Tax Planning at Year End to Minimise Income Tax Payable
As we get close to the end of the financial year, the following should be looked at within your business to determine what you can do to minimise your income tax liability for the current financial year:
Your aged receivables report should be reviewed and any bad debts should be written off. The entry to write off the debtor needs to be dated before the end of the financial year otherwise it will not be deductible for income tax purposes in the current income tax year.
Fixed Asset Schedule
Please review your fixed asset schedule and advise us of any fixed assets that should be written off as they no longer exist.
If you have any equipment that is no longer functioning and is unrepairable, to gain a deduction for income tax purposes in the current year you will need to dispose of the item before balance date or write to Inland Revenue to request that you be permitted to write the equipment off for income tax purposes.
Timing of Maintenance
If you have non urgent maintenance that you are planning to do, to claim a deduction in the current income tax year, you may want to bring it forward when you undertake the maintenance so it is before the balance date.
Retentions on building contracts are generally taxable in the year that you are legally entitled to receive them i.e. at balance date they will not be taxable income unless you are entitled to collect the retention. Therefore, a listing of retentions owing at balance date should be made. This can result in a significant deferral of income tax.
If you trade in a partnership, trust or sole trader structure and are using a vehicle in the business for both business and private use you need to keep a log book for a three month period every three years to justify your claim for income tax and for GST purposes. Now is a good time to check that your vehicle logbook 3 month period is less than 3 years old. If the period you kept your log book for is over three years old, you will need to record your vehicle usage for another three month period.
If you are using a private vehicle for business, we recommend that you keep a record of this use. When we prepare your annual financial statements we will be able to claim for the business use of your private vehicle using published mileage rates.
Holiday Pay and Wage Bonuses
Holiday pay paid in the 63 days following balance date is tax deductible in the current income tax year, provided it relates to holiday pay accrued for the period to balance date.
To claim the holiday paid within the 63 days of balance date please make a listing of the holiday pay paid in the 63 day period and accrued as a payable at balance date, or advise us so that we can account for it in your financial statements.
The same applies to bonuses paid within 63 days of balance date that relate to the performance of the employee to balance date.
Claim for home office/workshop
If you are using your home for business you can claim a proportion of expenses relating to your house based on the size of your office/workshop that you are using for business.
The percentage of your house expenses you can claim will be the size of the office/workshop divided by the total size of your home.
A tax rebate can be claimed for donations made to charitable organisations at the rate of 33.33% up to your taxable income. To be claimable you need to hold a receipt and the donation paid during the year ended 31 March 2017. Please note that apart from a few exceptions this rebate is limited to donations to charities that do the majority of their charitable work in New Zealand.
Stock on hand
At balance date a stock take should be undertaken and your stock on hand valued using one of the following methods:
Market value (if it is less than cost)
Discounted selling price (to get to estimated cost)
Obsolete stock should be identified and either disposed of before balance date, of for the stock take the market value determined. If this is not done, your obsolete stock will need to be valued at cost or replacement price.
If you purchase consumables in advance and provided your consumables on hand have a total value of less than $58,000 you can claim them in this tax year.
Consumables include the following:
Goods that are used up in the manufacturing process but are not part of the final product (e.g. oil);
Fuel and oil;
Sundry workshop supplies;
Replacement parts that you will use to repair equipment;
Stock Feed, Dairy/Shearing Shed Supplies;
Fertiliser, animal health products, fencing supplies, breeding supplies.
The following expenditure if paid prior to balance date but for the period after balance date is deductible for income tax purposes:
$ Limit Prepay Limit
Lease for land & buildings for a
period ending longer than 1 month
after balance date $26,000 6 months
Other lease of land and buildings 1 month
Insurance (Provided the insurance
contract does not exceed $12,000) 12 months
Payment for the service of maintenance
of plant provided the contract does not
exceed $23,000 3 months
Telephone & Communication 2 months
Costs of other services $14,000 6 months
Other periodic charges $14,000 12 months
Subscriptions to trade, professional &
other organisations where the cost does
not exceed $6,000 12 months
Rates, provided they are invoiced before
balance date unlimited
Advance bookings for travel & accommodation,
advertising, road user charges, audit fees,
mandatory accounting costs, stationery, postage
& courier charges, subscriptions to papers
and journals, and payment in respect of equipment
service contracts or warranties unlimited
Feel free to call us if you have any questions regarding the above or would like to discuss how you can minimise your taxes.