As the new financial year rolls around it's that time of the
year for business owners to start planning for year end and
reviewing their records. Read on as our following list will assist
you to prepare and claim deductions available and provide you with
opportunities to minimise your end of year tax expense.
Assets
- Acquired Assets - any asset acquired individually or together
with other assets in the same class can be written off providing
the total purchase price is $500 or less (excl GST).
Depreciation can be claimed from the first day of the month of
purchase.
If an existing asset is traded in, ensure the asset is capitalised
at its full cost i.e. before deducting the trade in cost.
Consider whether asset splitting for residential property if used
for investment purposes or asset pooling for commercial property is
possible to maximise depreciation deductions.
- Disposed Assets - any assets sold, stolen, scrapped, destroyed
or traded in should be adjusted for. Make sure you keep
records of dates and amounts. Defer any sales until after 31 March
if you have a profit on the sale.
- Scrapped Assets - any assets no longer in use should be written
off.
Bad Debts
You are entitled to claim a bad debt deduction for any debts
that have gone bad. In order to claim a deduction for a bad debt,
you must write the debt off in your accounting system by 31
March (if this is your balance date). In addition you must
have sufficient documentation to prove that the debt is indeed not
recoverable. You will also need to make an adjustment for GST
previously returned to the IRD. If the debt is later recovered, the
amount needs to be accounted for as income.
Bonuses and Holiday pay
Any amounts payable to employees at balance date for bonuses,
holiday pay or long service leave are only deductible as an expense
if they are paid either by or within 63 days of balance
date, otherwise they will not be deductible until the
following year.
Donations
Any donation amounts to charitable organisations up to a maximum
of a company's taxable income for the year can be claimed at year
end.
Prepaid Expenses
Certain prepaid expenses can be claimed as a tax deduction in
the current income year. There are restrictions on some expenses in
terms of the limits that can be claimed. If you have any prepaid
expenditure, ensure that you document when you paid it, what it was
for, and what period it covered or was paid to. Some examples
include rent, insurance, advertising and subscriptions.
Dividends
Dividends for the 2014-15 year should be paid or credited before
31 March 2015. Dividend withholding tax will be payable on 20 April
2015. Consideration must be given to ensuring the company has
sufficient imputation credits, which may mean bringing forward a
tax payment.
If required contact the Knowledge Shop team who can assist
you with any dividend considerations.
Repairs and Maintenance
Any amounts for service contracts can be deductible provided the
contract has less than 3 months to run at balance date and costs
less than $23,000 for the full year.
Any warranty purchased with a fixed asset can be deducted as an
expense rather than capitalised providing the cost of the warranty
can be separately identified. Check your repairs and maintenance
ledger for any capital items that should be coded as an asset.
Trading Stock
You can either value closing stock at cost or market selling
value (if lower than cost). A stock take as at 31 March will help
ensure that you have an accurate record of the stock and that your
system and physical stock levels agree. If you have obsolete stock,
then these items should either be disposed of before balance date,
or valued at market selling value, which will presumably be lower
than cost. Stock value has an impact on the taxable profit position
for any business, so this is an area that should be reviewed
closely. Note if your turnover is less than $1.3m and you can
reasonably estimate that you have less than $10,000 in trading
stock then you can use your opening stock value.
Subscriptions
Certain subscriptions are deductible without adding back
unexpired amounts e.g. newspapers, journals and periodicals. In
addition association memberships are deductible provided they
extend no longer than 12 months after balance date and the
subscription does not exceed $6,000.
These are a just sample of the main areas you should
review to ensure you have considered all available deductions which
can be claimed. Through careful management you can generate
positive cash flow benefits through the minimisation of current
year tax. A welcome relief to most businesses looking to stretch
cash flow in a growing economy.
If you have any further questions regarding these deductions,
please contact the Knowledge Shop team at solutions@knowledgeshop.co.nz