free period – A Landlord may offer a rent-free period to give you access to the building to set up before you start trading.

Contribution to Fitout – This is where a landlord offers to reimburse you all or some of the cost of fitting out the building. It reduces your capital cost.

Guarantees – You may be asked to provide a personal guarantee as additional security for the landlord, as either a director or shareholder of the company. This means that if the business defaults on its rent or other obligations, the landlord can make a demand on the guarantor. You should get legal advice to understand the scope of the guarantee and what it means for you and your personal assets.

Key Money – This is a fee you pay to the manager, landlord or current tenant to secure a lease, generally in a desirable area. It is not the same as a bond, as bonds are refundable at the end of the tenancy. Consider it as part of your rental cost. Usually it is spread across the term of the lease.

Maintenance and Repairs

As a commercial tenant, you are usually responsible for the maintenance and repairs of the building interior you occupy, and the landlord for the structural repairs. But check your contract, particularly if there are shared spaces with other tenants.

When you exit your tenancy, you are usually responsible to “make good” the property, which involves returning the property to the state it was in when you first leased it. This may involve doing the actual work of removing fittings and painting, or it may involve a financial settlement with the landlord. As you approach the final year of your lease, it worth setting funds aside for making good the property. A large proportion of the costs will not be tax-deductible because it is capital in nature, but not depreciable. It is worth asking the landlord if they want to keep any of the fitout before you remove it, because it will save you de-fit costs.

Consult with your Lawyer about Commercial Leases

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

JDW Case Study - Jackson Electrical Industries

serenai@jdw.co.nz (Serena Irving) — Tue, 21 Jan 2025 06:55:08 GMT

From its humble beginnings in an Epsom garage in 1977 to a multi-million-dollar export business, Jackson Electrical Industries has had JDW Chartered Accountants Limited alongside it all the way. This is a story of innovation, friendship and longevity.

Early Beginnings

Jim Jackson won a design competition while studying to become an electrician, and that sparked his keen interest in product design. The garage was replaced for a larger version in 1978, but the business outgrew it rapidly, so they moved to premises in Onehunga.

The Lifeguard Power Distribution System for construction sites was successful, as it was easily installed, provided a much higher level of safety for staff using power tools and is fully reuseable on the next construction site. The product is still in production today, though it has been redesigned and adapted for different environments over the years.

With help from his parents, Jim and Carolyne bought a rundown house in Onehunga and built their first factory. They have gradually acquired adjoining buildings and occupy around 8000m2 of building and employ 80 staff members.

Innovation by Design

Jim loves to find novel solutions to problems and has a knack of turning them into profitable products and services, such as the Rugged Light for construction sites, which can even work under water. Jackson Electrical Industries holds several patents. Safety is their first priority, so their products are often designed to higher standards than required by regulators. They were involved in introducing an IEC Standard for the Rugged Light.

Jackson operates some of the largest 5 Axis CNC (computer numerical control) machines in New Zealand. The CNC operation provides machined parts for not only Jackson Industries company products but they also undertake work for other companies involved in the manufacture of hydrofoils, aerospace componentry, marine propulsion, as well as complex moulds for decorative concrete panels used on large buildings, tunnels and motorways.

Their products require a very high degree of precision, so their concrete factory floor is 1.5 metres deep under their most recent CNC machine!

In 2010 they developed a complex polyester material called “CaroC” which enables them to produce complex moulds faster and cost competitively. To meet increasing demand, they installed semi-automated mixing and delivery operation for this complex resin, where they can batch mix up to 2 tons of material in single job lots. In 2015 Jackson Electrical Industries won the QBE Exporter of the Year Award.

JDW’s Services Grew alongside the Jackson Business

As time has gone on, Jim and his company’s requirements for accounting, tax and trustee services have increased. Our Tracy reviews the monthly management reports, comments on trends, discusses issues which arise and makes recommendations for provisional tax payments. We recently lent a member of our JDW team to Jackson’s in-house finance team, to cover an illness.

JDW has advised the family on appropriate ownership structures for their industrial and commercial properties and Murray continues to advise the family on trust matters. Tracy took care of tax matters for two societies which Jim chairs, Manukau Harbour Restoration Society, The Onehunga Enhancement Society and the Clarks Beach Public Wharf Society.

A Tale of Lasting Friendship

In 1977, Jim was looking for a local and trustworthy accountant and connected with Murray Wells. It was not long before Jim and Murray became close friends, and they have since co-owned yachts and holidayed together.

As Jim is passing on the Jackson torch to sons Mark and David, and Murray is passing on his JDW torch to Tracy Bian, the close connection between Jackson Electrical Industries Limited and JDW Chartered Accountants Limited remains strong, and we hope will last for many generations.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists. We are incredibly grateful to Jim Jackson and Jackson Electrical Industries for allowing us to present this case study and their photos.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

Tax Treatment of Staff Christmas Gifts

serenai@jdw.co.nz (Serena Irving) — Fri, 13 Dec 2024 02:06:04 GMT

Celebrating your team’s hard work is a year-end tradition—but have you ever wondered if your thoughtful gifts are also tax-smart? Before you pack those hampers or plan that party, let’s talk about the tax side of holiday rewards.

Cash Gifts - PAYE

If you’re paying a staff bonus—whether by direct deposit or cash in an envelope—you’ll need to record it in your payroll system. This includes grossing up the payment as a one-off to calculate PAYE, student loan repayments, and Kiwisaver contributions.

Example: Suppose an employee earns a gross income between $70,000 and $139,000 annually, has no student loan (so their PAYE rate is 34.53%, including ACC), and has opted for 3% Kiwisaver contributions. The employer also contributes 3% to Kiwisaver.

To provide a $300 net bonus, you would calculate:

Gross bonus = $300 ÷ (1 - 34.53%) = $300 ÷ 0.625 = $480

Kiwisaver employer contribution = $480 × 3% = $14

Total gross payroll cost = $494.

Gifts of Food and Wine - Entertainment

Christmas hams, Christmas cake, bottles of wine, boxes of chocolate, food baskets are lovely seasonal gifts. Food and beverage are available for the team member to consume at their leisure, so the entertainment rules apply in the same manner as the staff Christmas party. Only 50% of the entertainment expense is deductible for tax purposes.

The entertainment rules stretch to supermarket vouchers too, because they are typically used for food and alcohol purchases.

Gifts which aren’t Food – Fringe Benefit Tax

Beach towels, keep cups, Christmas tree decorations come under the free or subsidised goods section of the Fringe Benefit Tax rules. If you keep the cost of the gifts under the de minimis thresholds of $300 per person per quarter, then you don’t need to include them in your FBT return.

Where the value of all benefits paid to an employee in a quarter, not just the Christmas gift, exceeds $300 in the quarter the whole amount is subject to FBT. The maximum exemption an employer can claim in a year is $22,500. A client of ours gave their manager a Gucci handbag one year, and its cost was over $300, so the whole cost of the handbag should have been included in their company FBT return.

Prezzy Cards and Vouchers – Fringe Benefit Tax

Even though Prezzy cards and mall vouchers might potentially be used at the supermarket, they fall under the FBT rules mentioned above rather than the entertainment rules. Be aware that there is usually a processing fee built into the cost of Prezzy cards, whereas vouchers for a particular mall or store are usually for the value of the voucher with no fees.

Vouchers for harbour cruises, facials, helicopter rides, personal trainers, massage therapy also fall under the FBT rules.

Whether you’re giving cash, vouchers, or a tasty treat, understanding the tax rules can help you maximize the impact of your staff gifts while staying compliant. Thoughtful gestures go a long way in showing your appreciation, and with the right approach, they can be as rewarding for your team as they are tax-efficient for your business. A little planning now means you can focus on celebrating the Christmas season with peace of mind.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. She likes to receive gifts of chocolate or home baking for Christmas. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists.

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Tips for Relieving Holiday Deadline Stress

serenai@jdw.co.nz (Serena Irving) — Tue, 26 Nov 2024 20:48:57 GMT

Christmas is meant to be enjoyable, but it can be stressful time of the year if you are a rushing to get everything done before the holiday. We have some tips to helps you to get through this period, so you can ease into a restful break this year.

Make a List

There is so much to do before Christmas! Book summer holiday accommodation for family and pets; school holiday arrangements; Christmas functions to attend; product orders to pack, process and dispatch; Christmas presents to buy; social media blogs and posts to set up; work rosters and holiday payments to organise. IRD is chasing up taxpayers who haven't lodged their 31 March 2024 income tax returns. GST returns for November to be done.

The list seems endless, when it keeps rolling around in your head. It can feel less daunting, just by writing it down.

Use Cards or Post-It Notes

Take 5-10 minutes to list all the tasks you think need doing before Christmas. Set a timer. Write one task on each piece of card, Post-It note, or use a planning tool like Asana, Trello or Monday.com.

Prioritise: Sort Them by Importance and Urgency

Use the Eisenhower Matrix [i] to sort your cards into urgent vs not urgent, important vs not important. Now you will have four stacks that you can label: Do – Schedule – Delegate – Delete/Park. Put the Delete/Park tasks into an envelope in your drawer. If you have time later, you can refer to these. Look back at your other three piles and critically analyse them, using the guidance below.

Choose Your Language Carefully

Changing your words and thoughts from “I HAVE TO…” to “I prefer to…” or I choose to…” can make a huge difference in the way you approach your tasks. If a task is seen as an obligation or a chore, then we can imbue it with negative feelings and be more likely to procrastinate. If we focus on the positive feelings associated with completing a task, we are more likely to do it. For example, compare “I have to tidy the lounge before the family arrives...” with “I get to enjoy relaxing on the couch with my family on Christmas Day.”

Manage Expectations

Adjust the expectations of people around you and your own expectations. “Let’s agree not to have Secret Santa presents...” a month before Christmas may appear to be a Grinchy move on the surface, but it makes a lot of sense in many ways. Not only will you save time spent in a busy shopping mall carpark, but you’ll have less stress from trying to find the prefect gift for someone you barely know, or appearing grateful for some cringeworthy ornament, tasteless clothing or plastic gimmick which breaks as soon as you look at it.

Self-Care Matters

Taking time to look after your health is a must, for dealing with holiday deadline stress. Mindful practices, meditation, exercise, making healthy food choices between Christmas feasts and getting quality sleep will all help your resilience over the pre-holiday season. For more ideas check out this Heart Foundation blog [ii] .

Take Action!

Make a start! Schedule time at the start of day to work on a task that will have a big long-term difference. Set aside a time to talk with your delegate about the jobs you want them to take over. Do a couple of quick urgent items to get them off your list.

Quadrant 1: Urgent and Important – Do

These tasks require your immediate attention. If you spend too much time in this quadrant, you can feel the stress of constantly fighting fires. At the start of the prioritising exercise you may think that everything is urgent and important. But when you apply some critical thought, you can reduce this pile significantly.

Put due dates on your task cards or Post-It notes. Are the due dates fixed, or can they be delayed? Is it a task that you must do yourself, or can someone else be taught what to do? Can you adjust your expectations to reduce the pressure?

If a task is urgent, important and quick, do it first, such as handling a customer complaint. You can tick something off your list, bank a quick win and get some momentum before you tackle some bigger tasks.

Quadrant 2: Not Urgent and Important – Schedule

Tasks which are important for long-term success and have longer time frames need to be scheduled. If they are not scheduled, then they may quickly become urgent as a deadline approaches, or they may hinder future productivity. These might be tasks like strategic planning, a longer client project, employee training, or making decisions on capital expenditure or a new hire.

If you have a few important tasks to schedule, tackle the biggest and hardest one first, as Brian Tracy says “Eat That Frog!” [iii] Schedule time to work on the task early in the day, so the rest of your day goes more smoothly.

[i] https://asana.com/resources/eisenhower-matrix
[ii] https://heart.org/en/healthy-living/healthy-lifestyle/stress-management/holiday-stress-try-our-top-5-tips-for-a-healthy-holiday-season

[iii] https://www.briantracy.com/blog/time-management/the-truth-about-frogs

Quadrant 3: Urgent but Not Important – Delegate

These tasks need doing soon but can be done by someone else. It can be challenging to delegate to others, particularly if you are concerned that quality may slip, but it can lead to long-term benefits. The person you delegate to can benefit from new skills and experiences, career progression, job satisfaction, a feeling of empowerment and being part of the team.

For instance, I delegated the task of vacuuming the family car to my two children, then aged 10 and 7. It took them three times as long and they didn’t get all the sand out of the seat creases. But they enjoyed the autonomy and responsibility, they learned how to use the equipment, gained a useful skill and they had fun vacuuming while singing along with Taylor Swift. Each time they vacuum the family car, they get progressively better and faster at it.

Delegating involves setting aside time to talk with the person you are delegating to, ensuring that you have a mutual understanding of the scope and goals of the task. You need to check that the person has adequate training, resources and time to complete the task. If there isn’t someone in your team or family that you can delegate to, consider hiring a professional. My mother recently hired a company to clean her Venetian blinds. Not only did it save her time and her back, but they did it quicker and more thoroughly than she could have done. I know of a toy store in Christchurch that will choose, wrap and send presents to children for you. You just need to advise the age and interests of the child and your budget.

Quadrant 4: Not Urgent and Not Important – Delete or Park

When you have dealt with the first three piles, you can open your envelope in the drawer containing the fourth pile. Some of these tasks you can delete straight away as they are time wasters, such as browsing social media without a purpose, or attending meetings that don’t add value. Other tasks may be slotted in as a rest break, before refocussing on a longer task, such as reading a trade magazine.

Meetings should have a clear purpose and agenda, should only involve the people that are impacted, and should lead to better understanding of an issue or lead to a decision. Consider replacing unnecessary meetings with project management tools, a brief one-to-one conversation or an email.

Enjoy the Holiday Season

You have made your list, checked it twice, done, delegated or scheduled your tasks leading up to the holiday. Nice! Your action planning not only helps you manage your holiday deadline stress, but it also helps you to focus on what matters to you. Embrace the festivities and happiness of the holiday season, knowing that you have a clear plan. Take time to relax, celebrate with loved ones, and enjoy the festive spirit without the burden of stress. Here's to a productive and joyful holiday season!

- Serena Irving

Serena is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

What is Trade Credit Insurance?

serenai@jdw.co.nz (Serena Irving) — Mon, 25 Nov 2024 02:18:26 GMT

What is the cost to your business when a customer doesn’t pay you? We can insure against fire and theft, and we can also insure against bad debts.

Why Businesses Need Trade Credit Insurance

Bad debts cost businesses more than the amount of cash written off. There are the collection fees, interest costs, and stress of chasing payments. If you wrote off $100,000 bad debts and your gross margin was 25%, you would need sales of $400,000 to make up the lost cash.

Benefits of Trade Credit Insurance

A business is protected from customers turning into bad debts. They can enter sales contracts up to an approved amount, knowing that they will receive payment of their invoice even if the customer doesn’t pay them on time. It tightens a business’s credit management, by using the insurance company’s business intelligence. They have comfort in extending credit terms and limits based on the assessment of the insurance company.

How does trade credit insurance work?

The business takes out an insurance policy to cover its trade receivables (customer balance owed to them), which is a significant asset class for the business. The insurer rates the customers and the industry and charges a premium to the business. Customer ratings are calculated with reference to historical credit reports, business intelligence relating to countries and industry sectors. For higher risk customers, they will also gather financial year end and management accounts. If the customer doesn’t pay within the agreed period, the insurer pays the business for a percentage of the loss (90% in the Coface example in Figure 1, but the percentage can differ) and takes action to recover the outstanding amount.

The Insurer is constantly updating information held about your customers, so they may contact you to advise suspending credit to a customer, if they become aware of issues with them.

If a customer is insolvent, you can lodge a claim for your loss from your insurer. You don’t have to attend a creditors meeting, and wait for receivers or liquidators to reach a compromise with creditors.

Who is trade credit insurance for?

Trade credit insurance is best for organisations that sell B2B – business to business. They sell on payment terms which are after the delivery date. Receivables are a significant asset to the business. The company is looking to grow, taking on larger orders or new international markets.

How Does Trade Credit Insurance differ from Debt Factoring?

Debt factoring, or invoice factoring, is when you sell your accounts receivables to a third party at a discount. You get a percentage of funds to reinvest within days, receiving the balance (minus the factoring company’s fee) when the invoice is collected. The cost is usually higher than trade credit insurance.

There are two type of debt factoring: recourse and non-recourse. Recourse means that if the customer refuses to pay, the business must purchase the invoice back from the factoring company and pursue the debt on their own. Non-recourse factoring companies typically charge a much higher fee and typically will only pay for the bad debt in the cause of bankruptcy.

Using trade credit insurance, the business makes the effort to collect the customer debt until the payment terms expire. When a customer defaults on their payment terms, trade credit insurance pays you out a percentage of the loss. If the customer goes into liquidation and can’t pay you, your business will receive more under trade credit insurance than a recourse factoring agreement.

Taking Uncertainty Out of Business

Business comes with a lot of uncertainties and risk, especially when expanding into new markets and larger customers. Trade credit insurance can help you to manage your risk, by giving you better financial data when taking on new customers, protecting you against bad debts and strengthening your balance sheet.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists. Thanks to Nick Chan, Coface NZ Sales Manager, for sharing his knowledge.

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Tax Treatment of Business Vehicles

serenai@jdw.co.nz (Serena Irving) — Wed, 30 Oct 2024 21:22:07 GMT

Once you have decided on which vehicle, and whether to lease or buy [i] , you’ll need to consider the tax treatment of your vehicle decision. This is largely dependent on who owns the vehicle and business usage vs private usage.

[i] https://www.jdw.co.nz/choosing-a-vehicle-for-your-business

Sole Traders and Partners Vehicle Ownership

Mainly Business Usage: Use a Proportion of Actual Costs

If your vehicle is only used for business, then you can claim the full running costs of the vehicle for business. Fuel, WOF, repairs and maintenance, insurance, interest and other finance costs, and depreciation. Depreciation is a gradual drop in value of the vehicle over time. For tax purposes, use the appropriate depreciation rate advised by IRD for your type of vehicle.

If you use the vehicle partly for private use as well, you can either claim a standard 25% of actual costs or keep a logbook to calculate the business percentage of motor vehicle use.

GST: If you are GST registered and mainly drive a vehicle for business, then you can claim GST on a proportion of the initial cost price and ongoing running costs of the vehicle, except for finance costs and depreciation which are GST exempt.

Mainly Private Usage: Use Kilometre Rate

You can claim business kilometres travelled as an expense deduction, using either the IRD kilometre rate or a reputable alternative such as AA vehicle running cost reports . The kilometre rate is a composite of estimated fuel, WOF, maintenance, insurance, depreciation and financing costs so you cannot combine the kilometre rate and actual costs.

No GST: There is no GST claim available using a kilometre rate calculation.

Employee vs Company Vehicle Ownership

Company Ownership, Mainly Business Usage: Use a Proportion of Actual Costs

If your vehicle is only used for business, then you can claim the full running costs of the vehicle for business. Running Costs include fuel, WOF, repairs and maintenance, insurance, interest and other finance costs, and depreciation. Depreciation is a gradual drop in value of the vehicle over time. For tax purposes, use the appropriate depreciation rate advised by IRD for your type of vehicle.

If the vehicle is driven by a shareholder-employee in a close company, then you can keep a logbook to calculate the business percentage of motor vehicle use or calculate FBT (discussed below). When you are using the business percentage to calculate the proportion of motor vehicle costs, the private portion is coded to drawings for that shareholder-employee.

GST: If your company is GST registered, it can claim GST on a proportion of the initial cost price and ongoing running costs of the vehicle, except for finance costs and depreciation which are GST exempt.

Company Ownership, Mainly Private Usage or Employee is not a Shareholder: Calculate Fringe Benefit Tax

If you don’t like keeping a logbook, or you mainly use the vehicle for private purposes, then you have to calculate Fringe Benefit Tax (FBT). If an employee is not a shareholder and uses the vehicle partly for private use as well, then FBT applies.

FBT is calculated quarterly or annually for employees or on an income year basis for shareholder-employees. It applies on many forms of employee benefits, like free or discounted goods, loans or insurance premiums, but we will only discuss FBT on motor vehicles here.

FBT arises for each day that a vehicle is available for private use. The taxable benefit is calculated at 5% of the cost price including GST per quarter or 9% of the opening book value including GST each quarter, times the number of days available for private use, divided by the number of days in the quarter. You can deduct contributions made by the employee such as paying for fuel or shareholder current account journal. Then you multiply the taxable benefit by the FBT rate, either the single rate 63.93% or the alternate rate 49.25%.

GST: You claim GST on the initial cost price and ongoing running costs of the vehicle, except for finance costs which are GST exempt. You do not have to apportion it. GST is payable on the taxable value of the fringe benefit and is included in the FBT return. You cannot claim back the GST on FBT in your GST return. Shareholder contributions are GST liable and included in income in your GST return.

Work-Related Vehicles

A work-related vehicle must satisfy the eligibility criteria: permanent company branding, gross laden weight 3,500 kg or less, designed to carry goods or goods and passenger equally. To qualify for the daily FBT exemption you must give the employee a letter of restriction stating that the work related vehicle is not available for private use except for travel between home and work, and for travel related to the business, and make quarterly logbook checks and keep a record of the checks.

Emergency Call Exemption

If the employee is required to use the vehicle for an emergency call in their role, then the vehicle is exempt from FBT for that day. This may be relating to health and safety of a person at any time, or to ensure the smooth operation of plant and equipment or providing essential services between 6pm and am on weekdays or during weekends or public holidays.

Business Travel or Repairs Exemption

FBT may not apply when the employee is away with the vehicle for work overnight or for more than 24 hours. If the employee is away without the vehicle, then you would need to store it where no-one else can access the vehicle for private use. There is also an exemption when the vehicle is broken down or being repaired for at least 24 hours.

Single rate FBT 63.93% or Alternate rate FBT 49.25%

If you use the single rate FBT calculation, you don’t need to make any further adjustments at year end. This is most appropriate for employees earning over $180,000 a year and shareholder-employees earning non-PAYE salaries.

Alternate rate FBT can be used for annual FBT returns or quarterly returns in June, September and December quarters. For the March quarter, you calculate a composite FBT rate, based on the employee’s after-tax PAYE salaries, other remuneration and allowances and taxable fringe benefits. The alternate rate often works out cheaper for employees earning under $180,000 but takes longer to calculate.

Employee Ownership: Use Kilometre Rate for Vehicle Allowance

You can reimburse employees for business kilometres travelled using either the or a reputable alternative such as AA vehicle running cost reports . The kilometre rate is a composite of estimated fuel, WOF, maintenance, insurance, depreciation and financing costs so you cannot combine the kilometre rate and actual costs. There is a maximum of 5,000 kilometres a year for shareholder-employees under this method.

No GST: There is no GST claim available using a kilometre rate calculation.

From the company's perspective, these reimbursements are tax-deductible expenses. For employees, they’re non-taxable income—provided the reimbursement amount is reasonable – and not subject to FBT or PAYE. If you prefer to pay a set monthly vehicle allowance, you must establish a benchmark distance through past experience and agree the monthly allowance figure with the employee.

Keeping a Vehicle Logbook or GPS Tracking

You can either buy a paper logbook and write down your odometer readings each trip, or you can download an app on your phone, like DriversNote . The logbook should differentiate between business and private travel, so you can work out a percentage of business travel. Typically travel between home and work is considered private travel, but there are exceptions when you must work from a home office, or you have work vehicle.

If you have a larger fleet of work vehicles, then consider GPS tracking solutions, like eRoad , TrackIT or FleetPin . In addition to tracking the kilometres travelled, you can use the GPS to assign jobs to the nearest available vehicle, for more efficient scheduling. Or you can locate a worker when they haven’t answered their phone. Several years ago, a plumbing client found out one of their workers was taking fewer jobs than the others, because they stopped at the beach frequently.

Final Thoughts

We recommend choosing a vehicle that suits your budget and functional needs, rather than whether you can get a GST reduction, or an income tax write off. Be aware of FBT requirements if you are operating in a company. Keep good records of business travel and expenditure, exempt days so you can maximise your tax entitlements.

- Serena Irving

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Choosing a Vehicle for your Business

serenai@jdw.co.nz (Serena Irving) — Sun, 27 Oct 2024 03:45:22 GMT

Your choice of vehicle can say a lot about you and your business, reflecting your values, personality and brand image. Beyond appearances, it's essential to consider accounting and tax perspectives that might impact your choice.

What Does Your Vehicle Say about You?

You can’t control what others say about your vehicle choices, but you can control your internal narrative. Rather like choosing your fashion wardrobe to reflect your personal style, selecting the right vehicle and how you talk about it can say a lot about you and your business, reflecting your values, personality and brand image.

Professionalism and success might mean a luxury car model to some, but for others it could be a well-kept mid-range vehicle. Eco-friendly might translate to the latest Tesla EV or a Hyundai IONIQ. Practical and efficient might be a compact car for zipping around the CBD or a heavy-duty utility vehicle with canopy to safely store your tools. Budget-friendly may mean an older used car, or a fuel-efficient EV or hybrid.

Before you get too caught up with what others think about your wheels, ensure that your choice meets your financial considerations and suits your needs. Ultimately, it’s what you tell yourself that matters most.

Functional Considerations when Buying a Business Vehicle

Think carefully how your vehicle will be used. If you will frequently be transporting light goods, then a utility vehicle or van would be an obvious choice. If you will be transporting team members to events, then you may need a more versatile people mover could be more practical. Consider the types of roads you’ll encounter, distances travelled, and frequency. In high-traffic areas like the CBD, compact cars are easier to park and manoeuvre.

Vehicle safety is an important consideration for a business vehicle, as safe vehicles reduce accidents, meaning less chances of employee injuries and vehicle downtime. You can research the safety ratings and fuel efficiency of NZ vehicles at Rightcar .

Financial Considerations when Buying a Business Vehicle

There are several factors to consider when buying a business vehicle: cost and resale value, finance options, running costs.

Cost and resale value of vehicles

When you calculate the cost of your vehicle, consider on-road costs, cash discounts, trade-in value of your existing vehicle, insurance and warranties. Also consider add-ons like fixed shelving, canopy, towbar and signwriting. The Clean Car Discount scheme ended in December 2023, so there are no Government incentives to buy EV or hybrid vehicles.

It is not a simple case of new vs used cars, because resale value can vary greatly between models. In general terms, new cars tend to lose value in their first year. But some new vehicles retain their value very well. My colleague Murray recently traded in his red 2018 Ford Mustang for an orange 2024 EV model, and thanks to the strong trade-in value, he only paid a small difference.

Lease or buy finance options for vehicles

People often ask whether lease or buy is better for tax benefits, but the real impact lies in cashflow.

If you tend to change your vehicle every 3 years or less, drive long distances, prefer new cars and new car warranties, then an operating lease will suit you better. An operating lease is a long-term rental, so at the end of the term, the vehicle is returned to the leasing company.

If you tend to keep your vehicle for four years or more, then buying outright or finance lease/hire purchase may be a better option. Buying outright can allow you to negotiate a cash discount and it can save on interest costs, but it may tie up funds that you want to use elsewhere. You may be able to borrow from your bank via overdraft or asset lending, or finance through a specialist vehicle leasing company.

A finance lease or hire purchase agreement allows you to pay for the vehicle in instalments and you gain ownership of the vehicle at the end of the period when you pay the residual value. Watch out for high residual values or balloon payments during the term, as you need to factor them into your cashflow planning. Compare the interest rates and overall finance costs of different options. Sometime low monthly repayments can hide a high rate spread over a longer term.

Running costs of vehicles

New cars usually come a three-year service warranty, but you can also get quality used cars with a similar warranty, such as the Toyota Signature Class. This means that that you can save significantly on regular maintenance checks and repairs. Older cars typically need more servicing, as they are less efficient as they age, they need repairs more often as parts wear out. Research how easy it is to get parts for your vehicle, as New Zealand is a long way from the car capitals of the world.

Electric vehicles (EV) and hybrid vehicles may save you fuel but consider how you will recharge them. You may need to install electric charging stations on your premises and plan your trips around when and where you can recharge. You can read more about fleet EV considerations here: Gen Less EV considerations . In New Zealand, you need to pay road user charges (RUC) if your vehicle runs on diesel, electricity or is a plug-in hybrid.

Tax Considerations

Once you have decided on which vehicle, and whether to lease or buy, you’ll need to consider the tax treatment of your vehicle decision, discussed further in our next blog. While tax may play a part in who owns the vehicle and what records you keep, it doesn’t play nearly as big a part in your decision making as you might think. We recommend choosing a vehicle that suits your budget and functional needs, rather than whether you can get a GST reduction, or an income tax write off.

Final Thoughts: Make Your Vehicle Work for You

Ultimately, the best business vehicle is one that supports your goals, fits your brand, and meets your financial and practical requirements. Choose wisely and make it a powerful tool in driving your business forward.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. She drives a 2004 Mazda Atenza; it suits her family of four, has low kms and doesn’t cost much to repair. If you want a vehicle enthusiast’s opinion, we suggest talking to Murray Wells or Rohit Prasad. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists.

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Setting Up an Advisory Board

serenai@jdw.co.nz (Serena Irving) — Sun, 22 Sep 2024 23:34:19 GMT

Imagine your business as a rugby team, with you as the captain. Now, imagine having New Zealand Rugby legends Ruby Tui, Dan Carter and Richie McCaw by your side. These icons would guide you, inspire you and hold your team accountable for its performance. With such experience and talent, your rugby team will thrive and win games. This is what an Advisory Board can do for your business.

It can be isolating as a business owner. That’s why surrounding yourself with trusted advisors is crucial. Is it time for you to formalise the arrangement and have an Advisory Board, or will you continue to seek advice on an ad hoc basis?

When Do You Need an Advisory Board?

Are you ready for change? A good time to have an Advisory Board is when you are going through a change process. It may be that you are scaling up, taking on new markets, struggling through a tough economic climate, changes in management, succession planning. You need to spend time working on the business instead of in it.

It may be that you need additional skills in marketing, finance or people management, but can’t afford a full-time person in that role. Or you are new to the industry or business ownership. Perhaps you have toughed things out on your own, and you are struggling to get traction on your plans.

An Advisory Board is supportive of the business owner, but also challenges them in a way that managers and employees can’t do. An Advisory Board brings a sense of structure and independent thinking to strategic planning. They are sounding boards, support during change, truth tellers, devil’s advocates at times.

What Is an Advisory Board?

An Advisory Board is a “committee of people selected by a business (or a board in the case of larger companies) to provide defined advice and information in an informal and flexible manner” [i] . It is not a formal governance structure like a Board of Directors, but you can leverage the skills, experience and networks of the board members in the same way.

Advisory Members are not Directors

Directors make decisions and are responsible for the legal aspects of running the organisation. Advisory Board members make recommendations and give advice, but they are not directors. Advisory Board members sign up to a Charter document which sets out purpose, responsibilities, meeting conduct and conflict resolution.

What is the Time and Dollar Investment?

Advisory Board members usually meet every 1-2 months, for 1-3 hours. Members should be paid monthly, whether they are meeting or not, because they will spend time outside the meeting, reading the agenda and Board notes, researching and brainstorming ideas, and follow up activities.

Board members’ fees vary depending on the expertise and requirements of the role. But it is typical for the fee range to be between $1,000 and $1,500 +GST for Board members and $1,500 to $2,000 +GST for Chairman plus travel expenses.

Who Do You Invite on an Advisory Board?

Advisory Board members should help you fill the gaps in your knowledge, skills, background and leadership styles. They bring years of experience and inspiration with them. They are good at communicating, clear on purpose, innovative and encouraging.

They are two to four independent members, plus the business owner/director or CEO. Choose people who are willing to challenge how things are, are passionate about the business and committed to helping the business succeed.

Membership of the Advisory Board can change as the needs of the business changes. This ensures that the Advisory Board is still responsive and independent.

Selecting the Chairman

The chairman of the Advisory Board should not be the business owner. They set the tone and culture of the board, ensures independence from management and provides governance and structure. They manage discussions effectively, drawing opinions from others, managing conflict and encourage open communication. Look for someone who has experience with diverse people and personalities, rather than industry experience for the chairman role.

What Does an Advisory Board Do?

The Advisory Board meets regularly and follows an agenda. In the early stages, the Advisory Board will develop a strategic plan. The strategic plan includes a SWOT Analysis, defining a vision, success parameters and setting short-term and long-term goals. Goals are turned into action plans. Subsequent meetings will track progress, deal with challenges and amend the plan as required.

It helps the Advisory Board if clear expectations are established up front. What is the business owner hoping to get from the Board? What does business success look like?

An Advisory Board Drives Change

An effective Advisory Board will have a positive impact on all areas of the organisation, so you need to be prepared to make changes. It involves an investment in time, budget and energy.

Have an action plan and regular reviews. Appoint Advisory Board members who respect each other but are also willing to challenge the status quo and keep you accountable to your plans. Surround yourself with inspiring, experienced A players on your Advisory Board so your business team can succeed.

- Serena Irving

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[i] Institute of Directors NZ website https://www.iod.org.nz

Proposed Changes for Contractors

serenai@jdw.co.nz (Serena Irving) — Thu, 19 Sep 2024 02:34:19 GMT

The test of whether a worker is an employee or a contractor has been determined by NZ case law, most recently the Court of Appeal case with Uber, but there may soon be a clearer contractor gateway test in NZ legislation.

Uber Drivers were Employees, not Contractors

The Court of Appeal ruled against Uber in August 2024, after reviewing the substance of the contractual rights and obligations between the ride-sharing platform and four drivers. The Court of Appeal ruled that various aspects of the written agreement were merely window-dressing and did not reflect reality. Fares were determined by Uber, it was impractical for drivers to switch between apps, and repeatedly declining requests to drive resulted in being logged out of the app. [i]

Justices Goddard, Ellis and Wylie reasoned that while a driver is logged into the driver app, they have no opportunity to establish any business goodwill of their own.

"Or to influence the quantity of work they receive, the quality of the work they receive, or their revenue from that work except to the extent that Uber agrees to give them some preference in relation to access to ride requests, information about rides, or supplementary payments," they said. [ii]

This ruling gave the four drivers employee benefits such as leave entitlements, minimum wages and holiday pay. Uber plans to appeal to the Supreme Court, while the drivers’ union is preparing to lodge claims against Uber on behalf of its other members.

Proposed Contractor Gateway Test

In September 2024, Workplace Relations and Safety Minister Brooke van Velden announced a change to the Employment Relations Act [iii] which would give a gateway test of whether a person is a contractor. If one or more of these factors are not met, then the existing tests would apply. As the announced changes are not yet enacted, we don’t know whether the proposed changes would assist in cases like the Uber decision, but we do hope that it will clarify the situation for affected parties.

The proposed gateway test refers to written agreement, freedoms to accept other work, determine their own hours and decline work. It is very similar to the current tests which are developed from case law but appears to be more prescriptive to make it easier to confirm that a contractor relationship exists.

Written Agreement

Does the written agreement specify the worker is an independent contractor?

No Restriction on Other Work

Does the business restrict the worker from working for another business, including competitors? Contractors would be free to work for other businesses. This could be an interesting challenge in some industries, if your worker is also doing similar work for your opposition!

Days and Times Not Specified

Does the business require the worker to be available to work on specific times of day or days, or for a minimum number of hours? Can the worker sub-contract the work? Contractors would be able to determine the days and hours they are available to work.

Able to Decline Work

Can the contractor decline work without fear of termination of engagement? Contractors would have the flexibility to make themselves unavailable for a project.

Current Contractor Test

If one or more of the above gateway tests are not met, the current tests apply. They are summarised under headings of intention, control vs independence, integration and fundamental/economic reality. [iv]

Intention

The parties would refer to the wording in their written agreement. A contract for services for a contractor would not include holiday pay or leave entitlements.

Control vs Independence

A contractor usually has control over the location, time and how they work, with discretion over their hours of work and availability. They can usually work independently.

Integration

A contractor is less likely to be integrated into the business organisation, the way an employee is. They often provide their own equipment and are paid per project rather than a strict hourly rate.

Fundamental / Economic Reality Test

A contractor is in business, setting their own fees, paying taxes, ACC, engage others to work for them and advertising. They can work for multiple principals at one time. They take on the financial risk and can profit from a project.

It’s Important to Get It Right

If you engage a worker as a contractor, and they turn out to be an employee, you could find your business owes them leave entitlements, holiday pay, ACC, sick leave and other benefits. Make sure that you get updated legal advice when preparing and entering into service contracts.

While we hope the legislative changes provide some clarity for contractual situations, we don’t yet know if the final law will prevent further issues arising like the Uber case. The Uber case shows that any contract you enter into should not just be window-dressing, as the Courts are willing to review the economic reality between parties.

- Serena Irving

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[i] https://www.dentons.co.nz/en/insights/articles/2024/august/27/uber-loses-appeal-four-uber-drivers-are-employees-not-contractors

[ii] https://www.rnz.co.nz/news/business/526188/court-dismisses-uber-s-appeal-arguing-drivers-are-employees-not-contractors

[iii] https://www.beehive.govt.nz/release/increased-certainty-contractors-coming

[iv] https://www.employment.govt.nz/starting-employment/types-of-worker/employee-or-contractor

Why Do I Need to Complete AML CDD with My Accountant?

serenai@jdw.co.nz (Serena Irving) — Thu, 05 Sep 2024 02:40:15 GMT

“I’m sorry, we must ask. We need to do our Customer Due Diligence.” Here is why we need to ask you for identity and address information.

The AML/CFT Act

In today’s complex financial landscape, ensuring compliance with the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) is crucial for all accounting firms. One of the key components of this compliance is performing Customer Due Diligence (CDD). This article aims to explain why customer due diligence (CDD) is necessary, even for existing clients who are forming a new entity.

What is Customer Due Diligence (CDD) or Know Your Client (KYC)?

Customer Due Diligence involves verifying the identity of clients, understanding the nature of their business, and assessing the risk of money laundering or terrorist financing associated with them. This process is essential for maintaining the integrity of the financial system and ensuring that accounting firms are not inadvertently facilitating illegal activities.

Why Perform CDD for Existing Clients?

New Risk Profiles:

When an existing client forms a new entity, the risk profile associated with that client can change significantly. The new entity may have different business activities, ownership structures, or geographical connections that introduce new risks.

Regulatory Compliance:

The AML/CFT Act mandates that accounting firms must perform CDD not only for new clients but also for existing clients when there are significant changes in their circumstances. Forming a new entity is considered a significant change that requires a fresh assessment.

Preventing Money Laundering and Terrorist Financing:

By performing CDD, accounting firms can identify and mitigate potential risks of money laundering and terrorist financing. This is crucial for protecting the firm’s reputation and ensuring that it does not become a conduit for illegal activities.

Maintaining Accurate Records:

Accurate and up-to-date records are essential for effective risk management. Performing CDD for new entities ensures that the firm’s records reflect the current status and risk profile of the client.

How Do We Go About Completing Customer Due Diligence (CDD)?

The extent of our background checks depends on our risk assessment or your structure and operations. Our standard CDD involves identification, address verification and politically exposed person checks. Enhanced CDD involves obtaining a statement of wealth and other enquiries.

Identification and Address Verification

The minimum we will ask for is a copy of your passport and a utility document such as a power bill issued within the last three months. We need to sight the original identity document so we can certify the copy.

A drivers licence is considered to be weaker proof than a passport, so we would ask for additional support such as a bank statement or Government document. If we are forming an entity on your behalf we will ask for your place of birth as well as birthdate, and your current occupation.

Politically Exposed Person (PEP) Checks

We’re required to check if an individual is a Politically Exposed Person (PEP) or related to one, as there is a higher risk to the entity’s business. This may involve a simple internet search or more detailed background checks.

Source of Wealth

When we are forming or onboarding a new entity, like a company or trust, we need to ask where the funds originated. If they were lent to the entity by the shareholders or settlors, where did they get the funds from? This may involve us reviewing past annual accounts, tax returns and bank statements.

Suspicious Activities and Transactions

We will ask about the activities you plan to conduct, when we are forming an entity or onboarding an existing entity, so we can understand the types of transactions we will expect under normal operation.

We are required by the AML/CFT Act to report suspicious activities on an ongoing basis to the Department of Internal Affairs, which is our supervising agency. This might be complex or unusually large transactions, or unusual patterns which don’t appear to relate to business. The reporting requirements of AML/CFT Act override the Privacy Act 2020.

AML CDD isn’t just for Accountants

As chartered accountants and trusted advisors, we are often asked to provide source of wealth letters to lawyers, real estate agents and banks. Dealers in high value goods, like jewellery, antiques, vehicles, boats and precious metals or stones also have to comply with the AML/CFT Act. Whenever we chartered accountants act as a trustee or director for our client entities, we must provide our identification and address details when setting up a new bank account or mortgage, or when entering into a property transaction.

Performing Customer Due Diligence is not just a regulatory requirement; it is a vital practice for safeguarding the financial system and maintaining the trust of clients and stakeholders. By conducting CDD for new and existing clients, accounting firms can ensure compliance with the AML/CFT Act and contribute to the global fight against financial crime. Please don’t be upset if we ask you to complete CDD. It helps us to know you better!

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland and carries her passport everywhere because of AML/CFT. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

How to Make the Working Capital Cycle Work for Your Business

serenai@jdw.co.nz (Serena Irving) — Sun, 01 Sep 2024 23:20:46 GMT

Sometimes dubbed the Cash Flow Cycle or Cash Conversion Cycle, the Working Capital Cycle is a measure of your business efficiency. How can you make it work for you? Imagine being able to scale your business from using your working capital wisely, instead of more debt.

Working Capital Cycle (WCC) calculation

Investopedia defines the working capital cycle as follows: “The working capital cycle represents the period measured in days from the time when the company pays for raw materials or inventory to the time when it receives payment for the products or services it sells.“ [i]

Working Capital Cycle (WCC) = Inventory Days + Receivable Days – Payable Days

[i] https://www.investopedia.com/terms/w/workingcapitalmanagement.asp#

Simply put, it is the number of days it takes to turn inventory into cash. The term Working Capital Cycle is more far reaching than Cash Flow Cycle or Cash Conversion Cycle, as it recognises all current assets and current liabilities. For service businesses, rather than physical inventory, you might consider how long it takes for projects or jobs to turn into cash.

The shorter the working capital cycle, the more likely the business can fund itself. The longer the cycle, the more reliant the business is on debt or owner investment. If you pair business efficiency with a healthy gross margin, you can grow your business with every cycle.

Improving Your Working Capital Cycle

As the working capital cycle is a combination of inventory days, receivables days and payables days, here are some tips to manage them.

