We pride ourselves on offering our clients with the best solutions available - one size does not fit every option.
With the introduction of "cloud" based accounting this solution has become easier through the use of products such as Xero. Xero is the leader in this industry with it's fully automated and secure bank feeds. Ask the founder of MYOB, who now sits on Xero's board!
Plain Talk, Smart Thinking... is fixed fee, accounting and taxation service packages! They include everything you need to run your business plus the added benefit of regular advice and reporting.
* no surprises at the end of the financial year
* better management of cashflow
* free upgrades and backups
Ask us today how we can reduce your fees, increase that advice and provide that advice to you in real time.
No matter which plan you are on you can call us or email us anytime for no extra cost!
Which plan is right for you?
* We can customise your individual needs
* Plans that suit multiple entities and structures, property investors and sole traders/contractors
* Free initial consultation service - Your office or ours!
Contact us today 06 833 6295 or email admin@walshassociates.co.nz
Wednesday, September 22, 2010
Tuesday, September 14, 2010
Tax Changes 2010 - What you Need to Know Part 4
Had a really interesting session at the Business Expo last week and it is obvious that there are still a number of questions and concerns surrounding the impending GST increase on 1st October 2010.
Nearer the end of September, we will release a newsletter with an update and a refresher on all the issues that we have raised this month.
At Walsh and Associates we look after our clients and will help them plan their way through this change. Looking at some other forms of transactions...
Gift Vouchers
The usual time of supply means that a supplier should treat vouchers as a supply for GST purposes at the time a customer purchases them, not when the vouchers are redeemed.
So, say Peter buys a voucher for $50.00 from a CD outlet on 15 September and intends to give it to Harry for his birthday. Harry redeems the voucher on the 1st December. What is the time of supply?
The time of supply is on the 15th September and not when Harry redeems the voucher on the 1st December.
Periodic Payments and Hire Agreements
Theses are treated as a series of separate supplies for each period of the agreement. The time of supply is the date payment is due or received.
For example, Bryan has a Xero subscription for which he is grateful to have, his payments are due on the 1st of the month and he takes out the subscription in July.
So, for August and September, he would pay the GST on the subscription at 12.5% and from 1st October on, he would pay GST at 15%.
Local Authority Rates
The time of supply for rates is the earlier of:
• The date an instalment notice is issued.
• The due date for payment, or
• The date when payment is received.
So, Waipukurau sends out notices to its ratepayers in July, saying that rates can be paid in full on 20 October 2010, or alternatively in quarterly instalments, payable 30 September, 31 Decmeber, 31 March and 30 June.
For those residents who elect to pay the full amount of rates in the first quarter:
• they will pay GST at 12.5%,
For those who elect the quarterly option:
• they will pay GST at 12.5 % on the first quarter (notice issued prior to 30 September) and
• 15.0% on the ensuring quarters after that.
Nearer the end of September, we will release a newsletter with an update and a refresher on all the issues that we have raised this month.
At Walsh and Associates we look after our clients and will help them plan their way through this change. Looking at some other forms of transactions...
Gift Vouchers
The usual time of supply means that a supplier should treat vouchers as a supply for GST purposes at the time a customer purchases them, not when the vouchers are redeemed.
So, say Peter buys a voucher for $50.00 from a CD outlet on 15 September and intends to give it to Harry for his birthday. Harry redeems the voucher on the 1st December. What is the time of supply?
The time of supply is on the 15th September and not when Harry redeems the voucher on the 1st December.
Periodic Payments and Hire Agreements
Theses are treated as a series of separate supplies for each period of the agreement. The time of supply is the date payment is due or received.
For example, Bryan has a Xero subscription for which he is grateful to have, his payments are due on the 1st of the month and he takes out the subscription in July.
So, for August and September, he would pay the GST on the subscription at 12.5% and from 1st October on, he would pay GST at 15%.
Local Authority Rates
The time of supply for rates is the earlier of:
• The date an instalment notice is issued.
• The due date for payment, or
• The date when payment is received.
So, Waipukurau sends out notices to its ratepayers in July, saying that rates can be paid in full on 20 October 2010, or alternatively in quarterly instalments, payable 30 September, 31 Decmeber, 31 March and 30 June.
