- Taxation of overseas investments
- Tax issues facing new and returning migrants
- Tax treatment of pension transfers and withdrawals
- Fringe Benefit Tax
- General tax advice and planning.
Spring is the perfect time to pause and look at how your business is performing against the targets you set at the start of the year. With five months before the end of the financial year there is plenty of time to work on any underperforming areas and make the most of the things that are going great, maybe even lifting your expectations.
Here are Johnston Associates South’s top tips for helping ensure you move into Summer in the best possible shape, and with a plan that is going to enable you to deliver the end of year results you are looking for.
• Review your year-to-date and business plan
Now is the perfect time to review your year-to-date results against your budget and key performance indicators. How have you performed and what are the reasons for any variances? Clarity around your business’s current performance will really help you plan the next five months, minimising any underperforming areas and maximising on opportunities for growth.
• Plan your cashflow
Cash is king so we suggest you take some time to plan your cashflow for the rest of the year. What are your remaining costs and where might you experience shortfalls?
• Review your tax obligations
By reviewing your tax obligations based on your actual year-to-date result, and projections for the rest of the year, you can make sure that tax is not being under or over paid, and also keep an eye on upcoming tax payment dates.
• Insurance cover
Take time to look over your insurance cover. Is your business well protected based on how it’s currently operating? Are you paying too much? Have you met all your obligations to your insurer such as letting it know about any changes of circumstance or significant new clients?
• Health and Safety at work
Your business needs to carry out frequent health and safety audits and make sure information about health and safety is shared with workers. Have you identified any safety hazards and risks in the last six months? If you have what steps have you taken to stop them happening? Now is a good time to hold a health and safety training session so all workers are engaged and understand the role they play.
• Accounting system check
Making sure your accounting system is accurate and up-to-date is very worthwhile, enabling you to rely on the information it generates for planning purposes and to save you time at year end.
• Make an appointment with your business advisor/accountant
If it’s been more than three months since you had a meeting with us then it’s time for a catch-up. The Johnston Associates South team is here to help. We are always interested in hearing about how your business is performing and discussing ways we can help you achieve your goals. Changes in your personal circumstances can also impact on your business.
A movement of change has been quietly happening for a while in the tax world here in New Zealand. Our government is trying to update our systems to be easier to use and comparable on a global scale while providing a fair market for large and small businesses to operate in. Many Multinationals are not paying their fair share of tax this is known as Base Erosion and Profit Shifting (BEPS)
Giants of the likes of Apple have for some time paid basically no tax in New Zealand, this is achieved using BEPS Strategies. In short, these companies create arrangements where they shift profits to countries with lower taxed jurisdiction, thus reporting significantly lower income from sales in New Zealand despite having a physical presence in the market. These particular BEPS strategies are known as transfer pricing and permanent establishment avoidance (TP and PE avoidance).
The New Zealand Government is seeking to strengthen our tax laws to combat is including
- the Income Tax Act 2007
- the Tax Administration Act 1994
There is a focus on improving transfer pricing rules, preventing abuse of double tax agreements used to avoid NZ tax, and improve administration systems to better enforce collection of tax from multinationals. This is being done in accordance with the G20/OECD standard for Automatic Exchange of Financial Account Information in Tax Matters otherwise known as the “Automatic Exchange of Information”, “AEOI”, or the “AEOI standard” in financial publications.
AEOI is a global initiative to address the international problem of offshore tax evasion, which is evading tax by hiding wealth in offshore accounts. In essence, a government implements the AEOI standards requiring financial institutions to investigate financial accounts to identify those held or controlled by non-residents. If non-residential ownership/control is found the following information is shared with the government
- identity information (including tax residence)
- financial information (account balances and interest earned from accounts)
- non-residents local tax administration.
To amend our tax laws in a way that removes any loopholes takes time and diligence, so these new requirements on financial institutions and multinationals will not come into effect until July 2017. After this time we may see a flow on effect in the New Zealand economy.
WHAT DOES THIS MEAN FOR YOU?
When these changes begin to impact multinationals the New Zealand market will see the results of the choosen strategy to minimise the impact on their bottom line, some may accept that paying tax in each country is part of being a good global citizen, while others will taken other paths, we may find one or many of the following:
- products from these companies have no significant change in size, price or availability
- products from these companies increase in price
- products from these companies decrease in product size but remain the same price (this strategy is call the ‘Just Noticeable Difference’)
- products from these companies decrease in availability in the market (higher demand for fewer products allows a high price to be charged and accepted by consumers)
- products from these companies are withdrawn from our market completely.
In the end we all want fair treatment of businesses in our economy and for these goliaths the New Zealand tax bill is a only one drop out of the ocean of their profits, do you think it’s fair they don’t pay tax?