Inventory Days on Hand

You can improve cashflow by holding less inventory. Not only is cash tied up with inventory but there are holding costs to consider, such as storage, warehouse personnel and management and interest costs. Adopt Just In Time (JIT) and Lean practices so you only hold enough stock to cover your needs until your next order arrives. With Covid-19 and shipping delays, many businesses are holding higher inventories than they would like. Consider diversifying your suppliers to have backup sources of stock and holding buffers in your most important stock.

Analyse your inventory on a line-by-line basis, for profitability and appropriate stock levels. Reduce inventory wastage, over supply and backlogs, by having better inventory management systems and quality control. Reducing wastage and rework improves your gross margin. Quit your obsolete stock because it ties up cash. If you have a high degree of product customisation, make sure you can charge for it.

If you buy goods in foreign currency and sell them in NZ dollars (or vice versa), exchange rates will impact your costs, prices, and profit margins. To manage this risk, consider using forward exchange contracts or hedging to lock in favourable rates. Additionally, include pricing revision terms in your customer contracts for periods extending beyond 30 days.

Customer Receivables Days on Hand

You can improve cashflow by reducing your debtor days (receivables days). Send invoices promptly to your customers and follow up on overdue accounts. Make sure your payment terms are clearly defined and easily enforced. Clearly set out interest and collection costs for defaulters. Offer direct debit or automatic payment options to make it easy for customers to pay you on time.

You can save yourself a lot of future grief with your onboarding and credit application policies. Your prospective customer needs to pass credit checks and financial enquiries before you offer them trade terms. If the sale requires you to purchase expensive equipment, is a particularly large order, or you need to invest a lot of time and resources, it is acceptable to ask for an upfront deposit, and progress payments for longer projects.

While offering incentives for early payment may seems attractive, discounting has a cost, so think about different ways to reward your customers. Develop strong relationships with your larger customers, so they are more likely to pay you, even in tough times.

Accounts Payables Days on Hand

Set up trade accounts for your most frequent purchases. If you can increase creditors days, the time it takes you to pay bills, you can improve cashflow. This doesn’t mean taking advantage of your suppliers, by not paying them! But if you can negotiate longer supplier terms without penalties, this would be an attractive option. Sometimes you may need to increase your order size to negotiate better terms. Or you may have to pay sooner to get a discount. A 2% discount to pay within 30 days is like receiving interest at 24% per annum!

Where Do You Start on Improving Your Working Capital Cycle?

When there is a downturn in the economy, it highlights the problems that businesses have with their working capital cycle. Review your current systems for managing inventory, supplier payments and customer receivables. Seek help from your chartered accountant to review your numbers and improve your cash flow. If you need further guidance or a fresh perspective, don’t hesitate to reach out to us at JDW Chartered Accountants. We’re here to support you in navigating these challenges and optimizing your working capital management.

- Serena Irving

Download a PDF version here or contact the author by email. Like our Facebook page for regular tips.

Hiring Your First Employee, part 2

serenai@jdw.co.nz (Serena Irving) — Mon, 19 Aug 2024 04:03:43 GMT

Congratulations! You have grown your business, and you are wondering if you are ready to hire an employee to assist you. What are the considerations you need to make before taking this step? In our previous blog, Part 1, we asked you to consider affordability and mindset. In Part 2, we discuss systems, procedures and payroll.

What Systems and Processes Do I Need in Place?

Employing people requires several formal structures to ensure that you are getting the best out of your employee while respecting their employment rights. We recommend that you engage an HR specialist to help you with the below items, but we have also included DIY resources for your reference.

Employment Agreement

Before they start, make sure that your new hire has a written employment agreement and are given the opportunity and time to seek advice about it. The employment agreement sets out their job description, duties and responsibilities, remuneration, benefits, rights while employed. It also sets out a disputes process and termination process. You can build your own employment agreement using the Employment Agreement Builder on business.govt.nz. The tool clearly indicates mandatory, recommended and optional clauses.

Before Day One

Have equipment, digital tools in place before your new hire starts. Update your insurance policies. Create a personnel file which includes the employment agreement, tax and payment information, personal details, training logs and performance management reviews. Register as an employer with IRD and set up payroll software.

Induction Process

The induction process should be a positive experience, as it sets up your ongoing employment relationship. Welcome them, show them where things are, show them how things work and explain how they fit into the overall purpose of the business. Make sure your new hire has access to their workplace, knows their way around and can use their tools and equipment.

Induction will need to be tailored to the experience level of your new hire. But even the most experienced employee will need to know your company policies: basic ones like start and finish times, break times, applying for leave, dress codes, prohibited substance use, social media use; and health and safety policies. Workplace Policy Builder

Induction must be adapted to the learning style of your new hire. Some people merely need a quick, verbal explanation, others need to see a demonstration, write notes for themselves or do the process before they learn. At JDW, we typically employ a variety of teaching methods. We demonstrate the first time, allowing the learner to take notes and ask questions. The learner then tries it themselves under supervision. Then the learner does it themselves and is reviewed afterwards.

Don’t underestimate the time it takes to get a new hire up to speed. A person can only take in so much information at once, so allow for breaks in the training time for them to absorb what they have learned and put it into practice. This allows you a break too, to check your messages or catch up on your own projects.

Effectively Delegating

Delegating effectively involves a clear transfer of responsibilities without micromanaging. If you haven’t read it before, “The One Minute Manager Meets the Monkey” by Kenneth Blanchard, William Oncken Jr. and Hal Burrows is a fantastic introduction to delegation in a readable, entertaining book.

Imagine your tasks are like monkeys on your back. You employ someone and give them some of your monkeys. Now you feel lighter! If the new hire doesn’t know what to do or doesn’t have the resources to take care of the monkey, then the task doesn’t get completed. If you don’t check in from time to time, or you don’t make it easy for your new hire to ask for help, then task can fall through the cracks. Be careful not to take the monkey back though. Check the status of the task, give encouragement and guidance and let your employee take care of the monkey.

Performance Management, Dealing with Disputes and Termination

Clearly document your process of reviewing performance, dealing with disputes and termination. Schedule reviews regularly at least one a year, but more often if needed. When you are reviewing your worker’s performance give specific examples of what went well, what can improve and why. Workers must be given an opportunity to improve their performance.

When disputes arise, make sure that you engage with each other respectfully and in good faith. Make a written record of discussions in case the issues arise again. If you can’t resolve the dispute, you may need to invoke a mediation process.

Termination by dismissal is a last resort. You need to show that you have tried to deal with misconduct, disputes or poor performance in the proper ways before termination. [i]

How Do I Manage Payroll Taxes, Holiday Pay, Sick Leave and ACC?

You will need to Register as an Employer with IRD and ask your employee to complete a tax code declaration IR330 (or IR330C for contractors). We recommend that you use payroll software to help you to calculate pay, taxes and leave. If this is your first time as an employer, you read IRD’s First Time Employer’s Guide (IR333) for more information.

Payroll Taxes and Payday Filing

For employees, payroll taxes are known as Pay As You Earn (PAYE). It includes income tax, ACC earner levies, student loan (if employee has a tax code ending SL), Kiwisaver employee deductions and child support. For contractors, payroll taxes are known as schedular payments and are only income tax deductions. They are not eligible for holiday pay, sick leave, Kiwisaver and ACC deductions.

As the employer, you deduct the payroll tax from gross pay and transfer the net pay to your worker either in cash or, more commonly, by direct payment into their bank account. You may pay weekly, fortnightly or monthly in line with your written agreement. The payroll taxes are transferred to IRD either once (20 ^th of the month following) or twice a month (20 ^th of current month and 5 ^th of the month following).

Payday filing is sending a record of gross pay and payroll tax deductions to IRD. If you use payroll software, your Employment Information is due within 2 days of each payday. If you file by paper form, you can either file with 10 working days of each payday or 10 working days after the end of the 15 ^th and end of the month.

Holiday Pay

Employees are entitled to a paid day off if a public holiday falls on a day they would normally be working. If they work in the public holiday, they are entitled to 1.5 times their relevant daily pay (or higher if their agreement says so) and an alternative holiday called “day in lieu”. [ii]

Employees are entitled to at least 4 weeks of paid annual leave when they have worked for 12 months. You need to keep accurate records of when leave is taken. You can allow them to take leave in advance or cash up a week a year by mutual agreement. When an employee finishes employment, you pay out their remaining annual leave plus holiday pay calculated at 8% of their pay since the last anniversary. [iii]

Kiwisaver

Employees can opt into Kiwisaver if they are NZ or Australian citizens or permanent residents. You can’t enrol them if they are casual workers. You must give each new employee a Kiwisaver deduction form (KS2) and a copy of Your Introduction to Kiwisaver – Employee Information (KS3). Employees can decide what rate of deduction suits them (between 3% and 10%) and you are required to pay a minimum of 3% employer contributions to their Kiwisaver account via PAYE. Part of the Kiwisaver employer contribution is paid to IRD as employee superannuation contribution tax (ESCT).

You shouldn’t give your employees financial advice about the Kiwisaver options, but you can recommend they talk to an investment advisor or refer them to Sorted website.

Sick Leave, and other Entitlements

Employees are entitled to 10 days of paid sick to care for themselves, their partners, children or other dependents, when they have worked for you for 6 months. Sick leave can be carried forward and accumulated up to 20 days leave if not used (or higher by agreement). [iv]

The 10 days entitlement applies even if the worker is part-time. The Government is proposing to change this to a prorate system based on how many hours and days a employee works. [v]

Bereavement leave , after 6 months employment, allows a worker time off to grieve, between 1 and 3 days per bereavement, depending on the closeness of the connection with the deceased. [vi]

Family violence leave grants worker up to 10 days paid leave each year if they or a child who levies with them experiences family violence. This leave doesn’t carry over to accumulate in the next year. They may also ask for short-term flexible working arrangements at any time. [vii]

Jury service leave . Workers are required to attend if called up for jury service and they are given a small attendance fee from the Ministry of Justice. Employers must grant them time off, and keep their job secure, but the are not required to top-up the worker’s pay unless it is in their employment agreement. Some employers write a letter of support to ask for workers to be excused from jury service, but it requires exceptional circumstances for the court to grant the excuse. [viii]

Time off to Vote paid leave is usually from 3pm on the polling day or for up to 2 hours during the day for general elections. [ix]

Defence force volunteers must be allowed leave for service or training. This may be paid or unpaid depending on the employment agreement, but the job must be kept open. [x]

Parental leave is up to 26 weeks’ unpaid leave from employment while having a baby or adopting or similar arrangement. [xi] They can also take unpaid special leave for antenatal appointments. As an employer you can help your worker apply for paid parental leave from IRD by supplying payroll records and showing them how to apply. [xii] Some employers top up parental leave but this is not required, unless written in the employment agreement.

There are other forms of leave which may be in employment agreements, such as long service leave or sabbatical leave.

Accident Compensation Corporation (ACC) Levies

ACC levies cover the cost of injuries by accident. Earner levies are included in PAYE deductions, and cover the cost accidents at home, playing sports or other everyday activities. Employer levies are invoiced annually to employers to cover the cost of accident injuries at work or work-related, and to support the activities of WorkSafe New Zealand.

Employer levies are calculated using a range of factors: the size of your payroll, the industry classification of your business and your claims history. If your business falls under more than one industry classification, you can apply for a special rate assessment.

Other Allowances and Fringe benefits

There is a wide variety of employee allowances, and they are treated differently for tax. For instance, reimbursing allowances like relocation, tools and vehicle use make be tax-free for the employee if not excessive. Accommodation allowances are usually taxable, unless exclusions apply. [xiii]

Some employee benefits attract Fringe Benefits Tax, such as health and medical insurance, subsidised transport, company vehicles and free or subsidised goods and services.

Where to find help?

We have only scratched the surface when it comes to employment systems, processes and payroll. We strongly encourage you to surround yourself with trusted advisors in human resources, health and safety, payroll, FBT and other taxes. Seek help and advice from professionals before you engage a new worker, when resolving problems and before terminating employment. You can save a lot of grief if you act in good faith, with a fair process, but even then you may still need the experience and knowledge of a professional on your side.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

[i] https://www.employment.govt.nz/ending-employment/dismissal

[ii] https://www.employment.govt.nz/leave-and-holidays/public-holidays/public-holidays-rights-for-employees

[iii] https://www.employment.govt.nz/leave-and-holidays/annual-holidays/managing-annual-holidays

[iv] https://www.employment.govt.nz/leave-and-holidays/sick-leave/taking-sick-leave

[v] https://www.rnz.co.nz/news/national/518923/what-s-the-deal-with-sick-leave-changes

[vi] https://www.employment.govt.nz/leave-and-holidays/bereavement-leave/managing-bereavement-leave

[vii] https://www.employment.govt.nz/leave-and-holidays/family-violence-leave/managing-family-violence-leave

[viii] https://www.employment.govt.nz/leave-and-holidays/jury-service

[ix] https://www.employment.govt.nz/leave-and-holidays/time-off-to-vote

[x] https://www.employment.govt.nz/leave-and-holidays/defence-force-volunteers

[xi] https://www.employment.govt.nz/leave-and-holidays/parental-leave

[xii] https://www.ird.govt.nz/paid-parental-leave/applications/apply

[xiii] https://www.ird.govt.nz/employing-staff/paying-staff/allowances/accommodation-allowances

Hiring Your First Employee, Part 1

serenai@jdw.co.nz (Serena Irving) — Sun, 18 Aug 2024 02:20:22 GMT

Congratulations! You have grown your business, and you are wondering if you are ready to hire an employee to assist you. What are the considerations you need to make before taking this step?

Can I Afford to Hire a New Employee?

Taking on your first employee is arguably the hardest, especially if you are a first-time employer. There are a lot of considerations when hiring, and one of them is cost.

When asking “can I afford it?” also ask yourself the opposite “can I afford not to?” Usually, the decision to hire your first employee is prompted by these considerations:

You are turning down new work or larger projects.
You have a new large revenue stream.
You lack the skills to manage current work or to expand into a new area.
Customers can’t reach you, because you don’t have time to answer phone calls and emails.
Your customer service quality is falling.
You spend too much time on administration, or not enough time.
You haven’t had a holiday because there is no-one to cover for you.
You are feeling stressed, and you are frequently sick, but there’s not enough time to rest!

The best time to hire someone is when you have the time and energy to do it right. If the workload is already overwhelming you, it may be difficulty to have the mental bandwidth to choose the right person and train them.

How Do I Budget for a New Employee?

When you hire an employee you not only have to pay their wages for working, but you also have recruiting and onboarding training costs. You must fund ACC, holiday pay, sick leave, Kiwisaver and other allowances (see below). Your employee will need a place to work and tools for their job, such as office desk, computer, mobile phone.

You can use a simple calculator tool to work out how much it will cost for the first year of employment costs: https://www.business.govt.nz/employeecostcalculator but make sure that you tailor it for your specific circumstances. If you engage a recruiter to help you find the right candidate, then your recruitment costs will be more like 16% of the annual salary upfront rather than the cost of a few SEEK advertisements. Recruiters can smooth the way for you, when you don’t have a lot of time to read CVs, when you are unsure what market salaries are and when you don’t quite know how to market the role with an enticing job description.

Estimate how much extra income you will make in the first year of employing someone, either by giving them productive work or by giving them administrative work so you can spend more time on productive work. Depending on how quickly your employee settles into their new role, it may take several months for your investment in them to reap financial returns.

How Do I Write a Job Description?

Start with a list of all the tasks that need to be done in your business. Then identify which tasks you will continue to do yourself and which you will employ someone else for. Having identified the tasks they will do, consider if they need to be experienced in those tasks or whether you are willing to train them. Do they need formal training or education?

How many hours a week will they take, and do they have set hours or flexibility? Where will they work from – a fixed address or customer sites? Employees may be permanent full-time, permanent part-time, casual or fixed term. You can find out more about different types of worker here: https://www.employment.govt.nz/starting-employment/types-of-worker/permanent-or-fixed-term .

What will they be paid, and what other benefits will they receive in their role? How much responsibility will they have for decision making? Who do they report to? (You, if it’s your first employee.) How will you assess their performance?

Remember to include an enticing description of your business and why they would love to work for you. If you find this all a bit bewildering, talk with a recruiter or start with these examples from SEEK: https://www.seek.co.nz/employer/hiring-advice/how-to-write-a-great-job-ad-with-examples .

What if I Don’t Have Enough Work for a Permanent Full-Time Employee?

One of the challenges to face with your first employee is deciding how much time you need them for. If you know that you can regularly employ someone for 1-3 days a work, then you may be looking for a permanent part-time employee. If you think the time may be less consistent, then consider engaging an experienced virtual assistant (VA) or a contractor for specific projects. You can find virtual assistants for a variety of tasks and industries here: https://www.nzvirtualassistants.com .

Employee vs Contractor

We need to distinguish clearly between employees and contractors, as the responsibilities and entitlements are quite different in some areas. An employee must have a written employment agreement, receives holiday pay, sick leave etc. They generally have set hours under supervision, and the employer decides where, when, what and how work is done.

A contractor may have a written service agreement, can decide when they are available to work, may have multiple principals/clients. They can be engaged for a specific project(s) or to fill a vacant role while you look for a permanent employee. They invoice the business and must register for GST if they earn over $60,000 a year. You can read more about the distinctions here:

https://www.employment.govt.nz/starting-employment/types-of-worker/employee-or-contractor

Employer Mindset

Are you mentally prepared to employ someone else? Being an employer requires a mindset which very different from working solo. You are reliant on another person to perform to expectations, and you need to trust them with responsibilities. You are unlikely to find a carbon copy of yourself. Be aware of and be glad of the differences.

Leadership and Vision: Clearly define your company’s vision and goals. Communicate these to your employee to ensure they understand their role in achieving them.

Empathy and Support: Show genuine interest in your employee’s well-being and professional growth. Provide support and resources to help them succeed.

Accountability and Responsibility: Set clear expectations and hold yourself and your employee accountable. These build trust and ensures that everyone is aligned with the company’s objectives.

Open Communication: Foster an environment where open and honest communication is encouraged. Regular feedback and two-way communication help address issues promptly and build a positive work culture.

Continuous Learning: Encourage a growth mindset by promoting continuous learning and development. This not only benefits your employee but also contributes to the overall growth of your business.

Recognition and Appreciation: Regularly acknowledge and appreciate your employee’s efforts and achievements. This boosts morale and motivates them to perform better.

By focusing on these areas, you’ll create a supportive and productive environment for your first employee.

Next Steps

What systems and processes do we need in place for our first employee? Read on, in our next blog post.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

An article like this, which is general in nature, is no substitute for specific accounting, tax and HR advice. If you want more information about the issues in this article, please contact your adviser or the author.

Kiwisaver for Paid Parental Leave

Thu, 11 Jul 2024 09:12:24 GMT

Women in New Zealand often face financial disparities as they approach retirement, including lower savings and longer life expectancy compared to men. Recent changes to Kiwisaver aim to address this imbalance, particularly during paid parental leave. Let's explore how these changes can benefit you and contribute to closing the retirement savings gap.

What is Changing for Kiwisaver and Paid Parental Leave?

From 1 July 2024, new Kiwisaver regulations allow those on paid parental leave to opt for Kiwisaver contributions to be deducted from their fortnightly payments. This means you'll not only continue to build your retirement savings with your own contributions, but also receive a 3% employer contribution from Inland Revenue.

Parents who continue to receive salary and wages from employers while on parental leave, will have Kiwisaver deductions and employer contributions unless they opt for a savings suspension. (Before applying for a suspension, be aware if you intend to use your Kiwisaver for a first-home deposit, you will need to show you have been in Kiwisaver for at least three years.)

Who Qualifies for Paid Parental Leave?

If you are the principal carer for a new baby or a child under 6 entering your care, you can receive payments for up to 26 weeks (6 months) from Inland Revenue. Eligibility is based on your work record over the previous 52 weeks. You may also be eligible if you miscarry or have a stillborn baby.

You must have worked for an average of at least 10 hours a week for any 26 weeks over the 52-week period. Paid parental leave is available to self-employed, but the calculation of eligibility is slightly different. If you have income from salary and ages and self-employment you can’t combine the hours worked in each capacity.

Keeping in touch hours is also slightly different for employees and self-employed people. If you’re an employee, you can perform up to 64 hours of paid work for your employer while on paid parental leave. This is invaluable for keeping up your networks with your colleagues, building your knowledge and keeping your skills sharp. If you’re self-employed keeping in touch hours do not apply, but you can use your time for occasional oversight or administration of your business, like sending out invoices.

Paid Parental Leave is not restricted to the mother, yet it is more common for women to apply for paid parental leave. Perhaps the recent improvements to the paid parental leave scheme will encourage more men to take leave from work to be the principal carer.

How Big Is the Retirement Savings Gap for NZ Women?

In 2022, the Te Ara Anunga Ora Retirement Commission reported a 20% difference in average Kiwisaver balances between genders, with a staggering 30% gap among those aged 46-55 [i] .

Paid Parental Leave Kiwisaver is Only Part of the Solution

Closing the retirement savings gap requires a comprehensive strategy. While the new Kiwisaver changes are a positive step, we must also address broader issues like the gender pay gap and unconscious biases.

Is My Pay Gap Showing?

The nationwide gender pay gap is currently 8.6 percent [ii] and has been steadily falling from 16.3% in 1998. Significant disparities remain, particularly for wāhine Māori, Pacific, Asian women, and disabled women. Differences in choices of occupation and working part time only explains about 20% of the gap. The remaining 80% are “unexplained” factors that are hard to measure, such as conscious and unconscious biases and differences in choices and behaviours.

If you are an employer, review where your gaps are now, and identify where you can make changes. Remove gender biases from your recruitment process. Set your starting salaries without using gender as factor and make your that gender isn’t a factor in the same or similar roles. I recall a male candidate asking for $5,000 more than the female candidate, despite having similar experience and qualifications. We offered the same rate to both candidates.

If you’re a job seeker or looking for promotion, find out what you are worth beforehand, and be prepared to negotiate for the right salary and conditions. Consider applying for jobs even if you don’t meet all the key requirements. Look for work with organisations with equity, diversity and inclusion in their policies.

You can find helpful tools and guide here: What's my Gender Pay Gap? | Ministry for Women

Normalise Household Roles as Gender-Neutral

Teaching all children to perform household tasks, regardless of gender, can promote equality. In our home, even though I prefer cooking and my husband prefers house maintenance, we share these responsibilities. My husband does all the laundry, even if he can’t sort the socks, and he does the after-school activities with the kids. When my husband hurt his shoulder recently, I learned to use the lawnmower.

Normalise Conversations about Money

Talking openly about money with your partner and children is crucial. It's not just about cutting out luxuries like avocado toast but making informed decisions about spending and saving for the future. In our home we use The Barefoot Investor for Families as our guide for teaching our children about money behaviours. Books — The Barefoot Investor - Scott Pape

How Do I Learn to be a Savvy Investor for Retirement?

Becoming a savvy investor starts with educating yourself. Reputable sources like Sorted provide simple, bite-sized financial advice. Use their retirement savings tool to work out your savings goals. Work out your retirement numbers – start planning today (sorted.org.nz)

Talk with an investment advisor. They are specialist financial advisors who can help you reach your retirement goals, by investing for you. They assess your investment risk appetite, your current lifestyle, your needs and what’s important to you, so the plan is tailored to suit you.

If your business is reliant on you working full-time in it, think about how it can be less reliant on you as you approach retirement. What passive income streams can you develop? How can you shift the “doing” part of your business to other people?

My Experiences of Gender Inequities and Impact on Savings

Gender inequities have always been close to my heart, especially after my own experiences as a working mother. When I had my two daughters, I chose to be the primary carer, even though I earned more than my partner. This decision brought several challenges and taught me valuable lessons about financial planning and resilience.

When I was preparing to return to work after having my first baby, I realized the need to balance my professional and personal responsibilities. I explained to my employer about daycare closing times and the necessity of avoiding late work drop-offs. However, this conversation was misunderstood, leading to a month-long restriction on emailing clients upon my return. This period made me acutely aware of the professional setbacks that can accompany parental leave, especially for women.

I learned the importance of clear communication and setting boundaries with employers. It's crucial to advocate for yourself and ensure that workplace policies support parents returning to work.

After my second child, I faced another setback. My position was made redundant during my eight-month leave. This break from work resulted in a loss of professional connections and business networks, making it challenging to re-enter the workforce. It took another eight months to secure a position at JDW, during which my husband continued to build his KiwiSaver contributions, while mine stagnated.

This experience underscored the financial impact of career breaks on retirement savings. It reinforced the importance of proactive financial planning and seeking continuous professional development, even during parental leave.

Here’s How We Can All Address the Retirement Shortfall

The government's recent changes to KiwiSaver during paid parental leave are a positive step towards addressing the retirement savings gap for women. However, it will take collective effort to close this gap completely. Here are some steps we can all take:

Have Open Conversations About Money: Normalize discussions about financial planning with your partner and children. Share your financial goals and strategies to foster a culture of transparency and joint decision-making.

Challenge Gender Roles: Encourage gender-neutral roles within the household. Share responsibilities equally to ensure that both partners have the opportunity to focus on their careers and financial goals.

Address the Gender Pay Gap: As an employer, regularly review your pay structures and recruitment processes to eliminate gender biases. As an employee, advocate for fair pay and seek opportunities that promote equity, diversity, and inclusion.

Educate Yourself on Financial Planning: Utilize resources like Sorted and seek advice from financial advisors to make informed investment decisions. Consider how you can build passive income streams and ensure your business or career is resilient to changes.

By sharing my personal experiences, I hope to inspire other women to take proactive steps in their financial planning journey. Together, we can work towards a more equitable financial future for all women.

Remember, every small step counts. Whether it's having a conversation about money, negotiating for a fair salary, or making informed investment choices, each action contributes to closing the retirement savings gap and achieving financial security.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

An article like this, which is general in nature, is no substitute for specific financial advice. If you want more information about the issues in this article, please contact your financial advisor or the author.

[i] https://retirement.govt.nz/news/latest-news/what-does-retirement-look-like-for-women

[ii] What's my Gender Pay Gap? | Ministry for Women

Xero Subscription Changes from September 2024

serenai@jdw.co.nz (Serena Irving) — Tue, 09 Jul 2024 02:50:38 GMT

We have noticed Xero subscription costs increasing over the past three years, and there is a further shakeup happening between September 2024 and March 2025. This has many business owners and accountant asking: “Is it time to change?”

What is Changing for Xero Subscriptions from 12 September 2024?

The new plans take effect from 12 September 2024. This means if you sign on from that date, or upgrade or downgrade from that date, you will only be able to choose one of the new plans.

For existing subscribers, the migration path is being staggered between September and March 2025. More details are expected in September 2024. Xero will give us 60 days’ notice of the changes.

The Xero GST Cashbook subscription is being merged with the Xero Starter subscription to form Xero Ignite. If you don’t use the add-ons, then you will have an increase in functionality from this change.

The add-ons (Expenses, Payroll, Projects, Analytics Plus) are being bundled with different levels of subscriptions, rather than being added separately to a base subscription. Bundling will impact on pricing quite significantly for some clients, so that is why Xero is allowing longer for migrating these clients.

New Plans from 12 September 2024

You can access the full list of new Xero plans here . Subscriptions are paid monthly, and prices shown exclusive of GST. Two prices are shown in the summary below – the official Xero rate and the Gold Partner rate we offer to JDW clients.

Xero Add-On Subscription Migration Issues

We have identified issues for clients who currently subscribe to Expenses, Payroll and Projects add-ons. In some cases, their subscription costs will be consistent or drop overall as they already pay extra for additional users. But if they are on Starter and only have a single user on Projects or Payroll, they may find they have to pay more for the privilege. This is because they will have to jump to a more expensive package if they want to keep using those Add-ons. We are yet to see how Xero will manage the migration of these clients in September 2024.

Example Migration with savings:

A service company is currently on Standard, it uses Expenses for its two shareholder-employees, uses Payroll for one employee and all three people access Projects.

Current Cost is $71 Standard ledger + $5 extra Expenses user + $10 Payroll + $10 Projects (- $22.75 Gold Partner discount) + $14 two extra Projects users = $87.25. Under the Ultimate plan, they will pay $84.75, saving $2.50.

Example Migration with cost increases:

A consulting company is currently on Starter, it has no payroll and uses Projects for its one shareholder-employee.

Current Cost is $33 Starter ledger + $10 Projects (- $10.75 Gold Partner discount) = $32.25.

Under the Ultimate plan, they will pay $84.75, costing an extra $52.50.

Is It Time to Explore Other Options?

Possibly, but it’s best to do thorough research on pricing, feature and user experience before making a shift. We have listed a few suggestions below, but there is a wide selection of apps which integrate with Xero, in the Xero App Store .

For expenses, you could use Hubdoc which is part of Xero Ignite or higher. Or sign up to Dext which is $24+GST a month for up to 5 users.

For payroll, you could use PaySauce Simple which is $17 +GST for the first employee + $2 per additional employee.

For project management, Tradify Pro is $49 +GST per user a month, and has additional features like health & safety forms, job photos and subcontractor scheduling. If you have more than one user, then Ultimate works out cheaper.

If you wanted to move away from Xero altogether, then we suggest Reckon, MYOB Business, or Moneyworks for small and medium businesses. However, we consider that Xero still has the edge over its competitors in bank entry coding, data entry automation, GST reconciliation, and reporting from client and accountant points of view.

What Should We Do Now before 12 September 2024?

Xero has asked us to be patient and wait until September 2024 when they will announce their migration plan. In the meantime, we suggest that you check your Xero ledger subscriptions and which add-ons you use, then let us help you evaluate your alternatives. We don’t need to rush with making decisions, but we want to make sure that you are getting the best value from your accounting software subscriptions.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland and a Xero certified advisor. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

Personal Tax Updates from Budget 2024

serenai@jdw.co.nz (Serena Irving) — Sun, 16 Jun 2024 02:49:59 GMT

The NZ Government Budget 2024 included a long-awaited expansion in tax thresholds from 1 July 2024. What does this mean for employers and individual taxpayers?

Why the Increased Tax Thresholds?

When the minimum wage increased to $22.70 an hour on 1 April 2023, it meant that fulltime minimum wage earners were earning over $44,000 and paying more than 17.5% marginal tax on each dollar over $44,000. JDW joined other voices in the call for the tax thresholds to be increased in our blog: https://www.jdw.co.nz/minimum-wage-and-tax-thresholds

Increasing the tax thresholds and extending the eligibility for independent earner tax credits helps households to cope with the increased cost of living pressures.

What Are the Updated Tax Thresholds and Rates?

Figure 1 below shows the new tax thresholds applicable from 31 July 2024. Introducing these changes partway through the tax year, which ends in March 2025, creates a unique challenge: taxpayers will now have three additional tax brackets to consider.

The Independent Earner Tax Credit (IETC) threshold is increasing from $48,000 to $70,000 also. You can download an Excel calculator combining the tax rates, tax thresholds and IETC thresholds from our website: JDW Personal Tax Calculator 2025 .

How Does this Change Affect Employers and Payroll?

If you are using online payroll software, the PAYE calculation will be updated automatically by your payroll software provider. If you use a desktop version, you will be prompted to download an update. Look out for messages from your payroll software provider before 31 July 2024. You will notice more money being paid to your employees and less to IRD for PAYE, but the overall payroll cost should be the same.

You will need to check if your employees are using the correct tax codes for secondary employment. Ask them to complete a new IR330 form in July.

How Does This Change Affect Individual Taxpayers?

If you earn more than $14,000 a year, you’ll notice the tax savings from your first pay after 31 July 2024. If you have a secondary employment, you may need to advise your employer of a new tax code so that the right rate of tax is deducted. Due to the timing of the PAYE changes, you may have a terminal tax to pay or income tax refund due, when your personal tax is calculated after 31 March 2025. This includes taxpayers whose tax returns are auto-assessed by IRD.

You will need to advise your bank or investment company if your Interest RWT is at the wrong rate. This doesn’t happen automatically.

If you pay provisional tax, you may want to discuss with JDW whether to estimate your provisional tax for 2025 year.

How Much Will My Family Save?

To find out how much you will save as a family, the NZ Government released a Budget Tax Calculator here: https://budget.govt.nz/taxcalculator/index.htm

The Budget 2024 Tax Calculator factors in the changes to the tax thresholds, IECT, changes to NZ Super, working for families and the new FamilyBoost for early childhood education.

Many taxpayers will welcome the increased income tax thresholds so they have more funds available for spending and savings. Be aware that you may need to contact your employer, bank or chartered accountant to make the most of your tax savings.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

An article like this, which is general in nature, is no substitute for specific accounting and tax advice. If you want more information about the issues in this article, please contact your adviser or the author. While every care has been taken in designing the JDW personal tax calculator 2025 , the results should be used as an indication only.

What is Provisional Tax?

serenai@jdw.co.nz (Serena Irving) — Mon, 03 Jun 2024 02:29:22 GMT

Provisional tax is a form of income tax which you pay during the income year. Here is an explanation of how provisional tax is calculated and why you need to budget for it.

Residual Income Tax vs Provisional Tax vs Terminal Tax

Salary & wages have income tax deducted at source called PAYE. Interest income has resident withholding tax (RWT) deducted at source. Dividends have imputation credits and RWT deducted at source. The tax credits attached to these forms of income, help to reduce the tax you have to pay at year end. When you have income from business or rental, there is no tax deducted at source.

Residual income tax is the amount of tax owed after deducting any tax credits made during the year. Provisional tax is a method of paying tax in advance, based on estimated income, which you pay in instalments throughout the year. Terminal tax is the final tax payment due after the year's income is assessed, equalling the residual income tax less provisional tax payments.

If your annual income tax exceeds $5,000, you are required to pay provisional tax. If you overpay provisional tax during the year, you can receive a refund after completing your income tax return.

For a taxpayer with a 31 March 2025 year-end balance date, the standard due dates are: 28 August 2024, 15 January 2025, and 7 May 2025. If you file 6-monthly GST returns, the provisional tax due dates align: 28 October 2024 and 7 May 2025. Terminal tax for 2025 is due on 7 February 2026, or 7 April 2026 if you have a tax agent such as a chartered accountant.

Provisional Tax Methods

There are four ways of calculating provisional tax: standard, estimation, ratio and accounting income method options. Each has its own benefits and downfalls.

Standard option

Standard option is the default method of calculating provisional tax and works best when your income tax is steady or gently increasing each year. It is the simplest method of calculating provisional tax. If you have filed your 2024 year income tax return, 2025 provisional tax is your 2024 residual income tax plus 5%, spread equally across your instalments. Otherwise, 2025 provisional tax is your 2023 residual income tax plus 10%, spread equally across your instalments.

Estimation option

Estimation option is best when your income tax is dropping or is likely to jump significantly. You can’t switch back to standard after you have estimated for that year, but you can estimate again. For example, a consultancy company forecasted that its net profit would drop $60,000 due to losing a regular client. It estimated its provisional tax down by $16,800 ($60,000 x 28%) and paid its one-third instalment in August. Later in the year it gained a new retainer client increasing its forecast net profit by $30,000. It estimated its provisional tax up by $8,400 ($30,000 x28%). For its second instalment in January, it paid two-thirds of the estimated increase.

Ratio option

Ratio option is useful when your income varies or is seasonal, and you have at least two years of activity that allows IRD to calculate an appropriate ratio based on your GST returns. If you elect to use this method, IRD advises you that your provisional is a set percentage of your GST income. Ratio option is a blunt instrument and has been largely overtaken by Accounting Income Method.

Accounting Income Method

Accounting Income Method (AIM) is a better method of calculating provisional tax when your income is seasonal or variable, as your provisional tax is more closely aligned to your year-to-date profit. You can even get a tax refund during the year if you overpaid in previous instalments. It requires you to have good accounting systems as you are required to calculate your taxable profit and pay provisional tax every AIM period (monthly or two-monthly). AIM is described in detail in our blog: https://www.jdw.co.nz/aim-provisional-tax-finds-its-target .

Interest and Tax Pooling

If you use the Ratio or AIM options for calculating provisional tax, you won’t incur use of money interest (UOMI) if you pay your instalments on time. With the Standard option, interest calculations depend on your residual income tax. For residual income tax under $60,000, interest starts from your terminal tax due date. If it’s over $60,000, interest starts from your final provisional tax due date. Using the Estimation option, interest starts calculating from your first provisional tax due date.

Tax Pooling allows you to “buy tax” from another taxpayer who has overpaid provisional tax through a financial intermediary. This usually results in lower interest rates compared to the Inland Revenue Department (IRD) and helps avoid late payment penalties. The seller benefits from receiving a better interest rate than the IRD offers.

Tax pooling is particularly useful if you underestimate your taxes early in the year, as it allows you to cover the first provisional tax instalment. It’s also beneficial for managing cash flow, as it lets you delay payments. For example, one of our property developer clients used tax pooling to make lump sum payments each time they settled on a property sale, rather than adhering to standard provisional tax due dates.

The Second Year Tax Trap

Are you aware of the second-year tax trap? In your second year of profitable trading, it can feel like most of your profit is going toward paying taxes. This is because you are paying terminal tax for the previous year and provisional tax for the current year simultaneously. To manage this, make sure you allow for it in your cash flow budget.

Here are a few tips to help manage your cash flow:

Create a Cash Flow Forecast: Regularly update your cash flow forecast to include expected tax payments. This helps you plan for large payments and avoid surprises.

Set Aside Funds Regularly: Allocate a portion of your income each month to a separate bank account dedicated to tax payments. This way, you won't be caught off guard when payments are due.

Use Tax Pooling: Consider using a tax pooling service, which allows you to pay provisional tax at a time that suits your cash flow, rather than strictly on the IRD's due dates. This can provide flexibility and potentially reduce interest costs.

Seek Professional Advice: Consult with a tax advisor or accountant who can help you optimize your tax payments and cash flow management. They can provide strategies tailored to your business situation.

Review and Adjust Provisional Tax Estimates: Regularly review your provisional tax estimates to ensure they accurately reflect your income. Adjusting estimates can help you avoid overpaying and improve cash flow.

Proper planning and using these strategies can help you avoid cash flow issues and ensure you meet your tax obligations without unnecessary stress. Contact us at JDW to discuss your specific provisional tax issues and discuss if estimation and tax pooling is right for you.

-Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

How Do I Pay Myself as a Sole Trader?

serenai@jdw.co.nz (Serena Irving) — Thu, 16 May 2024 08:14:59 GMT

The hard effort that you put into your business needs to be rewarded. When you are a sole trader, you can withdraw cash from your business, called “Drawings” at any time. There may be a constant tension between “how much money does my business need?’ and “how much money do I need to live on?”. It’s easy to fall into a trap of muddling up your business and private expenses. And don’t forget your taxes!

Can I Pay Myself PAYE Wages or Salary?

When you are a sole trader, you can’t put yourself on the payroll like other employees and you can’t pay yourself a PAYE wage or salary. This means that you must put aside money to pay your income taxes, student loan and Kiwisaver from your profits before you take drawings.

Keeping Separate Bank Accounts for Business, Tax and Personal

We recommend that you have at least three bank accounts. The Business and Tax accounts are linked to your Xero or other accounting software. You receive customer payments and pay your business expenses through the Business account. Every month or every week, you transfer an amount from your Business account to your Tax account to save for your GST, income tax and student loan payments. Set up a regular payment to your Kiwisaver provider from one of these accounts.

Every month, you transfer an amount of Drawings to your Personal account, which is not linked to your Xero or other accounting software. Your personal account is for your household expenses, food, personal entertainment and personal shopping. Your accountant doesn’t need to know the minutiae of your personal bank account for taxes, but you may need to keep track of personal spending for a mortgage application or personal budgeting.

How Much to Put Aside for Tax?

Firstly, some basic business truths. Cash and Profit are not the same. You can have a profitable business and be low on cash: funds tied up in unsold products, paying off loans, customers paying you slower than you are paying suppliers. On the flip side, you might not have a profitable business, but it has plenty of cash because you have received loans or put your own money into the business.

Profit is the difference between income and expenses. For a sole trader, tax is calculated on that profit alongside your income from other sources. If your business is your side hustle and you are already earning over $78,000 a year, then the tax will be 33% or 39% of that profit. Check out Figure 1 below, our JDW personal tax calculator 2025 or IRD has a handy calculator tool: https://www.ird.govt.nz/income-tax/income-tax-for-individuals/how-income-is-taxed/work-out-tax-on-your-yearly-income (Note: as at 16 June, IRD calculator has not been updated.)

If you have a student loan, then you will need to set aside a further 12% for every net profit dollar you earn over the repayment threshold. For the 2025 tax year the annual repayment threshold is $24,128. [i]

If you are GST registered, then you will also need to put aside your GST. Run your GST return report each month (even when GST is not due) to see how much you need to save. You’re not alone in thinking that there’s not much left over for you after paying your taxes, but they are a fact of life.

Figure 1 Tax Rates and Thresholds Source: budget.govt.nz [ii]

How Much Can I Take in Drawings?

That depends on how much you need and how much your business needs. If you are budgeting carefully, you will have a clear idea of when and how money you need. Consider these issues:

When Does My Business Have Payments Due?

Typical payment days may be 1st of the month rent, 20th of the month bills and PAYE, 28th of the month tax payments. If you buy stock in bulk, when do you have to pay for your order? When do you pay your team? When do you pay your term loans or leases?

How Reliable is Income?

If income is inconsistent, such as when you are starting out or when you have lost a large client, then it would be helpful to leave more funds in the business to cover expenses.

Rainy Day Fund & Emergency Fund

In addition to your three bank accounts, consider having a Rainy Day Fund for unexpected expenses (car repairs) and an Emergency Fund for covering expenses when income stops suddenly (family illness). You can read more about them here: https://www.jdw.co.nz/saving-for-the-next-rainy-day

How Much Am I Worth?

If you were employing someone else to do your role, how much would you pay them? Consider your level of experience, skills, your responsibilities as owner-manager and the hours you work. If you can’t afford to pay that much yet, consider what needs to change to make it happen.

How Much Do I Need to Live Comfortably?

Is your business income needed to cover the mortgage, rent or weekly groceries? It is just as important to have a household budget as a business budget. For some people, money feels like a dirty word to bring up in a relationship. But we all know of relationships which have been tested and broken because money problems.