For those residents who elect to pay the full amount of rates in the first quarter:
• they will pay GST at 12.5%,
For those who elect the quarterly option:
• they will pay GST at 12.5 % on the first quarter (notice issued prior to 30 September) and
• 15.0% on the ensuring quarters after that.
Tax Changes 2010 - What you Need to Know Part 3
This week we look at a recent Government change to the GST legislation, a challenge to two of the issues raised last week plus some more transactions and how GST changes will affect those transactions.
Government Change
During the week the Government relaxed its stand to transactions, which were completed in September but not invoiced till October. The original intention was that all invoices raised after the 1 October would have to be at 15.0%. The change is now that come the 1st October 2010, you can still invoice at 12.5% for work completed in September, but the extension only applies to 11th October 2010.
A Challenge !!!!!
A client raised two issues to last weeks newsletter, the first of these related in part to the above comment about transactions having to be invoiced at 15.0% come 1st October 2010. However, the argument centred around progressive payments in that his belief was that if you received a progressive payment on the 25th September 2010 that would have GST at 12.5% and if you received the final payment on the 5th October 2010 that would also be at 12.5%. The Government change aside, the right to charge the higher GST is covered by section 78(2) of the GST Act 1985, which says that even though a contract may have been for a fixed price, this part of the Act allows suppliers to increase their price to reflect a change in the GST rate and GST must be charged at the higher price.
The second issue centred around insurance, in that if you van was broken into on the 27th August 2010, claim lodged on the 2nd September 2010 and duly settled on the 13th October 2010, the amount of GST to return on the claim would be 12.5% not 15.0%. The law on GST claims paid by insurance companies is precise, in that the GST Act says that time of supply is the day on which the payment is received from the insurance company, no matter when the claim happened or was entered into, so in that particular case GST would have to be returned at 15.0%.
Looking at some other forms of transactions ….
Baron has entered into a contract with Anthony’s building company, to build a new family home. The first three instalments have been paid to Anthony’s company prior to 30th September 2010, leaving only the last instalment (lets assume $28,000) to be paid on 28th October, plus there are retentions of around $5,000 to be paid in January 2011. What rate of GST will the next instalment and retentions be paid at?
The GST rate will be 15.0% and will apply to the October 2010 and January 2011 instalments, even though the contract may have been for a fixed price sum.
Karen runs a gym, where a number of members pay in advance for the next quarter, the next quarter, starts in October, some members pay prior to 30th September 2010 for services they will receive from October to March, what will be the GST rate?
Clearly the time of supply is the payment, so those payments that happen prior to 30th September will be at 12.5%.
Nici also runs a gym, where she has the philosophy that it is better for members to have the benefit and so she charges them in arrears. Her quarter ends 30 September and members pay October / November for that quarter. What GST rate will they pay?
The same rules apply in terms of payment and so, because payment is after the 30 September 2010, they will have to pay at 15.0%.
Tracey sells a jacket to Frances for $550.00 on the 7th September 2010. Frances elects to put the jacket on Hire Purchase and the agreement is for 36 monthly payments of $23.00, which comes to $828.00. What rate will the GST be charged at?
Time of supply occurs at the time the agreement is entered into. All hire purchase sales should be included in the taxable period covering the date the hire purchase agreement is entered into regardless of the accounting basis that is used, therefore the agreement would be entered into in the August / September return and GST would be at 12.5%.
Next week we will talk about Gift vouchers, local body rates and a supply of goods under an agreement to hire e.g. photocopier
Government Change
During the week the Government relaxed its stand to transactions, which were completed in September but not invoiced till October. The original intention was that all invoices raised after the 1 October would have to be at 15.0%. The change is now that come the 1st October 2010, you can still invoice at 12.5% for work completed in September, but the extension only applies to 11th October 2010.
A Challenge !!!!!
A client raised two issues to last weeks newsletter, the first of these related in part to the above comment about transactions having to be invoiced at 15.0% come 1st October 2010. However, the argument centred around progressive payments in that his belief was that if you received a progressive payment on the 25th September 2010 that would have GST at 12.5% and if you received the final payment on the 5th October 2010 that would also be at 12.5%. The Government change aside, the right to charge the higher GST is covered by section 78(2) of the GST Act 1985, which says that even though a contract may have been for a fixed price, this part of the Act allows suppliers to increase their price to reflect a change in the GST rate and GST must be charged at the higher price.
