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Johnston Associates Chartered Accountants

Masterminding Brighter Tomorrows

News

28th June 2018 by Paul Jennings

The Fringe Issue

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

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

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

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

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

FBT…so, what can you do?

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

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

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

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

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

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

The good news is that IRD also recognises this and will work closely with you to help you comply. The best approach is to get professional advice (that’s us) and, where appropriate, go to IRD for a written opinion on any matters that aren’t crystal clear. That way, even if IRD disagrees with your FBT return, they’ll see that you’ve taken reasonable care to get things right and may not impose penalties.

So, when are you liable for FBT?

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

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

Contact us today with any question you have regarding FBT – we’ll be very happy to help.

Filed Under: Fringe Benefits Tax

21st May 2018 by Paul Jennings

New Director of Tax further strengthens Johnston Associates South

Leading Accounting and Business Advisory firm Johnston Associates South is pleased to announce the appointment of Mark Davies as our Director of Tax, firmly positioning the firm as the region’s leading tax advisers.

Mark brings over 28 years specialist tax experience to our team, starting his career with IRD before moving into roles as a tax specialist for Big Four and regional firms. His experience is broad, covering numerous areas but more recently Mark has focussed on advising family businesses of all shapes and sizes, taxation of migrants and new residents, primary industries, and managing IRD disputes.

“I’m excited to join the Johnston Associates South team and focus on delivering high-quality tax solutions to clients, and extending our service availability to all of our region’s businesses. We believe the tax team we have created is able to provide a level of genuinely local expertise and service not available elsewhere in our region – that’s really exciting in terms of the benefits we can provide to our clients. Combined with Johnston Associates South’s proven expertise around accounting and business development we are in a very strong position for the future”.

Mark joins Katrina Scorrar and Kelvin Scoble on the Johnston Associates South tax team.

Johnston Associates South celebrates its 10th anniversary this year and is proud to be the fastest growing accountancy and business advisory firm in the Top of the South with offices in Nelson, Blenheim and Havelock.

Filed Under: Our Team, Tax

12th April 2018 by Paul Jennings

New law will make dirty money easier to spot

Money laundering is big business in New Zealand. Every year $1.35 billion of fraud and drug-related money is laundered through seemingly legitimate businesses. In response, the Government introduced specific Anti-Money Laundering and Countering Financing of Terrorism legislation to address this risk.

Previously, only a few types of organisation had to comply with the legislation. Following amendments to this legislation passed last year, it is now confirmed that this legislation extends to these groups taking effect from these dates (or earlier if the Government legislates by an Order in Council):

1 July 2018: lawyers, conveyancers and businesses that provide trust and company services
1 October 2018: accountants who provide particular kinds of business services
1 January 2019: real estate agents
1 August 2019: businesses trading in high-value goods, sports and racing betting

If you are in any of these categories, of course you must make sure that your business complies. We can point you in the right direction. But please also note that as your accountant we are in one of the categories that must comply with the changes. And to do this, be aware that we will sometimes need to ask you for more information than we have in the past. This is because we need to be able to document that we have verified your ID and both you and your business entities are all above board.

For more information don’t hesitate to contact us.

Filed Under: Accounting - General, Legislation

28th March 2018 by Paul Jennings

Provisional tax changes explained

We are fielding a few queries about the provisional tax changes that apply from the 2018 tax year onwards.
Below is a summary of the new rules for taxpayers who use the standard method to calculate their payments.

Smaller taxpayers (including companies and trusts)

Inland Revenue (IRD) has changed what it calls the ‘safe harbour’ provision.

If:

  • Your actual income tax liability for the year is less than $60,000; and
  • You paid the tax amount required as per the standard method at your three provisional tax dates.

Then:

  • You will not be charged IRD interest if you did not pay enough provisional tax, provided you pay the final balance by your terminal tax date.

The safe harbour threshold was previously $50,000 and applied to individuals only.

Medium and larger taxpayers

The second change affects medium and larger taxpayers.

If:

  • Your actual income tax liability is $60,000 or more; and
  • You paid provisional tax for that year based on the standard method.

Then:

  • You won’t be charged IRD interest if you paid the amounts of tax due as per the standard method at your first and second instalments, even if your actual liability is higher.
  • The final balance will be due at your third provisional tax date. IRD interest applies on any underpayment or overpayment of tax from the third provisional tax date.

Capping the liability at the first and second instalments provides certainty, particularly if your income is volatile or seasonal.