In theory, sole traders can take as many drawings as they like, but that would be imprudent. Keep business and personal finances separated and save for taxes as you go. Remind yourself that cash doesn’t equal profit, and the business may need more help when you have big bills coming up. Aim to pay yourself what you are worth, and what your family needs to live. If you need help to uncover the changes you need in your business to make that happen, reach out to your friendly chartered accountant to help you.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

[i] https://www.ird.govt.nz/student-loans/living-in-new-zealand-with-a-student-loan/repaying-my-student-loan-when-i-am-self-employed-or-earn-other-income

[ii] https://budget.govt.nz/budget/2024/at-a-glance/tax-relief.htm

How do Company Shareholder Salaries Work?

serenai@jdw.co.nz (Serena Irving) — Wed, 01 May 2024 01:29:43 GMT

Salaries are an incentive for shareholders to work in the company they own. In our blog we explain some important concepts around salaries for working shareholders.

Getting Paid from a Company

A company is a separate legal entity from its shareholders, the owners in the business. An ordinary company pays tax separately from its shareholders (see below for quick note about LTCs), and we record funds to/from the shareholders as loans or advances known as shareholder current account .

This is an important distinction because the amount of salary you allocate to yourself will impact on the amount of tax you and your company pays.

Let’s look at two different types of salary: PAYE salaries and shareholder-employee salaries. If you are a working shareholder, you can earn both types, but they are slightly different.

PAYE Salaries

If you work in the company, you can receive a PAYE salary like any normal employee. This means that every payday, your salary has income tax, ACC, student loans and Kiwisaver contributions deducted and the net pay is paid to your personal bank account.

PAYE salaries are great for people who prefer to pay their income taxes as they go, rather like compulsory saving for tax and retirement. The downside is when your salaries are too high, your company makes a tax loss, and it is too late to claw back the salary overpayment. If you constantly change your PAYE salaries during the year, so your personal income fluctuates, you may have terminal tax to pay or tax refunds at year end.

Shareholder-Employee Salaries

As the name suggests, you must be a shareholder owning at least one share to take advantage of this type of salary. If the shares are owned by your trust or another family member, then you can only receive PAYE salaries.

Instead of receiving a consistent salary throughout the year, your salary is determined when your chartered accountant is preparing the annual accounts. In this way, you won’t decide a salary that’s more than taxable profit (unless you have a reason to). The downside is that you will be liable for income tax on your personal income, paying provisional tax and terminal tax in lump sums throughout the year. The company pays a separate ACC levy for shareholder-employees, and shareholder-employees must arrange their own Kiwisaver contributions directly with their Kiwisaver provider.

You could decide to do a mixture of both PAYE and shareholder-employee salaries to get the best of both worlds.

Shareholder-Employee Salaries and AIM Tax Payments

If your company profits fluctuate or it has some seasonality, then combining shareholder-employee salaries and AIM provisional tax payments can be useful. Every AIM tax period, you calculate a portion of the company’s profit to be allocated to shareholders as salaries, then pay the company and shareholders’ taxes in one payment. If you pay too much AIM provisional tax in an earlier payment, then you can easily get it refunded in a subsequent period.

You can read more about AIM provisional tax here: https://www.jdw.co.nz/aim-provisional-tax-finds-its-target

How Much Salary Can I Pay Myself?

There are many factors to consider, so deciding an appropriate salary can feel more like an art than a science! These are the factors we discuss with our clients, when helping them decide on their salaries.

Market Salaries

How much would you pay someone else to do your job? Consider the tasks you do, the skills and experience you have, the hours you work. Also factor in the additional responsibilities and risks you have if you are also a director in the company. Directors sign a resolution that they believe that your salary is fair and reasonable for the work that you do.

Solvency

Directors sign a solvency certificate, that there will be more assets than liabilities, and the company can pay its debts after the salary is paid. If you want to leave more cash in the company, then you can record the shareholder salary as a journal entry. The shareholders can then draw the funds out later.

Personal Services Attribution Rules

Specific tax rules apply for personal services companies, such as consultancies, so that individuals can’t avoid higher income tax rates by having a company structure in place. If at least 80% of the company’s income from personal services comes from one buyer (or associated group of buyers) and at least 80% of the income is earned by the working person and/or a relative and the net income is more than $70,000 then the attribution rule applies. In these circumstances, taxable income left in the company after salaries are treated as taxable income of the working person. There are some exemptions, but we won’t go into those here.

Cash Requirements

Some shareholders prefer to allocate out all the company’s profits to individual shareholders, so they can draw out the funds for personal spending. Some prefer to leave profits in the company for reinvestment. You can take drawings from your shareholder current accounts which are not taxed, if you don’t draw out more than you put in (via funds introduced or salaries and dividends credited). If you overdraw your shareholder current account, then you will either need to pay interest to the company, pay Fringe Benefit Tax (FBT) to IRD or treat the foregone interest as a deemed dividend.

Company Profits and Tax Rates

Individual shareholders have a range of marginal tax rates from 10.5% to 39%, and companies pay tax at a flat 28%. It can be tempting to allocate salaries to get the lowest taxes overall, but this only one factor. You may be delaying the inevitable, as profits left in the company may someday be paid out as dividends, and taxed at the shareholders’ tax rates.

Shareholder Agreements

Shareholder and director remuneration is ultimately decided by the board of directors, but there may be formulas or clauses set out in agreements signed by the voting shareholders.

A Quick Note about Look Through Companies (LTCs)

Look Through Companies (LTCs) are treated like partnerships for tax, so shareholders pay tax on their share of annual profits in their personal tax returns, based on their percentage shareholding. If you have a LTC shareholder who works in the company and deserves more than their percentage shareholding, you could pay them a salary. It must be a PAYE salary though, and the shareholder needs to sign an employment agreement for it to be valid.

Whether you have a PAYE salary throughout the year or decide on a shareholder-employee salary after year-end and how much to pay each shareholder is a topic for keen debate. With all these factors in mind, deciding an appropriate salary can be perplexing! That’s where an experienced chartered accountant can help guide you in making the right decision. You can have this discussion at any time in the year. Reach out to your chartered accountant for tailored advice to suit your situation.

- Serena Irving

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How Do Company Dividends Work?

serenai@jdw.co.nz (Serena Irving) — Thu, 11 Apr 2024 03:12:22 GMT

Dividends are an incentive for shareholders to invest in a company of any size. In our blog we explain some important concepts around dividends.

Getting Paid from a Company

If you work in your own company, you can get paid in multiple ways: salary and wages as an employee, interest on loans/advances you make to the company and dividends as a return on your investment. You can take drawings from your shareholder current accounts which are not taxed, as long as you don’t draw out more than you put in (via funds introduced or salaries and dividends credited). If you overdraw your shareholder current account, then you will either need to pay interest to the company, pay Fringe Benefit Tax (FBT) to IRD or treat the foregone interest as a deemed dividend.

We will focus on the salary and interest another time, but for now let’s talk about dividends.

What are Dividends?

Dividends are payments to shareholders, usually from after-tax profits, in proportion to shareholding. Unlike salaries and interest, dividends paid do not reduce the company’s taxable profit. Dividends can be made in cash, by journal entry to the shareholder current account, or by transfer of non-cash assets (known as in specie distribution). Dividends from ordinary companies are taxable income for the shareholders. Capital gains can only be distributed tax-free from an ordinary company on liquidation.

When can I take a Dividend?

The Company needs to have enough equity, usually retained profits, to pay a dividend. Directors sign a solvency certificate, that there will be more assets than liabilities, and the company can pay its debts after the dividend is paid. If you want to leave more cash in the company, then you can record the dividend as a journal entry, so only the dividend withholding tax is paid out to IRD. The shareholders can then draw the funds out later.

If your company regularly make profits after paying shareholder salaries and tax, then you should review at least annually whether to pay dividends. We have a client with trust shareholders. They declare a dividend each year, usually after the annual accounts are done. They have not had so much of a shock to hurriedly pay out dividends before the 39% tax rate kicks in!

What Are Imputation Credits and How Do They Affect Dividends?

The imputation credit scheme helps to prevent double taxation of profits in the company and shareholders hands. When a company pays income tax (such as provisional tax, terminal tax, RWT) it receives an imputation credit that it can attach to dividends.

When a NZ company pays an ordinary dividend to NZ shareholders it is required to deduct 33% dividend withholding tax (DWT) before paying out to shareholders. If there are enough imputation credits, the company can attach up to 28% imputation credits and deduct just 5% DWT.

The shareholder then pays tax on the dividend at its tax rate and deducts the imputation credits and DWT from the tax liability. If the shareholder tax rate is 33% then they have not further tax to pay. If the shareholder tax rate is 39% (individuals over $180k income, trusts from 1 April 2024), the shareholder will pay an extra 6% income tax.

Example of Dividend paid to Shareholder on 39% Tax Rate:

Company A has one shareholder. It earns $1,000 taxable profit and pays 28% income tax or $280, leaving $720 in retained earnings.

Company A declares a dividend of $720, adding on the imputation credits (IC) = $1,000 gross dividend. The dividend has $280 IC attached, so Company pays 5% or $50 to IRD as dividend withholding tax (DWT). The shareholder receives cash of $720 - $50 = $670.

Shareholder’s tax rate is 39% and it has $1,000 gross dividend income.

Tax liability is $390 - $280 IC - $50 DWT = $60 to pay.

Example of Dividend paid to Shareholder on 17.5% Tax Rate:

Company A has one shareholder. It earns $1,000 taxable profit and pays 28% income tax or $280, leaving $720 in retained earnings.

Shareholder’s tax rate is 17.5% and it has $1,000 gross dividend income.

Tax liability is $175 - $280 IC - $50 DWT = $50 refund. Only the DWT is refunded.

Excess imputation credits of $105 can’t be refunded, so it is carried forward to use next year (or beyond) to offset future tax liabilities.

(In the case of trusts or companies, excess imputation credits are converted into imputation losses to carry forward.)

A Quick Note about Dividends from Look Through Companies (LTCs) and Qualifying Companies (QCs)

Look Through Companies (LTCs) are treated like partnerships for tax, so the company doesn’t pay income tax. The shareholders pay tax on their share of annual profits in their personal tax returns. When a LTC declares a dividend, it is tax free.

Qualifying Companies (QC) are becoming rare, as you can’t elect for a company to be a QC anymore. Only dividends with imputation credits attached are taxable to shareholders. Capital gains can be distributed tax-free.

Declare a Dividend Before You Sell Your Shares

If you have a shareholding change coming up, you may need to declare a dividend before the shareholding change. A shareholding change of 34% or more will break shareholder continuity, and imputation credits on that date will be forfeited. If you later decide to declare a dividend and don’t have enough imputation credits in the company, the company will have to pay more dividend withholding tax to top up the credits to 33%.

Dividends are an important incentive for shareholders, so it is important to understand how they work. Contact JDW for tax advice before you declare dividends and sell shares.

- Serena Irving

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GST Changes for Uber Drivers

serenai@jdw.co.nz (Serena Irving) — Mon, 08 Apr 2024 05:29:13 GMT

The GST rules have changed for ridesharing, ride-hailing, food and beverage delivery like Uber, Ola, UberEats, DoorDash and Menulog. This will affect service providers who are not GST registered as well.

What has Changed for Electronic Marketplaces?

From 1 April 2024, electronic marketplace operators like Uber, wherever resident, must collect and return GST of 15% when the service is provided in NZ. GST will also apply on closely connected services. NZ resident operators are also required to provide information about users of their platform to IRD each year.

For businesses that are already registered for GST, you’ll need to mark your income from these platforms as zero-rated, which means the company running the platform handles the tax part. If you receive income directly, you will return 15% GST as normal on that income. You will be able to continue to claim GST on your expenses.

I’m not GST registered. How am I affected?

From 1 April 2024, electronic marketplace operators like Uber, wherever resident, must collect GST of 15% even though you are not GST registered. 6.5% is returned to IRD and 8.5% is passed on to you, as recognition that you are not able to claim GST on expenses. This 8.5% is exempt from income tax.

The GST portion of your expenses will also be considered not deductible for income tax. If you have a mixture of income sources, the calculation of deductible expenses has just got more complicated! For instance, if you use your vehicle for delivery services, but also for another business that isn’t a listed service, you will need apportion your vehicle expenses between the two businesses. You will only claim the GST exclusive expense on the delivery service portion, and the GST inclusive expense on the other business portion.

What Next?

To wrap up, if you're not already registered for GST, think about whether it's worth doing voluntarily. Being registered means dealing with GST returns, while being unregistered means calculating certain expenses differently.

Talking to a tax advisor is key in both situations. They can give you personalized advice that fits your needs and help you with your calculations. Taking these steps now can make handling taxes easier and help you make the most of GST rules for your business.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

Tax Update for Airbnb

serenai@jdw.co.nz (Serena Irving) — Mon, 08 Apr 2024 04:21:34 GMT

The GST rules have changed for property owners who offer short term rental through electronic marketplaces, like Airbnb, Bachcare, BookaBach and Wotif. This will affect owners who are not GST registered as well.

What has Changed for Electronic Marketplaces?

From 1 April 2024, electronic marketplace operators like Air BNB, wherever resident, must collect and return GST of 15% when the service is provided in NZ. GST will also apply on closely connected services, such as when you have a separate cleaning service from your accommodation service. NZ resident operators are also required to provide information about users of their platform to IRD each year.

If you are a GST-registered owner, you will need to show the income from online marketplace as a zero-rated supply, because the marketplace operator has already returned the GST before passing the net income to you. If you receive income directly, you will return 15% GST as normal on that income. You will be able to continue to claim GST on your expenses.

If you provide a mixture of short stay and long-term accommodation through an electronic marketplace the income will be taxed 15% GST. Long-term accommodation is usually GST exempt, however the rules that allow for a reduced rate of GST for accommodation provided for 4 weeks or more do not apply if the accommodation is supplied through an online marketplace.

I’m not GST registered. How am I affected?

From 1 April 2024, electronic marketplace operators like Air BNB, wherever resident, must collect GST of 15% even though you are not GST registered. 6.5% is returned to IRD and 8.5% is passed on to you, as recognition that you are not in a position to claim GST on expenses. This 8.5% is exempt from income tax. The GST portion of your expenses will also be considered not deductible for income tax.

Can I opt out of the new rules?

You can only opt out the electronic marketplace rules if you are considered a large-scale accommodation provider. That is, you have at least 2,000 nights’ accommodation list on one electronic marketplace in a 12-month period, or a reasonable expectation that you will. You would need to be GST registered on a monthly or two-monthly basis. There may be other criteria added by IRD as time goes on.

Can I Claim Depreciation and Interest on my Airbnb Property?

Short-stay accommodation is generally considered residential, though boarding houses serviced apartments under a property manager are considered commercial.

The residential rental interest limitation applies to short-term accommodation. Interest cannot be claimed for residential property acquired on or after 27 March 2021. A percentage of interest is claimable for property bought before 27 March 2021 and new-builds. If only part of the property is used for short-term accommodation, you will need to work out a percentage of that percentage!

Depreciation is generally not claimable on residential buildings, but if you have four or more apartments in the same building you may claim depreciation. You may be able to claim depreciation on the chattels if they are separately identified.

I’m GST Registered. Do I Pay GST When I Sell My Property?

If you bought a property principally for making taxable supplies and claimed GST, then you would return GST when you sold it. This relates to property bought for resale or development, for instance.

The GST rules clarify that the sale of goods including private homes are not GST taxable, if they were not acquired or used principally for making taxable supplies. Prior to 1 April 2023 a registered person could make an input tax claim for GST on the property even if they only used part of it for business purposes or short-term rental accommodation. This has caused some concern for property owners, as they are selling for more than they initially paid. IRD has changed the rules retrospectively and allowed taxpayers to elect to treat the sale of property as not part of their taxable activities.

There are transitional provisions if you elect before 1 April 2025. If you claimed a GST input tax deduction before 1 April 2023, and did not acquire or use a property principally for making taxable supplies you can return an output tax equal to the amount of input tax you claimed. You must notify IRD of your election and don’t make any further GST deduction on the purchase of the property or improvements.

What Next?

If you've claimed GST on your property and want to change that before 1 April 2025, you can. Just be careful not to claim GST on any improvements after making that election.

Talking to a tax advisor is key in both situations. They can give you personalized advice that fits your needs. Taking these steps now can make handling taxes easier and help you make the most of GST rules for your Airbnb property.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

Strong Start to the New Year

serenai@jdw.co.nz (Serena Irving) — Tue, 19 Dec 2023 22:39:15 GMT

“What does a strong start to the New Year look like to you?” I asked my clients one week before Christmas. They listed a myriad of ideas: client bookings, collaborations with local businesses, time scheduled for working on their business.

“Great! What can you do now, to make sure that happens?” I asked. They immediately made a list of people to call before Christmas to set up meetings in January and blocked out time for business development.

The New Year Lag in NZ Businesses

We see this repeated in NZ businesses of all sizes, particularly services and manufacturing. If you have a Christmas closedown like most NZ businesses, it’s about mid-January before you get sales and marketing underway. Services and production don’t get up until full speed until February. It’s financial tough from January (holiday leave, provisional tax, GST), through February (lower sales in January) until mid-March. That’s a long time to keep your belts tightened!

Set Up Strong Habits Now

This is a good time to introduce good new habits. Start small because it’s easier to start and not procrastinate if it’s not challenging. James Clear describes the 2-Minute Rule in his book Atomic Habits, which states “When you start a new habit, it should take less than two minutes to do.” [i] For instance, if your goal is to walk regularly for fitness, your Day One goal may be to put one your shoes and walk to the letterbox.

Don’t wait to make a New Year’s resolution, start now. If you want to start journalling, buy a nice journal and pen while you are Christmas shopping. Find a meditation app that lets you mediate for 1-2 minutes. Read one page of a book. If you consistently read one page every day, you will have read 365 pages in one year.

Consistently repeating this habit, even in a small way, makes the process easier to fit into your daily rhythm. Then as it becomes more automatic, you can extend the time and increase your effort. I recently started walking in the morning before breakfast. This morning I surprised myself because my usual route took 5 minutes less than last week and I recovered faster from my brisk walk.

Strong Habits for You in Your Business

While you are at it, remember to set up strong habits for you in your business. Take two minutes to block out time for working on your business. The clients I mentioned at the start blocked out one consultation session for making phone calls to their business networks.

You may not be able to work out a full strategy for your business in two minutes, but you might be able to imagine a future state for your business in one session and take one step in the right direction in another session.

Keeping Up the Momentum

Thanks to automation, you can keep marketing while you are on holiday. You can batch create a month’s worth of social media posts, repurposing content from throughout the year. Don’t tell yourself its repetitive. You are being consistent. If a person isn’t interested right now, they will keep scrolling. But there’s a good chance that someone is going to discover you for the first time, or has seen you before but now has the time to reach out and sign up to your email sequence.

Set up your welcome email to sound enthusiastic, tell a bit about how you work and manage expectations about contact during your summer break. Make sure your out of office message reflects that upbeat style too.

Have work orders lined up for your first two weeks back. If some of your production team is taking extended leave, make sure that you either have cover, or match the jobs to suit that team you have available.

Stronger Teams

Welcome your team back for the New Year, with sincerity and enthusiasm. Encourage strong teams from the start, with excellent communication between each other, respect for each other’s strengths and work styles, transparency in decision-making and accountability. Re-iterate the shared purpose of the business, mission and values.

Foster a collaborative culture, ask the team for input or opinions, and help everyone feel included and a sense of belonging. Work together to improve processes to achieve your shared goals.

Take Care of You, the Business Owner

One of the best things that you can do for yourself is to have a restful break from the business during your close down period. Let your business calls go to voice mail, turn off notifications and only clear your emails at set periods during the day or week. Fill up your emotional cup by spending time with friends or family who you lift you up. Spend time doing activities you enjoy, whether you are an active or passive relaxer. Get outdoors and explore or do something creative. Start your self-care habits.

Start the New Year strongly, by bringing the best version of You back to your business.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland and is also a volunteer business mentor with Business Mentors NZ. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

An article like this, which is general in nature, is no substitute for specific accounting and tax advice. If you want more information about the issues in this article, please contact the author.

[i] https://jamesclear.com/how-to-stop-procrastinating

Ikigai for Business

serenai@jdw.co.nz (Serena Irving) — Sun, 05 Nov 2023 22:04:48 GMT

When I was made redundant 6 years ago, I made a mind map of “What’s Next?”. I listed several options on the page, then evaluated my options. I was looking for something I was good at, I had a passion for, and what the world needed and would pay me for. I had stumbled into Ikigai, a Japanese philosophy for finding your life purpose.

What is Ikigai?

Ikigai is an ancient Japanese philosophy, with four overlapping circles. It was brought to the wider world by authors Héctor García and Francesc Miralles, who researched the Japanese village Ogimi, which has the highest percentage of residents aged over 100 [i] . They found that the villagers’ secret to long and happy lives was to have a strong sense of life purpose.

[i] “Ikigai: The Japanese Secret to a Long and Happy Life” by Héctor García and Francesc Miralles 2017

It is interesting to notice the intersections of two of the four circles.

Passion – what you love and what you are good at.
Profession – what you are good at and what you can be paid for.
Vocation – what you can be paid for and what the world needs.
Mission – what the world needs and what you love.

Ikigai involves all four circles, what you love, what you are good at, what the world needs and what you can be paid for.

If you have a strong sense of life purpose then you are more likely to remain active, maintain physical and mental health, be happier and live longer. If you don’t feel fulfilled right now, you can look at the diagram and consider, what is missing?

How Does Ikigai Work in Business?

Business owners should look for a purpose beyond profit and be able to communicate that purpose to their teams and customers. Imagine employees who are motivated and engaged by their organisation’s purpose. They will continuously find ways to improve what and how they do their work, because they are crystal clear on their why. You should encourage feedback loops and open communication to allow your teams to feel supported and empowered to make decisions.

Simon Sinek describes a Golden Circle for inspiring your organization, with Why at the centre, then How and What in circles around it. [ii] If you get your Why right, then the How and What just fall into place.

Write your purpose statement and display it prominently at work. Discuss and refine it with the team. Start with a basic “We help our customers/stakeholders {solve this problem/have a positive impact} by {what skills/mindsets/resources you bring}.” You can add, “We are passionate about this purpose, because {reason}.”

If you’re not clear on your business purpose, then there are good chances that people are just turning up for a vocation or profession. They will join the dots, get paid and go home. But if you can ignite their passion for what they do, they will move mountains. Everybody Eats is a social enterprise, “feeding bellies not bins”. Diners pay what they can afford, even if its nothing. Food is sourced by Kiwiharvest food rescue charity, who collect imperfect foods before they are wasted.

Profit isn’t a dirty word either. Imagine your business pursuing an objective, like making groceries more affordable for New Zealand families. You still need to replenish your stock, invest in better people and equipment. Profit, cashflow and investment help you do that.

Conclusion

Look for purpose beyond profit for your organisation. What does the world need from your business? What does your business love and care passionately about? What is your business good at? What can you be paid for? What can you change today, to get closer to your business Ikigai?

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

[ii] “Start with why -- how great leaders inspire action” Simon Sinek TEDxPugetSound, TEDTalk video

Desire Paths in Customer Experience and Internal Procedures

serenai@jdw.co.nz (Serena Irving) — Fri, 06 Oct 2023 03:29:08 GMT

Desire paths are unofficial routes formed by repeated walkers taking the most convenient direction, rather than following the road or concrete path laid for them. Desire paths are common in customer experience and internal procedures and systems too, and you would do well to take notice of them.

Desire Paths in Customer Experience (CX)

Imagine all the engineering, labour and materials required to build a beautiful, meandering, brick path through the woods. Only to discover that picnickers choose to bush-crash through the shrubbery to get to the picnic table on the right.

Or carefully plotting a 12-point engagement and sales funnel for prospective customers, but losing them somewhere around point 3, because you still haven’t told them how they can buy from you. This is where building your brick path, or sales funnel, needs to mimic the desire path of your ideal customer more closely. Provide early opportunities for prospects to sign on or purchase from you, rather than forcing them to wait until they reach the end of your funnel. Auto-fill forms and connect to well-known payment services, to save your customer time and energy.

If you release your minimum viable product (MVP) to the market, you can test the viability of your assumptions among early adopters, before wasting time and resources, developing features that your customers don’t want. Have methods for capturing feedback, so you can fine tune your offering. For instance, researching keywords and phrases to use in your website to improve your Search Engine Optimisation (SEO). Automate data entry, so that customers don’t have to spend lots of time with form-filling. Display your phone number and have a frequently asked questions page on your website, so people can find answers easily.

Desire Paths in Internal Procedures and Systems

Bringing about cultural change can be immensely challenging if the desire paths are well-worn ruts formed over several years. But it is necessary to bring about the changes due to health and safety, other legislation, technology, modern management theory.

Health and Safety

If an unformed path is unstable due to erosion, you would put up a fence, wouldn’t you? Signage to say that a route is no longer safe. Provide a clearly marked, well-lit detour. When it comes to the health and safety of your employees, you need to put up fences, have signs that point out the dangers, training that workers can understand, and routinely practice safety measures. Refer to Worksafe [i] for more information.

Technological Improvements

What if technology has improved so much that the old desire path is the least efficient way to get from point A to point B? If you can’t persuade the whole team to adopt new technology from the outset, then you could be paying for multiple systems and not realising the potential of the new technology. To get adoption from an influential sub-group including one or two of the naysayers, put them into your Pilot team. Once your pilot team demonstrates the improvements, the rest of the team will easily follow suit.

At JDW we implemented a new electronic signature (e-signature) platform in November 2022. It was much simpler for clients, than the previous e-signature platform because you didn’t need to set up a new login and password for each user. One of our senior management members had held out on e-signatures because he said he was too old to learn, so he would laboriously print, sign and scan each document. Within a month of trialling e-signatures, he was a strong advocate for change, proudly telling his clients and the rest of the team how easy it was to use.

Structures to Support Your Desired Culture

Check that your systems, rewards and management style support your desired behaviours and culture. For instance, if you want your sales team to work collaboratively to attract and onboard customers, don’t give individual bonuses. Instead, you build habits of celebrating as a team, so the team collectively feels part of that success.

Conclusion

Note the desire paths around your business. Can you improve the customer experience by more closely aligning to their desires? Can you assist them to buy more often and more easily? Where are the ruts, that prevent you from pursuing improvements in efficiency? Light the path that you want your team and customers to take.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

An article like this, which is general in nature, is no substitute for specific accounting, tax and business advice. If you want more information about the issues in this article, please contact the author.

[i] https://www.worksafe.govt.nz/managing-health-and-safety

Three Tips for a Great Pitch Video

serenai@jdw.co.nz (Serena Irving) — Mon, 18 Sep 2023 00:34:43 GMT

Xero has challenged small business owners to compete for funding in four categories and they have asked for a simple 90-second pitch video. Many small business owners we know think that a pitch video is a daunting task. We asked our clients, Tony and Cat from Same Page Creative Limited, to share their thoughts on how you can make your pitch video stand out from the rest.

Here are their tips: start with a script, get filming, make every image or soundbite count.

1. Start with a Script

To create a video pitch, firstly you need to get clear on the criteria. For this competition, Xero wants you to cover three things in the video pitch:

1. Background on your business

2. Why you need funding

3. Your future plans

We believe in always starting with a script – or at least bullet points. Start by breaking down each section, think of the background as your opener, why you need funding as your middle and future plans as your closer. When thinking about these three areas make sure you craft your message to meet the category you’re applying for.

Background

Who are you? How long have you been in business? Why did you go into business? Who is on the team? Detail growth and successes. Tell us the dream.

Why you need Funding

Persuade Xero why you need this injection. Did you hit any walls? Where did the dream get stuck? What part of your business has potential to grow? (Specific is terrific here.) Why is this funding pivotal to your future plans?

Future plans

Now tell us about your future plans. Where do you want to be? (Again, tie this into the specific category). Why is this an opportunity not be missed and funding a must?

Aim for each section to be approximately 30 seconds. Keep it short and sweet. A 30 second script is approximately 75 words.

2. Get Filming

You know what you want to say. What about the video?

Start filming yourself reading that script! It will take a few goes to get the timing, tone and tempo right. If you fluff up a line, pause and start that sentence again. Don’t delete any footage until you have finished editing. Then, for each section of the script think about what else you want to show. For example, in section 1 this might be office shots, logos, team members, customers, product etc.

It can be as easy as using a mobile phone to record your main person speaking (or voice over). Show what you are talking about as you film, or film separately and edit it over what you are talking about. Imagine you are talking to a friend, so you sound more authentic.

Xero has published some handy hints for filming with your phone camera in the “Application video Filming guide” . It covers camera settings, location, lighting, framing and audio.

3. Make Your Images and Soundbites Count

Editing? The trickiest bit of all. I have all this footage. Now what?!!

Use a programme like iMovie to edit it together and cut it down. Use your script/voice as the guide and fill it in with the video you shot. You can even use PowerPoint or Canva to do a slide show if that’s more your jam … or hire a professional (like Tony) to help you with some of it or all of it.

Chances are, you have more video and audio footage than your 90-second limit, so make sure every image or sound bite contributes to the story you are telling for your pitch. Don’t worry that some of your favourite bits aren’t in your final pitch. You can repurpose this content for your social media another time.

All the best for your pitch video! We have some amazing clients in sustainability, technology, community and training and we wish you every success.

- Tony and Catriona Montalvo. Additional writing by Serena Irving, JDW Chartered Accountants.

Guest writers, Tony and Catriona Montalvo, are a husband-and wife team of content creators. Tony is a film editor and Catriona is a copy writer. You can reach them at https://www.samepage.nz .

Building Your Business Networks

serenai@jdw.co.nz (Serena Irving) — Wed, 30 Aug 2023 23:39:43 GMT

Are our business networks as robust as local community groups in a crisis? To have an effective business network in a crisis, we need to build and nurture them in the good times.

When severe weather events struck our communities earlier this year, it was our community groups who stepped into action immediately. Before local and central Government agencies knew it was an emergency, local communities mobilised to provide shelter, dry clothes and food for those worse affected.

One of the lessons learned from the January flood was that Auckland Council systems were underprepared and too slow to respond at the pace required of such an event. The findings of the review headed by former Police Commissioner Mike Bush included “The crisis exposed weaknesses in the Council’s emergency management systems, tools and agency/community/tangata whenua relationships, which slowed the response, reduced situational awareness and led to inadequate early intelligence to support public safety information and decision making”. [i]

We can draw on these lessons and apply them to our businesses. Even if we never have to deal with disaster on such scale, are our business networks robust enough to deal with ordinary, run-of-the-mill changes? To have an effective business network in a crisis, we need to build and nurture them in the good times.

Customer Experience and Feedback

Who can tell you what they like or dislike about your product or customer experience, better than your customers? Do you have systems for collecting client feedback, and passing them onto decision-makers? People are only too willing to share their opinions when you change something about your product or service. If you ask for feedback, you can rectify a poor customer experience and quickly deal with issues that arise.

Ask your customers for a review! The best time to ask is soon after they have received your service or within a month of receiving your product. Google reviews can boost your website SEO and put you in front of more of your target audience.

Filling Skill Gaps

MBIE say 97% of NZ businesses have fewer than 20 employees in 2022; 72% have no employees. [ii] You could wear yourself out trying to upskill in everything you don’t know, but it may be smarter to hire contractors or suppliers who fill those gaps and help you solve problems.

I know of an engineering company, which prides itself on innovation and precision for its clients. The client presents their issue and initial design, and the engineering company improves on the design, making it fit-for-purpose, easier to manufacture and often saving on production costs overall.

Dream Team of Advisors

A business friend said to her husband that she was having problems with her employees and shipping delays, and he replied, “Well then, go get a real job.” Her business was paying off the mortgage every month, and yet it wasn’t considered by him to be a real job. He didn’t have a lot to offer in real advice for her business problems.

Surround yourself with advisors who you trust for advice and supportive discussion. Start with your chartered accountant, lawyer, insurance advisor and banker. When you employ staff or contractors, include an HR advisor. You may also include a bookkeeper, mentor, business coach, financial planner, mindset coach or sales coach. You can learn from their experience and expertise, be vulnerable and use them as sounding board, when making decisions or working through issues that you can’t discuss with spouse or employees.

It’s a Business Network, Really

In addition to your dream team, get to know other business owners. These connections can become referral partners, clients and suppliers, but that is not the only reason to know them. People naturally want to be helpful, but they also don’t want to feel like they are being used or sold to. Listen to others in the network group, be empathetic and offer useful insights when appropriate.

You can learn from each other, even when you aren’t in the same industry. In some groups you get to practice talking about your business, refine your elevator pitch and sales techniques. Sharing stories over a cup of coffee or a round of golf, can relieve the isolation of being a business owner, lift your energy, improve fitness and build strong friendships. If you’re having fun, it is hard to believe it’s a business networking meeting. If you can’t find a network that suits you, make one!

You are Not Alone

It can be very isolating when you go into business. You feel like you must suddenly know everything and be able to make the right decisions. But that’s not the case at all. Be part of a network of businesspeople who are supportive and want to help you to succeed. Surround yourself with a dream team of advisors and you will feel like your business has wings!

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. She is actively involved in several networking groups including Venus Businesswomen, She Owns It NZ and Toastmasters. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

[i] https://ourauckland.aucklandcouncil.govt.nz/media/je3potln/auckland-flood-response-review_january-27-29-2023.pdf

[ii] https://www.mbie.govt.nz/dmsdocument/27313-small-business-factsheet-2022-pdf

AIM Provisional Tax finds its Target

serenai@jdw.co.nz (Serena Irving) — Wed, 09 Aug 2023 03:25:30 GMT

The Accounting Income Method (AIM) of calculating provisional tax has been around for several years with very little uptake. But its usefulness is finally being discovered by small and medium taxpayers.

What is Accounting Income Method (AIM)?

AIM was introduced in 2017 to help small and medium taxpayers align their provisional tax payments to fluctuations in business profits or losses. It particularly suits businesses that are growing through out the year, has had a sharp decline in profitability, or has seasonal (lumpy) income.

You calculate your profit (or loss) for the year to date, make adjustments for items not in your accounting software (if you haven’t integrated debtors, creditors or stock for example), make further adjustments for non-taxable items (such as adding back fines and penalties) and then calculate tax on the resulting taxable income.

Why is AIM Useful for Small and Medium Taxpayers?

Provisional tax payments align with current profit, not prior year. If your profit is lower than last year, then your provisional tax payments will be lower too. In contrast, the standard provisional tax method takes last year’s residual tax, adds 5%, then divides it into three equal instalments. It doesn’t take into account fluctuations.

AIM addresses seasonality and fluctuations during the year. If you sell your harvest in November and earn nothing else during the year, then you’ll only pay AIM provisional tax for the November period. The other periods will be NIL or a refund.

You get provisional tax refunds during the year if you pay too much. Its less hassle to get an AIM tax refund during the year, even for companies, because you don’t have to file an interim imputation credit account. AIM refunds are limited to the extent of AIM tax already paid for the year.

You don’t pay interest if you have terminal tax to pay. As long as you make your payments on time, you aren’t charged interest if the provisional tax payments are lower than your final tax liability. Contrast that with the Estimation method, where you pay interest when you have underestimated.

One provisional payment for company and shareholders. You can transfer excess tax credits from a company to its shareholders. The total amounts transferred to the shareholder are pro-rated against all of their provisional tax instalments for the year.

It fits with your GST cycle if you file GST monthly or bi-monthly. If you are a monthly GST filer, you lodge your AIM activity statement monthly. If you file GST every two or six months, you lodge your AIM activity statement every two months. You’re paying smaller amounts more regularly, so it’s less pressure on your cashflow.

If you already use accounting software, your AIM report is quick to prepare. MYOB Business (formerly Essentials and AccountRight) allows taxpayers to lodge their own AIM returns. Xero allows your tax agent/accountant to lodge your AIM returns on your behalf.

Downsides with using AIM

Higher provisional tax payments at the beginning of the year. If your profit spikes at the start of the year and then plateaus, you will have more provisional tax to pay at the start of the year too.

Extra accounting/bookkeeping fees. The extra reports come at a cost, because there are calculations to be done for every activity statement. But if you are already doing monthly reporting for your business, then the AIM activity statement is just one more report.

You can’t use tax pooling to fund provisional tax instalments. AIM provisional tax must be paid directly to IRD, not through a tax pooling company. Tax pooling can be used to finance the terminal tax payment though.

You may default to estimation option if you miss filing twice. If you don’t file two AIM activity statements, IRD will contact you and may choose to move you to estimation option and charge interest for underpayments.

You need to opt in every year. Opting in is easy, you just need to file an AIM activity statement. But if you forget to file your first two AIM activity statements for the year, IRD will assume that you have switched back to standard option.

AIM is Not for Everyone

AIM is available for individuals and companies with turnover under $5 million. It is not available for trusts and larger businesses.

If you are in multiple businesses or have a variety of income sources, then the calculation can be too complex for an AIM return. This is particularly true for individuals who have shareholder salaries from more than one company, plus PAYE and rental or investment income.

If you only want to look at your accounts once or twice a year, then the 2-monthly returns may not suit you because it is extra work. For instance, if your business is not GST registered or your income is from residential rental. But if you have seasonality in your income, it may be worth the extra effort to calculate provisional tax more often.

Conclusion

AIM appears to be a provisional tax method that has found its target. With cloud accounting, it is easier than ever to calculate monthly reports more accurately in a timely manner. Business owners are closely monitoring their cash, so smaller, regular tax payments are more favourable than larger instalments. The flexible nature of the method, allowing for tax refunds and interest free payments, is also finding favour, particularly when business conditions are uncertain and ever-changing.

If you want to know more about AIM and whether it will suit your business, please contact your JDW team.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

Sustainable Business - Case Studies 1

serenai@jdw.co.nz (Serena Irving) — Tue, 04 Jul 2023 05:13:24 GMT

How can you design your business to be more sustainable? To be good for the planet, good for the people it interacts with and good for profit to investors.

As a follow-up to our previous blog , here are some JDW clients who adopted sustainable practices and products at the outset of their business.

Innovation - Eltom Distillery powered by Reactory Limited

Imagine a smooth, fully flavoured whiskey made in the fraction of the time? Founder Mark Eltom uses a revolutionary process to mature spirits, which shortens the processing time from decades to days, and saves natural resources. No barrels, so fewer oak trees are used, less shipping, less leakage and less space required for storage.

Despite the speed, the spirits match their rival on flavour. Mark says, “We break old rules to create flavours you won't find anywhere else.” Eltom Distillery’s Premium Dirty Gin was awarded bronze in the NZ Spirits Awards 2023 and its Sigma Rum Small Batch was awarded silver in the NZ Spirits Awards 2023. What a great start for a new distillery!

https://eltomdistillery.com

Circular Economy - Ola Home Compostable Coffee Pods from The Eco Coffee Store Limited

Founder Amanda Jackson is passionate about great tasting coffee and the environment. Globally, 114,000 coffee capsules are ending up in landfill every minute. This is because some coffee capsules cannot be recycled at all, while those that can are recycled via a long and tedious process. The un-recycled capsules can remain on our planet for up to 500 years. Her solution is Ola Home Compostable Coffee Pods subscription service. Premium quality coffee, ethically and sustainably sourced, in paper capsules that break down into fertile soil after use. To reduce your carbon footprint further you can plant a tree with every order through their partnership with One Tree Planted.

Despite rave reviews from customers, it hasn’t been easy doing business. Sales volumes, shipping costs and courier reliability are constant sources of worry. Last year, the whole business had to pause while facing a trademark challenge, which forced the business to rebrand. Despite these headwinds, Amanda is convinced that her coffee pods are the best for discerning eco-conscious coffee drinkers.

Amanda is keen to work with companies interested in helping to solve environmental issues, partnering with eco packaging, hotels and innovative thinkers. She’d also love to see her products more widely available in retail stores.

https://homecompostablecoffee.com

Advocacy and Education – My Keeper Limited

My Keeper is a fashion store and fashion rental service with a colourful, solid 1960’s retro style. Clothes are either sewn in NZ or by a

manufacturer in Bali which prides itself of its ethical labour conditions. Garments are mainly cotton and linen, and polyester is from recycled

bottles.

Founder Sera Choat uses her Instagram platform to educate her 36,000+ followers on the environmental issues surrounding fast

fashion, and to advocate for consumers to be more mindful of their purchasing behaviour.

https://mykeeperclothing.com

Conclusion

Spirits, coffee and fashion are competitive industries, but these three clients are setting themselves apart from the crowd, using

innovation, zero-waste, advocacy and education. These three clients are examples of business who have sustainability at the heart of what

they do.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is

a professional team of qualified accountants, auditors, business consultants, tax advisors,

trust and business valuation specialists.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

An article like this, which is general in nature, is no substitute for specific accounting and tax

advice. If you want more information about the issues in this article, please contact your

adviser or the author.

Sustainable Business

serenai@jdw.co.nz (Serena Irving) — Thu, 22 Jun 2023 20:33:12 GMT

Sustainability is good business practice, not a mere diversion. Consumers are driving demand for goods and services which are produced sustainably and affordably. Government regulation is changing acceptable practice across all industries with the extension of plastic bans from July 2023. What if you put sustainability at the front and centre of your business strategy? We give tips on how to get started.

What is a Sustainable Business?

MBIE and the Sustainable Business Network describes sustainable business as “doing things thoughtfully by thinking ahead and looking at how your actions impact the environment and surroundings… Making your business more sustainable is about looking at what you do, what you buy, and how you use and dispose of things. It’s also about moving to eco-friendly, local, organic or low-emissions alternatives.” [i] Many sustainable businesses use triple bottom line reporting to convey their commitment to being sustainable.

Sustainability is often touted as the solution to climate change. But MIT Climate, a branch of Massachusetts Institute of Technology, argues it more than that. “What's so interesting about sustainability, and why I've built my career around it, is that it's complex,” says Julie Newman, MIT’s first Director of Sustainability. “It involves people and the environment, extraction, disposal, use—so it's really looking at the complexity of the world and how humans interact with it.” From an environmental perspective, sustainability is concerned with the resources we take from the Earth and how we use them, with an emphasis on not exhausting what the planet can supply. [ii]

What is a Circular Economy?

A Circular Economy is based on three principles: Design out waste and pollution. Keep products and materials in use. Regenerate natural systems. Take Ethique shampoo bars. As of June 2023, they claim to have prevented 28M+ plastic bottles from manufacture and saved 4.5M litres of water by making shampoo bars [iii] . The bars are shipped in cardboard or paper, which can be easily home composted so there is no waste. Their smaller format makes them less bulky to ship around the world. They are powered 100% by renewable energy and offset their carbon emissions from freight and staff travel to their travel providers’ programmes.

Some of the changes are being driven by Government initiatives. The single-use plastic bag ban has been extended from 1 July 2023 to include plastic produce bags; plastic plates, bowls and cutlery; plastic drinking straws and plastic produce labels.