The second issue centred around insurance, in that if you van was broken into on the 27th August 2010, claim lodged on the 2nd September 2010 and duly settled on the 13th October 2010, the amount of GST to return on the claim would be 12.5% not 15.0%. The law on GST claims paid by insurance companies is precise, in that the GST Act says that time of supply is the day on which the payment is received from the insurance company, no matter when the claim happened or was entered into, so in that particular case GST would have to be returned at 15.0%.
Looking at some other forms of transactions ….
Baron has entered into a contract with Anthony’s building company, to build a new family home. The first three instalments have been paid to Anthony’s company prior to 30th September 2010, leaving only the last instalment (lets assume $28,000) to be paid on 28th October, plus there are retentions of around $5,000 to be paid in January 2011. What rate of GST will the next instalment and retentions be paid at?
The GST rate will be 15.0% and will apply to the October 2010 and January 2011 instalments, even though the contract may have been for a fixed price sum.
Karen runs a gym, where a number of members pay in advance for the next quarter, the next quarter, starts in October, some members pay prior to 30th September 2010 for services they will receive from October to March, what will be the GST rate?
Clearly the time of supply is the payment, so those payments that happen prior to 30th September will be at 12.5%.
Nici also runs a gym, where she has the philosophy that it is better for members to have the benefit and so she charges them in arrears. Her quarter ends 30 September and members pay October / November for that quarter. What GST rate will they pay?
The same rules apply in terms of payment and so, because payment is after the 30 September 2010, they will have to pay at 15.0%.
Tracey sells a jacket to Frances for $550.00 on the 7th September 2010. Frances elects to put the jacket on Hire Purchase and the agreement is for 36 monthly payments of $23.00, which comes to $828.00. What rate will the GST be charged at?
Time of supply occurs at the time the agreement is entered into. All hire purchase sales should be included in the taxable period covering the date the hire purchase agreement is entered into regardless of the accounting basis that is used, therefore the agreement would be entered into in the August / September return and GST would be at 12.5%.
Next week we will talk about Gift vouchers, local body rates and a supply of goods under an agreement to hire e.g. photocopier
3 Months Free Xero !
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- Three months Xero subscription - FREE!!
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- Three months Xero subscription - FREE!!
- Two hours of our time - convert your existing accounting package
Was won by Edwin Brown of Napier.
Wednesday, September 1, 2010
XERO - Free for September 2010
Have you updated your existing accounting package? Was there a cost?
Xero has already commenced the process of the GST updates and the cost to you if you were a client is NIL. If you haven’t updated your software and you are still thinking about it, we would strongly recommend that you consider Xero.
Contact Sarah today 833 6295.
Xero has already commenced the process of the GST updates and the cost to you if you were a client is NIL. If you haven’t updated your software and you are still thinking about it, we would strongly recommend that you consider Xero.
Contact Sarah today 833 6295.
GST Tax Changes - What you Need to Know Part 2
This week we will address the following issues …
Work done in September, invoiced in October
Question
Lets assume that you have done work in September and through month end cut off etc, the invoices aren’t raised until Monday the 5th October, should these invoices be invoiced at 12.5% or invoiced at 15.0%.
Answer
All invoices issued on or after 1 October 2010, must be issued at 15.0%. The solution is to make sure all invoices for September are invoiced in September.
Insurance Claims
Mike is a registered electrical contractor, who pops into the pub for a beer on Friday 27 August. While in there someone breaks into his van and pinches some of his gear. He puts a claim in on Thursday the 2nd September and is paid out on Wednesday 13 October 2010. (Insurance company was a bit slow to pay out because of some past dubious claims).
Question
Should Mike pay GST on the money received at 12.5% or 15.0%
Answer
The time of supply is the day on which the payment is received from the insurance company and GST output tax must be accounted for in the period in which payment is received, so in this case Mike has to return GST based on 15.0% and not 12.5%.
Layby Sales
Sarah has a birthday on Thursday 2 September 2010 and decides to treat herself to a new laptop, which has layby terms available of four months. Sarah elects to pay:
• 25% now
• 25% on the 30th September
• 25% on the 31 October and
• 25% on the 30 November.
Question
As far as the October and November payments go, will Sarah pay GST at 12.5% or 15.0%?