Tax Policy BEPS – Transfer pricing and permanent establishment avoidance
A special report from Policy and Strategy – Automatic Exchange of Information
Networking is a buzz word commonly used when discussing how to improve your business performance and bring career opportunities, but how is it maintained? As we all know there is only so many seminars, conferences, and after work drinks one can attend until you start to feel this isn’t really having an impact. In the top of the South is it often who you know, not what you know that brings forward new opportunities and this is where high-quality business relationships are important.
Coming into the quieter winter months we are exploring a few methods to improve the quality of your network relationships, yes it does take some effort but what can come from a little work now is worth it. The aim of the game is to be the go to professional in your network as a resource of knowledge, skill and advice, so how do we achieve that?
Share your knowledge
We cannot constantly interact with our networks so allow social media and your professions publications do the work for you. By regularly sharing your thoughts on industry news, posting insightful articles and publishing educational content you remind people you are there and position yourself as a trusted source of information. We do this every day via our LinkedIn and Facebook Pages keeping our followers up to date on industry developments that will affect them, and we are lucky enough to have some bright sparks that publish articles in national accounting publications.
Have a website hook
People will be drawn to your website from your regularly relevant social media posts, make sure when they arrive your website is not only functional and easy to use but contains a hook. This could be a blog where you publish educational content, FAQs about your industry or a newsletter. We have a monthly blog about tax news and business-building insights, in fact you’re reading the blog right now!
Don’t be afraid to ask a favour
Small favours between connections allow you to build the relationship further, this is half of the reason we network right? Ask advice, or for an introduction to a professional you haven’t met yet. This opens the door for future networking interactions and potential to increase your client base.
Be thoughtful and kind regularly
Helping others is the other half of networking, you cannot expect to develop quality relationships without supporting others. This can be as simple as share social media posts to draw attention to another’s message, recognising their contribution to a project, sending a thanking gift or sponsoring a local team/event that is a common interest. The community is really important to us so we give a lot of time, money, and man-hours to local sports teams and events. Being reliable and kind in networks and the wide community will only grow your reputation and opportunities.
Strategic Honest Feedback
When you’re asked advice be honest and we know it can sometimes be hard. Honest constructive feedback allows your network to refine and improve what they do. Do not, however, be that person who offers advice without request, newly forming relationships do not benefit from constant criticism.
Adding one or all of these tips to your networking practice over the winter months will bring new opportunities in Summer, remember to share your knowledge, have a great website, ask for favours, be supportive, and honest. Not only will you get great business connections but you may get great friends out of it also.
Six tricks for staying top of mind with your network
Learn to Love Networking
Tiziana Casciaro, Francesca Gino, Maryam Kouchaki
Do your employees use company vehicles for private use? You could be liable for a Fringe Benefit Tax aka the FBT, here is what you need to know.
WHAT DOES A FRINGE BENEFIT TAX APPLY TO?
Fringe benefit is another way of say non-monetary reward, this includes
- Company vehicles available for private use,
- Free, subsidized or discounted goods and services,
- Special low-interest loans
- Employer contribution to insurance or superannuation schemes.
*FBT does not apply to a sole trader or partnership businesses, instead adjustments are made to their GST and PAYE tax payments.
The private use of a company vehicle can be overlooked as a benefit in addition to remuneration because of our friendly lend a hand kiwi culture, but the tax man doesn’t see it that way.
FBT can apply to all work vehicles including operation and finance leased, (if you’re not sure what that means check out our last post) and a vehicle owned by the company. It is important to note that if a vehicle is available for private use by an employee or shareholder, regardless of whether use occurs or not, the employer has a liability for an FBT.
However, there are exemptions for the FBT if your company vehicle meets all of the following:
- The principle design is not for carrying passengers, these include utes, light trucks and vehicles altered to permanently not have rear seats.
- The company’s name and logo must be permanently and prominently displayed on the vehicle.
- The employees and shareholders must be informed that the vehicle is for work purposes only with the exception of traveling between work and home. It is preferable this be done in writing or ideally in the employment contract.
- The company must complete quarterly checks of the logo book and petrol purchases for the vehicle. Accurately maintaining these records is very important.
If your company vehicle meets the above criteria but is available for private use on particular days for employees on call outs outside normal hours you can be eligible for a partial exemption.
However, if the above criteria are met and the vehicle is stored at a shareholder’s home and the business premises is also the shareholder’s home, the vehicle cannot under any circumstances be used for private purposes if the company wishes to avoid a FBT. If the shareholder’s home is a secondary work premise, EG a home office, then a restricted private use condition can be applied.
WHAT DOES IRD LOOK FOR IN RESTRICTED PRIVATE USE?