What is Triple Bottom Line Reporting?

The phrase Triple Bottom Line has been attributed to John Elkington, in 1994 [iv] . Instead of focussing just on the traditional accounting measure of profit, a company should focus on three measures: Profit, People and Planet. Profit includes not only company gains but paying fair share of taxes and community sponsorship. People centres on its stakeholders – employees, suppliers, customers and wider community. Planet is concerned about environmental impact.

Corporates have been using triple-bottom line reporting for decades, and this is now filtering through to startups gearing for a capital raise. Private company suppliers are increasingly being asked for the “provenance” (origins) of their raw materials and components, so that corporate and government customers can more reliably report on meeting their environmental and social impact targets.

Benefits for your business

Cost savings – designing products with fewer parts, less wastage and less packaging, can save production costs, waste removal costs, warranty costs, freight costs, storage costs. Energy efficient office and production areas can save on energy bills. Electronic data transmission within a business can save on printing costs, and reduce time spent preparing, printing and reading reports.

Social licence for Eco-conscious consumers – 35% are actively eco-conscious (increase of 5% since 2022) [v] That is, people who actively choose to buy from sustainable businesses, reduce the waste they produce, and other behaviours to help the environment.

Compliance and Supply chain transparency – Corporates and government departments (local and national) are actively looking for local suppliers who can support their procurement efforts. For instance Auckland Council has five areas for focus:

· promoting supplier diversity with Māori and Pasifika owned businesses and social enterprises

· working with local suppliers to deliver contracts within their local board areas

· providing quality employment opportunities for target communities

· zero waste by 2040

· reducing carbon emissions. [vi]

Culture of Innovation – You’ll need creativity and innovation to make long-term solutions. If you have a system and culture which encourages this, you may open up business opportunities beyond the immediate problem you are trying to solve.

Desirable place to work – flexible working practices, innovation culture, environmentally conscious systems and less time commuting, make a workplace more attractive for prospective employees.

Building Brand Value – all these benefits help to increase the value of your brand, so consumers and investors are willing to pay more to be part of your story.

Cost of Living Headwinds

There can be a disconnect between consumer behaviour and intent, because of the recent rise in cost of living. In the Kantar Better Futures 2023 report, the cost of living is the top concern for New Zealanders in 2023. [vii] For those who are struggling or managing, environmental concerns don’t rank in the top 5 concerns. These consumers are less likely to make eco-conscious choices if there are more affordable options.

Where to Begin?

Create a vision for sustainability in your business, then break it down into a strategic plan with measurable targets. Chunk down into shorter-term actions and targets, and tackle one issue at a time. If you have a 10-year vision, then what is your focus for year 1? Quarter 1? Month 1? What resources, including time, will you need to apply across the next 12 months? Put a project team together and encourage them to identify and solve the issues. One method is to apply root-cause analysis to problems.

Root-Cause Analysis

Sakichi Toyoda of Toyota Industries used the 5 Whys technique, which is to keep asking why a problem is occurring until you reach the root cause. Sometimes the root cause may be far away from the site where the problem is evident.

An example might be: There are too many defects, causing waste and rework. 1.Why are there defects? The drill holes are inconsistent. 2. Why are they inconsistent? The temperature is too high and causes stretching. 3. Why is the temperature too high? The gauge is broken and the worker must guess. 4. Why has the gauge not been fixed? We don’t have regular maintenance. 5. Why not? The worker doesn’t feel empowered to report problems. Solution: set up a regular maintenance program and ways for workers to report problems.

Resources

GenLess has lots of great ideas for businesses. They include some quick wins to help you get momentum, such as bike parking, lighting improvements, vehicle fleet options. But they also have product design and production suggestions that can help you with your finances as well as your emissions. For instance, optimised cutting patterns, getting an energy audit and monitoring, tracking manufacturing failure rates [viii]

Sustainable Business Network holds monthly workshops on the first Wednesday of every month to October 2023 [ix] . There is free entry to their Sustainable Business Awards, which has nine different categories. The 2023 award deadline is Friday 14 July 2023.

Conclusion

There is growing pressure from consumers and Government, for businesses to be sustainable. Looking not only at profit, but people and planet as well. There are headwinds though, with the cost of living impacting consumer behaviour.

If sustainability is not already part of the DNA of your business, it can feel overwhelming to begin. Start with an area that you and your team feel strongly about, such as reduction of waste. Use Root Cause Analysis to identify why the waste is occurring and problem-solve how you can eliminate or mitigate waste. Once you begin, there is a wealth of resources to help you towards your sustainability goals. If you need help and advice with your strategic plan, remember to reach out to your chartered accountant.

- Serena Irving

Download a PDF version here or contact the author by email. Like our Facebook page for regular tips.

[i] https://www.business.govt.nz/getting-started/business-planning-tools-and-tips/what-is-sustainable-business

[ii] https://climate.mit.edu/ask-mit/what-sustainability-it-same-thing-taking-action-climate-change

[iii] https://ethique.com

[iv] https://www.investopedia.com/terms/t/triple-bottom-line.asp

[v] https://www.kantarnewzealand.com/latest-thinking/better-futures Better Future 2023 report

[vi] https://www.aucklandcouncil.govt.nz/about-auckland-council/how-we-buy-products-and-services/sustainable-procurement

[vii] https://www.kantarnewzealand.com/latest-thinking/better-futures Better Future 2023 report

[viii] https://genless.govt.nz/for-business/product-design/design-products-sustainably

[ix] https://sustainable.org.nz/learn/training/starting-out-on-sustainability

Trust Tax Rate increasing to 39%

serenai@jdw.co.nz (Serena Irving) — Fri, 26 May 2023 02:54:08 GMT

The NZ Government announced an increase in the trust tax rate from 33% to 39% from 1 April 2024, when it presented the 2023 Budget. Does this mean the end of trusts, for all but the very wealthy? We don’t think so.

Why did the Government increase the Trust Tax Rate?

IRD confirmed in April 2023 what the NZ public have long believed: that the very wealthiest pay tax on just 8.9% of their economic income [i] . This announcement was the culmination of the High Wealth Individuals Research Project, which investigated financial information on 311 of NZ’s wealthiest citizens. Economic income is income from all sources, including capital gains on investments and property.

96 wealthy New Zealanders responded in an open letter to the Government saying they want to pay more tax [ii] . Sir Ian Taylor and Phillip Mills have called for a capital gains tax or wealth tax to address this inequity. Other than the Bright-line Property Rule on residential property that is not your main home, we have no capital gain tax in New Zealand. The Government has decided not to introduce capital gains tax yet, but instead opted for raising the trust tax rate.

Why a 39% trust tax rate?

The top individual tax rate (for incomes over $180,000) is 39%, so the trust tax rate is increasing to match it, from 1 April 2024. Government’s rationale is that trusts were circumventing the top personal rate. The Government plans to keep trust tax rates at 33% for deceased estates and trusts for disabled persons.

Hon. David Parker, Minister for Revenue claims, “Only a small proportion of trusts will pay most of the additional tax. The top five percent of trusts with some taxable income in the 2021 tax year accounted for 78 percent of all trustee income ($13.3 billion out of $17.1 billion). This is estimated to raise approximately $350 million per year.” [iii]

That statistic may be reassuring for some, but there are plenty of trusts, outside of the top 5% of trusts ,which will be paying 39%.

Why will most trusts not be affected?

Investments in Portfolio Investment Entities (PIEs) have a maximum tax rate of 28%, the same as companies. This does not change if the investor is a trust which has chosen a 28% PIR. Check with your investment financial advisor if there are PIE investments which suit your trust. There is still no capital gains tax or wealth tax.

Trusts with lower-rate beneficiaries can still use existing rules to reduce over-taxation. In a family trust, you may have beneficiaries over 16 who are paying tax at 33%, 17.5% or even 10.5%. The difficulty arises if you don’t want pay out distributions to those beneficiaries yet!

Beneficiary Expenses

Instead of paying cash directly to beneficiaries, a trust may consider paying expenses on behalf of beneficiaries. These are not tax-deductible expenses for the trust, but it reduces the balance the trust owes to beneficiaries.

Typically, a trust would pay for:

• Private school education, advanced tutoring.

• Sports clubs, uniforms, equipment, travel to competitions.

• Airfares for holidays.

• Vehicle purchase.

In contrast, a parent would pay these personally, not through a trust:

• School & BOT donations (though you can claim donation tax credit).

• Normal clothing and school uniforms, stationery.

• Food, medicine, home.

Our trust receives private company dividends. Anything we can do to prepare for the 39% tax rate?

If a company is paying fully imputed dividends to a trust at the 33% tax rate, it has to pay a top up 5% dividend RWT (33% - 28% imputation credits). When the trust tax rate increases to 39% there is another 6% of gross income that has to be paid as tax.

Consider whether the private company can declare dividends before 31 March 2024 instead of after that date. You can maximise the imputation credits available for dividends if you pay company income tax early. E.g. terminal tax 2023 due 7 April 2024 and provisional tax 2024 due 7 May 2024. If you’re buying tax for tax pooling, make sure that your tax purchase is paid before 31 March 2024.

You will need to review your cashflow beforehand to make sure you have the funds available to pay the income tax and dividend RWT.

Trusts are still okay, then?

Review the reasons that you have a trust, and ask are they still valid?

Family asset protection against commercial risk, like creditor claims.

Relationship property separation, protecting wealth from partners and former partners.

Income source for beneficiaries who are studying, or earning under $70,000.

Legacy or Special purpose reasons, like providing for grandchildren’s future tertiary education or charitable causes. Trusts can last for up to 125 years (or up to 80 years if settled under the previous Act).

The Trustees Act 2019 sets out the duties and responsibilities of trustees, and these should not be taken lightly. The Act also sets out core documents to keep and information for beneficiaries [iv] . IRD has specific disclosure requirements for trusts too. The administrative burden for trustees is higher than if the beneficiaries managed them in their own right, but a trust can benefit several beneficiaries at once.

Talk with your lawyer and accountant, to review that your trust has been set up correctly and how you want to distribute income to beneficiaries. If your trust has shares in a private company, consider if the company should be paying dividends before 31 March 2024. Even with the increase in trust tax rates, you may still have good reason to keep your trust.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland and trustee in a number of trusts. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

Download a PDF version here or contact the author by email. Like our Facebook page for regular tips.

An article like this, which is general in nature, is no substitute for specific trust and tax advice. If you want more information about the issues in this article, please contact your adviser or the author.

[i] https://www.beehive.govt.nz/release/ird-report-shows-wealthy-nzers-pay-much-lower-tax-rates-other-earners

[ii] https://www.stuff.co.nz/business/132001093/wealthy-new-zealanders-say-they-want-to-pay-more-tax

[iii] https://www.beehive.govt.nz/release/trustee-tax-change-improve-fairness

[iv] https://www.jdw.co.nz/newsletters/blog/jdw/opening-window-on-trusts

Saving for the Next Rainy Day

serenai@jdw.co.nz (Serena Irving) — Sun, 30 Apr 2023 04:19:52 GMT

Even if your business hasn’t yet returned to Business-As-Usual, it is time to rebuild your Emergency Fund, so you can be resilient when the next catastrophe hits.

To say it has been raining, in 2023 NZ, would be an understatement. With the January floods and Cyclone Gabrielle in February, many businesses have depleted their Emergency Funds. Even if your business hasn’t yet returned to Business-As-Usual, it is time to rebuild your Emergency Fund, so you can be resilient when the next catastrophe hits.

How much should my business save for a Rainy Day and Emergencies?

A Rainy Day Fund relates to savings for one-time, unexpected expenses, like car repairs or replacing broken appliances. Look at your essential equipment and consider how much it would cost to repair or replace. For a restaurant, this might be $1,000 - $5,000. For a factory, it might be ten times as much. If you have service warranties to keep your equipment running, this may reduce your Rainy Day Fund requirements.

An Emergency Fund is for covering your expenses and outgoings when income stops suddenly, such as a natural disaster or death/disability of key personnel. The usual rule of thumb is three months’ worth of expenses, but you may need to factor in additional amounts for your circumstances, like loan payments. During 2020 and 2021, the more resilient businesses covered six months’ worth of expenses.

That sounds like a lot! How is it possible?

Set yourself an achievable $ target for each week. Make an automatic transfer into separate bank accounts for holding your rainy day and emergency fund. The separate bank accounts could be interest-bearing deposit accounts, but the Rainy Day Fund needs to be accessible at short notice. Each time you make further cost savings (see below) increase your automatic transfer. The important thing is to make a start and be consistent.

Can’t we just rely on business insurance policies?

Simply, no. The January floods were widespread, so it took weeks for some businesses to be contacted by their insurance loss adjuster or geotechnical engineer. Then more weeks for their insurance claims to be accepted. Some Christchurch earthquake claims from 2010-2011 took years to settle. Your business needs to be able to manage for itself, until insurance comes through.

Shouldn’t we pay off all our debts first?

You need to build your Rainy Day Fund too. If you have an unexpected expense, you may have to get into MORE DEBT if you don’t have a Rainy Day Fund.

Review your Business-As-Usual (BAU) Practices

Take a closer look at your BAU processes, practices and expenses, and make improvements where you can. Select some easy wins, “low hanging fruit”, and build momentum from there. Involve your team. Ask them to question why and how they are doing things. Offer small incentives for identifying cost savings.

Reduce Overhead Costs

Utilities - A client of ours saved 50% on their telecommunications costs by changing their provider. Utility companies in general rely on our apathy for change and won’t tell us how we can make savings. Even if you want to stay with the same provider, you can still make savings, by contacting them to ask for a price match.

Subscriptions – Are you paying for software apps or services that you no longer need? We had one client who was signed up to five different payment services. After reviewing her sales traffic, she trimmed it back to two payment services.

Wants vs Needs – Buy smartly. If barista coffee is essential for your client meetings, then investing in an espresso machine and quality beans, may work out cheaper than sending across the road for take out (and better for the environment).

Increase Gross Margins

Have your selling prices kept pace with increases in the minimum wage, product costs and freight? Review each product individually, make increases where you can, and look for cost savings. Simplify and improve your processes and eliminate products which are unprofitable or distract from your main offering. On a production line, it takes time to re-tool between jobs, so try to batch similar jobs together. In a take-away, you can have fewer menu items so preparation takes less time.

Eliminate wastage, particularly arising from errors and re-work. Use as much of your raw materials as possible. Ethique famously turns the scraps from their solid shampoo bars into minis which are sold as samples or in travel packs.

Improve your stock control systems and cash control systems. There is a cost to holding too much stock, but also a cost to stock shortages (in lost sales). All your excellent work could be quickly undone by a light-fingered staff member or customer. A retail client of mine discovered a sales counter manager had been taking cash from the register after hours. Several years ago, a hospitality client discovered his business partner had been stealing cash and alcohol to fund his drug addiction problem. Sadly, this happens too often.

Get Smarter about Debt

Loans, Credit Cards, Finance Companies, BNPL

At the same time as you are saving for your Emergency Fund, get smarter about your debt. Talk with your financial advisor and read your loan/finance agreements. Understand what each loan or finance agreement costs you, in fees and interest. Find out what fees you will pay for early repayment. Pay at least the minimum owing on each one and try to eliminate one debt at a time.

Eliminate expensive debt, such as credit card debt and third-tier lending (say, from a finance company). Some finance companies offer quick, no-security, low repayments, but I have seen client who have agreed to pay 28% - 36% interest per annum on these loans. Avoid Buy Now, Pay Later (BNPL) schemes, or as I call them Buy Now, Pay Forever. Their ease of application and low repayment instalments, mean that you can be fooled into thinking that you have more money than you have. Debts such as these, can be very hard to shake off, if they become entrenched, because very little of your standard payment is going towards paying off the loan principal.

Sorted recommends three different strategies to get rid of debt fast [i] . I favour the debt avalanche, because you tackle the debt with the highest interest rate first, as I described above. However, the debt snowball, where you pay off the smallest debt first, is excellent if you need to tick them off and build momentum. There is also debt consolidation, which is transferring all the debts into one lower interest loan. This can be tidier to manage, but you need to ensure that you don’t use it as an excuse to drawdown on your credit card again.

Be Proactive about Tax Payments

A sure sign that a business is in difficulty is that it can’t keep up with its GST, employer taxes and income taxes. Rather than burying your head in the sand about tax debt, it is far better and cheaper to be proactive. If you enter into an instalment arrangement before the tax is due, IRD will usually waive the 5% late payment penalty. You can spread the amount over weekly, fortnightly or monthly instalments. Read our blog “Applying for Tax Relief” [ii] for two case studies where we have helped clients.

It’s Going to Rain More Often

I’m writing this blog as another atmospheric river is crossing the North Island, but I’m not just talking about literal rainy days. Severe weather events, Covid outbreaks, economic recession should all figure in our business planning over the next few years and we need to be prepared. We need to review our Business as Usual practices, get smarter about debt and save for emergencies.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

An article like this, which is general in nature, is no substitute for specific accounting, tax and financial advice. If you want more information about the issues in this article, please contact your adviser or the author.

[i] https://sorted.org.nz/guides/tackling-debt/how-to-get-out-of-debt-quickly

[ii] https://www.jdw.co.nz/applying-for-tax-relief

GST Record Keeping Changes 2023

serenai@jdw.co.nz (Serena Irving) — Thu, 23 Mar 2023 01:24:17 GMT

From 1 April 2023, record keeping will be simpler and more flexible for Goods and Services Tax.

From 1 April 2023, record keeping will be simpler and more flexible for Goods and Services Tax. If you are already compliant the current rules around record keeping, then you will already be compliant with the new rules.

Out with Invoices?

The term “taxable supply information” replaces “tax invoice”. You can continue to use the term “tax invoice” on documents, but you could choose to rename them “taxable supply information” or not name them at all!

The term “supply correction information” replaces “debit note / credit note”. The term “buyer-created taxable supply information” replaces “buyer created invoice”.

The important thing is that you keep the relevant amount of information, depending on the value and type of supply.

$200 or Less

Keep a record of:

Seller’s name or trade name
Date of invoice, or time of supply
Description of good or services
Total amount payable

This may be as simple as a till receipt. Sellers are not required to provide taxable supply information.

More than $200 up to $1,000

Keep a record of:

Seller’s name or trade name
Seller’s GST number
Date of invoice, or time of supply
Description of good or services
Total amount payable
Amount of GST included in the sale price

Seller must prove taxable supply information within 28 days of a buyer’s request for supplies over $200.

More than $1,000

Keep a record of:

Seller’s name or trade name
Seller’s GST number
Date of invoice, or time of supply
ü Description of good or services
Total amount payable
Amount of GST included in the sale price
Information to identify the buyer

Second Hand Goods

Often this will be a purchase from an unregistered seller, so there is a slight variation to the information required:

Seller’s name or trade name
Seller’s address
Date of supply
Description of good
Quantity or volume of goods
Total amount payable

Certain Imported Goods and Services

This doesn’t apply to low value imported goods.

Seller’s name or trade name
Seller’s address
Date of invoice, or time of supply
Description of goods or services
Total amount payable
Amounts that represent salary/wages or interest

Conclusion

The changes may help businesses, by being more flexible and allowing for e-invoicing and other electronic documents to replace the traditional invoice. But the de-standardisation of taxable supply information may add extra complication for compliance, if your suppliers don’t provide enough of the required details in their original documentation. This can be rectified by requesting additional information from the supplier.

Fortunately, if you are already compliant with current tax invoices then you don’t need to change any of your systems or forms.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

Minimum Wage and Tax Thresholds

serenai@jdw.co.nz (Serena Irving) — Wed, 01 Mar 2023 21:42:22 GMT

With minimum wages set to increase on 1 April 2023, more individuals will be paying tax at 30%. Is it time to review the tax thresholds, especially the $48,000 and $70,000?

Current Tax Rates and Thresholds

The current tax rates and income thresholds, as at 1 April 2021 are shown in the IRD Table below. They are marginal tax rates, so each dollar you earn up to $14,000 is tax at 10.5% then each dollar between $14,001 and $48,000 is taxed at 17.5% and so on. (Figure 1.)

Individual taxpayers earning between $24,000 and $44,000 may qualify for a $520 independent earner tax credit (IETC). From $44,000 to $48,000 the IETC reduces by 13 cents for every dollar over $44,000.

The tax thresholds also impact on Employer Superannuation Contribution Tax (ESCT) which is deducted from Kiwisaver Employer Contributions. ESCT $ thresholds are 20% higher than income tax thresholds because they take the employer contributions into account. (Figure 2.)

Increase in Minimum Wage 1 April 2023

Government is increasing the minimum wage on 1 April 2023, from $21.20 to $22.70 per hour. The starting-out or training wage increases from $16.96 to $18.16 per hour. A minimum wage earner working 40 hours a week, 52 weeks a year, will earn $47,216 (up from $44,096) a year or $3,935 (up from $3,675).

The extra gross income is $3,120 a year or $260 a month.

The extra PAYE deducted under code ME is $83.11 ($655.93-572.82) or 32%. [i]

The marginal tax rate on the boost in minimum wage is 32%, far higher than the 17.5% you would expect, because of the reduction of IETC.

Conclusion

It is time for the Government to increase its tax thresholds, given that individuals earning the minimum wage will be paying a marginal tax rate of 30% or above. If the Government is serious about assisting individuals to afford the increases in the cost of living, then this is one way it can do it easily.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

[i] PAYE has been calculated from monthly tax tables in IR341 Four-weekly and monthly

PAYE deduction tables 2023, April 2022.

Flood Lesson Learned – Communication is Leadership

serenai@jdw.co.nz (Serena Irving) — Wed, 01 Mar 2023 07:55:15 GMT

Communication skills are not just a necessary part of leadership, communication is leadership. What can we learn and apply to our business?

Auckland Mayor Wayne Brown was lambasted for his slow communication on the night of the 27 January 2023 floods. His initial reaction was defensive and attempting to blame others [i] . Eight days later he apologised. Communication skills are not just a necessary part of leadership, communication is leadership. What can we learn and apply to our business?

Channels to Communicate

Do you have multiple ways to communicate with your team and customers, and know when and how to use them? Mayor Brown is well-known for his disdain of news media, so when he needed television to communicate with constituents, he found it an unfamiliar and unforgiving method.

In JDW, we use multiple channels and they each have different purposes.

· For immediacy – pop-by-and-chat, phone call, WhatsApp, text.

· For visual clarity – whiteboard discussion, charts, Zoom or Teams video call.

· For less urgent, asymmetric communication – email, Teams Chat, FYI task manager.

· For progress updates – team stand-ups, FYI task manager, weekly Teams post.

· For building understanding and connection – coffee chats, team meetings.

· For sharing to a wider group – website, newsletter, Facebook/Instagram, Linkedin/Twitter, Vimeo and now Tiktok.

Team meetings are topical and purposeful, with a chairman and agenda. Our workflow stand-ups are brief and held in smaller teams. We don’t have a meeting if an email or Teams message will do. We use FYI to tag appropriate people into documents for sharing information, collaboration, review or approval. It reduces traffic in their email inbox, everyone is reading or editing the same version, and saves time because the documents are accessible from anywhere with internet access.

Before a crisis happens, plan how you will communicate with your management and wider team. We have chosen WhatsApp as our main channel for the team, with text as alternative, as few team members have landlines. This will be a challenge for us, if the mobile and internet networks both go down. If you need more reliable channels, consider satellite telephones or radio telephones.

Communicating in a Crisis

Step up, show empathy and empower your team in a crisis.

Step Up as a Leader

When a crisis happens in business, your team will be looking to you for guidance and reassurance. You need to be more visible and communicate clearly what is expected of the team. It doesn’t mean that you have all the answers, but you do need to act decisively in a timely manner to safeguard your people and the business.

Show Empathy

Don’t blame-shift! If your business has let down its customers, it is on you to own up, apologise and remediate as quickly as possible. You are the face and voice of your organisation. You will want to investigate the problem, so it doesn’t happen again, but your customers firstly want to know that you will take on the responsibility for making it right.

Acknowledge the feelings of people who have been impacted. The Mayor made an off-hand comment that perhaps some houses had been built in the wrong place. As an engineer he has more knowledge about the issues than most. That’s not encouraging for the people who were just displaced by the storm. In the first 24 hours, they wanted to know that there was somewhere safe and dry for them and their families.

Empower Your Team

If you are uncontactable because you have no cellphone coverage, or if you have a personal or family emergency, will the business be able to continue without you? If your team is clear about their responsibilities, the organisation’s values and purpose, then maybe so.

You will need to empower them before you need them in a crisis. Do you regularly ask them for inputs, ideas and insights? Do you mentor other leaders and managers, give regular feedback and stretch their capabilities? Do you demonstrate trust, by giving them the freedom to make decisions and make mistakes?

What Aren’t You Saying

If you want your team to be calm, then you need to model that calm behaviour. Before you even open your mouth, they will be able to sense your worry, concern, anger from your demeanour and behaviour. If it is appropriate to feel those things, then it is fine to acknowledge them, but refocus your team on what’s going to get them through the immediate crisis.

Your actions need to match your words and values, or you will be called out for inconsistency and lacking integrity. In April 2020, then Health Minister David Clark was photographed at a mountain bike trail, just a week after forcing the country into its first Covid-19 lockdown [ii] . At best it was a confusing message to the public, at worst it showed poor judgment at a time when the Prime Minister was calling us the “Team of Five Million.” David Clark resigned his Health portfolio soon after this incident.

If you need the team to put in extra hours to resolve a major issue, then you should roll up your sleeves too. If you can’t directly support the team with expertise and advice, then show it in other ways, like bringing coffee and takeaways, or allocating more resources to them.

When Dr Shane Reti wrote to Air New Zealand and Auckland Airport to complain about piles of unsorted airline luggage, Air New Zealand CEO Greg Foran replied within an hour and set out the steps the airline had taken to start resolving the issue. Greg Foran was even spotted at the airport, sorting luggage himself the following week. [iii]

Conclusion

Communication is not just speaking and writing, it is listening and behaviour too. Your team needs guidance and reassurance from you, when it is business as usual, but more so in a crisis.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland and a Distinguished Toastmaster. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

[i] https://thespinoff.co.nz/politics/04-02-2023/the-communications-machine-broke-down-in-the-floods-how-can-we-fix-it?

[ii] https://www.stuff.co.nz/national/health/coronavirus/120780372/health-minister-drives-to-local-park-to-ride-his-mountain-bike-amid-coronavirus-lockdown

[iii] https://www.nzherald.co.nz/travel/air-new-zealand-boss-greg-foran-seen-clearing-baggage-backlog-at-auckland-airport

Flood Lesson Learned - Don't Defer Maintenance

serenai@jdw.co.nz (Serena Irving) — Wed, 08 Feb 2023 01:41:43 GMT

The Auckland flood in January 2023 highlighted to us that we deferred our property maintenance too long, and we’re probably not the only ones.

Our household was lucky. We weren’t displaced by floodwaters; we haven’t lost property to water damage, landslides or trees. But the Auckland flood in January 2023 did highlight to us, that we deferred our property maintenance too long, and we’re probably not the only ones. Nor is it limited to property and equipment in a business.

Don’t Wait for a Crisis

We had rain enter our upstairs bedroom through the sliding door tracks, and overflow onto our carpet on Friday afternoon. Hubby mopped up the overflow and improvised a screen in front of the sliding doors with panel boards, cinder blocks and a small wooden bench, but the channel kept on filling. I encouraged the kids to dance on towels to dry the carpet, while I tried to clear out the channel in the tracks. When we inspected the tracks on Saturday morning, we discovered the exit holes in the tracks were blocked, so we cleared them. I washed the windows a month ago but didn’t spend the extra 10 minutes to clear the exit holes. Taking a few minutes to do routine maintenance would have saved several hours of crisis management.

Maintenance is deferred or postponed, because there is a limited budget of time or energy, and it has been given a lower priority. Regular maintenance is essential and can save money in the long run.

Deferred Maintenance is Risky

Consider the risks of deferring maintenance:

• More costly repair when parts fail. Damage to surrounding parts. Urgent repair fees.

• Reduced efficiency from incorrect alignment, dirty filters, lack of lubrication.

• Safety hazards for operators and people nearby.

• Health risks, compliance issues.

• Assets wear out faster, requiring full replacement instead of parts. Lower resale value.

• Downtime from unexpected failures. Lower productivity. Failure to meet customer deadlines.

• Employee dissatisfaction and stress.

Preventive Maintenance Programme for Property, Plant and Equipment

Regularly schedule preventive maintenance for all property, plant and equipment. The more important it is, the more moving parts, the more corrosive the environment, the more often it needs to be maintained. Adding a maintenance work order in between client work orders at regular intervals, makes sure that your team sets the time aside. Train the team to understand the importance of keeping property, plant and equipment well maintained.

Make sure that you have the tools, parts, and consumables available before the maintenance work order comes up. Make sure you have the right people with skills to assist with the maintenance, a clear procedures manual, and health and safety conditions in place.

Preventive Maintenance Programme for People

When Stephen Covey talks about Sharpening the Saw in his book “7 Habits for Highly Effective People”, he’s not talking about metal saws, but people. To preserve your greatest asset – you – you need to find a balance in the physical, social/emotional, mental and spiritual areas of your life. Whether you are a sole trader or a leader in your business, you need to have a programme of self-renewal. If you didn’t get a good nights’ sleep for instance, how well did you make decisions and complete high-impact tasks the next day?

In late 2021, I broke a tooth, a molar. It was one that I had chipped during the first Auckland lockdown, and even when dental surgeries re-opened. I didn’t get it seen to. It was a costly, time-consuming repair that I could have avoided by attending to sooner. That was when I realised that I had been ignoring self-care too long. Each week for the next ten weeks I dealt with at least one self-care or life maintenance task that I had been ignoring, including my biennial mammogram. Even though no cancer was detected, it has highlighted that I need to check annually.

Eating healthily, regular exercise and movement, drinking lots of water, and taking time away from work and electronic devices can all help towards getting a better night’s sleep. Taking part in activities which bring you joy, like spending time with family, friends or your faith community, getting outdoors, engaging in a hobby, can boost your energy and your creativity. Consistency of effort is better than sporadic bursts. Schedule time in every week for self-care.

Conclusion

The risk of deferred maintenance is that if left too long, the repair bill will be much higher, or the property or equipment is irreparable and has to be replaced. It’s time to flip the priorities around and remind ourselves that preventive maintenance is essential, and should not be deferred.

We should also consider how important self-care is, for ourselves as leaders and for the people we lead. We are our greatest asset and we need to take care of ourselves so we can bring our best to every day.

- Serena Irving

Employee Holiday Payments

serenai@jdw.co.nz (Serena Irving) — Mon, 28 Nov 2022 03:51:22 GMT

We’re coming up to Christmas and New Year, so let’s have a chat about paying your employees. We’ll cover off a number of scenarios for employers, so you can be prepared and have a more relaxing time over December and January.

- Christmas close down

- Working on public holidays

- Staff bonusses

- Staff gifts

Closing for Christmas and New Year holidays

If your business regularly closes down once a year each year for Christmas (or another period) you will need to give employees at least 14 days’ notice in advance of the closedown. If your usual payroll payments fall during the closedown period, you will need to organise how to manage it. For instance, setting up automatic payments in your banking app.

Taking annual leave or holiday pay

Employers can require employees to use their annual leave entitlement during their closedown time. If the employee has been working for less than a year, then the employer pays holiday pay up to 8% of their gross earnings since starting employment, less any annual leave taken in advance. If there is not enough annual leave entitlement or holiday pay, then the employee can ask for annual leave in advance if the employer agrees, or have unpaid leave.

Cashing up annual leave

An employee can ask for one week of their four-week entitlement to be paid out in cash. However, an employer cannot make an employee request a pay-out. The request needs to be made in writing. If the employer considers the request in good faith and decides no, their reply must also be in writing.

Treat the cashed in annual leave as an extra pay, and calculate PAYE for lump sum payment. (See bonusses.)

Paying public holidays taken

Christmas Day and Boxing Day (25 and 26 December), New Year’s Day and the day after (1 and 2 January) are all public holidays. If any of these days fall on a weekend then they are observed on the following Monday or Tuesday, for workers who normally work on those days. For instance, if a worker normally works Monday to Friday, then their public holiday entitlements in 2022/2023 are Monday 26 December, Tuesday 27 December, Monday 2 January and Tuesday 3 January.

Employees are entitled to a day’s payment at their relevant daily pay or average daily pay, if the public holiday falls on an otherwise working day. If they don’t usually work on that day of the week then they are not entitled to be paid for the public holiday.

If a worker’s employment is terminated before the public holiday, they may still have to be paid for that day, if their annual leave and holiday pay entitlement extends to include those days.

Opening for Christmas and New Year trading

If your employee works on the public holidays or their observance days, then they are paid at least time and a half (1.5x) using relevant daily pay, for the time they work on that day. In addition, they will get an alternative holiday which is a paid day off on an otherwise working day for the employee.

If a person only works on public holidays then they don’t get the alternative holiday, just the time and a half. If a worker is eligible for penal rates then they don’t get 1.5 times on top of the penal rates.

Staff Bonusses

Whether you decide to pay a bonus as cash in hand, or by direct deposit into a worker’s bank account, you will need to put it through the payroll system, which means making PAYE and student loan deductions and calculating Kiwisaver.

As this is an extra pay, you may need to calculate PAYE and Student Loan at a higher rate than normal. This is especially true if they are crossing into a higher tax threshold. Check out IRD guidance on how to calculate the PAYE. [i]

Staff Gifts

Gifts to employees which are not cash do not have to go through the payroll. But you may need to consider if entertainment or FBT rules apply.

Entertainment

If you give food or beverage to workers that they can enjoy in their own time, then entertainment rules apply and it is only 50% deductible for income tax. Similarly if you buy them tickets to a sporting or cultural event.

Non-Entertainment Gifts

If you decide to give your workers a gift voucher, or a present like a handbag or perfume, then you can claim a deduction for income tax, Fringe Benefit Tax rules apply if you spend over $300 a quarter per employee, or over $22,500 for all employees per annum.

Conclusion

If you are using a reputed NZ payroll software, then the pay rates and deductions will be calculated for you, as long as you correctly identify whether a person worked on a public holiday or not, and whether you paid them a bonus. You will still need to sense check for errors, as they aren’t fool-proof.

If you opt to give your employees a gift or bonus, remember to consider whether entertainment or FBT rules or PAYE rules apply.

The Christmas New Year period is perhaps the most expensive time of year for your payroll. Budget ahead for this, so you are not squeezed so hard in the New Year.

- Serena Irving

[i] https://www.ird.govt.nz/employing-staff/payday-filing/non-standard-filing-of-employment-information/lump-sum-payments/calculate-paye-for-a-lump-sum-payment

Employing Migrants on AEWV

serenai@jdw.co.nz (Serena Irving) — Mon, 26 Sep 2022 21:34:32 GMT

Many employers are hoping that new migrants will fill their skills gaps. Are you accredited to employ migrants?

Our NZ government wants to make sure that we employ New Zealanders first, and that we protect migrant workers from exploitation. While most employers of migrants have been providing good work conditions, there are several high profile cases where they have been underpaid, isolated, and not made aware of their rights regarding working conditions and health and safety. There is now an Accredited Employer Work Visa (AEWV) for employers to hire migrants for up to three years.

There are three parts to getting the AEWV: getting accreditation, advertising the role and asking the worker to apply. Then there are additional responsibilities for helping the worker settle in. While it may seem to be an imposition for a busy employer, this accreditation process will help to boost NZ’s image as a safe place to work, for would-be migrants.

Getting Accreditation

A would-be employer under this scheme will need a NZ Business Number (NZBN), an IRD number, meet financial requirements and meet immigration and employment standards. To be considered a viable business, it would need to show positive 6-month cashflow, no losses in past 2 years, sufficient capital investments or 2- year plan to remain a viable business.

The business and key people need to be compliant with immigration and employment standards. Past breaches or offences by key people in other businesses may negatively impact the current business’s eligibility.

There are four level for accreditation:

Standard: 1 -5 migrants

High-volume: 6 or more migrants.

Franchisee: business in a franchise, unlimited volume.

Controlling third party: labour hire business, unlimited volume.

Advertising the Role

The pay rate for the job must be at or above the median wage of $27.76 an hour [i] . Some industries are exempt from the median wage requirement because of present shortages: construction, infrastructure, care, meat processing, seafood, snow and adventure tourism and hospitality. [ii]

The job must be advertised for as least two weeks on a national listing website or channels where suitable New Zealanders might apply, and within 90 days of applying for AEWV. For instance you might advertise on Seek website and in your industry social media group. You don’t need to give evidence of advertising if the job pays more than twice the NZ median wage or is on the Green List [iii] .

After accreditation, the prospective employer then has to apply for a job check from Immigration NZ, with the job description, employment agreement, advertisement evidence. Approval expires after 6 months of issue.

Asking a Migrant to Apply

The migrant will need a copy of their employment agreement and signed employment offer. Then you send them a link to your Immigration Online dashboard, which they need to accept. The AEWV ties the migrant to the employer who offer the employment for up to 3 years, so if the employment situation changes, the migrant may have to apply for a new visa.

The AEWV accreditation lasts for 12 months and then needs to be renewed every 24 months for standard businesses or every 12 months for franchises and labour hire firms.

Settlement Information for Migrant Workers

Once the migrant has started working for the employer, there are still employer obligations to meet, to help migrants settle in New Zealand and understand their employment rights.

Typically, this would include finding somewhere to live, how to access health care, schools, locate public transport, get an IRD number, local services and community support groups. You may find it useful to prepare a welcome kit template along with your usual induction/orientation resources. I like the cost of living calculator at Immigration NZ for preparing a household budget [iv] .

Within one month of starting employment, the migrant needs to be given paid time to complete the online Employment NZ modules about their rights and entitlements. [v]

There are modules for employers too, so it’s a useful resource to brush up on your own knowledge. Even the worker is a veteran of the industry they are employed in, you will need to make sure that you go through the specific health and safety protocols for your workspace. Be aware of communicating effectively, taking care to explain our curious NZ idioms in language.

Even though an employee’s time use of work is their own, helping a migrant worker to get settled in their new country is crucial to retention and productivity. They will be better able to focus on their work tasks if they are not distracted by family and homelife worries.

We are counting on migrants to help alleviate our skills shortages in NZ, but they have the world to choose from. So let’s adopt the Accredited Employer Work Visa is spirit, as well as in form. Settled, productive migrant workers are a win for the migrant families, employers and New Zealand as a whole.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

An article like this, which is general in nature, is no substitute for specific immigration or employment advice. If you want more information about the issues in this article, please contact the author or Immigration New Zealand.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

[i] https://www.immigration.govt.nz link to median wage calculator .

[ii] https://www.immigration.govt.nz link to median wage exemption .

[iii] https://www.immigration.govt.nz link to green list .

[iv] https://www.live-work.immigration.govt.nz/live-in-new-zealand/money-tax/cost-of-living-in-new-zealand

[v] https://employment.elearning.ac.nz/

Do I Pay Tax on Cryptocurrency?

serenai@jdw.co.nz (Serena Irving) — Wed, 31 Aug 2022 22:24:19 GMT

If you received payment in cryptocurrency, or sold cryptocurrency, there are income tax and GST consequences.

We used to think that crypto currency was the domain of illegal enterprises and people who were foolish with their real money, but corporates, governments and international not-for-profits are giving crypto some legitimacy. Enough so, that fund managers and individual investors are investing in crypto.

Even if you only have a small holding of crypto, you need to be aware of the tax consequences.

What is Crypto Currency?

Crypto currencies are digital money, created using block chain technologies on the internet. The most popular ones are not regulated by government, but some governments are starting to accept crypto currency as legal tender and issue their own crypto currencies. Stablecoins are tokens which mirror fiat currencies like USD or NZD.

While you might argue that they are not worth anything, because they are not backed by a physical asset like gold, bear in mind that most fiat currencies have not been backed by gold for many decades. It is harder to forge crypto transactions, than other financial transactions, because of the block chain security.

While they can be used like money to pay for transactions, IRD (and other tax authorities around the world) considers crypto to be property for tax purposes, like gold or precious gems, rather than currency. This means that a different set of tax rules apply than for foreign currency.

Digital Wallets for the Unbanked

Imagine living in a tiny village, in a third world country. The country’s banking system is corrupt. Or banking is discriminatory against your gender, so you cannot hold a bank account. The World Bank estimates 24% (almost 1 in 4) of adults were unbanked in 2021 [i] , down from 37% in 2017, due to the rise of mobile money (payment services on mobile phone apps) and cryptocurrency in places like sub-Saharan Africa. The gender gap in account ownership across developing economies has fallen to 6 percentage points from 9 percentage points, where it hovered for many years.

Taxing Crypto Assets

We’ll be using a more generic term, crypto assets, in the rest of the article because the rules are the same, whether talking about crypto currency or other tokens.

Buying and Selling

In most cases, the profits you get from selling cryptocurrencies are taxable, and the losses are deductible. You don’t need to show a pattern of trading every day, to be liable for tax. Merely acquiring crypto assets for a purpose of sale or exchange is enough, even if you don’t plan to sell for a few years, or if you have other purposes like as a hedge against inflation. The trading stock rules apply, so you only treat the cost of what you sold as an expense in that year, using first-in first-out method or weighted average method.

If you switch between crypto assets, like selling Ethereum to buy Bitcoin, then you will need to work out the profit or loss on the sale, even if you don’t convert back to NZD or another foreign currency. Similarly, if you switch between exchanges, even with the same sort of crypto asset, it is still considered a trade, so you calculate profit on the sale when exiting the exchange.

If you move your crypto from a soft wallet (held in a software app in the internet) to a hard wallet (held on a USB stick or portable hard drive) then it is not counted as a trade.

Mining Crypto Assets

Mining is the creation of new blocks to add to the blockchain. Miners can receive rewards for verifying additions to the blockchain digital ledger.

The mining service is subject to GST, but zero rated (0% GST) as the blockchain digital ledger is located outside of NZ. This means that miners can still claim back GST on inputs if they are GST registered, like purchase of hard drives and electricity usage.

You will most likely pay income tax on the profit from selling mined crypto assets, but there is no GST on the sale. The profit on disposal is the difference between the selling price of the crypto asset and the amount that you already declared as mining income. It would be incredibly difficult to argue that the crypto asset mining activity is a hobby, because of the extent of the set up required.

You can claim expenses to offset mining income, such as electricity, rental costs, internet, depreciation on hardware and software.

Other Crypto Rewards are Income

Holders of crypto can sometime earn rewards by staking, locking up a portion of crypto assets to support the blockchain network. Crypto assets can also be loaned giving rise to form of crypto interest. These rewards are considered income in the year received.