Answer
With Layby sales, each transaction shall be treated for the purposes of the Layby Sales Act 1971 as a layby sale made at the time when the last of those agreements was made. So that means Sarah will have to pay the extra GST at 15.0% on the October and November sales.
Work done in September, invoiced in October
Question
Lets assume that you have done work in September and through month end cut off etc, the invoices aren’t raised until Monday the 5th October, should these invoices be invoiced at 12.5% or invoiced at 15.0%.
Answer
All invoices issued on or after 1 October 2010, must be issued at 15.0%. The solution is to make sure all invoices for September are invoiced in September.
Insurance Claims
Mike is a registered electrical contractor, who pops into the pub for a beer on Friday 27 August. While in there someone breaks into his van and pinches some of his gear. He puts a claim in on Thursday the 2nd September and is paid out on Wednesday 13 October 2010. (Insurance company was a bit slow to pay out because of some past dubious claims).
Question
Should Mike pay GST on the money received at 12.5% or 15.0%
Answer
The time of supply is the day on which the payment is received from the insurance company and GST output tax must be accounted for in the period in which payment is received, so in this case Mike has to return GST based on 15.0% and not 12.5%.
Layby Sales
Sarah has a birthday on Thursday 2 September 2010 and decides to treat herself to a new laptop, which has layby terms available of four months. Sarah elects to pay:
• 25% now
• 25% on the 30th September
• 25% on the 31 October and
• 25% on the 30 November.
Question
As far as the October and November payments go, will Sarah pay GST at 12.5% or 15.0%?
Answer
With Layby sales, each transaction shall be treated for the purposes of the Layby Sales Act 1971 as a layby sale made at the time when the last of those agreements was made. So that means Sarah will have to pay the extra GST at 15.0% on the October and November sales.
Wednesday, August 25, 2010
Be the first to try Letstrade!
(Published in Business on 25 August 2010 by Tony Rule)
There are lots of exciting new online applications being developed to help small businesses. This is a continuation of the ‘best of breed’ model where small businesses are given access to very sophisticated but easy to use business applications. They get to choose a tailored range of online solutions to fit their needs, rather than having to buy an expensive, old-fashioned desktop system that doesn’t quite fit the bill.
Letstrade are launching their new Sales Order Processing solution. This is a powerful sales, procurement and inventory solution for small to medium sized businesses. It suits a wide range of businesses including wholesalers, importers/exporters and franchises.
Letstrade is in the final stages of development and inviting Xero customers to try it out for free during the beta period. We think Letstrade is a fantastic solution for any business that needs to account for stock movements and it integrates with Xero so you don’t need to worry about the hassle of re-entering data from one solution to another.
This is another of the new generation of sophisticated solutions being released that connect with Xero. Exciting times!
If you wish to sign up for the beta trial follow the link http://www.letstrade.com/
There are lots of exciting new online applications being developed to help small businesses. This is a continuation of the ‘best of breed’ model where small businesses are given access to very sophisticated but easy to use business applications. They get to choose a tailored range of online solutions to fit their needs, rather than having to buy an expensive, old-fashioned desktop system that doesn’t quite fit the bill.
Letstrade are launching their new Sales Order Processing solution. This is a powerful sales, procurement and inventory solution for small to medium sized businesses. It suits a wide range of businesses including wholesalers, importers/exporters and franchises.
Letstrade is in the final stages of development and inviting Xero customers to try it out for free during the beta period. We think Letstrade is a fantastic solution for any business that needs to account for stock movements and it integrates with Xero so you don’t need to worry about the hassle of re-entering data from one solution to another.
This is another of the new generation of sophisticated solutions being released that connect with Xero. Exciting times!
If you wish to sign up for the beta trial follow the link http://www.letstrade.com/
Tuesday, August 24, 2010
UnisonFibre Business Expo - you don't want to miss this...
The Hawke's Bay Chamber of Commerce is proud to host the largest event for business in Hawke’s Bay featuring leading international business brands through to local service providers.
Check out the latest business products and services, get information to manage your business better, improve productivity, increase profitability, and network with thousands of other business owners.
Join the Best Brains in the Bay on September 8 + 9 in the National Tobacco Factory (Rothmans Building), Ahuriri, Napier.