The employer must have clear details on the restrictions, confirm and provide evidence that the employee is aware of these restrictions, and at request produce a log book of both personal and business mileage proving observance of the restrictions.
NB: If the log book records are not regularly monitored, the vehicle is available for private use on the weekends, or the signage on the vehicle is removable the IRD can enforce a FBT
FBT DOES NOT APPLY IF
- The vehicle is stored on the company premise which is not a shareholder’s home
- The vehicle has a gross laden weight above 3,500 kilograms
- If an employee contributes towards the value of the vehicle by way of payment to the employer
HOW IS FBT CALCULATED?
FBT is calculated on either the vehicle’s cost price (including GST) or on its “tax value” (ie depreciated value at the start of the income year in question). Once you elect to use a method you must continue using that method until either:
- the vehicle is sold
- the vehicle lease ends
- five years have passed
Vehicle Cost Price Method
Every quarter 5% of the vehicles cost price inclusive of GST is multiplied by 49.24%
Tax Value Method
Every quarter 9% of the vehicles depreciated value inclusive of GST is multiplied by 49.25%
NB: Liability is reduced by the number of the days the vehicle was not available for private use or was exempt from FBT.
WHEN DO COMPANIES USUALLY PAY FBT?
Most small businesses will elect to file and pay FBT annually. A quarterly option does exist and is mandatory for employers whose gross amounts of taxes in the preceding year exceeded $500,000.
FBT is a tricky subject and often it is better to be safe than sorry when it comes to the tax man, check out the IRD website for FBT on Company Vehicles or give us a call.
Is your current business vehicle looking a bit tired?
Are you unsure whether to lease or buy a replacement vehicle?
Here is what we consider when advising our clients what the best choice for them is.
WHAT SHOULD YOU CONSIDER WHEN COMPARING LEASE OR BUY OPTIONS?
Considering your business capabilities and your vision for the business answer these questions?
- What is more important asset ownership or low upfront costs?
- Do you really need a new vehicle now but lack funds for a deposit?
- Is paying off debt and maintaining low debt a priority for you even if it means higher payments now?
- Can your business carry a large extra expense if the vehicle requires extensive maintenance?
If asset ownership is a priority, you have the available funds, and you wish to pay off debt quickly buying a vehicle is a good option for you. However, if you need low upfront costs as you do not have the funds for a deposit leasing is the better option as long as you have good cash flow. In addition, if you are willing to pay a higher monthly payment you can avoid any surprise extra maintenance costs.
BUYING A VEHICLE
If you buy a vehicle for your business you must pay all the on-road costs plus associated interest and/or finance charges. For most small businesses a hire purchase agreement is done and the first payment is due one month after signing the contract.
Once you have paid for the vehicle in full your business then owns the asset which can be used as equity if you wish to upgrade the vehicle, but if you sell the vehicle before the payments are complete you are still liable to pay the outstanding amount.
As it is an asset it will depreciate in value according to the set IRD rates, this is generally 30% DV (diminishing value). The depreciation value can be obtained with the calculator on the IRD website – IRD Depreciation Calculator
NB: There can be confusion over the difference between a lease and hire purchase agreement; essentially they are two different ways of financing a vehicle
- Leasing is when a person uses but does not own a vehicle and may or may not purchase it at the end of the lease.
- Hire purchase is when at the end of the payments the vehicle is acquired by the business/person.
LEASING A VEHICLE
There are two types of lease:
- A contract to use a vehicle for a fixed period, up to 46 months
- At the end of the lease period, you hand the car back.
- Assuming mileage is within the range set out in the contract there will be no further payments required from the lessee (you).
- The arrangement can either include full maintenance or not. A full maintenance option could mean significantly higher monthly payments.
- Also a contract to use a vehicle for a fixed period, except that a finance lease also accounts for the likely value of the car at end of the lease period (the “residual value”) after depreciation.
- A finance lease with a residual value tends to have a lower monthly payment than an operating lease.
- The lessee can also usually buy the vehicle for the residual value at the end of the lease period.
- If the lessee’s vehicle use is greater than the agreed maximum use there is a chance the vehicle will be worth less than its predicted residual value. This will usually trigger an extra cost.
When you lease you have the option of not paying a deposit and monthly payments are fully claimable as an expense. You make your first payment at the time you sign the lease, and monthly thereafter. If your business has good cash flow but cannot produce a large deposit up front this is a good method or acquiring a new vehicle.
NB: Leases involve complex tax requirements under the Financial Arrangement rules and GST requirements for installments this is most often a task for us, the tax experts.
WHAT IS THE BEST CHOICE?
This is really situational to your unique business and vision, consider the questions above and if an investment in a new vehicle will create a return you desire. You can talk to us about whether this is a good decision for your business as we are available to you whenever you need us.