Receiving Payment in Crypto

If you receive a crypto asset as payment for goods or services, this is considered business income and taxable on receipt. If you make a profit when you later dispose of the crypto asset then the profit is taxable too. The profit on disposal is the difference between the selling price of the crypto asset and the amount that you already declared as business income.

Airdrops and Hard Forks

An airdrop is a marketing tool which involved sending crypto assets to wallet addresses to raise awareness of a new token project. Sometimes it is given exchange for a service, other times it is passively acquired.

If you have a crypto asset business, acquired the airdrop as part of a profit-making scheme or for performing services, or regularly receive airdrops, then the receipt is taxable. Similarly, if you later sell the crypto asset then the profit on the sale is taxable. If you acquired the airdrop for the purpose of resale, then the profit on the sale is taxable. If you can prove that you passively acquired the airdrop, it arrived in your wallet without having to make an application or open a new wallet, then the receipt and disposal is not taxable.

A hard fork is when there are changes in the protocol controlling the function of a crypto assets, which creates a new token. In most cases the receipt of new crypto assets from a hard fork is unlikely to be taxable, as it doesn’t increase the value of your holding. In most cases the disposal of the new token will be taxable.

Converting Crypto to NZD

Some crypto asset transactions do not have NZD value. You may have to convert twice, from the crypto to a foreign currency like USD, then from the foreign currency to NZD. There are indexes which keep track of the daily conversion rates, but it is best to keep your own records too.

Stolen Crypto Assets

If your crypto assets have been stolen, you may be able claim the cost of acquiring the stolen crypto assets. You will need to be able to show that they were stolen, that their sale would have been taxable if they hadn’t been stolen, and that you have not recovered any of them.

Keeping Records for Tax

You will need to keep detailed records of each type of crypto asset, including date of transaction, transaction type, quantity, value in NZD. You should also record the total units and value at start and end of the year, wallet addresses, exchange records and bank statements. If you use an exchange, make sure that you download your transaction history in a spreadsheet, on a monthly or quarterly basis. Some exchanges only allow access to the history for a short time.

Temporary Migrant Exemption

The temporary tax exemption for new tax residents applies to most crypto transactions during the four-year exemption period. You will still need to declare crypto income from buying and selling crypto assets on a New Zealand cryptocurrency exchange and crypto received from foreign sourced employment or contractor income. After the exemption period ends, the normal tax rules apply.

Before buying Crypto Currency

This article does not argue for or against holding crypto assets as part of your investment or business strategy. If you are interested in buying crypto currency or accepting payments via crypto currency, then make sure that you do your research thoroughly. Have a secure digital wallet on a reputable exchange, with lots of safety features. Spend what you can afford to speculate. Put aside enough NZD to cover the taxes as you go.

If you already have crypto assets, and have not declared crypto income for tax, please contact us. We can help you to amend your income tax returns, and connect you with tax pooling finance options, which may save on penalties and interest. Calculating tax on crypto assets can be challenging, so it helps to have your tax advisor on your side.

- Serena Irving

An article like this, which is general in nature, is no substitute for specific investment or taxation advice. If you want more information about the issues in this article, please contact the author.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

[i] https://www.worldbank.org/en/publication/globalfindex/interactive-executive-summary-visualization

Residential Property Investors: Interest Deductibility Update August 2022

serenai@jdw.co.nz (Serena Irving) — Mon, 29 Aug 2022 04:03:24 GMT

The residential property interest limitation rules have passed into Law. But there is an amendment for build-to-rent developments.

Build-to-Rent amendment

Government has announced a vital amendment for build-to-rent development, but it is unlikely to improve matters for any of the landlords in our tax agency list.

Owners of build-to-rent assets can claim interest costs relating to these assets for as long as the asset is held and operated as a build-to-rent development.

That tenants must be offered a fixed-term tenancy of at least 10 years with the ability to give 56 days’ notice of termination, but they may agree to or request other tenancy offers.
The developments must have at least 20 dwellings in one or more buildings that comprise a single development, on either a single parcel of land or multiple contiguous parcels;
the dwellings and any common land or facilities for those dwellings must have a single owner;
dwellings can be held in one or more titles;
the buildings that a build-to-rent dwelling is in, can include other dwellings or commercial premises that do not form part of the build-to-rent development;
and the dwellings are used or available for rent under the Residential Tenancies Act;

The requirement for “20 dwellings in a single development” rules out all but the biggest landlords. We have clients with more than 20 residential rentals, but they are in different suburbs, not in multiple titles sharing common borders. So if you were a landlord hoping for some leniency on the interest limitation rules, you will need to look elsewhere.

Interest Limitation for Residential Rentals – a reminder

From 1 October, you can continue to claim interest if you acquired the property before 27 March 2021, but the percentage of the interest claimable reduces each year until 31 March 2025.

Development Exemption and New Build Exemption

The development exemption applies for interest relating to land that you develop, subdivide
or build on to create a new build.

The new build exemption is for properties which received its Code of Compliance Certificate on or after 27 March 2020 (not 2021 as stated in initial draft). It can include modular and relocated homes. If you convert and existing dwelling to multiple dwellings or a commercial building into residential dwellings, they can qualify as new builds. It applies also for purpose-built rentals, large-scale residential developments.

The exemption will apply to anyone who owns the new build within the 20-year fixed period, and the exemption does not reset when the property is sold.

Borrowing for Business Purposes and Land Business Exemption

If you’re borrowing against your residential property to fund your business, e.g. buying a truck for your transportation business, then you can still claim the interest deduction.

Similarly, the land business exemption will allow you an interest deduction if you are developing, subdividing, or in the business of land-dealing or erecting buildings.

Flatting or Home Business Exemption

The interest limitation would not apply for income-earning use of an owner-occupier’s main home, such as a flatting situation. Nor would it apply for emergency transitional, social or council housing. Other exemptions for residential property include hotels, motels, employee accommodation, student accommodation, retirement villages.

If you use part of a residential property for your business, such as consulting rooms then that portion of the interest may be claimed as a deduction. Bed and breakfast operations offering short term accommodation may be able to claim interest where the owner lives on the property, but not when it is a separate property.

The interest limitation also applies for properties that rent out and also use privately like holiday home.

Taxable Sale Exemption

If the sale of property is taxable, e.g., under the bright-line rules, then previously denied interest deductions may become available to offset the gain on sale.

Refinancing for rental property bought before 27 March 2021

If your initial loan drawdown for settlement was after 27 March 2021, but the acquisition date was before 27 March, you can follow the staged removal as if the loan was drawn before 27 March 2021. But if you borrow further, such as to make improvements, the interest on the new debt is not deductible from 1 October 2021.

If you have a revolving credit or other variable loan, only the interest on the 27 March 2021 loan amount will be eligible for the interest limitation calculation. The rest of the interest will be non-deductible.

Transferring to Related Entities

If you restructure how you hold the property after 27 March 2021, you may be able to carry over the same interest deductibility during the interest phase out period. This includes some transfers to family trusts, to or from look through companies (LTC) or partnerships, relationship property settlements and transfers on death.

What Next?

We have a calculator to help you estimate the cashflow requirements for your rental property with the interest deductibility changes. If you would like a copy, please email the author . For those of you with businesses and investment properties, it may be possible to restructure your loans to maximise interest deductibility.

Please feel free to contact us, your real estate agent and your mortgage broker to discuss your options.

- Serena Irving

An article like this, which is general in nature, is no substitute for specific tax advice. If you want more information about the issues in this article, please contact the author.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

Are Non Fungible Tokens (NFTs) taxable?

serenai@jdw.co.nz (Serena Irving) — Mon, 01 Aug 2022 04:50:02 GMT

If you are creating or trading in NFTs, there are income tax and GST consequences.

The closest I’ve come to owning a non-fungible token (NFT) is when I collected stamps as a schoolkid or when I painted a scene on canvas (and decided to stick with accounting). I can relate with people who are wary of investing in NFTs when they can’t understand how they work, and whether the hype is worth the risk. I don’t know why Jackson Pollock’s artwork is popular either!

An increasing number of our clients have bought NFTs recently, so we decided its time to talk about non-fungible tokens, and the tax issues surrounding them.

What are NFTs?

NFTs are digital assets rather than physical. They are not the same as cryptocurrency, but they use similar blockchain technology for authentication. They are typically held on the Ethereum blockchain, but other blockchains also support NFTs.

In the case of digital artwork, NFTs are a lot like physical art. The original artwork by an established artist is worth a great deal. Limited edition prints are valuable, but not worth as much as the original. Other copies exist, but they do not have the same value as the original. NFTs have a digital signature which make it impossible to be exchanged for one another. Even if you may download a digital copy from the internet, that copy is not worth anything as much as the original NFT, with its digital signature serving as proof of ownership. NFTs can only have one owner at a time. The most famous NFT of 2021 according to Forbes, was Beeple’s “Everydays: the First 5000 Days” sold at Christie’s for US$69 million. [i]

An NFT can be minted or created from digital objects, so they may consist of images, text and sounds. It may be a single frame digital drawing, a GIF (a very short animation) or it might be a video clip or music file. NFTs may be virtual avatars for online gaming, video game skins and in-game items, like a pair of sneakers that you pay real money for, but only your online persona gets to wear them.

NFTs as a Royalties Generator

NFTs can be sold directly from the artist to consumers. Artists can even programme in royalties so they receive a percentage of sales, or royalties, whenever their art is on-sold. This benefits the artist, as they can continue to receive income from a single NFT.

NFTs as a Networking Tool

One of our clients recently bought a utility NFT because of the access it gave them to influential players in their industry. It was like buying tickets to an exclusive club, where they would be able to get mentoring, showcase their beta product, and hopefully launch to a wider audience.

NFTs as a Fundraising Tool

ChildFund is one of a handful of charitable organisations which accepts donations of cryptoassets and NFTs. Former CFO, Janice Wong, spoke to us recently about how ChildFund uses NFTs to raise funds [ii] . ChildFund earns royalties from many of the NFTs they sell.

Taxing NFTs in New Zealand

If you earn income as a creator of NFTs, from royalties or selling your works, you will pay income tax.

Generally, if you buy NFTs and sell them, then the profit on sale is liable for income tax. You may be able to argue that an NFT was bought for personal use and enjoyment and not subject to income tax, but IRD considers that you would need to be able to provide a clear and compelling argument to support this.

If you sell more than NZ$60,000 in a 12-month period, you should be registered for GST and charge GST on sales to NZ buyers. However, if you are selling NFTs on an international platform and your buyers are anonymous, then you are entitled to zero-rate your sales for GST.

If you receive payment for NFTs in cryptocurrency, then you will need to convert the income into NZD using a conversion rate at the time of the sale. You’ll need to keep very good records of your trades, dates and values of purchases and sales. At very least, be able to export your crypto wallet transactions as a spreadsheet so you can convert to NZD. If you do a lot of trading then consider using an app like Koinly, which can assist you with the cryptocurrency conversions.

Before buying NFTs

I haven’t bought any NFTs yet, as its speculative nature doesn’t match with my conservative views about money. But if and when I do, I will do these things first. I will do a lot of research into the reputable platforms, like Open Sea, and the sellers. I will have a secure digital wallet on a reputable exchange, with lots of safety features. I will only spend what I can afford to speculate. I will remember the advice of art collector and former mentor, John Gellert, to only invest in art that I like. In that way I will be supporting artists and creatives in a positive manner, and even if it doesn’t make me US$69 million, at least I will enjoy having it.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, who sometimes paints canvasses. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

A well-written article like this, which is general in nature, is no substitute for specific taxation advice. If you want more information about the issues in this article, please contact the author.

[i] https://www.forbes.com/advisor/investing/cryptocurrency/nft-non-fungible-token

[ii] https://childfund.org.nz/blogs/news-and-stories/childfunds-innovates-to-open-crypto-wallet-for-donations

Better Governance for Members Inc.

serenai@jdw.co.nz (Serena Irving) — Wed, 29 Jun 2022 08:39:49 GMT

There’s a new Incorporated Societies Act 2022 – what do I need to know?

The Incorporated Societies Act 2022 passed into law in April 2022. This affects sports clubs, PTAs, and other not-for-profits that were incorporated under the former 1908 Act. You’ll know if this is your organisation, because its name ends with Inc. There is a transitional period for incorporated societies to re-register and update their constitutions. What’s different?

Membership

The minimum number of members is 10, rather than 15. That minimum number is ongoing, not just on incorporation. Members must consent to become a member, by completing an application form or similar, rather than the incorporated society declaring that a community of people are members.

Governance

The incorporated society will need to have governing body, such as a committee, rather than just officers. The committee must have at least three members, and a majority of the committee members must be members of the incorporated society.

Officers’ duties are modelled on company directors’ duties, such as acting in good faith, exercising powers for proper purposes, complying with the Act and constitution, reasonable care and diligence, not creating a risk of serious loss to creditors, not incurring obligations that the incorporated society can’t perform.

The 2022 Act sets out who is disqualified for being elected or appointed as an officer of the society due to bankruptcy, prohibition from being a director, criminal convictions or other statutory orders.

An AGM must be held within 6 months of financial year end.

Financial Reporting

Financial statements must be filed with the Registrar within 6 months of financial year end. An annual return must be filed annually also. While the format of the annual return is yet to be determined by Regulation, it will likely include the current committee members and a contact person for the society.

XRB accounting standards apply for financial reporting, but small societies not registered as charities will be exempt. Societies are considered “small” if total operating payments for the previous two years are less than $50,000, total current assets for the previous two years are less than $50,000 and it is not a 'donee organisation' for tax purposes and/or a registered charity.

A Society not registered as a charity will have to have its financial statements audited if its total operating expenditure is over a threshold (value to be determined).

Dispute resolution

The incorporated society will be required to specify its dispute resolution procedures in its constitution. This will deal with grievances between members, and between members and the society. Schedule 2 of the Act sets out an optional set of procedures, but the society can adopt its own set of procedures that meets minimum natural justice standards. This means that a society cannot ignore complaints from its members.

Distribution of surplus assets

If the society is liquidated or removed from the register after reregistering under the 2022 Act, it will not be able to divide any surplus assets between its members. The constitution will have to name a not-for-profit entity (or class or description of not-for-profit entities) to benefit from the surplus assets.

Timing

MBIE is currently working on regulations for all incorporated societies to follow. You can make submissions by emailing them at engage@societies.govt.nz .

All existing incorporated societies will need to re-register between October 2023 and April 2026. New incorporated societies before 5 October 2023 will register under the old Act and then re-register. New incorporated societies from 5 October 2023 will register under the new Act.

The incorporated society will need to include a copy of the updated constitution which conforms with the requirements of the new Act.

Where to found out more

It will take several months for the regulations to be finalised and then the incorporated societies will need to work with their members and lawyers to update their constitutions. There is a signup form to receive updates from MBIE during the transition period at the bottom of this MBIE article: https://is-register.companiesoffice.govt.nz/law-changes-for-societies/key-changes

Incorporated societies are a lot more complex than they were in 1908 and the 2022 Act reflects the increased need for governing bodies to be accountable to its members. Make sure that your incorporated society’s constitution is updated in time for re-registration.

- Serena Irving

Download a PDF version here or contact the author by email. Like our Facebook page for regular tips.

A well-written article like this, which is general in nature, is no substitute for specific legal advice. If you want more information about the issues in this article, please contact your lawyer or MBIE.

Kiwisaver Government Contribution

serenai@jdw.co.nz (Serena Irving) — Wed, 29 Jun 2022 00:20:55 GMT

How do I get the Government contribution when I'm Self-Employed?

How do Self-employed get the Kiwisaver Government contribution?

This week, one of my clients asked if he should make a payment to his Kiwisaver to get the Government contribution, given the recent drop in the financial markets. I’m not a registered financial adviser so I can only give general advice and the benefit of my experience as a chartered accountant and investor. I’ve expanded on my comments to him in this blog.

Self-employed people register with Kiwisaver providers directly

Salary and wage earners have Kiwisaver deducted from their regular income through PAYE, and they also receive contributions from their employer. Self-employed and shareholders who get salaries calculated at year end with no PAYE deducted, need to contact their Kiwisaver provider to set up payments. You can either pay by regular instalments or make a lumpsum payment by 30 June each year.

If you were receiving PAYE income but your Kiwisaver contribution was less than $1,042.86 for the 30 June year, you can make a direct top-up payment to your Kiwisaver provider too.

Why is 30 June special?

Government tops up your Kiwisaver contributions to 30 June, by another 50%, up to $521.43. That is, if you invest $1,042.86 in Kiwisaver by 30 June, you get $521.43 of the Government’s money invested alongside it.

Should I put more into my Kiwisaver if I have it?

Talk with your investment advisor / Kiwisaver provider about other managed funds options to save for retirement. Kiwisaver is locked in until you reach 65 (or claim the first home buyer withdrawal), whereas other managed funds may be accessed earlier, if your situation changes.

My Kiwisaver dropped a lot last year. Should I keep paying into it?

Financial markets go up and down a lot, and it has been very volatile lately with Covid, Ukraine etc. The benefit of investing when the market is down is that you will get more units for your dollar, so when the market goes up they will increase in value. If you are still several years away from retirement age, you have time to bounce back from a downturn. Though you may have to shut your eyes as you ride the rollercoaster! If you are near retirement, then you may want to have more certainty of your returns, and a smoother ride.

Talk with your Kiwsaver provider about whether you are in the right fund.

If you were put in a default fund when you started working, you should definitely contact them. This may not be the best choice if you have several decades of investing ahead of you, as you may be missing out on better returns.

There are growth funds and balanced funds which offer a different mix of investments (shares, bonds, cash deposits) depending on your risk profile. Generally the higher the risk, the more susceptible your investment is to big highs and big lows. Over a long term, growth funds tend to do better, but the short-term volatility can be unsettling for some people. If you are retiring soon, then a more conservative fund (mainly cash deposits, bonds) is better, as there are few highs and lows.

Check out the Kiwisaver Looksee flow chart from the Financial Markets Authority: https://www.fma.govt.nz/investors/kiwisaverandsuperannuation/kiwisaver-flow

How do I decide which Kiwisaver provider?

Check out the online reviews of different providers and look for ones that best suit your values, risk profile, investment knowledge and fee expectations. Past performance is no prediction of future outcomes, but it can give you some indication of the quality of the fund managers.

Sorted has an easy calculator for working out what your risk profile is, and can tell you which providers have the lowest fees. High fees can eat away at your investment returns, so take a careful look at this. https://sorted.org.nz/tools/kiwisaver-fund-finder

To sum up

If you aren’t already contributing regularly to Kiwsaver, invest at least the $1,042.86 each June to get the Government contribution, if you can afford it. Don’t check your Kiwisaver balance frequently, but do review annually in case your situation has changed. Talk with your investment advisor about your risk profile, their fees and the appropriate funds for your retirement savings.

- Serena Irving

Download a P DF version here or contact the author by email . Like our Facebook page for regular tips.

A well-written article like this, which is general in nature, is no substitute for specific investment advice from a financial advisor. If you want more information about the issues in this article, please contact your financial advisor.

Applying for Tax Relief

serenai@jdw.co.nz (Serena Irving) — Mon, 30 May 2022 03:12:51 GMT

Dealing with tax debt can improve your confidence

If you have been keeping up to date with current taxes, but you are struggling to make a dent in old tax liabilities, maybe it’s time to apply for a tax write off. Since Covid-19 started, IRD debt management team has been more willing to enter into negotiations for instalment arrangement and tax relief.

Here are two case studies, representing the many successful applications we have made on behalf of taxpayer clients.

Tax Relief Case Study

In May 2022, we successfully won a sole-trader about $20k of tax relief. Cue a little happy dance!

I have been working with this client for two years. She had three years of GST and income tax debt when we started. With lots of encouragement from me, she has been paying her current GST on time and paid off a big chunk of income tax.

The past two years have been a huge challenge for her. In between covid lockdowns, she gave birth to her third child, had surgery, moved house, and recently caught covid. She pivoted her business to be less reliant on face-to-face interaction, but her business still required her to be in it. Every time she tried to reboot after every stoppage, something else came up. She had not been able to make a dent in her old GST debt.

I spoke with my IRD account manager, sent him the relevant information and he agreed to write off three years of GST and two years of income tax. Her latest income tax bill is on an instalment arrangement to pay off over 12 months.

It's not just about the debt, it's also about her confidence as a businesswoman, a parent and a citizen. She doesn't have the burden of old tax debt holding her back. She will feel more able to provide for her family. She has better money management than she did two years ago.

We think these factors helped her case for tax relief:

She filed her recent GST and income tax returns on time. Paid them on time too.
Her financial position had been severely impacted by Covid-19 and her own health.
Her level of income is lower than standard household living costs, so there is nothing left to pay the old tax debts.
She has a young family.
She made efforts to reduce the Covid-19 impact.

Instalment Arrangement Case Study

In August 2020, we estimated provisional tax down and applied for an instalment arrangement for a company taxpayer affected by Covid-19. The company was impacted because supply chain issues affected availability of its products and business customers were nervous about spending on equipment. The company forecasted ahead 12-months, so the Board knew that the instalment arrangement was affordable.

IRD remitted all interest and penalties for late payment, saving about $10,000 for the taxpayer. IRD accepted the instalment arrangement request for the first provisional tax amount, then we were able to add the second and third provisional tax amounts to the arrangement.

The instalment arrangement bought the company time to adapt. It was easier for the company to spread its tax payments across the whole year, and it paid off its income tax in full just before the terminal tax due date.

What worked well for this taxpayer was:

The taxpayer was proactive and made contact with IRD through us, before the income tax was due.
Covid-19 had impacted the business, and the business adapted itself to its new environment.
The taxpayer had cashflow projections, which was revised at each instalment. The instalment arrangement bought time for the company to sort out its working capital issues.
The instalment plan was for a short period, only a few months.
The taxpayer never missed an instalment payment for income tax, and kept paying payroll taxes and GST payments on time.

Applications that Haven’t Succeeded… Yet

Not all our applications have been successful, and there are three main reasons why they have been failed. Either the taxpayer is behind with filing their returns (income tax, GST and/or payroll) or the taxpayer has not kept up with the payment plan. Sometimes the payment offer is spread out too far into the future. When applications don’t succeed, it usually isn’t the end of the matter. We work with the taxpayer to remove the objections over a period of months, and present a more acceptable picture to IRD.

Is this You?

If you're struggling to deal with old tax debt, chat with us about whether you qualify for an instalment arrangement or the hardship tax relief. We help you to put forward your best case to IRD. Then you can join in with our little happy dance!

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

A well-written article like this, which is general in nature, is no substitute for specific tax advice. Results are not guaranteed, even if you think your situation matches those discussed in the case study. If you want more information about the issues in this article, please contact the author.

IRD Digitization of Tax

serenai@jdw.co.nz (Serena Irving) — Mon, 23 May 2022 02:27:40 GMT

How far can we trust automation?

IRD officials are consulting interested groups on the future of tax administration. In their issues paper “Tax Administration in a Digital World”, IRD argues that it can do a lot more to remove the tax compliance burden from small business owners. But should it?

Tax Automation & Digitization is already here

Personal Taxes

If your only income is from employment, NZ interest or dividends, Maori authority distributions and employee share scheme benefits, then IRD issues your personal tax return automatically for each March year end. If you have less than $50 to pay IRD writes it off. If your tax to pay arises because of any extra pay period, IRD may write terminal tax off if it is less than their thresholds. [i]

If you are due a refund and have already advised IRD of your bank account, they will issue the refund automatically or ask you for more information.

Digital services via MyIR and accounting software packages

At 30 June 2021, 98% of tax returns were filed digitally. Now that IRD no longer accepts cheques, 98% of individual income tax payments were digital too. [ii]

If you use payroll software, your payday filing happens automatically in most cases, within 2 days of payment. This means that employee PAYE and earnings records are more accurate than before payday filing.

Accounting software like Xero and MYOB allows you to calculate and lodge your GST returns at the push of a button. Both Xero and MYOB are employing machine learning and optical character recognition to help you code your bills and banking transactions more accurately, making GST calculation faster.

Quick Roll out of Government Support

IRD was able to roll out new RSP and CSP application forms via MyIR within a very short time after Government’s announcements. The Small Business Cashflow Scheme loans were also available via MyIR, so small and medium businesses received a burst funds very quickly.

Taxpayers can apply for instalment arrangements to pay taxes via MyIR. Many of the straightforward arrangements are approved automatically. If you disclose in MyIR that your business was affected by covid-19, this is available to call centre staff, who can treat your situation with better understanding.

Where Does Tax Digitization Go from Here?

IRD has issued discussion papers and held focus groups on the future of tax digitization. JDW were fortunate enough to take part in one of those focus groups, representing the interests of small and medium businesses.

Seamless Income Tax Calculation

IRD imagines a fully automated tax calculation process, through the use of online accounting software. They see benefits of increased tax compliance and more regular income tax payments. For smaller cash-based businesses, they envisage that income tax can be calculated at the same time as filing GST. Software platforms like Hnry are already innovating in this area.

Income Tax Automation won’t suit Everyone

If you are a sole trader, and your only source of income is your business, then automation may work out just fine. But if this your side hustle, you also earn PAYE, investment or rental income, hold crypto assets, then the accounting software won’t have the full picture to calculate your income tax accurately during the year. Even if you granted MyIR access to your accounting software, it may still be an incomplete picture.

Fluctuating inventory, finance arrangements, even changes debtors and creditors, can impact on the calculation of business profit. If you have a company with multiple owners, allocate shareholder salaries based on taxable profit and other considerations, then the accounting software would need to be sufficiently robust to manage all that.

The Role of Accountants for Tax Preparation

We accountants favour a tax process which reduces compliance costs for our clients, especially for micro businesses and contractors. But we are cynical about whether tax preparation can be fully automated, given the confusion that already exists with clients and what they can claim for expense in calculating their taxes.

There will be some taxpayers who can’t access tax compliance software due to cost constraints, language, technology or accessibility limitations. They will still benefit from having a tax agent.

Accountants may have less tax work to do for smaller businesses, but will still be necessary for medium businesses with more complicated structures or transactions. Using GST as an example, we still prepare lots of GST returns for clients even though Xero and MYOB can calculate GST for people. We can free up more time for advisory work and business consulting, if we spend less time on compliance, so we won’t run out of work in a hurry!

Who Is Responsible for Getting Tax Right?

When you have a tax agent/tax adviser preparing your tax return, there is an expectation that they will have a duty of care, to interpret tax legislation and enter the correct figures in the tax return. If you overclaim expenses, you can be penalised for the tax shortfall, but the penalty is reduced if you relied on advice from a tax adviser.

Can a piece of software have a duty of care? If the software’s set of rules treats a purchase of a computer as an expense instead of a fixed asset to be depreciated, is the taxpayer at fault? Perhaps the use of tax software should insulate a taxpayer from penalties. Would that lead to taxpayers taking greater than usual risks with overclaiming expenses, because there are no consequences?

Data Sharing

IRD already shares data with other Government agencies, for statistical purposes, social policy and the like. The discussion paper suggests that data could be shared with banks and credit agencies. On the one hand, I feel a strong degree of discomfort about data sharing beyond current limits, without consent of the tax payer. One the other hand, if I was a potential lender or supplier to a taxpayer, I would want to know if there were large GST and PAYE amounts outstanding by the taxpayer, as it would affect their ability to pay loans or invoices on time.

Is Further Tax Digitization a Pipe Dream?

The scope for tax automation may be limited to a small sector of taxpayers, the contractors and micro-business owners. Early tech players like Hnry are showing that quite a lot is possible for that group of taxpayers, given the right conditions. But we should treat tax automation with a dose of cynicism. Automation can assist with clear rules, but can you rely on it to apply judgment? There is still a role for accountants as tax advisers and tax agents yet.

- Serena Irving

You can read more about IRD’s future of tax digitization on their website [i] . The article does not include any focus group commentary, as the comments are not available for publication. A well-written article like this, which is general in nature, is no substitute for specific tax advice. If you want more information about the issues in this article, please contact the author.

[i] https://taxpolicy.ird.govt.nz/-/media/project/ir/tp/publications/2022/2022-ip-tax-administration-in-digital-world/2022-ip-tax-administration-in-digital-world-pdf.pdf
[i] https://www.ird.govt.nz/income-tax/income-tax-for-individuals/what-happens-at-the-end-of-the-tax-year/income-tax-assessments/automatic-write-offs

[ii] https://www.ird.govt.nz/about-us/publications/annual-corporate-reports/annual-report/annual-report-2021/our-story-2020-21/digital-services-are-streamlining-customer-experiences

What Does My Accountant Need for Year End?

Tue, 08 Mar 2022 22:00:00 GMT

What Does My Accountant Need for Year End?

It's the end of another financial year, so it's time to gather your records to give to your chartered accountant. If you're organised, this can be a quick job. For some people, it can be a mundane task, accompanied by feelings of trepidation and dread, particularly if this past year has been a difficult one for you. If you have negative feelings associated with this task, then get it over with quickly and give yourself a little reward afterwards.

Reality Check #1: Your chartered accountant already has a good idea of how you have been performing this year, especially if you have been in touch during the year. Reality Check #2: Your chartered accountant won't judge you based on the quality of the information you provide. We chartered accountants may thrive on balancing the books, but we understand that it isn't everyone's favourite business discipline. Let's get to it!

Bank Reconciliation

If you're using a cloud accounting package, then it may already be done. Get a copy of the last bank statement of the year, and compare it to your bank reconciliation report. If there are receipts or payments that you are unsure of, give as much information as you have available (copies of invoice or email discussions around the payment). Do this for every bank account, credit card account and term loan account operated by the business.

If you're not using a cloud accounting package then make sure your chartered accountant has access to your bank statements or software backup.

Debtors or Customer Balances

Review your list of debtors before year end and check if they are still collectible.

To claim a tax deduction for bad debts, they must be written off before the end of the financial year. In your accounting software raise a credit note to clear the debt or write Bad Debt across the invoice in your invoice book. To decide whether a customer balance (debtor) is a bad debt or merely doubtful, consider the age of the debt, how much effort has gone into chasing the debt and the likelihood of the debt being collected. Writing off a bad debt gives a more accurate reflection of the business's financial results, but does not prevent the business from continuing to seek recovery of the debt.

Creditors or Suppliers Balances

Review your list of creditors, and follow up if they include items which are on backorder, or you are waiting on credits for defects.

Inventory or Stock on Hand and Consumables

Value your trading stock at balance date, at the lower of cost or market selling price. If you sell an item below cost just before balance date, then you can value the remaining items at that price. Dispose of any obsolete stock before your stock take, in order to claim the deduction.

Inventory should be counted as close to balance date as possible. Remember to include stock in transit, if the purchase cost has been paid or included in creditors. If your turnover is $1.3m or less for the year and you estimate your inventory on hand is less than $10,000, you don't have to do a stock take; you can use your opening stock figure for your closing stock figure.

If you estimate your consumable aids (like oil in a factory) cost under $58,000 then you don't need to include them in stock or prepayment adjustments at year end.

Prepayments or Expenses Paid in Advance

There may be some expenses invoiced in the past year, which are for services you will receive in the following year. You would usually make a prepayments adjustment at year end, but you don't need to adjust for these prepayments:

Accounting costs (mandatory) and audit fees

Advertising (under $14,000, up to 6 months)

Insurance (contract under $12,000, up to 12 months)

Periodic charges (under $14,000, up to 12 months)

Postage and courier tickets

Professional subscriptions (under $6,000, up to 12 months)

Rates

Rent (under $26,000, up to 6 months)

Services (under $14,000, up to 6 months)

Stationery

Subscriptions for newspapers, magazines

Telephone maintenance (up to 2 months)

Travel and accommodation (under $14,000, up to 6 months)

Vehicle registrations, road user charges

Warranties or equipment service contracts as inseparable part of the asset

For all other prepayments, let your chartered accountant know the amount invoiced, what it is for, and the period the invoice amount covers.

Customer Deposits and Revenue in Advance

If you collect deposits from customers before work begins, or send invoices to customers for an event to occur later in the year, we don't treat these as revenue for tax purposes. Let your chartered accountant know the amount invoiced, what it is for, and the period the invoice amount covers.

Retentions

Retentions on building contracts are generally taxable in the year the contractor becomes legally entitled to receive them. Let us know of any retentions so we don't include them in income.

Holiday Pay and Bonusses

Run a report from your payroll system, or make a written list, of the holidays owing to staff at year end. Note which ones were paid out within 63 days after year end, so you can claim a tax deduction. For instance, if you have a 31 March year end, you can claim the holiday pay as an expense if it was paid on or before 2 June.

Similarly, if you are paying staff bonusses or long-service leave, make sure that you pay it on or before 2 June to include in your 31 March year end expenses.

Property, Plant & Equipment

Purchases of assets costing less than $1,000 (excluding GST if registered) can be automatically expensed, unless they are part of the construction of a larger asset. Review your depreciation schedule from last year. Assets which have been disposed of (or put in a dingy corner because they are too costly to dump) can be written off from the books so that a loss on disposal can be claimed.

You may want to defer the sale of a significant asset until after balance date, to push the depreciation recovery income (profit on sale of asset) into the next tax year.

Home Office Expenses

If you used part of your family home to operate your business, then you can make a home office claim for business expenses. This is usually based on the floor area of the home office as a percentage of the total floor area of the house. Add up your household expenses like rent or rates, insurance, water, electricity, gas, repairs, cleaning, then multiply by the percentage.

IRD publishes a square metre rate each tax year for estimating the household costs (2020-2021: $44.75 per square metre) if you want to save time. But note, this figure doesn't include rent, interest or rates so you'll still need to work out a percentage of those costs.

For home telephone landline you can claim 50% of the rental, plus business toll calls. For home internet, you can decide your business proportion, but we tend to go with 50%.

Motor Vehicle Usage

If you use your private vehicle for business, you can claim a kilometre rate as an expense using either the IRD rates or another reputable alternative, like AA. If you use your business vehicle privately, let your chartered accountant know what percentage, so they can make an adjustment to expenses, otherwise FBT will apply.

Loans to Staff and Shareholders

If you have made loans to employees, you will need to charge interest on those loans at the FBT prescribed interest rate or higher (4.5% from 1 July 2020). Otherwise FBT is payable calculated on the interest amount you didn't charge.

If shareholders have drawn more out of the company than earned in salary, discuss your options with your chartered accountant. It may be appropriate to increase the shareholder-employee salary or declare a dividend or charge interest, depending on your circumstances.

Provisional Tax and Early Payment Discount

If your income is significantly higher than the previous year then you should consider paying voluntary provisional tax on top of what you are already required to pay. If it is significantly lower than the previous year, then talk to your chartered accountant about whether you can estimate down your provisional tax.

If you don't have a provisional tax obligation but make a voluntary payment of income tax before 31 March, you may qualify for an early payment discount of 6.7%. This is only available if you are a sole trader or in a partnership in your first year of making a profit for the business. There are some other criteria, so check with your chartered accountant.

Press Send

If there's a transaction you aren't sure about, perhaps an expense that you want claim, send your question to your chartered accountant. We are happy to clarify these uncertainties and we come across lots of curly questions.

When you have sent this information off to your chartered accountant, you can reward yourself for a job done well. Perhaps a chocolate biscuit or refreshing drink? A few minutes of sunshine on your face before tacking the next task? Whatever to choose to reward yourself with, smile and enjoy it.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips. Access our year end checklists here .

A well-written article like this, which is general in nature, is no substitute for specific tax advice. If you want more information about the issues in this article, please contact the author.

Wills and Powers of Attorney

Mon, 28 Feb 2022 22:00:00 GMT

Wills and Powers of Attorney

We recently had a client die suddenly, a few days after his second covid injection. On checking his will and statement of wishes we found that they were out of date and had not taken into account that his estranged wife had moved on to a new relationship. It makes sense for you to check your will and statement of wishes every few years and particularly after a significant change in family circumstances.

It also makes sense to have an Enduring Power of Attorney for personal welfare and Enduring Power of Attorney for property, in case you are incapacitated in the future. These documents would be prepared by your family lawyer, but as chartered accountants, we are often called upon to act as trustees for trusts and executors for estates. Here a few things to know.

Wills

A will is a document which outlines where you want your belongings to go and how your children and other dependents will be looked after, when you die. You don't need to have lots of money or valuable possessions to have a will. My husband has a clause in his will for his Pathfinder game sets to be passed to someone other than me, because they will appreciate them better!

You can decide who will execute your estate, an executor , and who will be testamentary guardian of your children and other dependents. Choose these people carefully, that they will be capable and willing to carry out your wishes. A relative of mine is co-executor for her friend's estate. She is doing all the work, preparing the properties for sale, while the other co-executor is doing very little.

When you enter into a civil union or marriage, your will is automatically revoked, unless you clearly state that you took the civil union or marriage into account. When you separate, your will is not revoked until separation orders are made by the court or you have legally dissolved the relationship. You should also review your will when you enter into or exit a de facto relationship or when you have children.

If you die intestate, or without a will, then the Administration Act decides how your property is distributed. Distributions are made in set proportions to a surviving spouse/partner and immediate family, or near living relatives. This may not be what you or the family expect. If you have no relatives, then your property goes to the State.

Even if you make a will, it can still be contested by people who think they are entitled to inherit from you. Make sure you get expert legal advice to draw up your will.

Memorandum of Wishes

A memorandum of wishes is a letter to provide guidance for trustees of a trust that you have settled. It may contain instructions on how the trust's property should be invested, what the income and capital of the trust should be used for, beneficiaries requiring special treatment, in what circumstances the trust should be wound up. For instance, if you have a special needs child, they may need a greater share of the trust's income to pay for their medical bills and living costs.

You should review your memorandum of wishes regularly, particularly when you have a change in family or relationship circumstance.

Enduring Power of Attorney (EPA)

An EPA allows a person to act on your behalf, your attorney, to make decisions for you when you can't. In this context, your attorney is not necessarily a lawyer, but it could be a trusted business partner, relative or friend. You can appoint different people to be attorneys for your property, such as bank accounts and investments and attorneys for your personal care and welfare, such as choosing what medical care you need and where you should live. If you appoint multiple attorneys, you should clearly state if they need to act jointly (agree on all decisions) or severally (act alone).

The EPA should be in place before you need it, because situations may arise quite suddenly. It was incredibly useful to our accounting firm, when Brian came down with Guillain-Barr é Syndrome in 2018. Murray was able to continue to pay bills for the firm and for Brian's family, act as trustee on Brian's behalf.

A personal care and welfare EPA comes into effect when a doctor signs a certificate confirming you are mentally incapable. A property EPA can be effective immediately or only if mentally incapable.

If you don't have an EPA in place and you become incapacitated, then an application can be made to the Family Court, but the judge will not know who you put your trust in. You can also sign a general power of attorney, to cover periods of temporary absence while overseas, but they have no legal effect if you become mentally incapable.

Choose your attorney(s) carefully, because you will be relying on them to take care of you and your family when you are unable to.

If you want to know more about estate planning, memorandum of wishes and enduring powers of attorney, please contact your family lawyer.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

Keeping Business Open during Omicron

Sat, 26 Feb 2022 22:00:00 GMT

Keeping Business Open during Omicron February 2022

The continuation of the Covid-19 Omicron variant in the community, the gradual reopening of NZ's borders and the gradual dismantling of the Managed Isolation and Quarantine (MIQ) for incoming travellers, has made it necessary for business owners to prepare for Covid-19 differently to previous variants. It is very likely that some or all of your workers may be self-isolating while recovering from the virus or awaiting test results.

As owners and managers, we will need to prepare for Omicron to affect our workplace and our people and continue to operate.

Working Remotely or Separately

Plan for your workers to work from home where practical, or segregate work areas so there are fewer contact opportunities between sections of the business. This separation can have negative impacts on collaboration, training and building networks, so carefully consider how you can compensate for the downsides, with online events that bring teams together in a fun way. TVNZ's Seven Sharp team are filming from a temporary studio to allow social distancing, as discussed in The Spinoff. If Hilary and Jeremy can manage, then our teams can too. https://thespinoff.co.nz/tv/23-02-2022/justice-for-seven-sharp-the-only-news-show-without-a-snazzy-studio

Make sure that your workers have access to N95 or medical grade masks, and encourage their use at work. Remind people of hygiene practices, regular cleaning schedules and whey they are important. These simple steps may help reduce the number of sick days taken by your workforce.

Rostering and Apprenticing

Pay close attention to rostering, and encourage your workers to give as much notice as possible of absences, so you can arrange cover. My local hairdresser has two distinct teams, so that if one worker in team one falls sick and the rest of team become infected, then team two can still keep working. I know other businesses that forbid their managers from attending the same external meetings, let alone fly together.

Make sure that there is another person trained for key roles in your organisation, including the roles you undertake yourself . Imagine if you were unwell or busy caring for sick family members. Would your business keep ticking on without you?

Vaccination

If you haven't already conducted a health and safety risk assessment for your business to decide which workers need to be vaccinated, there is now an assessment tool:

https://www.business.govt.nz/covid-19/vaccination-assessment-tool

As we said in a previous article, engage with your workers about the risk assessment and vaccination status, rather than being prescriptive. You are more likely to keep your workers on side with you if you behave fairly and reasonably, and discuss matters in good faith.

Workers who are Cases, Contacts or Symptomatic

Workers who are symptomatic must isolate and get a test. Cases need to isolate for 10 days from the day of their positive test. In Phase 3, household contacts need to isolate for the same 10 days as the case, with testing on days 2 and 10. If they test positive they must isolate for 10 days from the date of the test.

Other close contacts should monitor their symptoms, but do not need to isolate. They can continue to work. You may want to consider additional health protocols to protect your workers in this situation.

Close Contact Exemption Scheme

At phase 3, businesses and organisations can register as a "critical service" if they provide a basic human need, such as food production, distribution, accommodation, health services. If a critical service worker is a household contact, they will be able to access a Rapid Antigen Test (RAT) and return to work if they have a negative RAT prior to each day or shift they are at work and follow specific health protocols. Mask wearing, other hygiene and infection prevention, separate working space, travel solo, eat alone, separate bathroom if possible, testing. They will only be able to venture out of self-isolation for work or for testing.

You can register for the Close Contact Exemption Scheme at Business Connect. You will need your RealMe login to access the application form: https://services.businessconnect.govt.nz/

Bubble of One

During phase 3, a business or sole trader may have a worker who is a household contact on-site if this worker is not customer-facing and can maintain a "bubble of one" while at work. This can apply if the worker is vaccinated, is not symptomatic, can maintain their "bubble of one" while at work. This doesn't require the business to conduct testing or registration, but have specific health protocols in place. Mask wearing, other hygiene and infection prevention, separate working space, travel solo, eat alone, separate bathroom if possible, testing. They will only be able to venture out of self-isolation for work or for testing.