The Expo offers a range of onsite activities, including:
• More than 80 exhibitors
• Free seminars both days of the Expo
• Take a break at the EXPO Cafe
• Celebrate HB Businesses on Wed 8th at 5:30pm 2010 Westpac HB Business Awards Finalist Announcement
Visitor Information
Are you interested in either starting a business in Hawke's Bay or expanding your business here? Then you need to visit the UnisonFibre Business Expo.
Dates:
• Wednesday 8 September, 10am–7.30pm
• Thursday 9 September, 10am–7.30pm
Venue:
• National Tobacco Factory, Ahuriri, Napier
Just a selection of the Key Note Speakers:
• Richard Suhr - head of Google enterprise for New Zealand, Australia & Sth East Asia
Thurs 9th at 11am
• Cameron Bagrie, ANZ Chief Economist talking about the latest economic developments
Wed 8th at 10am
• Hannah Samuel, Reputation Champion
Wed 8th at 2pm
• Mark Robotham, Escalator Programme
Thurs 9th at 10:15am and 2:30pm
For more information go to www.hbbusinessexpo.co.nz
Check out the latest business products and services, get information to manage your business better, improve productivity, increase profitability, and network with thousands of other business owners.
Join the Best Brains in the Bay on September 8 + 9 in the National Tobacco Factory (Rothmans Building), Ahuriri, Napier.
The Expo offers a range of onsite activities, including:
• More than 80 exhibitors
• Free seminars both days of the Expo
• Take a break at the EXPO Cafe
• Celebrate HB Businesses on Wed 8th at 5:30pm 2010 Westpac HB Business Awards Finalist Announcement
Visitor Information
Are you interested in either starting a business in Hawke's Bay or expanding your business here? Then you need to visit the UnisonFibre Business Expo.
Dates:
• Wednesday 8 September, 10am–7.30pm
• Thursday 9 September, 10am–7.30pm
Venue:
• National Tobacco Factory, Ahuriri, Napier
Just a selection of the Key Note Speakers:
• Richard Suhr - head of Google enterprise for New Zealand, Australia & Sth East Asia
Thurs 9th at 11am
• Cameron Bagrie, ANZ Chief Economist talking about the latest economic developments
Wed 8th at 10am
• Hannah Samuel, Reputation Champion
Wed 8th at 2pm
• Mark Robotham, Escalator Programme
Thurs 9th at 10:15am and 2:30pm
For more information go to www.hbbusinessexpo.co.nz
Tax Changes - Xero
Have you updated your existing accounting package? Was there a cost?
Xero has already commenced the process of the GST updates and the cost to you if you were a client is NIL. If you haven’t updated your software and you are still thinking about it, we would strongly recommend that you consider Xero.
Contact Sarah today 833 6295.
Xero has already commenced the process of the GST updates and the cost to you if you were a client is NIL. If you haven’t updated your software and you are still thinking about it, we would strongly recommend that you consider Xero.
Contact Sarah today 833 6295.
Tax Changes - October 2010
The countdown is on for the GST increase and the PAYE decrease for 1 October 2010, and we hope you have given some thought as to how these GST changes will impact upon you and your business. At Walsh & Associates, it is our intention to keep you informed on a weekly basis on a range of transactions and how they will effect you between now and 1 October 2010.
GST
From the 1 October 2010, GST will increase from 12.5% to 15% on all goods and services (excluding financial). So...
• if you invoice $1,000 goods out at the net value plus GST, on the 1 October , the price will increase to your client from $1,125.00 to $1,150.00
• if you receive an invoice for $1,150.00 inclusive of GST, and you want to find the GST content of that invoice, simply divide the $1,150 by 7.666, or for the mathematicians among us, take the $1,150 multiply by 3 and divide by 23.
The general rule is that a supply is considered to take place at the earlier of the time an invoice is issued or the time any payment is received by the supplier.
Invoice Basis
For those clients who are on an invoice basis, they would claim GST when they receive an invoice (pre 1 October at 12.5%) and account for GST when they issue an invoice or receive payment in respect of that supply, whichever comes first.
Payments Basis
For those clients on a payments basis, account for GST or claim GST on any payments received or made during a taxable period, so for payments / receipts made pre 30 September they will be at 12.5%, from 1 October 15.0%.
So what happens when we raise an invoice in September but it is not paid for till October?
At the 30 September 2010, the IRD will provide a special GST transitional adjustment form, which effectively will allow you to deduct your creditors from your debtors and multiply the difference by 0.019324 (difference between old and new rate).