Having the final balance due at the third provisional tax instalment is sensible because you should have a good estimation of your actual liability by then.

For more information please contact our tax experts.

Filed Under: Provisional Tax, Tax

21st February 2018 by Paul Jennings

End Of Tax Year Checklist

The end of the tax year is on 31 March 2018. Here are a number of ways you can straighten things up in advance:

Think about. …Deductions

Bad Debts
Write bad debts off in your debtor ledger before balance date so you can claim a deduction. Make sure your records show you have taken reasonable steps to recover the debt prior to write-off. Note the details so we can check the GST adjustments.

Employee Expenses
You can claim deductions for holiday pay, bonuses, redundancy payments, long service leave etc., if you commit to them before year end and pay them within 63 days of balance date. Check holiday pay has been calculated correctly.

Expenses
Can you pre-pay expenses such as stationery, postage and courier charges before 31 March? You may be able to claim for them. Check with us. There are limits to how far some prepaid expenses are claimable, such as on rent, insurance, plant and equipment maintenance contracts, travel and accommodation.

Fixed Assets
Are you still using all of them? Can some be written off?

Repairs/Maintenance
Complete planned maintenance or repairs before year end for a tax deduction. Ask us if you aren’t sure whether the expenditure is classified as repairs and maintenance (which would be deductible) or as a capital expense (which wouldn’t).

Stocktake
Dispose of obsolete stock by year end or write it down to its net realisable value (the lesser of cost or market value). If your stock is worth less than $10,000 and turnover for the year less than $1.3m, you won’t need to include your stock movement for tax purposes.

Vehicles
Don’t forget to note your odometer reading at year end. If you keep logbooks noting business and personal use, mileage and costs, ensure these are all in order.

Think about.…Income

Credit Notes
Look for credit notes issued to customers after balance date but related to sales made prior to balance date. Note these so you can reduce your taxable income for the current year.

Increased Income
Is this year’s income a lot higher than last year’s? If so let us know. It might be a good idea to consider making a voluntary provisional tax payment.

Losses
Did your group of companies have losses in 2017? Groups of companies may offset profits and losses against each other if you make loss offset elections and subvention payments by 31 March. We can help you with this.

Retentions
Check contracts for the terms on retentions owing. Have you invoiced retentions but they are not payable until work is complete in a subsequent tax year? They won’t count as assessable income for this year. However, If they are payable this year they are assessable income. Note retentions you have invoiced which are not receivable until the next tax year.

If you have any questions or concerns regarding your end of tax year preparation then don’t hesitate to contact us – we are here to help.

Filed Under: Annual Accounts, Tax

23rd January 2018 by Paul Jennings

Claiming expenses when away on business

You can claim for lots of daily expenses when you’re travelling for work. If you take a holiday as part of the same trip, you can only claim for the parts of the trip that were work-related.

What can you claim?

In general, when you’re away from home you can claim for:

  • flights
  • taxis, or mileage if you use your own car for business travel
  • accommodation
  • meals and snacks.

Accommodation

If you’re attending a work-related meeting, conference or training course that requires an overnight stay, you can claim the cost of accommodation, eg hotel, motel or short-term rental.

If an employee is working away from home for an extended period, eg on secondment, you can claim for accommodation, or any accommodation allowance you pay, as long as they won’t be gone for more than two years (or three years for capital projects).

Food and drink

If you or one of your employees buys a meal while travelling on business, the cost is 100% deductible. But you can only deduct 50% of the cost of food and drink if either:

  • the trip is mainly for the purpose of enjoying entertainment, eg a team bonding trip
  • the meal or function involves an existing or potential business contact as a guest
  • a celebration where you won’t be working, eg a reception, or a staff Christmas party
  • you or your employees can also claim for snacks and refreshments, eg tea and coffee, while they’re away if you normally provide these refreshments at work.

Entertainment

On a work trip, you can claim the cost of entertainment if its purpose was to:

  • build up business contacts, eg taking a potential client out for dinner
  • keep your employees happy, eg providing tickets to a show
  • promote your goods or services, eg offering food to entice customers to a stall at an expo.

If the entertainment is helping you earn your income, it’s usually deductible when it’s time to work out your tax.

Within New Zealand, entertainment expenses can be either 50% or 100% claimable — check with Inland Revenue.

If you’re travelling overseas, you can claim 100% of work-related entertainment expenses.

For expert tax advice speak to our experienced tax team – we’re here to help.

Filed Under: Accounting - General, Annual Accounts

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