Are You Ready Yet?

Run scenarios to stress test your covid preparation. If Worker X was out of action, who else would be affected and for how long? What activities would be affected and for how long? If more than one worker, or a whole team, or multiple teams was affected? It's possible to come up with several scenarios, but impossible to consider them all. Be prepared to adapt your response, as situations arise. Stay safe and do your best to keep your business open.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

At the time of writing this article, NZ was in the red traffic light setting of the Covid-19 Protection Framework, at phase 3, in response to a rise in Omicron cases. As more information is known about the virus, the public health measures are adapted to suit. Please check http://www.business.govt.nz/covid-19 for the most recent guidelines.

Omicron Business Support

Sat, 26 Feb 2022 22:00:00 GMT

Omicron Business Support February 2022

Many NZ businesses have been affected by the recent Covid-19 Omicron outbreak, hot on the heels of Delta. We have summarised Government Support for businesses and contractors below.

New IRD Covid Support Payment (CSP)

There is a new Covid Support Payment available from IRD, for business which have suffered a 40% or more decline in revenue . There are initially three payments, with applications opening 28 February 2022, 14 March 2022 and 28 March 2022. Each fortnightly payment is $4,000 per business plus $400 per full-time equivalent employee, and payments are GST liable like the resurgence support payment. Applicants details may be published, so this will enable workers to find out if their employers have applied for the payment.

The first affected period is any 7-day period starting from 16 February 2022. The dates for the other two periods are yet to be announced. The calculation of revenue is using standard accounting principles. For cashflow businesses, this would be daily takings. For businesses that invoice clients, this would be the activity the business carries out and then bills the clients for.

The comparison period is a "typical 7-day revenue period in the 6 weeks between 5 January 2022 and 15 February 2022". If your business earns unevenly, then you can take an average of the 6 weeks and then choose the 7-day period that is closest to the average. If the business is abnormally busy in early January, or the business is closed in early January, then you can exclude those weeks. For instance, if you had a summer closure and reopened on 17 January, you could calculate trading revenue for 4 weeks and divide by 4, to find your average weekly revenue.

A NZ business (including sole traders) or organisation is eligible if was in business before 16 January 2022, is viable and ongoing and has taken reasonably practical steps to minimise the decline in revenue. For CSP, the Government has added Vaccine Certificate requirements for "regulated businesses": food and drink, close proximity, gyms and tertiary education providers.

Further information about eligibility is shown here: https://www.ird.govt.nz/covid-19/business-and-organisations/covid-19-support-payment/eligibility-for-the-csp

You can apply by signing into MyIR, select the "I want to..."and" tab and 'Apply for COVID-19 support payment' under COVID-19 support. Or we can apply on your behalf, provided we have the relevant revenue figures and employee details.

Leave Support Scheme (LSS)

The LSS provides a weekly payment of $600 per week for full-time workers and $359 for part-time workers (under 20 hours a week), who must self-isolate and cannot work from home. Previously this was a two-week lump sum payment of either $585.80 per week for full-time workers, or $350 per week for part-time workers. More information is available on the MSD website .

Short-Term Absence Payment (STAP)

The STAP provides a one-off (once per 30 days) $359 payment for workers including self-employed people who must miss work due to a COVID-19 test and cannot work from home. Previously this amount was $350. Further information is available on the MSD website .

Small Business Cashflow Loan top-up

Businesses are able to apply for a $10,000 top up to their existing loans from IRD from the end of March 2022. This means that businesses and organisations have until 31 December 2023 to apply for up to $20,000 plus $1,800 per full-time equivalent employee (up to 50 employees). The loan repayment period is five years and the first two years are interest free, then 3% per annum. The accrued interest on the initial loan has been written off, so that interest only starts at the beginning of year three.

Tax Payment Flexibility

Covid-19 tax relief applies only to taxes due after 14 February 2020.

If you are having difficulty paying taxes on time due to COVID-19, you can apply to IRD for an instalment arrangement, with or without a delayed payment start date. If your business or organisation has been affected by Covid-19 then no more interest and penalties will apply if you complete the arrangement by 7 April 2024.

In extreme cases, IRD will agree to a partial write off, or a full write off due to serious hardship. Generally an application under serious hardship will need to be accompanied by financial records, such as bank statements, creditors, debtors, cashflow forecasts; medical certificates and other relevant documents.

You can either apply for instalment arrangements via MyIR or ask us to apply on behalf. If you have applied for yourself, please let us know for our records. If you want us to apply for you, please advise the tax payments you want to cover, a dollar amount, frequency and start date. If we can't reach an agreement with IRD for an instalment arrangement, we can also help you with tax pool finance through TaxTraders. They are a finance company which buys and sells tax payments at more attractive interest rates than those offered by IRD.

If you want our assistance with applying for these support packages, please contact us.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

A well-written article like this, which is general in nature, is no substitute for specific tax advice. If you want more information about the issues in this article, please contact the author.

Do We Need an Audit?

Thu, 10 Feb 2022 22:00:00 GMT

We are a Not-For-Profit: Do we need an Audit?

Do we need an Audit?

NOTE: The thresholds in this article have been updated to reflect 1 January 2022 changes. Previous thresholds are shown in (brackets).

The majority of New Zealand's registered charities (a.k.a not-for-profit or NFP) do not need to be audited according to the Charities Act 2005, but you will need to also check your trust deed, charter or constitution, as some charities may include an audit requirement in its rules. Also, some grants have a condition attached that the financial statements must be audited or reviewed.

If total operating expenditure for the two previous accounting periods exceeded $550,000 ($500,000) , your charity is considered medium-sized and your financial statements must be reviewed or audited by a qualified auditor. If total operating expenditure for the two previous accounting periods exceeded $1.1 million ($1 million) , your charity is considered large and your financial statements must be audited by a qualified auditor.

What's the Difference between an Audit, a Review and a Compilation?

An Audit gives a high or reasonable level of assurance that the financial statements are free from material errors or fraud. It is not an absolute assurance though; auditors cannot guarantee that there is no fraud or error. Auditors are independent and are not involved in the compilation of financial statements, so they can objectively give their expert opinion. Auditors will conduct detailed testing, calculations, analysis and observations to reach their conclusions.

A Review gives a limited assurance that the financial statements are free from material errors or fraud. Reviewers do not go into as much depth as auditors, so they give their conclusions in a negative form. In simplistic terms, it would be saying "Nothing has come to our attention to cause alarm.", instead of saying "Everything looks fine.".

A Compilation is neither an audit nor a review, so the preparer does not give any assurance about detecting material errors or fraud. If the financial statements have been prepared by a chartered accountant, they will bring any issues to your attention if they notice them, but that is not their purpose.

Which Reporting Standards do we follow?

There are four Tiers of Reporting Standards for NFPs. Tier 1 is the most complex and Tier 4 is the simplest. The expense thresholds relate to the two previous financial years.

Tier 1 – Over $30m annual expense or public accountability (people give you cash or assets to hold for them as one of your main activities). Accrual basis accounting.

Tier 2 - $2m - $30m annual expenses. Accrual basis accounting.

Tier 3 - $140k ($125k) - $2m annual expenses. Accrual basis accounting.

Tier 4 – under $140k ($125k) annual operating payments. Cash basis accounting.

How Can I Prepare for an Audit?

You will be contacted by your auditor to book in a suitable time for the audit. The people involved in managing the finances and preparing the reports should be available to meet with the auditor during this time. You will need to have the following records available:

Set aside a space in the office for the auditor to work onsite, with internet wifi, printer/scanner.

What Does the Audit Process Involve?

The auditor will plan the assignment and send your governance team an engagement letter, outlining the scope of the audit.

The auditor will visit you on-site, test the internal control system, gather data for analysis, meet with the finance and governance team. The auditor will follow the flow of source documents to record-keeping and reporting, and back again.

The auditor will also work off-site, analysing data, confirming changes to financial statements and prepare a management report for you, with key finding and detailed recommendations. When the financial statements are approved by the governance team, the auditors will issue their audit report for the members of the NFP. The audit report does not contain details like the management report, but a generalised statement of opinion.

How Do We Keep Costs Down?

Make sure that you are reporting to the correct tier of reporting standards, and only get an audit or review if required. Document your procedures, have tidy systems that easy to follow. Have clear records that are easy to read and locate when the audit starts. Some NFPs have a folder with all the documents sorted systematically, others use cloud-based document management and accounting systems.

Should We be Scared that We Need an Audit?

No, definitely not. Your not-for-profit wins if it is using its funds wisely for the betterment of its members and the wider community. The Auditor's work is to give assurance that this is being done.

Auditors take an educational approach, rather than a judicial approach, so you have a greater chance of getting things right next time.

- Serena Irving & Pradeep Singh

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

Serena Irving and Pradeep Singh were directors in JDW Audit Limited, the former audit wing of JDW. We don't offer audits any more but we can recommend auditors to you. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists.

Workplace Health and Safety Policy Covid-19

Tue, 23 Nov 2021 22:00:00 GMT

How to Develop a Workplace Health & Safety Policy for Covid-19

When you take on employees and contractors, you have a primary responsibility for people's health and safety at work, under the Health and Safety at Work Act 2015. This means you have to manage risk as far as it is practicable, and balance it with the time and cost needed to manage it. Pretty tough to do this at the best of times, let alone during a pandemic.

Here is how we went about developing our health and safety policy around Covid-19 during the Delta outbreak as the Protection Framework was about to be introduced. We have also outlined some basic considerations for how you can develop your own policy.

Steps for developing your own health and safety policy:

Identify and Assess the Risks

Every workplace will have its own assessment of risks. Consider the impact and likelihood of injury on your workforce.

We considered the risk of Covid-19 Delta on our workforce. The Delta variant is more infectious than previous variants, and there has been a community outbreak in Auckland since August 2021. Some of our team members have compromised immunity despite vaccination, and many of our families include children under 12 who cannot be vaccinated or others with compromised immunities or other vulnerabilities. Therefore we considered the risks to be high: a community outbreak makes infection more likely and the potential impact on our workforce would be severe.

Conditions and Behaviours

Does the working environment contribute to the risks? Does the way we operate contribute to the risks?

Our office is well-ventilated, and each person sits at a partitioned desk or in a separate office, and uses their own equipment. We have common areas which bring people in closer proximity, in the stairwell, meeting rooms, washrooms, printer areas and lunchrooms. We identified that we had to pay more attention to those common areas.

When Auckland was at Alert Level 1, we would often have clients or prospects walk in without an appointment. This posed greater risk for our receptionist, managers and directors. Our auditors and senior team would also have meetings offsite at client premises or in cafes. Face-to-face meetings put our workers more at risk than phone or video calls.

We adopted public health measures like good hygiene practices, mask wearing, social distancing. When we moved to Alert Level 4, we encouraged workers to work from home where practical, and locked the office door against public access, to protect our workers who did have to work at the office. We shifted all our work meetings to Zoom, Teams or phone. We offered twice weekly Zoom check-ins for maintaining connection and mutual support. We agreed to flexible or reduced work hours to help working parents who needed to care for their children.

Now we are moving from Level 3.2 to the new Protection Framework "the traffic light system", we are taking a cautious approach. Our workers are still largely working from home. Everyone who enters the office must use the Covid tracer app or sign the register.

Eliminate or Control

Depending on the hazard, you can either eliminate the risk, or control the risk to a manageable level.

When there is a community outbreak, we can't eliminate the risk of catching Covid-19 entirely, so we try to manage the risks. We read the information provided by the Government's Covid19 website and the Ministry of Health's website too. You can refer to industry guidance if available from your industry organisation. For instance, the Restaurant Association has guidance and checklists for opening food outlets under different operation conditions imposed by the different Alert Levels.

In addition to the measures we already had in place, we decided that we needed a high vaccination rate in our team and to limit exposure to unvaccinated people in our office. Other than face masks, we didn't think that full PPE was required for our workers. We will be requiring visitors to be eligible for the vaccination pass or else we will make alternative outdoor arrangements. We are investigating whether a screen can be installed at reception to further protect our workers.

Can you force workers to get vaccinated?

We encouraged all our workers to get vaccinated, and were delighted to discover that our team was 100% fully vaccinated.

Some industries are mandated for vaccination – border and MIQ, health and disability, prison and education sectors for instance. If your organisation is not mandated for vaccination, you need to make a risk assessment to decide whether a vaccination is required for different types of work. If the nature of work puts them at a higher risk of infection and transmission than outside of work, then that work should probably be done by a vaccinated employee. Consider how many people they are in contact with, how easy to identify contacts, proximity to others, length of time in close proximity, regular interaction with people at higher risk of serious illness, and regular interaction with unknown people.

You cannot force employees to disclose their vaccination status, but you have the right to treat them as if they were not vaccinated for health and safety risk management. If certain work can only be done by vaccinated workers, businesses should set a reasonable timeframe for workers to decide if they will be vaccinated. If an employee cannot work during this time, special paid leave should be considered, especially in the short term while employers and employees discuss what happens next. Employers and employees still need to deal with each other in good faith and consider reasonable alternatives if their current role requires vaccination.

Businesses can only ask candidates at job interviews if they are vaccinated if this is justified by the requirements of the role. The information needs to be collected and handled according to the Privacy Act.

Consult, Communicate and Train

A health and safety policy is only workable if it widely adopted by the workers themselves. It is critically important for the workers to be consulted in developing the policy as they will understand the practicalities of implementing the policy better than management.

We circulated and discussed a draft policy with the team over a few meetings, and they came up with suggestions of their own. The team expressed a desire to have more precautions than what was originally proposed, and these were adopted in the final policy. We used both written and verbal communication and gave opportunities for questions. We gave workers access to a variety of posters and guides about the public health measures, and demonstrated tools such as the Covid Tracer app.

We repeatedly reminded people about personal hygiene, regular surface cleaning, mask wearing, safety when travelling to work. If you have workers who are not as fluent in English, then you may need to make extra effort to provide them with adequate training and resources for understanding.

Review Regularly

After the policies have been implemented, it is important to review them regularly. The risk itself, the working environment and ways we do work may all change, so we may have to adapt our policy to suit.

We had Covid-19 policies we implemented in March 2020 during the first lockdown. Since then, the Delta strain has increased the risk for our workers. The Government has finessed its Alert Levels and is moving towards a traffic light system with vaccination passes. We reviewed our policies and improved upon them as a result of the review and consultation. We will review them again early in the New Year. It is probable that we will be revisiting and re-writing our Covid-19 health and safety policy for many months to come.

Covid-19 is a workplace health and safety risk that needs to be carefully managed. Collaborate with your workers to identify and assess the risks, create conditions and behaviours to manage the hazards, adopt the plans and regularly review policies to keep your workers safe. There are plenty of resources to help you.

Resources for Employers

https://www.worksafe.govt.nz/managing-health-and-safety/novel-coronavirus-covid/operating-safely-what-you-need-to-think-about/

https://www.worksafe.govt.nz/managing-health-and-safety/novel-coronavirus-covid/how-to-decide-what-work-requires-a-vaccinated-employee/

https://covid19.govt.nz/alert-levels-and-updates/traffic-light-system/

https://www.restaurantnz.co.nz/membership-resources/resources/?category=coronavirus-resources&access=

https://www.employment.govt.nz/about/news-and-updates/government-announces-covid-19-workplace-vaccination-legislation/

https://www.health.govt.nz/our-work/diseases-and-conditions/covid-19-novel-coronavirus/covid-19-vaccines/my-covid-record-proof-vaccination-status/nz-pass-verifier#about

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

A well-written article like this, which is general in nature, is no substitute for specific employment or health and safety advice. If you want more information about the issues in this article, please contact your HR adviser or the author.

Interest Deductibility Update

Tue, 28 Sep 2021 23:00:00 GMT

Residential Property Investors: Interest Deductibility Update

Interest Limitation for Residential Rentals

The Government has released its draft legislation to remove interest deductions for residential rental property owners, from 1 October 2021. This sets them apart from other property-owning businesses, like builders, property developers and commercial property owners who can continue to claim interest expenses when calculating taxable income.

A residential rental property classified as a "new build" qualifies for a five year bright-line test (instead of ten years) and interest deductibility for 20 years. The definition of "new build" has been extended from the original draft, increasing the number of properties eligible for the new build exemptions.

The Government's intention seems to be to reduce investor demand for existing houses and push them towards new builds, making the older houses more affordable for first-home buyers. IRD's regulatory impact statement casts doubt over whether the new legislation will improve housing affordability. [i] Perhaps then, the decision was made more for appeal to the voter base then an actual belief that the policy would work to improve affordability.

Staged removal of deductibility for existing property

From 1 October, you can continue to claim interest if you acquired the property before 27 March 2021, but the percentage of the interest claimable reduces each year until 31 March 2025.

Development Exemption and New Build Exemption

The development exemption will apply for interest relating to land that you develop, subdivide or build on to create a new build.

The exemption will apply to anyone who owns the new build within the 20-year fixed period, and the exemption does not reset when the property is sold.

Borrowing for Business Purposes and Land Business Exemption

If you're borrowing against your residential property to fund your business, e.g. buying a truck for your transportation business, then you can still claim the interest deduction.

Similarly, the land business exemption will allow you an interest deduction if you are developing, subdividing, or in the business of land-dealing or erecting buildings.

Flatting or Home Business Exemption

The interest limitation would not apply for income-earning use of an owner-occupier's main home, such as a flatting situation. Nor would it apply for emergency transitional, social or council housing. Other exemptions for residential property include hotels, motels, employee accommodation, student accommodation, retirement villages.

If you use part of a residential property for your business, such as consulting rooms then that portion of the interest may be claimed as a deduction.

Bed and breakfast operations offering short term accommodation may be able to claim interest where the owner lives on the property, but not when it is a separate property.

The interest limitation also applies for properties that rent out and also use privately like holiday home.

Taxable Sale Exemption

If the sale of property is taxable, e.g., under the bright-line rules, then previously denied interest deductions may become available to offset the gain on sale.

Refinancing for rental property bought before 27 March 2021

Transferring to Related Entities

What Next?

The summary above relates to draft legislation, so it may yet change as it goes through Select Committee and Parliament. You can read further details on the IRD website [i] .

The recent announcements will cushion the blow of introducing the interest limitation, by extending the new build exemption and allowing for transfers to related entities. Interest on pre-27 March 2021 loans will be mostly deductible until 31 March 2023, so there is time to work out what you will do with your existing rental properties. The policymakers are hoping for houses to be more affordable, but it will require more work on the supply side as well.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

A well-written article like this, which is general in nature, is no substitute for specific tax advice. If you want more information about the issues in this article, please contact the author.

[i] https://www.ird.govt.nz/updates/news-folder/design-of-the-interest-limitation-property-rules

[i] https://taxpolicy.ird.govt.nz/publications/2021/2021-ris-interest-deductibility

Covid-19 Level 4 Support August 2021

Tue, 17 Aug 2021 23:00:00 GMT

Covid-19 Alert 4 Support for Businesses

New Zealand is again at Alert Level 4, following a recent Covid-19 Delta outbreak. We have summarised Government Support for businesses and contractors below.

Wage Subsidy Scheme (WSS)

Eligible employers anywhere in the country can apply for the WSS if they expect a loss of 40 percent of revenue as a result of the Alert Level increase announced on 17 August 2021. The WSS rates have been increased to reflect the increase in wage costs since the scheme was first used in March 2020. Businesses will be eligible for $600 per week per full-time equivalent employee, and $359 per week per part-time employee. The WSS will be paid as a two-week lump sum. Applications open on Friday 20 August with the first payments usually available after three days.

Further information will be available on the MSD website shortly https://www.workandincome.govt.nz/covid-19/index.html

Resurgence Support Payment (RSP)

For commonly owned groups, the whole group needs to be eligible before each entity can claim the RSP. Further information is available here .

Leave Support Scheme (LSS)

The LSS provides a two-week lump sum payment of either $585.80 per week for full-time workers, or $350 per week for part-time workers, who must self-isolate and cannot work from home. More information is available here .

Short-Term Absence Payment (STAP)

The STAP provides a one-off (once per 30 days) $350 payment for workers who must miss work due to a COVID-19 test and cannot work from home. Further information is available on the MSD website .

Are there eligibility checks?

Yes, MSD do run spot checks to ensure that income drops have been calculated correctly and you have listed current employees correctly. If you are in the process of restructuring, don't claim for employees who are being made redundant.

IRD has also been routinely checking 2021 personal income tax returns to verify that the self-employed and contractors have been declaring their wage subsidies and/or resurgence support payments in their income tax returns.

Please contact us at JDW if you require any assistance on calculating eligibility or making applications.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

A well-written article like this, which is general in nature, is no substitute for specific tax advice. If you want more information about the issues in this article, please contact the author.

Business Growth through Acquisition

Sat, 24 Jul 2021 23:00:00 GMT

Growing your Business through Acquisition

Buying another business, in your industry or a related industry, can help you to scale up or grow your business quickly. You can reach a larger audience for your product or service, by tapping into the new customer base. You can take on new team members with experience and skills. You can acquire new technologies or consolidate systems which will make your whole operation more efficient.

I was made redundant just as I was preparing to work after my second daughter was born. A friend and I set up our own accounting firm, but didn't have many clients. We looked at acquiring other accounting firms or fee bases, but they weren't a good fit to suit our values and our lifestyles. We bought into my current firm, and suddenly I had enough clients to pay myself a salary and time to build my networks for profit growth.

There are a lot of considerations for buying an existing business, some of which may be unfamiliar if you grew your existing business organically. Remember that you are buying the business as it is right now. If you are looking at growth potential, then also look at how long that growth will take and how much extra investment is needed to get there. Consider whether the investment will save you the effort of growing organically.

Take a look at the past three years' profit and loss and balance sheet, ask questions of the owners. Spend time in the business, watch how the team operates, look at the layout and state of equipment and fittings. Review key contracts with customers, landlord, employees and suppliers.

Is the new business compatible with your existing one? Can you run both? Merge them together? Or keep them separate and hire a manager for one of them?

What is the people culture like? Are they like us, with similar values and purpose? If the culture isn't similar, then you may have several employee leaving before you can build a cohesive team.

What are the systems like? If you take the best system of both businesses, can you transition the other business smoothly? Can you make savings on administrative and management roles, without impacting on productivity and the customer experience? Can you provide a better end-to-end experience for your customers because of the business acquisition?

Businesses are often sold at a valuation, calculated as a numbers of years of expected profit (EBITDA, or earnings before interest, tax, depreciation and amortisation). If your industry uses a multiple of 3, that means that you will usually pay three times the cash profit, excluding finance costs and tax which may vary. Comparing EBITDA can be a bit tricky though, especially for family businesses, so take a closer look at the Profit and Loss report. Is the shareholder salary, a market salary for the work the person does? Are they putting through extra expenses for tax purposes like home office costs? Consider entertainment, travel, vehicle costs, donations which can be discretionary expenses. Are they paying a lower rent because the building belongs to family?

Don't just look at sales as a number, but consider the lifetime value of customers. Are you going to get repeat sales from the customers? Also, look at the sales trend over time. Is the business declining or growing, and why? Are you buying a business or just buying wages for yourself?

Look at the strength of the balance sheet especially the assets. Look at the quality of the stock. Look at the asset depreciation schedule and compare it to the equipment you see. Don't buy any damaged equipment or expired stock. You usually won't be taking over any liabilities of the business except for holiday pay, but make sure that your agreement reflects that.

If you are borrowing for the purchase, your bank will want to see cashflow forecasts. Can you predict what the next years' cashflow is going to be like? What is the cost of funding the investment?

Review the key contracts of the business: with customers, landlord, employees and suppliers and consider your reliance on them. Imagine if you lost a major customer or supplier, your landlord decided not to transfer the lease to you, the store manager decided to move to a competitor. Do you have legal means to deal with this, or can you cope with the loss?

Often the exiting owner will offer a work-in period, where they work paid or unpaid, to help you transition into the business. Whether you keep them on as an employee after that is your choice, but then you should agree appropriate duties, pay and conditions. Make sure the exiting owner signs a non-competition restraint of trade for a suitable period, set of activities and geographic location.

Buying another business can give your business a quick growth boost. Make sure the numbers stack up, that you have the time, resources and energy to combine your new business with your existing business. You need to take the time and effort to inspect your target business before you buy and evaluate whether it is a good investment. Consult with your accountant, banker and lawyer before you sign up to a business acquisition.

By Serena Irving, Venus Ellerslie. Download a copy here. This article was first published by Venus Network. Venus Businesswomen Thriving Together. To find out more about Venus, follow this link: https://www.venusclubs.co.nz

Im a Contractor How do I manage GST and WHT

Mon, 28 Jun 2021 23:00:00 GMT

I'm a Contractor: How do I manage GST and WHT?

If you're a contractor or freelancer, there are a few things you should know about GST and withholding tax (WHT).

If you expect to earn $60,000 a year you need to register for GST

That is, if you are invoicing $5,000+ a month, on a regular basis, then you should register through MyIR. If you are GST registered, then you add 15% GST to your service fees, and pay the GST you collect to IRD. You can also claim back the GST you have paid on your business purchases and expenses.

You can lodge GST returns on a 6 monthly, 2 monthly or 1 monthly frequency. You can choose invoice, payments or hybrid basis, which determines if you disclose GST when invoiced or when paid. Most of our freelancers choose to file GST returns 6 monthly on a payments basis, so they don't have to prepare their GST return very often, and they can refer to their bank statements for adding up income and expenses.

What is withholding tax (WHT) and can I choose my own rate?

Contractor income is called schedular payments by IRD, and withholding tax (WHT) is a type of income tax that is deducted from schedular payments and paid directly to IRD by the customer paying the invoice.

The usual rate of WHT is 20% and that is typically a good rate for someone earning up to $100,000 a year after deducting expenses, because it means you have less than $5,000 to pay in terminal tax and you won't have to pay provisional tax. If you earn more than $100,000 a year, then you can opt for a higher WHT rate. If you earn less than $50,000 a year, you may want to select a lower rate of WHT.

If you would rather not have WHT deducted, you can apply to IRD for a certificate of exemption (COE) which you have to show to the customers paying your invoices. This may be because you have lots of expenses that you can claim back, or it may be that you prefer to manage your tax payments yourself, or it may be that the payer doesn't want to register as an employer for a one-off payment. If you are a NZ resident contractor paid by a labour hire customer under a labour hire agreement, then you have to apply for tailored tax rate of 0% instead of a COE. In both of these cases, you have to pay provisional tax directly to IRD instead.

What do I show on my Customer Invoice?

When GST & WHT registered, a typical contractor invoice will look like this:

In the example above, the customer pays $950 to the contractor and $200 to the IRD. The contractor completes a GST return at the end of the filing period, and pays $150 to IRD.

At the end of the income tax year, usually 31 March, the $1,000 income is included in the contractor's income tax return, and the $200 WHT is treated as a credit (reduction) against the income tax payable.

Working out your taxes can be the most challenging part of being a contractor. Team up with a chartered accountant to help you navigate the complexities, so you can get on with what you do best.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

A well-written article like this, which is general in nature, is no substitute for specific tax advice. If you want more information about the issues in this article, please contact the author.

If you're looking for other useful information for freelancers, like what expenses you can claim, refer to our previous article: https://www.jdw.co.nz/newsletters/blog/jdw/setting-up-as-a-freelancer

Taxing Content Creation

Sat, 29 May 2021 23:00:00 GMT

Taxing Content Creation

My husband watches videos of gamers playing his favourite first-person shooter computer game. My children watch other children unboxing toys and hamsters finding their way through mazes on YouTube Kids. I follow my favourite style consultant on Instagram and read her blogs. My younger cousins avidly watch the latest TikTok videos. We love watching these people having fun, so can they really be earning taxable income?

Inland Revenue is trying to clarify the tax rules for content creators, like bloggers, influencers, gamers, online reviewers, video makers and has issued an Exposure Draft with a deadline for comment by 1 June 2021 . We have outlined below some examples, to outline some of the difficulties of the proposed rules, as it means that content creators may be liable for more income tax than they previously thought. If you are affected by these proposed rules, do you agree with them?

Is it a Hobby, a Side Hustle or a Business?

This distinction can change over time. There is a low-income exemption for ages 18 and under, so they don't pay tax if they earn less than $2,340 a year. For over 18s, the exemption is only $200 a year.

For instance, an amateur photographer sets up a Facebook page posting images of his LEGO Creator models. A toy store offers to pay him $150 for a one of his photos, to use in their LEGO in-store display. At this stage, the photography is still a hobby, the income is not regular, expenses far outweigh the income, and he is not intending to do photography as a business. He earns less than $200 so he doesn't need to declare any taxable income.

His photography and LEGO creations improve and he sets up Patreon account. Donors get access to exclusive photos which are not on his free Facebook page. He receives lots of small donations during the year, pushing his income up to $250 in a year. The $250 is related to his photography activities and more than $200, so he needs to declare it as taxable income. He can deduct his expenses though, such as new lenses, editing software, internet subscriptions.

He creates a stop motion video from his LEGO which goes viral on Tiktok. He receives commission income from toy stores for the post links, which is taxable income, even though this is still a side hustle for him.

He stops creating photo posts and video posts as he's too busy with his main work, but still is receiving income from his old photo / video content. Even though it's now passive income, it is still taxable, but he can't keep claiming business expenses because he is not actively involved.

Are Gifts of Goods and Contras Taxable?

IRD considers goods and contras to be taxable if they relate to the income-earning activity of the content creator, and can be converted into money. But if you didn't buy it, how would you decide on the taxable value?

For instance, in the LEGO photographer example, if a toy store decided to gift a LEGO set to photographer as well as paying commission, the secondhand value of the LEGO set would be used to determine a reasonable estimate of the taxable value. You could look at what similar sets are selling for in TradeMe or another online marketplace, and deduct the listing fee or commission for the sale.

If a homewares reviewer received a free espresso machine in exchange for a review, that is considered a contra. The espresso machine could be sold second-hand afterwards or kept, but the timing of the income would be receipt of the espresso machine. The value would be either what it was actually sold for, or estimated from looking at an online auction website.

In some cases there may be no resale value, such as used personal items like toothbrushes. If a gamer was required to show and consume some branded ice coffee drinks while gaming as part of a sponsorship deal, then the drinks would not be income as they cannot be sold.

What Expenses to Claim?

If you have an income-earning activity you can claim a deduction for expenses and depreciation (gradual write-down of assets) on items you use in the business. There needs to be a relationship between the expense and the income-earning activity.

A blogger may have home office costs, internet and phone, depreciation on computer, subscriptions to industry relevant material, professional fees. If the blogger has to travel to interview people or do research, then the travel costs can be claimed.

Most clothing expenses makeup and haircuts are not deductible, even though the content creator is the face of their brand and has to be well-presented. Clothing is considered private or domestic expenditure because it is used for warmth and modesty. This applies even if the clothes are worn just for a photoshoot. An exceptional circumstance may be made for a costume used in a skit. I read recently that ABBA had outrageous costumes to get around similar rules in 1970s Sweden [i] . Models can usually claim hairstyling and makeup just before a photoshoot. It appears that IRD are not willing to extend a claim for clothing, hair and makeup to influencers who model for their own social media posts and act in their own videos.

Content creators, are a relatively new form of advertisers, and IRD is seeking to provide guidance to them to ensure they know their tax obligations. In doing so, some hobbyists may quickly find themselves with taxable income sooner than they thought, and some influencers may have fewer expenses to claim. The lines between influencer, model, celebrity and actor may be blurry at best, and it may require serious debate to clarify them.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

[i] https://www.theguardian.com/music/2014/feb/16/abba-outfits-tax-deduction-bjorn-ulvaeus

Portfolio Investor Rates

Sat, 29 May 2021 23:00:00 GMT

IRD's Piece of the PIE

If you have portfolio investor entity (PIE) investments, you should check your investor statement each year to check you have the right portfolio investor rate (PIR). Before this year, if you underpaid you had to pay the extra tax in your income tax return, and if you overpaid tax you had to live with it. There was no mechanism for getting the overpayment back. From the 2021 income tax year, this situation has been rectified so you can get a refund.

What is a PIE and a PIR?

A portfolio investor entity, or PIE, is a special type of managed fund, which invests contributions in various types of passive investments. Kiwisaver funds are an example, but there are lots of other PIE funds which invest in term deposits, shares and insurance products. They were set up to align the tax on managed fund investment returns with the tax on direct investment returns.

The portfolio investor rate, or PIR, for NZ resident individuals is calculated at 10.5%, 17% or 28% depending on your taxable income with and without the PIE income (see Figure 1). Even with the introduction of the 39% top personal tax rate the top PIR is still only 28%.

The PIR is based on the taxpayer's previous two income years immediately before the relevant tax year, so there can sometimes be a lag between the taxpayers' marginal tax rate and the PIR.

Figure 1: PIR Table, source: IRD.govt.nz

Trusts can choose a PIR of 28% as a final tax rate, or can choose 17.5% and include the PIE income and tax paid in the end of year income tax return. This may be attractive if beneficiaries are receiving an income distribution from the trust and earn less than $48,000 income annually. Trusts can also choose a PIR of 0% and include the PIE income or loss and tax credits in the end of year income tax return. This might be attractive if the trust is using up prior year tax losses.

How Do I Receive my PIE Tax Refund?

We don't have to include your PIE income and tax credits in your income tax return, unless the PIR is the wrong rate. If you are due a refund, we will include it in your income tax return and then you can either use it to pay your terminal tax on other income, or get a refund back.

If you don't have to file an income tax return, IRD will automatically review your PIR after you have confirmed your income summary for the year. Make sure that your correct bank account details are loaded in MyIR for Income Tax, so that IRD can deposit the refund directly into your bank account.

Should I Talk to my PIE Advisor?

Yes, if you have had a recent change in your income, it's a good idea to let your advisor know that you need to change your PIR. This way, you won't get any surprises at the end of the tax year.

If you think you are due a PIE tax refund and haven't received it, please contact us.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

Opening Window on Trusts

Wed, 28 Apr 2021 23:00:00 GMT

Opening a Window on Trusts

Are you a trustee or settlor of a trust? Who wants to know? Just about everyone it seems. The Trustees Act 2019 requires trustees to keep track of core records and inform beneficiaries. The Taxation (Income Tax Rate and Other Amendments) Act 2020 introduces a far greater level of transparency for IRD to understand the finances of a trust.

This is a follow-on article from our previous article, An Inconvenient Trust , and enlarges on the new disclosure requirements.

Core Documents to Keep

Every trustee is required to keep a copy of the trust deed and any amendments, at minimum. At least one trustee should also have records:

Trustees cannot rely on leaving the trust records with a trusted professional such as a lawyer or accountant. The new Act firmly establishes that it is the trustees' responsibility to hold and maintain these records.

Information for Beneficiaries

Every adult beneficiary (18 years and over) now has the right be informed that they are beneficiaries of a trustee and some basic trust information so they can hold trustees responsible for good trust management.

The basic trust information is the fact they are a beneficiary, name and contact details of the trustees, the right to request a copy of the terms of the trust or trust information. When a trustee is appointed, removed or retired, the beneficiaries should be informed the details as they occur.

Other trust information must be supplied within a reasonable period of time after the request, but the trustees must decide if it is appropriate to disclose the information and may refuse the request.

As a trustee you would need to consider the degree and extent of the beneficiary's interest in the trust and their likelihood of receiving trust property via distribution in the future. Look at the nature and context of the information request, and what are the settlor's wishes. Relative ages and circumstances of the beneficiaries must be considered and the effect on all beneficiaries, trustees and third parties of giving the information.

This is particularly relevant in regard to family relationships. For instance, the settlor may have stated in her Memorandum of Wishes that she doesn't want her youngest son to get more than $10,000 a year as "he will only spend it all on drugs and booze". This disclosure may cause jealousy or resentment amongst the sibling beneficiaries, so the trustees may choose to withhold disclosure of the Memorandum of Wishes. On the other hand, a degree of transparency may actually help to deal with a particularly difficult beneficiary, who thinks that he is getting left out of the loop.

If the information is personally or commercially confidential, then the trustees can refuse to disclose. For instance, if a beneficiary is an employee of a competing business, then the trustees could refuse to disclose financial data, like gross margins, due to confidentiality. The trustees can also ask beneficiaries to pay reasonable costs for providing the trust information requested.

If you would like a copy of JDW's beneficiary letter template, please email the author .

Information for IRD

The new Trust Disclosure rules for IRD were passed under urgency and without robust consultation in December 2020. In Bill Patterson's view [i] , "it seems to reflect a view of officials that trusts are somehow "bad" and are often misused." The Government did not increase the trust income tax rate from 33% when it introduced the top individual marginal tax rate of 39% on 1 April 2021, but IRD has been tasked to brief Government if they notice odd patterns of behaviour around the use of trusts.

For the 2021-2022 income year, trustees will be required to disclose financial accounting information, additional information about loans and related parties, distributions and settlements made during the year.

The format for disclosures has not been finalised yet. We expect the financial accounting information to be similar to the current IR10 return which is used for other entities, a compressed profit and loss statement and balance sheet report. But it could also include transfers to the trust from related persons.

For distributions, trustees will be expected to disclose name, IRD number and date of birth of beneficiaries, for capital distributions as well as revenue distributions. This could have wider tax consequences for non-resident beneficiaries who receive distributions which are taxable in their country or tax residency, as IR will be able to pass on details through tax information exchange agreements.

For settlements on the trust, trustees will be expected to disclose name, IRD number and date of birth of settlors and the amount and nature of the settlement. For the 2021-2022 year, IRD will be looking for details of settlors from prior years.

How are you maintaining your records?

At JDW, we have a document portal in the cloud which holds trust information. Other trustees, keep their information in a shared folder in Google Drive, Dropbox or Sharepoint. If you are using a cloud storage folder, you need to be able to manage security, to give trustees full access, but beneficiaries only get access to files that trustees have allowed them to see. Other trustees keep only paper copies of documents, which helps with controlling who sees the information, but this can make it difficult for sharing across multiple people.

Who to ask for guidance?

Talk with your fellow trustees and your trust's lawyer for dealing with requests for information from beneficiaries. If you can't come to a clear decision, you can apply to the court for a ruling.

Discuss the IRD disclosure requirements with your accountant, and be prepared for them to ask you for more detailed information in next year's tax return questionnaire.

The Trustees Act 2019 and Taxation (Income Tax Rate and Other Amendments) Act 2020 have opened the window on trusts, making it easier for beneficiaries and IRD to see what is going on inside trusts. This can place a larger administrative burden on trustees, but it will also encourage them to look after trust property in their beneficiaries' best interests.

We don't yet know what IRD plans to use all this additional trust information for, but given the wide scope of the disclosures, we can imagine that it may lead to different ways of taxing trust distributions and data matching for related parties. Watch this space.

- Serena Irving

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

[i] "Tough New Disclosure Rules for Trusts" Bill Patterson ADLS 05 February 2021

Residential Property Investors, Bright-line test, Interest deductibility

Wed, 28 Apr 2021 23:00:00 GMT

Residential Property Investors: Bright-Line Test and Interest Deductibility

March 2021 brought big, sudden news for residential property investors. The Bright Line Property Test has been extended to 10 years for residential property from 27 March 2021. Interest expenses are non-deductible for residential rental property bought from 27 March 2021 and gradual elimination of interest deductibility for current residential rental property owners. Is this capital gains tax in disguise?

The Government's efforts to slow down the house price escalation has caught even our tax commentators on the hop, with the rapidity that the measures have been introduced. The Bill to make these changes has not been passed yet, so there may further clarification or changes when we get the final legislation before 1 October 2021.

Acquisition Date

Acquisition date is the date a binding sale and purchase agreement is entered into.

Bright-Line Test Extended to 10 Years

The bright-line test makes the sale of residential property taxable if it is sold within a set period of acquiring it. Properties bought on 27 March 2021 or later, will be subject to a 10-year bright-line test, instead of the previous 5-year bright-line test. Simply put, if you sell the property within ten years, you will pay tax on the gain in value from the sale.

Gain in Value from Sale

The gain in value from the sale = selling price – purchase price – cost of capital improvements – cost of buying and selling the property

The taxable income from the sale is included in the income tax return of the property owner(s) relating to the period the property was sold, and tax calculated at their applicable income tax rate. Companies 28%, trusts 33%, individuals 10.5% - 39%.

Exceptions

If you inherited the property or it was your main home for the entire period of ownership, then the property is exempt from the bright-line test. If the property qualifies as a "new build" then the 5-year bright-line test applies.

What is a "New Build"?

There is be further consultation on the definition of "new build" but it is intended to include properties that are acquired within a year of receiving their code compliance certificate under the Building Act 2004.

Short Stay Accommodation

Properties used solely for short-stay accommodation will not qualify for the business exemption and will be subject to the 10-year bright-line test.

Changes in Use During the 10-Year Period

If the period that the property is not your main home is 12 months or less, then this is NOT a change in use. For instance, if it takes you several months to move in or it takes several months to sell after moving out.

If the change in use is for greater than 12 months, then you multiply the profit on sale across
the percentage of time it was not a main home. E.g. If the gain in value was $50,000 and it was not a main home for two of the eight years you owned it, then $50,000 x 2/8 = $12,500 taxable income.

This differs from the previous all-or-nothing approach taken for the 5-year bright-line test.

If bright-line test doesn't apply it might still be taxable

If you are a builder, speculator, developer or dealer in land, then the old land sale rules still apply.
Similarly, if you purchase property with the intention of selling, you must pay tax on the gain anyway.

Interest Not Deductible for Residential Rental

Government proposes to take away the ability for residential rental property owners to claim interest on loans as an expense against rental income, from 1 October 2021. This sets them apart from other property-owning businesses, like builders, property developers and commercial property owners who can continue to claim interest expenses when calculating taxable income.

If you bought the property from 27 March 2021 onwards, you can claim interest until 30 September 2021, then no further interest claim from 1 October. You'll still be able to claim other rental costs for calculating taxable income, just not the interest.

Staged removal of deductibility for existing property

From 1 October, you can continue to claim interest if you acquired the property before 27 March 2021, but the percentage of the interest claimable reduces each year until 31 March 2025.

Figure 1 IRD table: Rental interest deductibility

Refinancing for rental property bought before 27 March 2021

Uncertainty for some sectors

We're still trying to get clarification on how the interest non-deductibility will apply in some cases. Changing lenders; operating a retirement village; borrowing for mixed commercial/residential properties; borrowing in a company (which currently has an automatic interest deduction. We encourage those of you who are affected to make a submission.