Next week...
We will talk about Hire Purchase Agreements, Lay-by Transactions and a few other interesting transactions that may become testing.
GST
From the 1 October 2010, GST will increase from 12.5% to 15% on all goods and services (excluding financial). So...
• if you invoice $1,000 goods out at the net value plus GST, on the 1 October , the price will increase to your client from $1,125.00 to $1,150.00
• if you receive an invoice for $1,150.00 inclusive of GST, and you want to find the GST content of that invoice, simply divide the $1,150 by 7.666, or for the mathematicians among us, take the $1,150 multiply by 3 and divide by 23.
The general rule is that a supply is considered to take place at the earlier of the time an invoice is issued or the time any payment is received by the supplier.
Invoice Basis
For those clients who are on an invoice basis, they would claim GST when they receive an invoice (pre 1 October at 12.5%) and account for GST when they issue an invoice or receive payment in respect of that supply, whichever comes first.
Payments Basis
For those clients on a payments basis, account for GST or claim GST on any payments received or made during a taxable period, so for payments / receipts made pre 30 September they will be at 12.5%, from 1 October 15.0%.
So what happens when we raise an invoice in September but it is not paid for till October?
At the 30 September 2010, the IRD will provide a special GST transitional adjustment form, which effectively will allow you to deduct your creditors from your debtors and multiply the difference by 0.019324 (difference between old and new rate).
Next week...
We will talk about Hire Purchase Agreements, Lay-by Transactions and a few other interesting transactions that may become testing.
Thursday, August 12, 2010
Seven Deadly Sins of Business
How many times over recent years have we seen businesses fail rather than succeed, in these times knowing what a business should not do is just as important as knowing what the business should be doing. Businesses that fail often exhibit the following 7 characteristics:
1. Poor financing structures
Borrowed too much money, too much reliance on and overdraft facility as opposed to a term loan.
Unrealistic drawings and lifestyle expectations, tax issues aside you cannot draw out of the business more than what the business is currently earning.
2. Poor customer base
Product obsolescence and substitute markets, what happened to all those successful second hand shops once “Trade Me” was on the scene? Polarised customer, product or market base or alternatively, lack of targeted niche market.
3. Poor supplier base
Always great to have a good supplier around but when times get tough can they give you the flexibility you need to survive. Rule with you head, not your heart.
4. Lack of vision and planning
Failure to plan, is planning to fail, - no business plan? What happens when the bank want to look at your YTD position plus estimates for the balance of the year. The last 3 years result is like looking in the rear vision mirror – how dangerous is that when moving forward?
5. Overtrading
So often you hear of apparent good businesses failing, whys that? Insufficient capital or worse still doing too much too soon or taking on a job that is too big for them.
6. Poor financial process
Lack of basic financial records, poor attempts at budgeting and worse no attempt.
7. Lack of poor performance measures
What is your gross profit, what are your stock turns, what is your debt to equity ratio
Did you know that people who go into business can be generally classed into 6 categories, which one do you fall under:
· Get rich quick – normally go bust after a period of time
· Entrepreneurs – go for it, take risks
· Passionate do gooder
· Buy a job
· Family business
· Be your own boss
The first two categories take risks, the majority of us are in that balance of five.
1. Poor financing structures
Borrowed too much money, too much reliance on and overdraft facility as opposed to a term loan.
Unrealistic drawings and lifestyle expectations, tax issues aside you cannot draw out of the business more than what the business is currently earning.
2. Poor customer base
Product obsolescence and substitute markets, what happened to all those successful second hand shops once “Trade Me” was on the scene? Polarised customer, product or market base or alternatively, lack of targeted niche market.
3. Poor supplier base
Always great to have a good supplier around but when times get tough can they give you the flexibility you need to survive. Rule with you head, not your heart.
4. Lack of vision and planning
Failure to plan, is planning to fail, - no business plan? What happens when the bank want to look at your YTD position plus estimates for the balance of the year. The last 3 years result is like looking in the rear vision mirror – how dangerous is that when moving forward?
5. Overtrading
So often you hear of apparent good businesses failing, whys that? Insufficient capital or worse still doing too much too soon or taking on a job that is too big for them.
6. Poor financial process
Lack of basic financial records, poor attempts at budgeting and worse no attempt.