Effect on tenants and first home buyers

Initially, at least, landlords will be looking at increasing their rent incomes from tenants. But rents can only rise so far, before you run out of tenants who can afford rents.

The Government may be hoping that investors exiting the residential property market and an increase in infrastructure funding will help increase the housing stock for first home buyers. Perhaps it would have been better to have more housing available, before attacking property investors, because it is going to backfire on tenants.

The removal of interest deductibility is directly targeted at residential property investors over other forms of investment. While interest rates are low, it may still be an investment option for some, but it will be another story when interest rates increase.

We have a calculator to help you estimate the cashflow requirements for your rental property with the interest deductibility changes. If you would like a copy, please email the author .

For a Government vehemently opposed to capital gains tax, the extension of the bright-line test does look like a capital gains tax in disguise. The Government has its sights set on villainous landlords, but in the short term at least, it may be the tenants who have the most to lose.

- Serena Irving

Download a PDF copy here or contact the author

2021 Payroll Update

Fri, 26 Mar 2021 22:00:00 GMT

2021 Payroll Update

Are your employment agreements and payroll systems updated for recent employment and tax law changes? There has been a flurry of changes introduced in the past year, so now is a good time to ensure that you are up to date.

If you do need to update your employment agreements, remember that you will need to act in good faith, communicate the changes, i.e., what is changing and why it is necessary, and give your team time to consult with their advisors and provide feedback before they sign the updated agreement.

These are the key employment changes in the past year:

Minimum wage increasing 1 April 2021

Adult minimum wage rates increase from $18.90 to $20 an hour. Starting out and training minimum wage rates increase from $15.12 to $16 an hour. Consider how this will impact other employees in terms of internal wage relativity and external benchmarking in your industry. We expect that wage bands will compress as lower wage bands will be affected more that higher wage bands.

Remember to consider salaried employees and piece rates or commission employees to ensure they will also be earning minimum wage or higher.

Support for businesses due to Covid-19

The Covid-19 Resurgence Support Payment from IRD is for businesses affect by 30% loss of turnover due to the 28 February increase in Alert Levels is open for applications until 12 April 2021 . The RSP can be used to cover wages and fixed costs. You can apply for the RSP and the MSD payments below if eligible. You can read our explanation of the RSP here .

Employers cannot make employees take annual leave or sick leave if they can't go to work due to increases in Alert levels. Employers can ask employees to work from home or alternative location, or to carry out reasonable alternative duties.

Covid-19 Short Term Absence Payment can support businesses with a one-off $350 payment from MSD for each worker who can't work from home and need to stay home while waiting for a Covid-19 test result. Leave Support Scheme is a two-week lump sum of $585.80 per full time worker a week ($350 per part time worker) for each worker either sick with covid-19 or required to self-isolate as a close contact or high-risk or a parent/caregiver of the person required to self-isolate.

The Wage Subsidy March 2021 from MSD opened on 4 March and closed on 21 March, for businesses affected by 40% loss of turnover due to alert level changes on 28 February 2021. It paid businesses a two-week lump sum of $585.80 per full time worker a week ($350 per part time worker) for each worker. The scheme can be re-opened in future too if needed. You can only claim one of the Short Term Absence Payment, Leave Support or Wage Subsidy for the same employee at the same time. Employers are required to retain the employees named in the wage subsidy application for the period of the subsidy.

Increase in Top Marginal Tax Rate to 39%

here

Sick Leave Entitlement increasing to 10 days

A Bill was introduced in Parliament to expand sick leave entitlements from 5 days to 10 days. The maximum entitlement will stay at 20 days. The additional sick leave days will be added on a date relative to the person's start date. The Bill is expected to pass in mid-2021 with effect two months after Royal Assent. The Government argues that businesses benefit with fewer bugs spreading, leading to fewer absences and more productivity. Some employers I have spoken to are sceptical, as they know of workers who always take their maximum sick leave allowances.

Bereavement Leave to cover miscarriage and stillbirth

Passed unanimously into law on 24 March 2021, granting up to three days bereavement leave if they or their partner experience a miscarriage or stillbirth. Also available if a surrogacy or adoption plan ends by miscarriage or stillbirth. Miscarriages occur in 1 in 5 pregnancies and stillbirths occur in 1 in 200 pregnancies, and can be traumatic for those involved. No proof is required and leave does not have to be taken straight away or on consecutive days.

Employees become eligible for bereavement leave after six months of employment at present, but the Holidays Act Taskforce has recommended that bereavement leave and sick leave entitlements start from the first day of employment, so watch for this change in 2022.

Easier application for Paid Parental Leave

Applications for paid parental leave can be made online and IRD will be able to use its current tax records to determine eligibility in most cases. Paid parental leave payments from IRD were extended to 26 weeks from 1 July 2020.

Equal Pay and pay equity

The Equal Pay Amendment Act came into force on 6 November 2020. It allows workers to make a pay equity claim with employers, and provides a process for resolving issues. Pay equity is about women and men receiving the same pay for doing jobs that are different, but of equal value (that is, jobs that require similar degrees of skills, responsibility and effort).

Workplace change process, even in Covid times

This isn't a new law, but the Employment Relations Authority determination against Eastern Bays Hospice Trust reminds us that good faith and an employee's considered agreement is required, before changing the pay or conditions of employment. Even when Covid-19 forces a business to adopt new work patterns, they can't make unilateral changes without consultation.

Similarly, redundancies must follow the same pre-Covid standards of good faith and consultation.

Collective bargaining timeframes were extended during the first Lockdown.

Personal grievances extended to Third Parties

From 28 June 2020, an employee can apply to ERA to add a third party to the personal grievance claim if the third party has caused or contributed to the problem, in a triangular employment situation. Triangular employment involves three parties – the employer, the employee, and a third party. In these situations, the employee is employed by one employer (the agency), but works under another business or organisation that directs or controls the employee's day-to-day work (controlling third party) such as a temp or secondment role.

Matariki public holiday

Friday 24 June 2022 will be the first public holiday to celebrate Matariki, the Maori New Year. Future public holiday dates are yet to be announced, as the exact timing of Matariki changes each year.

Budgetting for Increased Employment Costs

Some of these employment and tax law changes, like the increase in minimum wage rates, are going to have a significant impact on your business budgets. Without adjusting for other factors, the cost of employment will increase between 3-5%. The cost of supplies will also increase. How will you mitigate this increase? Improve employee engagement to increase productivity, work harder yourself, restructure away from labour intensive activities, move offshore?

Please talk with JDW about your options. We can help you by creating multiple budget scenarios to assist your strategic decision making. We can also advise on appropriate payroll systems to adopt if you need to upgrade.

- Serena Irving

Download a PDF copy here or contact the author

Key 2021 Business Trends

Tue, 23 Feb 2021 22:00:00 GMT

Key 2021 Business Trends

What are the forces which will impact your business the most this year? We think that these four trends are the ones to watch:

Supply Chain Uncertainty

Covid-19 continues to circle the globe, and it will be several months before the vaccines have a positive impact on international logistics. In New Zealand, we have plenty of food and water for the population, but we will continue to have shortages for imported manufactured parts. The sharp drop of sea freight and air freight deliveries, recent delays unloading at Ports of Auckland, skyrocketing freight charges have made the supply of imported goods less reliable.

Does that mean holding more stock is the answer? Evaluate all your stock items and identify which ones are vital to your current business. What are the lead times? Do you have access to alternatives? Can you lock in a supply agreement on consignment? Make sure you check the supply agreements are water-tight, and you have good relationships with suppliers.

We spoke with Wayne from an Auckland engineering business. He said "Relationships with suppliers and customers are paramount to getting through this.

"We have raw material (sheet steel) sitting on our shelves as consignment, so we pay for it when we use it, but have some stock on hand. This has reduced the stock holding by our suppliers in their own warehouses and reduces freight costs from them to us. We forecast (as best we can in current times) to the suppliers and all parties communicate often on where we are. Currently their orders are being short shipped, so they don't know what they are going to get till it arrives. When this happens, those with great relationships go to the front of the line.

"That said, nothing's perfect, A supplier of ours was keeping stock of a particular material type and size for us, our customer had reduced orders on us which meant we weren't ordering from them. They had a request for the same material and size and sold it from under us without telling us. When we needed it, it was gone and we had to find new supplies from others at increased pricing and limited quantities. We had slipped up with our communication to them.

"Going forward we need to continue the focus on communication for all our suppliers and make sure its two-way, not one-way. It's about being first to know what's changing, so you can act, not react."

Working from Home

The genie is out of the bottle. Now that Covid-19 Alerts have given office workers and their teams a taste of workplace flexibility, they are demanding to be able to work from home at least some of the time. Some corporates continue to have fewer people in the office and more people working remotely. This means that many will be looking for smaller tenancies than before.

An urban pharmacist advised us that foot traffic dropped considerably in the CBD, from a combination of fewer office workers and interminably long roadworks. The current America's Cup will help hospitality, but each Level 3 Alert has a negative impact on all CBD retailers.

Lack of Qualified Staff

When NZ called its citizens home in 2020, we rubbed our hands at the thought of the Brain Gain. Sadly, the returning citizens do not fill all the gaps. Marisa Bidois of the Restaurant Association says 30% of hospitality workers are immigrants on temporary work visas and that its hard finding NZers willing and able to fill vacant roles.

Panel beaters and other trades have also struggled to hire highly skilled workers from within our borders, while immigrants with work visas are unable to enter NZ. They have to be innovative in their recruitment processes and upskill current staff.

Low Interest Rates

Mortgage brokers and lenders are incredibly busy with residential and commercial lending, and borrowers are experiencing long delays getting their paperwork. Commercial lending is applying more structure to the loan book, insisting on up-to-date financials, business plan and cashflow budgets as bare minimums. We are helping many clients prepare more regular reports for lenders.

Even though interest rates are expected to remain low for some time, the banks still want to see that the business can meet repayments.

Covid-19 pressures will be with us for some time. Focus on your supply chain, employing and retaining qualified staff, workplace flexibility and keeping lenders happy if you want to succeed in 2021.

Applying for Covid-19 Resurgence Support Payment RSP

Mon, 22 Feb 2021 22:00:00 GMT

Applying for the Covid-19 Resurgence Support Payment (RSP)

The NZ Government has made the Resurgence Support Payment (RSP) available to businesses and charities which have a 30% or more drop in revenue as a result of an increase in Covid-19 Alert Levels to Level 2 or higher. There are several differences from previous wage subsidies, especially regarding GST, commonly owned companies and pre-revenue businesses. Applications opened on 23 February 2021 for the 15 February level change, and are available throughout NZ, not just Auckland.

In the article below, we have used the term "business" but it applies equally to pre-revenue businesses, charities, incorporated societies, non-government organisation and some state organisations.

IRD Administers the RSP not MSD

The Resurgence Support Payment is administered by IRD, not MSD. Applications can be made via MyIR, so you will need to have MyIR access to your business IRD number. This should make it easier to apply as you won't need to rekey employee IRD numbers; you will only need to advise which employees are full time vs part time.

RSP Benefits Small and Medium Business

Lower FTE Payment

The RSP gives eligible businesses $1,500 per business plus $400 per FTE up to 50 full time equivalent (FTE) employees, up to a $21,500 maximum. The limit of 50 FTE makes clear that the RSP is aimed mainly at supporting small and medium businesses.

A full-time equivalent worker is an employee who regularly works for 20 or more hours a week. A part-time equivalent worker is an employee who regularly works for less than 20 hours, and is treated as 60% of a full-time equivalent worker for the calculation of FTE.

Sole traders with no employees can receive up to $1,900.

The payment is capped for low revenue businesses at 4x the revenue drop. So if the revenue drop was $500, the RSP payment would be limited to $2,000 even if they had 2 or more FTEs.

Use of Funds Received

The payment must be used to pay business expenses such as wages and fixed costs.

GST Applies

GST registered businesses must include the RSP as revenue in their GST return. This is consistent with other Government grants. A special legislative amendment was passed for the previous wage subsidies, but that hasn't happened in this case. One of the distinctions is that the RSP can also be used towards fixed costs.

If the RSP has been applied against fixed costs, then businesses can claim the GST input tax deduction on the expenses paid.

Income Tax exempt

The RSP is exempt income for income tax. On the flip side, the wages and fixed costs that are covered by the RSP are non-deductible for income tax. Net tax effect is neutral.

Eligibility for RSP

Time in Business Clarified

Businesses must have been in operation for 6 months before 15 February 2021. Applicants (including sole traders and trustees) must be 18 or over. Business must have been viable immediately prior to the start of the increase in Alert Levels.

Revenue Drop of 30% not 40%

The revenue drop of 30% will follow the taxpayers method of income recognition – cash sales for restaurants, activities which would lead to invoices for others. You cannot delay invoicing to make a business qualify for the RSP. Passive income such as rent, interest and dividends are excluded from the revenue calculation.

7-Day Period not 14-Day

Period is any continuous 7-day period within the increased Alert level period. The Government has the ability to open the RSP application process multiple times.

Comparison Periods

The comparison period is a continuous 7-day period in the past 6 weeks. If you operate a seasonal business, then you can use a similar week in the cycle in the past year. For instance, an events business recognises the income from stall holders and ticket sales when the event takes place. If the event is cancelled due to the increase in Alert Levels, the previous 6 weeks is not a good indicator of a revenue drop, so we have to use other comparisons.

Common Ownership

Companies with common ownership will only be able to apply as a group. Common ownership is not defined in the RSP legislation, but we believe it will be the same as for the Small Business Cashflow Loan. A commonly owned group for the Small Business Cashflow Loan is considered to be one where each business has the same combination owners, even of the proportion of ownership is different.

A commonly owned group may occur if there is a dominating shareholder or group of shareholders, and the businesses operate together as one. If there is a complex ownership structure where overall control is centralised and the businesses are one enterprise in substance. An example may be a retail business which has separate company for online, brick-and-mortar store, wholesale, but all the management and logistics is in one place.

Capital Raising Entities can apply

Pre-revenue businesses can apply too, if capital raising ability has been affected by a more than 30% reduction. A pre-revenue business or organisation is one that has taken active steps towards being market-ready but has not yet begun trading. They will need to keep records of how their ability to raise capital or begin trading was affected by the raised alert level.

What should I do now?

Make sure that you have a MyIR login which allows you to access your business. Advise IRD of the business bank account for the RSP.

Keep a copy of all calculations, including records of sales data showing dates and dollar amounts, employee records showing average hours worked.

Contact us if you think you are eligible for the RSP. We are happy to assist with calculations and applications on your behalf. We have access to MyIR for all of our tax clients, so this can simplify matters for you if you don't have MyIR access yet.

Introducing the 39% Tax Rate

Mon, 15 Feb 2021 22:00:00 GMT

Introducing the 39% Tax Rate

From 1 April 2021, the top personal tax rate is increasing to 39%. This has repercussions for taxpayers, even those who aren't earning over $180,000.

Below are some suggestions for tax planning, but we suggest that you call us to discuss any changes you wish to make. We will need to consider anti-avoidance provisions in tax law as well as a desire to save taxes.

Sole traders employing family members

If you want to employ a spouse to reduce your income from self-employment, you will need to seek IRD permission. You will need to describe the hours and duties of the spouse. If you employ your child, you don't need to seek permission from IRD, but be careful to be reasonable in what you pay. You will usually have to register as an employer and deduct PAYE on the family member's behalf, unless they are a contractor.

Shareholder salaries from companies

If you have discretion over salaries to shareholders, it's time to review them. Make sure that your salary decisions have a basis in market salary trends for the industry, hours and conditions of work, not just the profit of the company. If you are dropping shareholder salaries, are there valid commercial reasons for the reduction? Make sure you document your reasons at the time of review.

Service company

You can set up a company to provide services, but you can't deliberately structure your transactions with a more than incidental tax advantage. If the profit of the company is derived mainly from personal effort, rather than use of assets or effort of other employees, then you would normally expect more than 80% of the profit to be paid out as shareholder salary.

Income attribution rules apply when the working person performs services through an associated entity which invoices 80% or more of its income to one customer, and taxable profit is over $70,000. In these cases, IRD will treat the net income from personal services as taxable to the working person, regardless of salary agreements, usual partnership rules or Look Through Company allocation rules.

Fringe Benefit Tax alternate rates

Using the alternate rate calculation for FBT will be vital, as the majority of employees will be earning under $180,000. This means keeping better records, matching taxable benefits to the employees who benefitted from vehicles, low interest loans, insurance policies and discounted goods and services.

PIE Investments

Investments in portfolio investment entities have a maximum tax rate at 28%. You will still need to weigh up the risks, liquidity and expected returns of your intended investments, so talk with your financial adviser first.

Trust ownership of shares

As long as the working person is drawing a reasonable salary then the remaining profit can be retained by the company with tax paid at 28%. If the shares are owned by a trust, dividends are taxed at 33% so DWT is payable at 5% by the company.

Before you make any changes to shareholding, you should talk with us about whether to declare a dividend first, to utilise existing imputation credits. We would also need to consider the new trust disclosure rules.

Dividends before 31 March 2021

Even if you are not changing shareholding you should consider whether the company can declare a dividend to shareholders before 31 March 2021. From 1 April 2021, if the shareholder pays tax at 39% and dividend tax credits (imputation credits and DWT) are only at 33%, the increase in tax liability may push the taxpayer into provisional tax territory for the following year.

If the company needs working capital to maintain solvency in a time of uncertainty, then paying out a dividend may not be possible. You will need to consider what is best for the company.

Seek Advice

The increase in the top personal tax rate to 39% will widen the tax gap between individual, companies and trusts. The opportunities for making tax savings are easier for people in business than for salary and wage earners. Tax structures need to be workable and have a sound basis in commercial common sense. Consult with your chartered accountant before the tax changes on 1 April 2021.

- Serena Irving

Download a PDF copy here or contact the author

Grab a Lifeline

Tue, 18 Aug 2020 23:00:00 GMT

Grab a Lifeline!

"Resurgence": an increase or revival after a period of little activity, popularity, or occurrence. It could be used to describe the return of community transmission of the deadly virus. Or it could describe the hoped-for bounce back when the virus recedes, with the help of this lifeline.

When Auckland returned to COVID Alert Level 3 in August, the Government quickly moved to offer a further wages subsidy extension nationally. The 2-week COVID-19 Resurgence Wage Subsidy payment is for NZ employers and self-employed who have had a revenue drop of at least 40% because of COVID-19 for a 14-day period between 12 August and 10 September, compared to a similar period last year. New businesses or high-growth businesses must compare against a 14-day period that best estimates the revenue decline.

The subsidy is $585.80 per week per full-time employee (20 hours or more per week) and $350 per week per part-time employee. You can apply between 21 August and 3 September 2020. If you are already getting other COVID-19 payments for that employee, you must wait until those pay periods have run out. You must retain the employees for the period of the subsidy and try your hardest to pay at least 80% of their usual wages. If that isn't possible then pay at least the wages subsidy amount.

If you claim the subsidy you must mitigate the financial impact as appropriate, such as using cash reserves, activating your business continuity plan, claiming insurance, engaging with your bank, seeking advice or support from advisers. The Regional Business Partner programme has received a financial boost so more businesses can apply for COVID-19 support.

If you haven't claimed the 8-week Wage Subsidy Extension already, it's worth working out if you're now eligible for that subsidy rather than the Resurgence Wage Subsidy (see table).

Comparison between Subsidies

Calculating the Decline in Revenue

Revenue is your gross sales before deducting expenses. For many businesses you can look at your bank data or invoice history to work this out. For example, if you invoiced $15,200 between 12 August and 25 August 2020 inclusive and you invoiced $24,800 between 12 August and 25 August 2019.

Decline in sales = $24,800 - $14,200 = $10,600.

Percentage decline = $10,600/24,800 *100 = 42.7%. The decline is greater than 40%, so you are eligible if you meet the rest of the criteria.

If you collect deposits for work to be carried out later, or if your comparison period is not indicative of lost earnings, discuss it with us. We can help you with the calculations.

Find out more about the Resurgence Wage Subsidy, and make your application here:

https://workandincome.govt.nz/covid-19/resurgence-wage-subsidy/index.html#null

Other Help for Businesses

Talk to us about whether these other lifelines can help you:

· The Small Business Cashflow loan scheme has been extended until 31 December 2020.

· Tax loss carry-back, tax instalment arrangements, penalty and interest waiver.

· Tax deductions for low-value assets, depreciation on commercial and industrial buildings.

· Regional Business Partner network for HR, health and wellbeing, business continuity, cashflow and finance management, strategy and digital capability.

· Business debt hibernation.

· Business finance guarantee scheme.

· Business Mentors NZ.

We are here to help, so please reach out to us at JDW.

- Serena Irving

Download a PDF copy here or contact the author

How Can Low Value Assets Threshold Save You Tax

Mon, 17 Aug 2020 23:00:00 GMT

How Can Low Value Assets Threshold Save You Tax?

For instance, if you bought a computer and desk for less than $5,000 you could claim the cost as an expense straight away instead of gradually depreciating for 3-5 years.

This first example may not seem like a lot of savings, but consider the second example. If you owned a residential rental property, and you installed a heat pump, insulated the floors and installed a skylight on three separate occasions, each costing under $5,000. Before 17 March 2020. the heat pump would be depreciable but not the insulation nor the skylight as they were considered part of the building proper. Between 17 March 2020 and 16 March 2021, you could claim a tax deduction for all three.

Be mindful of these limitations. If you are buying multiple assets at once, keep the whole order under $5,000. If you buy 20 chairs costing $251, the total cost is $5,020 and you have to depreciate the chairs. If multiple invoices contribute to the one asset, then you may not get the deduction. For instance, you add on an extension and pay 3 different tradies $4,900, the cost of the extension is $14,700. Also be aware of residential rental loss ring-fencing.

If you're unsure if you can claim the low value asset deduction, give us a call at JDW to discuss before you undertake the spending.

- Serena Irving

Download a PDF copy here , or contact the author by email .

What would you do with $10,000

Tue, 26 May 2020 23:00:00 GMT

What would you do with $10,000?

Congratulations! You have won $10,000! What would you spend it on? A holiday with the family? A new wardrobe of clothes and shoes? Something nice for the kids, small or big? Tonight, I am going to tell you the story of Little Ted and what he decided to do when he won $10,000 and more.

Here is Little Ted, owner of a toy store. He has been in business for 5 years and making a modest return. Prior to the lockdown he was working most days himself as his 5 part time staff were mostly retirees and students. He spent most of the lockdown sitting in his window, watching the children walk past the store waving at the toys on display. The solitude was almost unbearable. He didn't have a relaxing 7 weeks break like some of his friends, because he was worrying about how he was going to pay his loyal staff, his landlord and his suppliers. He applied for the wage subsidy to help with the payroll, but even though his shop door is now open under Level 2, he has few customers walking in to browse. Parents don't allow their children to handle the toys as it is too risky, so the cheerful giggles are missing, and the mood is more sombre. He decides to apply for the Small Business Cashflow Loan for his business and four full-time equivalent employees including himself. That day he receives $17,200 which is just a little under the average loan size under the scheme.

Firstly, this $10,000 is not a prize, but a loan for businesses. A one-off Small Business Cashflow loan for $10,000 plus $1,800 for every full-time equivalent employee. An interest-free loan if you pay it back within 12 months. If you keep the funds for longer, you will pay just 3% interest per annum and repay the principal within 5 years. If you miss an instalment the penalty interest is 3% plus the use of money interest rate. You only have until 12 June 2020 to claim this loan if eligible.

The IRD has already lent more than $824m to more than 47,000 businesses as at last Friday according to an article on interest.co.nz . Some critics of the article say it is too little to support a business that has employees and bills, but no income. Other critics says that it is corporate welfare in disguise, as the IRD does not ask for any security, guarantees or cashflow reports before releasing the funds. For small or medium business owner, Little Ted, this is a welcome cash injection, on top of the wage subsidies. Little Ted knows the business must be viable and have a plan for it to be viable over the next 18 months. That's a tough ask, when the business has only just re-opened. Little Ted asked his chartered accountant to help him prepare his financial statements for last year and a cashflow forecast for the next 18 months. His chartered accountant questioned him on where his customers were going to come from, and what seasonal patterns he needed to consider for his buying and selling.

Together they formulate a plan for spending the loan. Some of the loan money is going to be spent on a website developer. To turn the static website into a true online store, with videos, e-commerce capability. Some of the money is going to pay the most urgent bills and the rest is going into a "rainy day" fund.

While preparing the cashflow forecast, they identify several cost savings and other revenue sources. The annual toy buyers' expo is cancelled, so there are no travel costs. The landlord agrees to a discount for the period the shop was closed. Their website blogs and videos earn affiliate advertising revenue.

Each month has a sales target, a cost budget, a loan contribution target. And a bit left over to put into the rainy day fund. By the time the first 12 months are up, Little Ted knows he will have enough to repay most of his loan and be in a stronger position to face any other misfortunes which crop up.

If you are a business owner, with the Small Business Cashflow Loan, how will you spend it? The loan has favourable conditions but it is still a loan. Invest it wisely and thoughtfully in your business, so that you can maximise the return on the funds you borrowed. Chat with your chartered accountant. Be like Little Ted and have a plan to strengthen and grow your business.

- Serena Irving

Download a PDF copy here , or contact the author by email .

Update for Coronavirus Affected Business

Mon, 23 Mar 2020 22:00:00 GMT

Update for Coronavirus Affected Business

As at 25 March 2020

Every business in New Zealand has been affected by the move to Level 3 or Level 4. This information is correct at the time of writing, but as we are all coming to realise, things in New Zealand are changing rapidly. Please refer to the links at the end of this Update and news media for regular updates.

Level 4 Lockdown is coming

From 11:59pm tonight (Wednesday) New Zealand will be locked down. Everyone will have to stay except to exercise and visit essential services. Only essential businesses will be allowed to open, for instance: supermarkets; pharmacies; health services; primary industry; and essential fast, moving consumer goods supply and distribution. Please check this weblink if unsure: https://covid19.govt.nz/government-actions/covid-19-alert-level/essential-businesses

If you have an online store, it may be possible for you to work from home depending on the products you sell, as courier services are still operating. If you are a service business it may be possible for you to work from home using phone, internet and video. Think creatively to see what you can do to help your customers.

Wage Subsidy and Leave Subsidy

The $150,000 cap on wage subsidies has been lifted and it is also available for high growth businesses. If you're an employer, contractor, sole trader or self-employed, you may qualify to get the COVID-19 wage subsidy. You must have experienced a minimum 30% decline in actual or predicted revenue over the month compared to the same month last year and taken active steps to mitigate the effects.

If you have been operating less than a year, then you can use a recent month for a comparison. Similarly, if you have had high growth in the past year, you can compare against a more recent month of trading which is reflective of the expected pre-coronavirus trading results. Keep your workings for claiming the subsidies.

If you cannot show a 30% decline and you have employees (or yourselves as self-employed / contractors) who cannot work from home, it is our opinion that you can claim the self-isolation leave subsidy for those affected.

Work and Income is prioritising the making of payments right now, and we expect that checks on employers records will follow later.

Some applicants are experiencing delays in lodging the applications, so you may prefer to do this out of normal business hours. Have your employee data saved in a Word or Excel file first, so you can copy and paste into the online form quicker.

Don't apply for the contractors in your labour force, as they are self-employed. Instead, encourage them to apply for themselves.

Both subsidies pay $585.80/week for employees working 20 hours or more a week or $350/week for people working less than 20 hours per week.

For the wage subsidy, you must make best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period. If you cannot give them their usual hours of paid work, you will need to come to an agreement with your employees whether to use leave or pay them an allowance. You cannot force your employees to take annual leave, so you may need to top-up the subsidy as an allowance to push the dollar amount up to the 80%. Payroll software providers will have information on how to do this.

For the isolation leave subsidy, the whole amount of the subsidy must be passed onto the employee minus the usual taxes. Again, you will need to come to an agreement about whether leave is used.

See below for tax treatment of subsidies.

If you have employees, or more than one shareholder salary earner:

https://services.workandincome.govt.nz/ess/employer_applications/new

If you have no employees:

https://services.workandincome.govt.nz/ess/trader_applications/new

If you have more than 100 employees:

https://workandincome.govt.nz/products/a-z-benefits/covid-19-large-employers.html

Tax Treatment of Subsidies and Payments to Employees

We have copied below a Q&A that IR has released so far.

Q Is the wage subsidy payment subject to GST?

A No – An Order in Council is being drafted to treat it as exempt (Section 5(6E)(B)(iii GST Act)

Q Is the wage subsidy paid to the employer taxable?

A No- It is excluded income (Section CX 47 ITA).

Q Is the wage subsidy deductible when paid by employer as part of wages to employee?

A No – it is not deductible

Q Is the wage subsidy taxable to employee?

A Yes – As it is included as part of their normal wages it is subject to the usual PAYE, Student Loan, Kiwisaver deductions, etc.

Q Is the leave payment for self-isolation subject to GST?

A No – An Order in Council is being drafted to treat it as exempt (Section 5(6E)(B)(iii GST Act)

Q Is the leave payment for self-isolation paid to employees or self-employed persons subject to tax?

A Yes – It is paid to replace taxable income so is subject to tax.

Q1 - is the payment taxable? The helpline said yes, but the facts/info online don't say anything in terms of tax/PAYE etc. It just says that the $585.80 'must be passed onto employees in full'. Do I process it through the payroll?

As the wage subsidy is a subsidy to the employer to help them fund an employee's wages it is included as part of the employees normal wages and all deductions of PAYE, Kiwisaver, Student Loans, etc are made as normal. If the employees are paid the same wages as previously their pay and deductions on their payslip should be the same.

Q2 - is there a limit to top up the payment? The helpline had no idea, and I can't find anything about it in the facts/info online either. Eg an employee may normally get $1000 gross each week...so are they able to use annual leave to top up the $585.80 so they're receiving close to their normal weekly wage?

As MSD are making the payment this enquiry should be made to them, however whether you top it up with cash payments or annual leave is probably between you and your employee. Although to qualify for the subsidy the MSD information states the employer must make the best efforts to pay an employee a minimum of 80% of their normal income for the subsidised period.

Q3 - if they are an NZ based employee but overseas and are having to self-isolate and cannot work, can the employer access the support for this type of employee?

This is also an enquiry for MSD. Note however that the information on their website states that to be eligible, the employee was legally working for their employer at the time they decide to self-isolate, and they were expected to work for the period of self-isolation.

Banks weighing in to support businesses

Grant Robertson's announcement yesterday should allow banks to be more flexible with lending. The package will include a six month principal and interest payment holiday for mortgage holders and SME customers whose incomes have been affected by the economic disruption from COVID-19. More details will be announced by the banks in the next few days.

Core funding ratios for banks have been reduced and the Government will cover 80% of the credit risk. The scheme will include a limit of $500,000 per loan and will apply to firms with a turnover of between $250,000 and $80 million per annum. The loans will be for a maximum of three years and expected to be provided by the banks at competitive, transparent rates.

If you haven't spoken with the bank this week, we suggest that you contact them again if you need business loans. We have heard from a mortgage broker that bank phone lines are overloaded at times, so the easiest way to contact them is via email or through your broker.

Remember that a six-month mortgage holiday just gets added onto the principal, so if you can keep up with interest payments once the business is operational again, you should.

We're still open, remotely

Please contact us by email or phone as usual. Our direct dial numbers are diverted to our cellphones, so that is the quickest way to call us. We are working hard to support you and your businesses. So please let us know if you need help to set up instalment arrangements, pay staff, prepare cashflow budgets or any other business matters.

- Serena Irving, JDW Chartered Accountants

Download a PDF copy here , or contact the author by email .

Useful links:

Message from Spice HR

https://workandincome.govt.nz/documents/eligibility/emergencies/covid-19/wage-subsidy-and-leave-payment-employer-support-factsheet.pdf

https://covid19.govt.nz/government-actions/covid-19-alert-level/essential-businesses/

https://www.health.govt.nz/our-work/diseases-and-conditions/covid-19-novel-coronavirus

Cash Injection to Combat Coronavirus

Mon, 16 Mar 2020 22:00:00 GMT

Cash Injection to Combat Coronavirus

On 17 March 2020, the New Zealand Government announced a $12.1 billion support package for New Zealanders to combat the effects of the coronavirus (COVID-19). In addition to additional health services funding, the Government announced financial assistance in the form of wages subsidies, leave subsidies, tax changes and welfare benefits.

Photo by Micheile Henderson on Unsplash

Wages subsidies

The wage subsidies will be available to sole traders, self-employed and employing companies that have suffered at least a 30% decline in revenue compared to last year for any month between January 2020 and June 2020. Employers must declare that they will continue to employ affected employees at a minimum of 80% of their income during the subsidy period (e.g. 4 out of 5 days of the week). Employers must also have taken steps to mitigate the financial impact of the coronavirus by engaging with their bank or financial advisor.

Applications can be made through the Work and Income portal below, for $585.80 per week for a full-time employee (20 hours or more) or $350 per week for a part-time employee. The payment will be made as a lump sum for a 12-week period, with a maximum amount of $150,000 per employer.

Work and Income MSD portal for employers - https://services.workandincome.govt.nz/ess/employer_applications/new

Work and Income MSD portal for self employed and contractors -

https://services.workandincome.govt.nz/ess/trader_applications/new

Leave & self-isolation support

The leave payment scheme will provide support for employees, sole traders and self-employed who are unable to work because they are in self-isolation, are sick with coronavirus or caring for dependents with coronavirus. It is not available to those who can work from home when self-isolating and can be paid normally by their employer.

The payment will be $585.80 per week for a full-time employee (20 hours or more) or $350 per week for a part-time employee. The payment doesn't affect paid leave entitlements and is available even if an employee is on paid leave for part of the period. Applications are made through the Work and Income portal above.

Tax relief measures

Building depreciation

Depreciation deductions of 2% diminishing value will be re-introduced permanently for commercial and industrial buildings from the 2020-21 income year. This will encourage investment and allow owners to reduce their provisional tax payments.

Low value assets

Taxpayers will be able to claim an immediate deduction for assets coding up to $5,000 in the 2020-2021 income year, by expensing the cost rather than spreading it over the useful life of the asset. From 2021-2022 income year onwards, the threshold will be $1,000 (currently $500). This will reduce compliance costs and encourage investment.

Raising the provisional tax threshold

The provisional tax threshold increases for the 2020-2021 income year from $2,500 to $5,000. This means that many smaller taxpayers will have until 7 February or 7 April 2022 to make their 2020-2021 income tax payments, instead of paying in instalments. This measure reduces compliance costs and allows taxpayers to hold their cash longer. (Note: this doesn't affect the provisional tax payment due 7 May 2020. If you're having difficulty making the 7 May payment, you may still need to consider estimating tax down or applying for an instalment arrangement.)

Writing off interest

Inland Revenue is being given the ability to write off use of money interest (UOMI) for late payments for amounts due on or after 14 February 2020. This includes interest normally charged for income tax, PAYE and GST. The taxpayers would need to let IRD know that they are significantly affected by the coronavirus outbreak and unable to make payments by the due date. The interest write-off will be available for two years. This will assist businesses with cashflow.

Welfare benefits increasing

The main benefits are rising by $25 from 1 April 2020. The Winter Energy Payment for 2020 will be doubled. The hours test for the In-Work Tax Credit is being removed from 1 July 2020, making more working families eligible for family assistance even if their hours are reduced by their employer.

All of these measures have been designed to keep businesses operating and keep people employed. Reach out for help from your advisors and support networks, and keep your doors open.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

- Serena Irving

An Inconvenient Trust

Sun, 15 Mar 2020 22:00:00 GMT

An Inconvenient Trust

Nearly every family seems to have a trust. But do you even remember why you have a trust? Now that the New Zealand Trusts Act 2019 is requiring trustees to give beneficiaries more information, we believe many settlors and trustees will be winding up or resettling their inconvenient trusts.

Trusts not fulfilling their purpose

Trusts became fashionable decades ago to get around asset testing for rest home subsidies, but laws have changed to penalise people who make large gifts to trusts. Trusts for creditor protection may have been useful when a settlor was operating a business, but if the settlor has sold his or her business, then the creditor risk is no longer there to the same degree. There may still be a reason to protect assets held before entering into marriage, civil union or de-facto relationships but other steps are required (contracting out agreement or pre-nuptial agreements) for the trust to be effective.

More information for beneficiaries

From 30 January 2021, trustees will be required to inform all adult beneficiaries (18 years and over) that they are beneficiaries of a trust, how they can contact the trustees and what information they can request about the trust. Some trusts have children, grandchildren, friends of the original settlors, charities as discretionary beneficiaries. If these discretionary beneficiaries are unlikely to receive distributions while the original settlors and their children are alive, should they be beneficiaries at all?

Imagine a situation where trustees had credited income to a child beneficiary to be paid out at a future date. When the children became adults, they would see the financial statements and ask where their money is. Would they understand that the money is tied up in stocks or property? Or would they demand to be paid out immediately?

Trustee duties

The trustee duties in the Act have already been established in case law and shouldn't be considered onerous, yet some trustees are surprised by what is expected of them. Trustees should be aware of the terms of the trust, act honestly and in good faith in accordance with those terms, to the benefit the beneficiaries or to further the purpose of the trust. Trustees must exercise their power for a proper purpose.

The maximum duration of a trust (the perpetuity period) has been extended from 80 years to 125 years. At least one trustee needs to hold all the core trust documents and keep them updated.

There are also default duties which can be modified when the trust is established: duty of care, investing prudently, not to exercise power for own benefit, avoiding conflict of interest, acting unanimously. This allows the settlors more say in how the trust operates when it is turned over to the trustees.

Tax consequences for unwinding the Trust

If you decide to unwind your trust, there may be tax consequences. For disposing of property, plant & equipment, there may be depreciation recovery which is taxable income. Resettling property into new ownership will restart the clock for the five-year bright-line test. If the trust is a shareholder in a Look Through Company or partner in a partnership, there is a deemed disposal which may have tax consequences. In addition to the tax cost, there is also the legal cost of transferring property.

What steps to take

We suggest that it's important to have money conversations with your children as early as they are old enough to understand. Help them to understand budgeting and stewardship. Saving for a rainy day. Investing for growth. Then when they find out they are beneficiaries of a trust they can understand that it doesn't mean they can have the money to spend.

Review your trusts with your accountant and lawyer. Why do you have them – for asset protection from creditors, from relationship partners? Do they still achieve their purpose? Do you need to make your beneficiary criteria narrower? If you are a trustee, are you aware of your duties? Are the trustee duties and terms of the deed in line with the new Trusts Act? Consider the tax consequences for unwinding the trust. Don't wait until 30 January 2021 to do something about your inconvenient trust.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

- Serena Irving

Coronavirus Preparedness for Business

Thu, 12 Mar 2020 22:00:00 GMT

Coronavirus Preparedness for Business

Like many other businesses, we have been watching warily as the news of the coronavirus (COVID-19 virus) spreads closer to home.

If employees have been travelling overseas or are planning to travel, what are our responsibilities to all employees? How do we manage health & safety risks? What if our supplies are disrupted or people are quarantined? Is there financial relief for businesses affected by the coronavirus?

We've dusted off our crisis management plan, and asked our employment and financial advisors for their take on how businesses can cope with the pandemic. Here are our tips to help your business get through.

Keeping Employees Safe

The Ministry of Health recommends basic hygiene measures to stop the spread of infections: regular hand washing, staying at home if sick, covering coughs and sneezes and cleaning surfaces regularly. Have plenty of soap, cleaning products, paper towels available and encourage their correct use.

Each business has its own risk factors, which you will need to assess as an owner/manager. If you have a retail outlet, then a bottle of hand sanitiser by the EFTPOS keypad would be a reasonable precaution. Avoid face to face meetings with people who have recently travelled. Maintain a social distance (1metre / 3feet) when meeting others. Encourage employees to stay home when sick. If social distancing is not practical, have disposal gloves and face masks available and train employees to use them correctly.

Our favourite alternatives to handshakes are: the Thai greeting "Sawadee" with palms together, steepled fingers and a warm smile; or the playful elbow bump suggested by our client John. Not finger guns though!

Provide employees with seasonal flu vaccination, if they want it. Contact your local GP or pharmacist for more information. Make use of mental health services if employees are anxious or stressed.

Leave Obligations for Employers

Employers and employees are obliged to act reasonably and in good faith, in accordance with the employment agreement, Health and Safety at Work Act 2015 and the Holidays Act 2003.

At the time of writing, people returning from China, Italy, South Korea and Iran have been recommended to self-isolate for 14 days.

While self-isolation is not mandatory, it is important for the health & safety of your other employees. You could require a medical clearance before allowing that person to return to work. Could that person work from home for that period?

Who pays for the self-isolation when the person is not sick? Employment New Zealand suggests that if that person is not working from home, then you first treat the self-isolation period as sick leave. If there is not enough sick leave, then by agreement you could pay from annual leave or grant them leave in advance. EMA says if a person is fit to work and the employer refuses to allow them to work, the employer must pay that person for that period (such as suspension).

Getting financial relief

Coronavirus has impacted tourism and education industries, due to a sharp decline in demand. It is likely to impact hospitality and events industries if people become anxious about going out. Other businesses have been impacted due to: supply shortages from import delays; tightening demand, both here and overseas; or customers paying slower than normal. Nick Tuffley, ASB Bank's chief economist recommends making sure you are in regular contact with your key suppliers to understand their supply chains and obvious weak points. ( ASB Economic Note "Thinking about coronavirus impacts on business" 5 March 2020)

If your business has been impacted financially by the coronavirus, contact your insurance advisor to see if your situation is covered for business interruption insurance. Contact your bank to move to interest-only repayments to reduce the cashflow burden. If you need help preparing cashflow projections, we can assist you. Talk to us about a fee instalment plan.

There are a number of ways that you can get tax relief. For income tax, you can estimate your provisional tax down before the third provisional tax due date (7 May for most taxpayers). If you've overpaid provisional tax you can ask for a refund.

If you need more time to pay any of your tax obligations, you can apply for an instalment arrangement. Under certain circumstances you can ask for remission of late filing and late payment penalties. IRD will also consider a write off for serious hardship.

The Government has released its Business Continuity Package ( https://www.beehive.govt.nz/release/cabinet-approves-business-continuity-package-response-covid-19) which includes a targeted wage subsidy scheme, training and re-deployment options for affected employees and working with banks for working capital support for businesses. They have opted not to stop the increase in minimum wage from $17.70 to $18.90 on 1 April 2020, and we think they missed a chance to help all NZ businesses and employment rates.

Planning for the Worst, Hoping for the Best

How will widespread illness, school closures, loss of key customers affect your business?

If you're worried about the future, then your employees probably are too. Showing leadership, being proactive and communicative at this time, will do a lot to reassure your team. Ask them for input into identifying the risks and your emergency planning. We can also help you with contingency planning.

Have a communication plan. Do you know how to reach your employees, suppliers, and key customers if your IT goes down? If you can't be reached, can someone else access this information? How do you reach families of staff?

Back up your data, offsite or in the cloud. Not just your accounts, but any vital information that you need to run your business. Assess if remote working is possible and test your systems. How quickly could you be operational if you couldn't access your workplace? Practice retrieving your data, so it becomes a familiar process.

Examine your processes and decision-making methods. Could the business continue without you or your key people? Have multiple ways of accessing key information so that business can continue, despite disruption or staff absences.

Take care of your own health and your employees. Make your business more resilience by reviewing systems and mitigating risks. Seek financial help if cashflow is tight. Plan ahead to ensure that your business survives the coronavirus.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

- By Serena Irving, JDW Chartered Accountants

Useful Links:

Ministry of Health

Employers and Manufacturers Assn

Employment New Zealand

National Emergency Management Agency

Inland Revenue

Death Knell for Cheques

Tue, 04 Feb 2020 22:00:00 GMT

Death Knell for Cheques

When was the last time you wrote a cheque? With EFTPOS, electronic banking and direct debits, I haven't written a personal cheque in over a decade. But that's not true for everyone. For some, it's going to be a challenging time when cheques are no longer accepted. Especially if they don't currently have a computer or smart phone. The death knell is ringing for the cheque, and JDW has tips to help you adapt.

ACC and IRD will stop processing cheques for payments from 1 March 2020. IRD Commissioner Sharon Thompson's media release says: "Cheques are part of a paper-based world and don't mesh with the increasingly digital world we now operate in. The number of cheques being used is spiralling down and will continue to trend that way. Electronic payments are simpler, easier and safer."

IRD recommends that tax payments be made electronically via internet banking (using your bank's website or app) or direct debit in MyIR (IRD's website). In MyIR, you can also schedule regular direct debits. IRD's website also accepts payment by credit card or debit card, but a transaction fee is charged when you use this service. You can also pay your tax payments by cash or EFTPOS at your local Westpac branch. Some chartered accountants, like JDW, also have trust account services to help clients manage tax payments.

Kiwibank will stop issuing bank cheques from 28 February 2020 and will stop accepting cheque deposits on that date. Kiwibank customers have been asked to stop writing cheques on that date, as they may not be honoured. The Kiwibank website says, "There are a number of ways we can help you get prepared for this change including Stepping UP digital banking workshops, Kiwibank Tech Teas or our digital support hub."

"The cheque is in the mail" used to be a convenient excuse when suppliers called to find out why customers' payments were delayed. With electronic payments, this is a phrase that has been consigned to history, as are paper invoices (see E-invoicing sidebar). Electronic payments are less susceptible to theft or tampering, and the funds are available instantaneously or overnight, depending on the bank. They aren't fool proof though, so take extra care if you are relying on someone else to set up payments for you. Do you have appropriate invoice approval measures, security measures such as two-factor authorisation and bank account checks for your business, to protect against theft or fraud?

E-invoicing

Direct electronic invoicing between suppliers and business customers, using the PEPPOL standard invoicing framework, is on the way. This is going to be a huge time-saver and cost-saver for businesses: no printing and mailing paper invoices on the supplier side, no re-keying or scanning invoice data on the customer side. Higher accuracy, better security, fewer opportunities for fraud and fewer delays. When e-invoicing is teamed with electronic payment services, suppliers will be paid faster.

To make sure that you get the most out of e-invoicing, make sure that you have a New Zealand Business Number (NZBN) and your accounting system is PEPPOL-compliant. New Zealand companies are issued a NZBN when they are registered. The major accounting system providers, Xero, MYOB and Reckon, are due to make announcements about e-invoicing in early 2020.

Cheques are being phased out and this is welcome news for anyone who has had to balance a cheque book. But for some payers, alternative methods of payment are beyond their current abilities or resources. If you find the removal of cheques a challenge, contact your banker or chartered accountant to discuss how you can make payments easier.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

- By Serena Irving, JDW Chartered Accountants

Setting up as a Freelancer

Sat, 23 Nov 2019 22:00:00 GMT

Setting Up as a Freelancer

Here are my brief answers to the most common business questions I have been asked by new freelancers. Each paragraph is a topic in its own right, so do ask us for more information. If you want more confidence on your business journey, start here.

Should I Form a Company?

When deciding whether you should operate as a company, partnership or sole trader, consider these factors: ownership, commercial risk, credibility, administration, income allocation. A Look Through Company is a hybrid company-partnership structure, with the legal status of a company, but treated as a partnership by Inland Revenue for income allocation and tax.

Ownership

How many working owners? Will there be non-working investors? If it's just you, then sole-trader would be simpler. If there's outside investment or unequal personal effort between owners, then a company would be advisable. Partnerships are simpler structures than companies, but if a partner leaves or joins, you have to register a new partnership.

Commercial Risk

Sole traders and partners in a partnership take on the risk for business losses. Companies are separate legal entities, so shareholders are not personally responsible for company debts unless they have provided personal guarantees. Directors may still be liable if they have been careless, negligent or trading recklessly.

Credibility

Some suppliers and customers prefer to deal with a company.

Administration

Companies must be registered at the Companies Office, and file an annual return confirming addresses and other company information in the same month each year. Registered companies are issued a company number and New Zealand Business Number. Companies also have stricter reporting requirements, so company accounting fees are generally higher. Companies need an IRD number, which is different from the IRD number of the shareholders.

Partnerships and sole traders need just an IRD number, but it's a good idea to get a New Zealand Business Number (NZBN) to store your contact details. Sole traders use the same IRD number for all their personal income. Partnerships can have their own IRD number. The Government is working towards using the NZBN for e-invoicing, which will make it easier for businesses to send out invoices and get paid.

Income Allocation

For a sole trader, the business profits (losses) belong to the individual. For a partnership, business profits (losses) are allocated evenly between partners, unless you have a partnership agreement which specifies a different allocation. For a company, the business profits (losses) after deducting shareholder salaries remain in the company unless it is a Look Through Company (LTC) or personal services attribution applies.
For a sole trader, the business profits (losses) belong to the individual. For a partnership, business profits (losses) are allocated evenly between partners, unless you have a partnership agreement which specifies a different allocation. For a company, the business profits (losses) after deducting shareholder salaries remain in the company unless it is a Look Through Company (LTC) or personal services attribution applies.

What Records Do I Need to Keep?

You'll need to keep copies of invoices (customer & supplier), till receipts and other accounting records for over 7 years. Many accounting apps allow you to scan or photograph invoices or till receipts so that you don't have to retain the paper copy. Keep your GST workings attached to copies of the GST returns you lodged.

There are a lot of accounting apps available for freelancers, to send out invoices and track your business transactions. Our favourites for freelancers include invoicing and bank reconciliation: Xero Starter, MYOB Essentials, Wave, Reckon One.

Don't just look at cost, look at ease of use and what you want to do with it. Choosing a suitable accounting app depends on how many invoices, bank transactions a month; whether you employ staff, sell goods, manage projects with milestones; whether you charge GST.

Keep copies of important contractual agreements, like service performance agreements. You'll need these if you have a dispute with a client. If you form a company you will also need to keep a register of shareholders and directors.

Every year you will need to lodge a tax return with IRD. Sole traders will lodge an IR3 individual return. Partnerships and LTCs will lodge an IR7 return, and the partners/LTC owners will lodge an IR3. Companies will lodge an IR4 return, and shareholder-employees will lodge an IR3.

Do I need to register for GST?

If you are GST registered, then you add 15% GST to your service fees, and pay the GST you collect to IRD. You can also claim back the GST you have paid on your business purchases and expenses.

If you expect your business to earn income (before deducting expenses) of $60,000 or more, then the business must register for GST. If you expect it to earn less than $60,000 then you can voluntarily register for GST. Voluntary GST registration may be helpful if you are buying a vehicle or expensive equipment for the business, because you can claim back the GST. It may also be helpful to register early if you are near the $60,000 threshold, so you don't have to adjust your fees.

If you are freelancing for clients based offshore, you may be able to zero-rate the fees (charge 0% GST) , as you are exporting your services. Check with us if you think this applies to you.

What Expenses can I Claim?

You can claim a variety of expenses for GST and income tax. This is not an exhaustive list and there are some limitations, so it pays to check with your tax advisor. Some suppliers may not be GST registered, so you can only claim those expenses for income tax and not GST.

What are Schedular Payments?

Schedular payments are made to contractors, usually individuals, for certain activity types. The payers deduct tax at a set rate, usually 20%. You can apply to IRD in MyIR for a tailored rate (10% or more) or a certificate of exemption to manage the taxes you pay more closely. The tax deductions are passed by the payer to IRD on your behalf, and offset against the income tax you have to pay for that year.

What is Provisional Tax?

Provisional tax is a regular payment of income tax to spread the amounts across the year that the income is earned. Most taxpayer have a March year end (balance date) and pay provisional tax three times a year: 28 August, 15 January and 7 May (after balance date). If you are GST registered on a 6 monthly basis, then provisional tax is due on the same dates as GST: 28 October and 7 May (after balance date).

Terminal tax is the final instalment of income tax and reduces by the amount of provisional tax you have paid. Terminal tax for 31 March 2020 balance date is due on 7 February 2021 or 7 April 2021 if you have a tax agent.

Setting up as a freelancer/contractor/self-employed business owner can be easy, once you know the answers to these initial business questions. Please contact us if you need any help.

This information in this article is for general information purposes and should not be relied on without additional advice specific to your circumstances. If you require advice in relation to your specific circumstances please contact the author for a consultation.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

-By Serena Irving, JDW Chartered Accountants

Scaling Up

Thu, 04 Jul 2019 23:00:00 GMT

Scaling Up

A Cautionary Tale

When to scale and how fast? Sales are booming for the first time, so is it time for fancy new offices, more staff and more powerful equipment? I know of a tech company which grew too fast: hired more salespeople and developers, got into an expensive lease and then lost its major client a few months later. The company used up its cash reserve as month after month of trading losses took their toll. The company had to shed two-thirds of its workforce, sell its expensive "toys" and negotiate with the landlord to return to profitability.

What are you basing your decision to scale on? Is your turnover reliant on the continuing support of one major client? Is current growth rate sustainable? Be conservative with your revenue forecasts. See our article on Key Metrics for help.

How to Scale Up

When you are looking beyond self-funding options, with its greater potential for growth on a grand scale, you take on greater responsibility to others. Don't over-promise results. Start fundraising early enough so that you have the funds when you are ready to move to the next stage.

Clear Strategic Purpose

Have a clear strategic purpose for each round of fundraising. For instance:

- Seed rounds: concept into prototype

- Series A: commercial viability

- Series B: viable product, scaling up

- Series C: scaling up including capital expenditure (capex)

- Series D+: preparing to exit via acquisition or initial public offering (IPO)

By having clear purpose for each round, you can set realistic timelines. If you meet your deliverables on the first round, it will give investors and lenders more confidence to support you in future rounds. If you over-promise and fail to deliver, you will have tighter constraints in future rounds.

Make sure that you invest for the best return. For each new hire or new equipment or marketing campaign, can you justify it with projected increase in revenue or reduction in costs? Don't indulge in luxuries of first-class travel and sensory deprivation chambers, especially when you have outside investors.

Pay Yourself Realistically

Ask for enough funding to get the job done. As founders and initial employees, you may be willing to pour in sweat equity, but eventually you and they may burn out if you haven't hired enough people. Or you may take on a paying gig and then be too tired to focus on your business.

Fundraising Takes Time

How long is your funding runway? That is, how many months will your funding last before you run out of cash? Build an extra three-month buffer into your projections.

Start raising funds about 12 months before you need it. This allows 3 months to plan, 6 months to promote and start conversations and 3 months to complete serious conversations.

Diluting Capital

New investors want to protect their investment and will negotiate for better terms for themselves. Make sure that you get good legal advice in terms of the contractual arrangements, share rights and how that affects your control of the company and returns you can expect from your founding investment.

Conclusion

Scaling up should be a strategic decision. Planning involves clear goal posts, budgets and timelines. Meet or exceed performance targets to keep your investors and lenders supportive of your business. Start fund raising early. Engage professionals to put together your fund raising proposals, so that you can wow the investors and show your business is a serious contender for their money.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

- By Serena Irving, JDW Chartered Accountants and Jing Seth, Kahu Partners

Jing Seth is a partner in Kahu Partners Limited, a boutique business strategy consultancy. A quantitative analyst who also has deep experience in taking complex propositions to market, Jing has sold to high-tech start-ups, national defense agencies and Fortune 100 corporates. He has codified winning processes, and designed and led specialist sales teams. In his most recent role he rebuilt the growth engine from scratch and closed deals that ended a 12-month sales drought for the company.

Research and Development Tax Credits

Wed, 03 Jul 2019 23:00:00 GMT

Research & Development Tax Credits

Would you like a refund of your tax losses? If your business is an innovator, then you may qualify for a refund. Most normal businesses can't get refunds for tax losses, they can only carry tax losses forward, so you need to be able to prove that you qualify for this special tax refund. Each project has to be evaluated on its merits, so some of your activities may qualify while others don't.

On 7 May 2019, the Taxation (Research and Development Tax Credits) Act 2019 received Royal Assent. This means more entities will qualify for refundable tax credits under the new scheme and now there are two tax credits to consider.

Research & Development Loss Tax Credits (from 1 April 2015)

"Cash out" (have refunded) up to 28% of any tax losses associated with eligible R&D activity if your company is resident in New Zealand. The maximum claimable value in 2019-2020 is $476,000.

The amount you can claim as a tax credit will be the lesser of the company's:

net loss for the year x 28%, or

total R&D expenditure for the tax year x 28%, or

total R&D labour expenditure for the year x 1.5 x 28%.

Are you eligible for this wonderful windfall? There are three areas to consider:

- Corporate eligibility

- R &D Activities

- Wage intensity

Corporate Eligibility (2015 credits)

Is your entity:

A NZ resident private company

Not foreign resident or dual resident under double tax agreement.

Not a look through company (LTC)

Not listed on a recognised exchange

Not majority owned by public authority, local authority, crown research institute or state enterprise

Not established by or subject to:

- the Education Act 1989, or

- the New Zealand Public Health and Disability Act 2000, or

- the Crown Entities Act 2004

R & D Activities Explained

Research is original, planned investigation with a view to gaining new scientific or technical knowledge and understanding. Development takes place when a project uses research findings to produce new, innovative or substantially improved materials, devices, products, processes, systems or services.

Innovation is a key part of R&D and so is having a clearly defined project. If you are reverse engineering an existing process or product, replicating a competitor's product, or adapting your product to a new customer's needs, it won't be R&D.

Data capture & analysis may be R&D only if it requires new technical solutions.

Specific development activities are excluded for the purpose of the R&D Loss Tax Credit, such as pre-production tooling, trial runs, commercial production, debugging and software maintenance.

Wage Intensity Explained

You must spend 20% or more of your total labour expenditure on R&D to be eligible. Total labour expenditure includes salary or wages, shareholder-employee salaries, 66% of contractor payments excluding GST. (The 66% is intended to exclude the profit & overhead portion of the contract price.) This means that you will need to keep good time records of what activities each person does for each project.

How to Apply

There is a one-off registration to complete:

https://www.classic.ird.govt.nz/online-services/service-name/services-r/online-rdltc-registration-form.html

Loss Recovery Events

When your company trades into profit, you gradually repay your tax credit. So there is no increase in imputation credit account balance until you have repaid the R&D loss tax credit.

If you have cashed out loss tax credits, you will need to repay the credits in full if one or more of these events occur:

- Disposal of intellectual property

- Appointment of a liquidator

- Company migration from NZ or no longer a company

- Sale of shares greater than 90%

Research & Development Tax Credits (from 1 April 2019)

Eligible entities will receive a 15% tax credit from the beginning of a business's 2020 tax year. Up to $255,000 refundable in 2020. The minimum R&D expenditure is $50,000 per year up to $120m cap. These tax credits replace the Callaghan Growth Grants over time.

The new 15% tax credit can be claimed as well as the R&D Tax loss credit of 28% . The definition of eligible R&D is different for both credits, and the definition of eligible entities is also different.

Core R&D activity must:

• be performed and managed on a day to day basis in New Zealand. Up to 10% of R&D can be performed overseas.

• have a material purpose of creating new knowledge or a new or improved process, service or goods. The test of "new" is on a worldwide basis.

• use a systematic approach, and

• have a material purpose of resolving scientific or technological uncertainty (scientific or technological uncertainty exists if knowledge is not publicly available or deducible by a competent professional).

Having a material purpose means that the required objective must be significant or important. This requirement is intended to disqualify new knowledge or applications that are discovered by accident. It is not a requirement that the R&D is successful and results in something new or improved. All R&D increases knowledge and activities that are unsuccessful can qualify. Similarly, a new or improved process, service or good does not necessarily qualify for the tax credit just because science or technology were used in its creation.

The entity must have a fixed establishment in NZ and have control over core R&D directly or within the corporate group.

How are Tax Credits Applied

R&D Tax credits are applied firstly against income tax liability for the year the credits relate to, then applied to current income tax or provisional tax liability for a future tax year. You may apply to have the credits applied to a different tax period or tax type. Remaining tax credits may be carried forward subject to continuity rules or cashed out.

How to Apply

An application form will soon be available to complete after Year 1 alongside the 2020 income tax return. An in-year application process is in development for year 2 onwards.

Record Keeping Requirements

General records of income, expenses, assets and liabilities just like any business.

Records to show you are eligible for the tax credit: structure, the scientific or technological uncertainty you are trying to resolve state of knowledge at the start of the project.

Additionally, to show you have a systematic approach, you require:

R&D project plans, resource allocations, start and end dates

Progress and status reports

Advice or Research documents to show that knowledge sought was not readily deducible by a competent professional

Basis for apportioning expenses

Expenditure on employee time on eligible activities should be recorded either through a time recording system or other project documentation such as log sheets or project reporting.

For the new tax credit, the records used to relate expenditure to the R&D activities and record keeping must be occurring at the same time as the eligible activities and not retrospectively treated, for example at the end of the tax year or at the end of the project.

Conclusion

The new R&D tax credits will be more accessible to a wider range of entities, particularly SMEs, and therefore promote more research and development in New Zealand. The strict interpretation of R&D and the level of record-keeping required to track expenditure may still make it difficult for SMEs to access these tax credits. In the 2019-2020 year, the cashflow effect is less beneficial than a growth grant, as businesses need to pay their expenses and lodge a return before they can apply for the refund. The gradual introduction of in-year approval from Year 2, may help to ease the cashflow burden for innovative businesses.

UPDATE 5 July 2019: IRD has issued guidance that the R&D supplementary return for 2019/2020 must be filed within 30 days after the income tax return due date (30 April 2021 for standard date taxpayers). For the following year, general approval must be sought by the 7 ^th day of the second month after the balance date (7 May for standard taxpayers).

This information in this article is for general information purposes and should not be relied on. If you require advice is relation to your specific circumstances please contact the author for a consultation or go to: https://govt.loomio.nz/rdtaxcredit/ for IRD discussion on the tax changes.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

What to Measure

Wed, 22 May 2019 23:00:00 GMT

What to Measure – Key Metrics for Start-ups

Traditional accounting methods and timescales don't work for start-up businesses. A lot of start-up businesses are not well-funded. Those which are well-funded can still hit financial trouble if they don't have warning signals in place.

Timescales

An annual reporting cycle is too long. Even quarterly may be too long, if funding is tight. Some metrics need to be measured daily and weekly so that founders can show investors that they are tracking well.

Profit vs Cashflow

Profit and cashflows are not the same. If you have a subscription model with customers paying 12-months on signing up, for cashflow purposes you have the cash inflow up front. For tax purposes, some of that income is in advance. If your balance date is March and the customer signed on at the start of January, then you have received 9 months in advance. Your profit is not as high as your cashflow because you still have to provide 9 months of services to that customer.

Conversely, if you buy stock upfront or employ staff to fulfil services and invoice on completion with payment on the 20 ^th of the month following, you'll have cash flowing out of the business even if you are profitable.

Traditional Metrics

Here are some metrics which we use frequently with established businesses. Some of these may be useful for start-ups but not all start-ups will find these relevant.

Revenue or Turnover – Sales, expressed in dollar amounts or percentage increase. Are your sales reliant on one or two large customers? Consider broadening your customer base, to spread the risk of losing your biggest customer.

Gross profit – Revenue - Cost of sales. Analyse gross profit by customer or by project. What if you were losing money every time you made a sale to your biggest customer because of the big discounts they received?

Net profit – Gross profit – Operating expenses. Expressed before or after tax.

Return on investment – Net profit / Owners' equity. This measure tells you how well your investment is performing.

EBITDA (Earnings before interest, tax, depreciation & amortisation) – Net profit + Interest + Depreciation/Amortisation. Takes the source of funding out of the picture when considering profitability.

Stock turn – Cost of sales / Average inventory. Slow moving stock (a low number) is inefficient as it ties up money that could be used elsewhere. It may point to having the wrong stock or obsolete stock.

Accounts receivable days – Average receivables / Revenue x 365 days. How long it takes to receive payment.

Accounts payable days – Average payables / Cost of sales x 365 days. How long it takes to pay bills. A high number may suggest that a company is struggling to meet its obligations. But on the other hand a low number may suggest that suppliers are unwilling to allow trade terms, so this might also be a warning sign.

Current ratio – Current assets / Current liabilities. Should be higher than 1 to show that a company is able to pay debts as they fall due.

Liquidity ratio or Quick ratio – (Cash or equivalents + Accounts receivable) / Current liabilities. More conservative than current ratio, as it recognises that it can be difficult to sell inventory in a hurry to pay bills.

Start-Up Metrics relating to Customers

Monthly recurring revenue (MRR) – For subscription services, the sum of the monthly fees paid by your customers. Could be calculated as average fee per customer times the number of customers. Net New MRR = New MRR + Expansion MRR – Churn MRR

Customer lifetime value (LTV) – Ave purchase value x frequency x lifespan. How much revenue they can expect one customer to generate over the course of the business relationship. The longer a customer continues to purchase from a company, the greater their lifetime value becomes.

Customer Acquisition Cost (CAC) – total marketing and sales cost to gain a customer over time. Direct costs such as Facebook or Google AdWords, sales commissions, but also indirect costs such as overheads.

Compare LTV with CAC to assess the effectiveness of your marketing spend.

Customer Churn Rate – the percentage of customer who cancel or don't renew their subscription. It's generally cheaper to retain existing customers than to attract new ones so this is an important measure.

Start-Up Metrics when you don't have Customers

Some metrics like gross profit are reliant on sales. What if you're not selling anything yet? Profitability and return on investment are not as important as subscriber numbers, conversion rates and cashflow.

If you can track and measure these, you can prove whether you are performing, even without a sale.

User Engagement – How often they open your app, number of interactions inside the app, how long they spend using it, how many recommend to friends.

Conversion Funnel ratio – How many potential customers move from one stage in your sales funnel to another, expressed as a percentage. For instance your sales funnel may be made up of various stages: website visit, selecting products, adding them to a cart, paying for the goods. This may help you to identify friction, such as difficulties completing a signup form or abandoning a shopping cart because it took too long.

Retention Analysis – How many users return to your app without a given timeframe. See cohort analysis below.

Forecasting and budgeting is critical to making sure that a business survives until the next cashflow injection. Budget your spending in advance and keep to your budget.

Burn rate – How much money you spend a month.

Runway – how long before you run out of money in your bank account based on your burn rate. Compare this with your investment cycle, how long it takes to obtain another cash injection.

Vanity Metrics

Vanity metrics should be avoided in reporting. Vanity metrics are measures which make you look good, but don't help you with decision-making. E.g the number registered users vs the number of users who engage regularly. Just about any measure could be a vanity metric if they aren't driving decision making.

Using cohort analysis and AB testing you can provide a truer picture of a start-up's progress. Cohort analysis might be grouping users who started using your app at the same time and comparing the retention rate against an earlier group of users. Ideally you should be seeing a higher retention rate with each cohort.

AB testing might be showing one version of your website to half your visitors and another version to the other half. Then you can see which version is more successful at converting visitors to customers.

You can only manage what you measure, according to Peter Drucker. Make sure that you are measuring the right things on a regular basis, so you can manage your start-up effectively.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

End of Year Housekeeping

Mon, 25 Mar 2019 22:00:00 GMT

End of Year Housekeeping

As another financial year rolls around, it's time for a little accounting and tax housekeeping. For most taxpayers the year end is 31 March, but even if your year end is 30 June or 31 December, you would still be advised to read on.

Figure 1 : Waterfalls in Bali - Photo by Robert Collins on Unsplash

Trading Stock (Inventory)

Inventory is valued at the lower of cost or market selling price. If you sell an item below cost just before balance date, then you can value the remaining items at that price. Dispose of stock that is unsaleable before your stocktake.

Prepaid Consumables and Expenses

If you estimate your consumable aids on hand cost less than $58,000 then you don't have to make a prepayment adjustment at year end. Source: IRD technical tax

Similarly, you can claim these expenses invoiced in one income year even if they are for the next income year. Just remember, you still need to pay for the invoices, so don't go incurring costs you don't need:

Accounting costs (mandatory) and audit fees

Advertising (under $14,000, up to 6 months)

Insurance (contract under $12,000, up to 12 months)

Periodic charges (under $14,000, up to 12 months)

Postage and courier tickets

Professional subscriptions (under $6,000, up to 12 months)

Rates

Rent (under $26,000, up to 6 months)

Services (under $14,000, up to 6 months)

Stationery

Subscriptions for newspapers, magazines

Telephone maintenance (up to 2 months)

Travel and accommodation (under $14,000, up to 6 months)

Vehicle registrations, road user charges

Warranties or equipment service contracts as inseparable part of the asset

Repairs and Maintenance

With the ring-fencing of rental losses from 1 April 2019, many landlords will be trying to ensure their repairs are done before 31 March. Expenditure on an asset may be a repair or an improvement. Chat with us about any major work you have done, so that we can appropriately analyse the costs.

Write off Bad Debts

To claim a tax deduction for bad debts, they must be written off before the end of the financial. In your accounting software raise a credit note to clear the debt or write Bad Debt across the invoice in your invoice book. To decide whether a customer balance (debtor) is a bad debt or merely doubtful, consider the age of the debt, how much effort has gone into chasing the debt and the likelihood of the debt being collected. Writing off bad debts give a more accurate reflection of the business's financial results but does not prevent the business from continuing to seek recovery of the debt.

Holiday Pay

Note any holidays (except for public holidays) taken by staff within 63 days of balance date, so that you can claim a tax deduction.

Property, Plant & Equipment

Purchases of assets costing less than $500 (excl GST if registered) can be automatically expensed, unless they are part of the construction of a larger asset. Review your depreciation schedule from last year. Assets which have been disposed of or put in a dingy corner because they are too costly to dump can be written off from the books so that a loss on disposal can be claimed.

You may want to defer the sale of a significant asset until after balance date, to push the depreciation recovery income into the next tax year.

Retentions

Retentions on building contracts are generally taxable in the year the contractor becomes legally entitled to receive them. Let us know of any retentions so we don't include them in income.

Preparation for 2019-2020 year

If you're changing accounting software, the start of a new year is a good time to do it. Set up now, so your bank feeds start from 1 April.

Have you checked that your payroll software is ready for payday filing? All major software companies claim to be ready, but desktop versions require a software upgrade at your end. The first time you sign in, you will need to allow the software to access IRD with your MyIR login and password.

The minimum wage increases to $17.70 per hour on 1 April 2019. Review all wages and salaries, not just those on minimum wages.

Consider how changes in your business will affect your income tax and talk to us about estimating your provisional tax or spreading your tax payments differently across the year.

It's time for some housekeeping: tidy up your end of year accounts and prepare for the year ahead. If you have any questions or concerns please contact us at JDW, so we can help you.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

Strategies to Overcome the Minimum Wage Increase

Thu, 07 Mar 2019 22:00:00 GMT

Business Strategies to Overcome Wage Increases

If one-third of your costs rose by 20% over three years, would your business survive?

My first employer doubled my wages every year until Prime Minister, Sir Robert Muldoon, instigated a wage and price freeze to curb inflation. My employer was my Dad, I was aged six, and an increase from five cents to ten cents a week wasn't going to hurt his dairy's finances. The minimum wage increases are a different story.

On 1 April 2019 the minimum wage will rise to $17.70/hour, rising to $20/hour by 1 April 2021. Source: beehive.govt.nz Workers on higher wage rates will want to keep relativity to the minimum wages. ANZ analysts suggest that a typical hospitality business could see an overall wages & salaries increase of 20% between March 2018 and April 2021. Sales would need to increase by 7%, or other costs decrease to compensate.

Your businesses already struggle with skilled labour shortages, and stress for overworked owners. Now is the time to prepare for change.

Values, Purpose & Uniqueness

If your values, purpose and uniqueness resonate with your customers, they will be back time and again. The right business strategies will incorporate these.

Your business's core VALUES are at the heart of what you do. It provides clarity and makes decisions easier. When your actions align with your values, you feel confident and at peace. If a behaviour annoys or upsets you, it may be that it is conflict with your core values. It reflects in the look and feel of your establishment and the food you serve (E.g. Fast and Fresh, Tranquil, Family Friendly).

If your customers and employees relate to your PURPOSE, they will remain loyal. According to Simon Sinek, the Wright Brothers were the first team to achieve motorised flight because their purpose was inspirational. Source: www.ted.com Your purpose may be to share your signature style of cuisine with the world, to feed families with wholesome food or it may be to build neighbourhood communities.

If you offer a UNIQUE experience, then you can price accordingly. Dans Le Noir at Rydges Auckland has a blacked-out restaurant, with blind wait staff. Customers are led into the restaurant in single file, cannot see to eat and have a few giggles when a neighbour spills a drink. They leave with more empathy for the visually impaired.

Business Strategies

Two-thirds of hospitality employers told the Restaurant Association they would raise prices. But raising your prices too high will cause customers to go down the road or dine at home. Look at the table of strategies and compare it with your values. Which strategies align? If you adopt one strategy, what is the flow-on effect? What else would need to change?

Forecasting and budgeting

With business strategy in hand, how will you pay for it? Will you see a positive return from the effort? With the help of your accountant or bookkeeper, create a monthly or weekly budget of your expenses and capital expenses. Forecast your expected revenue considering seasonal fluctuations. Work out how much extra investment and borrowings you will need.

The minimum wage is rising and with it your labour costs, so the impact for your business will be huge. Increasing menu prices and working longer hours are not the only answers to this problem. Will you be ready with a clear strategy that aligns to your values, purpose and uniqueness?

First published in Savour magazine, March 2019 edition, alongside a Restaurant Association workshop "Business Strategies to Overcome Wage Increases".

Download a PDF version here or contact the author by email if you would like a copy of the workshop booklet. Like our Facebook page for regular tips.

JDW Celebrating 60 Years in Service

Wed, 06 Mar 2019 22:00:00 GMT

Our Village Locals - A History of Business

Look up above the Bakers Delight in Main Highway and you will see a large Chartered Accountants sign. From the street level, it's almost imperceptible. But JDW Chartered Accountants Limited is a hidden gem. When you walk up the stairs, you are greeted by Carol or Kimberley or one of the directors as an old friend, and then you notice that the offices are larger and more comfortable than you expect. There are thirteen in the team, ready and willing to help.

Frank Jolly and Don Stanway created their accounting partnership in 1958. Murray Wells joined the firm in 1971, and in 1973 he and Gerald Duncan teamed with Frank Jolly & Don Stanway to form Stanway & Partners. Don Stanway left four years later. Jolly Duncan & Wells moved to Ellerslie in 1986. Auditor Brian Sheridan was promoted to director in 1996 and the business incorporated in 2000. They have refurbished a couple of times since then, and recently rebranded to JDW Chartered Accountants Limited. Serena Irving became a director in June 2018 and Rupesh Parikh will become a director in April 2019.

Frank Jolly, Don Stanway and Gerald Duncan have passed on, but JDW continues to serve the second and third generation of their original clients. This gives JDW a unique insight into succession planning, trust and estate management from these long associations.

JDW supports the Ellerslie community in many ways. It hosts the Ellerslie Village Business Association bi-monthly meetings and offers workshops to its members. Murray and Sharon Wells have been active members of Ellerslie Community Patrol for many years, and JDW provides administration support to the patrol. Murray is also a trustee of Ellerslie Community Arts Trust, which puts on the annual Ellerslie Spring Fairy & Pirate Festival. JDW sponsors One Tree Hill College and Ellerslie Bowling Club regularly and sponsored the Ellerslie Santa Parade for the first time in 2018.

Murray Wells has been chairman of Bucklands Beach Yacht Club Marina for the past 30 years. Brian Sheridan is a trustee of the Saint Patrick's Festival Trust and a committee member of the Irish Business Network New Zealand Inc. Serena Irving has been a Toastmaster for 20 years and is currently Division N Director for central Auckland clubs. Rupesh Parikh has an active involvement in the Gujarati Indian community in Auckland.

JDW's mission is: We help business owners to succeed by giving them the financial, tax and business information and support they need to make better decisions. With their core values of integrity, empathy, simplicity and partnership, people are their most important asset. The team speaks a variety of languages: English, Afrikaans, Cantonese, Gaelic, Gujarati, Hindi, Marathi, Mandarin, & Niuean. As Murray said in their 60 ^th anniversary function, "We have friends who have become clients, and clients who have become friends."

Being a Chartered Accountant in 2019 is not just about producing financial statements, GST returns and tax returns. With cloud accounting, machine learning and process automation making compliance tasks easier, JDW Chartered Accountants are focussed on helping business owners make sense of their numbers, plan for the future, build relationships, providing expertise and friendly advice when required.

Happy Anniversary JDW – Here's to the next 60 Years!

JDW Values

Integrity – We stand by our moral and ethical principles. We are honest and reliable.

Empathy – We identify with the feelings of others. We care for our clients and our community.

Simplicity – We use words that are easy to understand. We look for straight-forward solutions to complex problems.

Partnership – We work alongside our clients. We offer our experience and advice when they need it. We look for opportunities to help them in their business.

How can you get the most from your Chartered Accountant?

Out-source what you aren't good at. Focus on your strengths. We help you:

• Understand your balance sheet and profit or loss reports.

• Structure your business and investments for asset protection and tax minimisation.

• Price your goods or services.

• Focus on your key performance indicators.

• Plan for growth.

• Manage your accounting fees.

• Move your data into the cloud.

First published in Ellerslie village magazine, March 2019 edition.

Download a PDF version here or contact the author by email . Like our Facebook page for regular tips.

Should I Change Accounting Software?

Sun, 13 Jan 2019 22:00:00 GMT

Article – Should I Change Accounting Software?

By Serena Irving

Photo by rawpixel on Unsplash

Are you using the most suitable Accounting Software for your business? If you are using a Desktop product, do you have the most recent version?

These are valid questions, considering:

· Payday filing will be mandatory from April 2019

· MYOB is ceasing support for its Desktop products from September 2019

· Banklink and Xero have both put up their fees recently

Mandatory Payday Filing

From 1 April 2019 employers will be required to provide details of employees' incomes and details of new or departing employee within two working days of the payday. For employers with payday filing capable software, this will be either an extra push of the button through the software's gateway service (API) or a file download which can be uploaded using your MyIR login. This is very similar to how GST is lodged through the accounting software.

We suggest that you opt in early for payday filing as soon as your payroll software provider is ready. If you have any implementation and training issues around the software, the IRD and software provider helplines will be extremely busy in April 2019. By early adopting, you will be ahead of the rush.

From 30 September 2019 MYOB will no longer be providing compliance updates, feature patches or product support for its Desktop version of AccountRight v19. If you are happy to continue using the Desktop version you can still do so, but you may be missing out on additional functionality that the Online version has available. This may be the best time to move to a cloud-based solution because MYOB and Xero are offering free migration to their products.

Banklink and Xero Fees Increased

MYOB increased its Banklink subscription fees in January 2019. An insider has suggested that MYOB is gradually phasing out Banklink in favour of its MYOB Essentials Connected Ledger option, which is in the cloud, has more functionality and daily bank feeds. Other alternatives to Banklink are Xero Cashbook available only through Xero Partners such as us, and Reckon One Basics with Bank Reconciliation.

We will contact our Banklink clients before 1 April 2019 to discuss options.

Xero increased its Standard and Premium plans in late September 2018, soon after adding Xero Expenses to its Standard and Premium plans. We recently achieved Xero Gold Partner status, so our 25% discount which we pass onto our clients, will absorb most of the price increase.

We prefer online software to desktop options, because we are accessing the same data that you are working on, from wherever we are. No need to send us backup files, post year end journals. We can sign in any time of the year, so we can help you with issues and see how your business is tracking on a regular basis.

You get a high-quality product with dashboards to show your business health, real-time tracking of your customer balances and cashflow. No need to install new versions of software. Access your accounts from most devices, anywhere, as long as you have internet. Xero is introducing automation and machine-learning capabilities which will speed up your processing time.

Our preferred cloud-based accounting providers are Xero, MYOB and Reckon One. Their software is written for the NZ tax system, easy to learn, and rich in functionality. For micro-businesses there are some good free options, like Wave.

Consult us first to help you choose the right accounting system and to ensure the transition is smooth. We have several years' experience and can help you to avoid the pitfalls.

Before switching accounting systems, make sure that the old system is as tidy as possible. Delete old contact and inventory records, tidy up the chart of accounts. Make sure that your bank, debtors, inventory and creditors balances are correct as at conversion date. Ideally choose a year end for your conversion date, otherwise a GST period end would be the next best option.

If you are moving from Banklink to MYOB Essentials Connected Ledger, or from MYOB (Desktop) AccountRight to MYOB (Online) AccountRight, MYOB will do the transition for you, for free.

http://help.myob.com/wiki/display/ar/Upgrade+to+the+new+AccountRight

If you are moving from MYOB (Desktop) AccountRight to Xero Standard or Premium, Xero's Jet Convert will do the transition for free, if you sign up before 31 March 2019. There are extra charges if you use tracked inventory, multiple currencies and/or need data beyond the previous two years.

https://www.xero.com/nz/freemove

For other types of migrations, we have skilled staff and contractors who can do this for you and train you in the new system. Contact us for a quote.

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Is It Worth Keeping a Rental Property?

Sun, 13 Jan 2019 22:00:00 GMT

Is It Worth Keeping a Rental Property?

By Serena Irving

Residential property investors were targeted in the latest tax Bill before Parliament in December 2018. The Bill is likely to have the numbers to pass into Law, so if you have rental property or are considering investing, keep reading.

Figure 1 : Photo by Alex D'Alessio on Unsplash

The proposal to "ring-fence tax losses" means that investors who previously offset rental losses against other earnings will no longer be able to do so. Rental losses of one property can be offset against other rental profits in the person's portfolio, or against gains from the sale of properties, or carried forward to offset future rental profits/gains.

The change will take effect from the start of the 2020 income year (1 April 2019 for most taxpayers). If you are considering any major repairs, we suggest that you complete them before 31 March 2019. The rule changes do not affect a person's main home or mixed-used properties such as beach houses, but do apply to overseas residential rental properties.

Under the bright-line property rules from 29 March 2018, people who sell a house in New Zealand within five years of buying it must pay income tax on any gains, unless it's their main home or another exception applies.

In addition, there are increased requirements on landlords for giving notice, limiting rent increases and improving living standards. It may be tempting for some landlords to consider selling their investment properties, even though there is a rental property shortage.

Without the tax refund, would you have enough funds available to cover vacancies or major maintenance work? Auckland Property Investors Association board member Amanda Watts said in her June 2018 blog, Removal of Negative Gearing, "My concern is that for some landlords this may mean the difference between doing or not doing maintenance if there is no immediate tax relief. They might have to postpone the repairs until another year, increasing the risk that the property will deteriorate and that vacancies might result." Source: www.apia.org.nz/apia-blog

There are a lot of factors to consider other than the tax. What are your long-term investment objectives? Could you get a better return in other investments? Could you pay down the mortgage to reduce interest costs? Could you increase rents to improve your income?

If you would like to chat about how the ring-fencing of tax losses will affect you, please give us a call.

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Accounting For Success

Wed, 31 Oct 2018 22:00:00 GMT

Accounting for SUCCESS

"If you can't measure it, you can't improve it." - Peter Drucker

If numbers aren't your forte, you aren't alone. Thousands of NZ small business owners admit they struggle to understand profit & loss reports and balance sheets. Chartered Accountant Serena Irving says that is when they ask for help.

"Outsource what you aren't good at. Focus on your strengths." But if year-end accounts, GST and income tax returns are all you request from your Chartered Accountant, Serena says you are missing out on a valuable resource. See her hot tips below.

Pricing

"Don't compete on price, especially if you are creating something unique." Serena's cake topper client was struggling to get sales and profits. They discussed hourly rates and ingredient costs. They compared prices with competitors. They created set prices for standard icing toppers and increased her prices for one-off creations.

Key Performance Indicators (KPIs) and Dashboards

KPIs are your early warning systems for business health. It's difficult and costly to track them all. "We help you select and focus on the three or four which have the biggest impact on your business."

Xero and other accounting packages have basic dashboards. Chartered Accountants also create specific dashboards suitable to your needs. Using graphs and colour indicators, you get a snapshot of business performance.

Planning for Growth

Whether you are investing in people or capital to grow, your Chartered Accountant helps you manage it successfully. Serena's film editor client found spare capacity by re-organising his team's work and spacing out jobs more evenly. He grew his business without adding on more rent and wages costs.

Mentoring

A business issue arises with your customer or supplier. Your best friend is sympathetic but can't help. Your spouse suggests getting paid employment. Chartered Accountants can be mentors for those times. "We listen with understanding and experience. Other clients have worked through similar issues."

Cashflow Forecasting and Budgeting

Life and cashflow are hardly ever smooth. Your Chartered Accountant helps you through rough patches too. "A client owed over $300,000 income tax, GST and other taxes before he joined us. We set cashflow budgets, negotiated with IRD and arranged tax pool finance. He paid his tax bill off in 4 years."

Keeping Fees Down

If you already pay enough to your Chartered Accountant, chat with her/him about that too. Fix your regular coding errors. Negotiate an agreed fee with your Chartered Accountant so help is there when needed. Spread payments monthly to help cashflow.

Engage with your Chartered Accountant regularly and not just when your taxes are due. Get your Chartered Accountant working alongside you, improving your business success.

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