7. Lack of poor performance measures
What is your gross profit, what are your stock turns, what is your debt to equity ratio
Did you know that people who go into business can be generally classed into 6 categories, which one do you fall under:
· Get rich quick – normally go bust after a period of time
· Entrepreneurs – go for it, take risks
· Passionate do gooder
· Buy a job
· Family business
· Be your own boss
The first two categories take risks, the majority of us are in that balance of five.
Opportunity to Save Tax - Or Not?
The juggling of company income between shareholders and companies to take advantage of the lower company tax rates is going to be a reasonably common occurrence for the 2010 and 2011 tax years. However, the IRD has enshrined into legislation (Income Tax Act Section BG) that any scheme that has as its principal purpose the avoidance of tax may be tax avoidance. Past behaviour, the viability of the company etc could provide non-tax reasons to vary the pattern of shareholder salaries. Risks will reduce, if the clients changed salary policy is not greedy
GST Changes - October 2010
So the next hurdle we need to start thinking about is the GST increase from 12.5% to 15.0% on 1 October 2010.
When GST increased from 10.0% to 12.5% in 1989, the market picked up heaps of momentum pre the increase but once the increase was through the market died again and so as to try and insulate ourselves against the dip as much as possible, one thought we had was do we want to hold the GST increase off until after Christmas 2010. This will mean the extra 2.5% will come out of our gross margin but in terms of building up goodwill with our customers and maintaining a good level of business leading up to Christmas, could this be an option for us?
That issue aside, some of the practical issues we will need to address with a GST increase are:
- If you are a retailer or a wholesaler or stock will have to be repriced.
- What happens if you are a bar?
- Can your current accounting system cope with the GST increase? If you use an online accounting system like Xero, you will have to do nothing, the change will be made for you.
- Most customers will want to be billed for services pre the GST increase, but if the time of supply is not till after the 1 October 2010, the IRD might have an interest in some of these transactions.
- You will have to be careful that the transactions that happen pre 1 October 2010, that they are billed out at 12.5% will have to be adjusted up to 15% when paid the money you are accounting for is 15.0% even if not paid till after 1st October 2010.
- What about transactions on Lay by? Clients selling goods on Lay by may be paying GST on each installment as it is received. However, the IRD has indicated that GST applies on the date the final payment is made. Therefore, if a lay-by agreement straddles GST change over date, the payments made before the 1 October will be insufficient.
- GST on a hire purchase agreement will operate on the agreement date.
When GST increased from 10.0% to 12.5% in 1989, the market picked up heaps of momentum pre the increase but once the increase was through the market died again and so as to try and insulate ourselves against the dip as much as possible, one thought we had was do we want to hold the GST increase off until after Christmas 2010. This will mean the extra 2.5% will come out of our gross margin but in terms of building up goodwill with our customers and maintaining a good level of business leading up to Christmas, could this be an option for us?
That issue aside, some of the practical issues we will need to address with a GST increase are:
- If you are a retailer or a wholesaler or stock will have to be repriced.
- What happens if you are a bar?
- Can your current accounting system cope with the GST increase? If you use an online accounting system like Xero, you will have to do nothing, the change will be made for you.
- Most customers will want to be billed for services pre the GST increase, but if the time of supply is not till after the 1 October 2010, the IRD might have an interest in some of these transactions.
- You will have to be careful that the transactions that happen pre 1 October 2010, that they are billed out at 12.5% will have to be adjusted up to 15% when paid the money you are accounting for is 15.0% even if not paid till after 1st October 2010.
- What about transactions on Lay by? Clients selling goods on Lay by may be paying GST on each installment as it is received. However, the IRD has indicated that GST applies on the date the final payment is made. Therefore, if a lay-by agreement straddles GST change over date, the payments made before the 1 October will be insufficient.
- GST on a hire purchase agreement will operate on the agreement date.
Thursday, July 22, 2010
Key Tax Dates
Don't forget! 1st Provisional Tax payment is due on 28 August 2010. Check out our Tax Calendar now!!
Tuesday, June 8, 2010
The Budget has a Sting in its Tail
At the time the 2010 Budget announced, we highlighted that there were still some issues to work through in relation as to how the IRD saw the changes to Loss Adjusted Qualifying Companies (LAQCs) and Qualifying Companies (QCs).
Some of that detail has now been made clearer and we would advise that as from the 1 April 2011, the following changes will apply :
1. Existing LAQC’s and QC’s will become a flow through entity called a QC.
2. All income in the QC will be taxable to the shareholders in proportion to their interest in the QC.
3. Losses stemming from the QC will be deductible to the shareholders in proportion to their interest in the QC BUT the loss deduction will be limited to the shareholders economic interest in the QC. This means the “loss limitation rule will apply”, which in effect says shareholders will only be permitted a deduction for losses to the extent of their investment in the QC. However, the big IF is whether the values of guarantees will also be considered when determing a shareholders investment in the QC. Most shareholders in a QC, have usually made loans to the QC and guaranteed that debt however, the consultation document is silent on that point.
4. Unutilised losses will be carried forward by the shareholder.
5. QC’s will now be defined and treated as a partnership for tax purposes, rather than a company and will be required to file an IR 7 as opposed to the previous IR4.
6. If a shareholder works within the QC, the shareholder will now be required to have an employment contract and be in the PAYE system for shareholder salaries to be deductible.
7. No imputation credit accounts will be required as all dividends will be tax exempt.
8. One other item that still remains unclear, is that for Trusts, the Trustees will be required to return QC income in their own right, rather than the current requirement to pass dividend through to a beneficiary.
So in summary it looks like the old LAQC has had its day and would consider that in the future property investors may be better to look at individual / partnership ownership of property investments, or if you are taking a longer term view maybe trust ownership.
Some of that detail has now been made clearer and we would advise that as from the 1 April 2011, the following changes will apply :
1. Existing LAQC’s and QC’s will become a flow through entity called a QC.
2. All income in the QC will be taxable to the shareholders in proportion to their interest in the QC.
3. Losses stemming from the QC will be deductible to the shareholders in proportion to their interest in the QC BUT the loss deduction will be limited to the shareholders economic interest in the QC. This means the “loss limitation rule will apply”, which in effect says shareholders will only be permitted a deduction for losses to the extent of their investment in the QC. However, the big IF is whether the values of guarantees will also be considered when determing a shareholders investment in the QC. Most shareholders in a QC, have usually made loans to the QC and guaranteed that debt however, the consultation document is silent on that point.
4. Unutilised losses will be carried forward by the shareholder.
5. QC’s will now be defined and treated as a partnership for tax purposes, rather than a company and will be required to file an IR 7 as opposed to the previous IR4.
6. If a shareholder works within the QC, the shareholder will now be required to have an employment contract and be in the PAYE system for shareholder salaries to be deductible.
7. No imputation credit accounts will be required as all dividends will be tax exempt.
8. One other item that still remains unclear, is that for Trusts, the Trustees will be required to return QC income in their own right, rather than the current requirement to pass dividend through to a beneficiary.
So in summary it looks like the old LAQC has had its day and would consider that in the future property investors may be better to look at individual / partnership ownership of property investments, or if you are taking a longer term view maybe trust ownership.
Friday, May 21, 2010
Budget - May 2010 - Working for Families Adjustment
From the 1 April 2011, the value of assets held in Trusts will be countered as part of the household’s income when calculating the Working for Families. Investment losses and PIE income may also be included. In terms of what the Working for Families is about, this adjustment is fair as it places a more accurate entitlement to the assistance.
Budget - May 2010 - Loss Attributing Qualifying Companies (LAQCs)
The comment made in the budget was “Many investors hold property through LAQCs. After a short period of consultation, legislation will be proposed so that from 1 April 2011 all LAQCs will be taxed as limited partnerships”
Prior to the Budget there was some speculation, that LAQCs would be dropped and that property losses would be ring – fenced in the vehicle making the investment.
Although the proposed loss ring fencing rules are not comprehensive, the new rules do limit the amount of losses that can be passed from and LAQC to the shareholder. These losses will be limited to the amount the shareholder has invested in the LAQC – very similar to Ltd Partnerships. The new rules mean that where investors want to be able to access the losses at their own personal tax rates by passing through the losses, they must also pay tax on the income in the good years at their personal rates.
Investors in properties, may need to look at whether an LAQC is the best investment for the future.
Prior to the Budget there was some speculation, that LAQCs would be dropped and that property losses would be ring – fenced in the vehicle making the investment.
Although the proposed loss ring fencing rules are not comprehensive, the new rules do limit the amount of losses that can be passed from and LAQC to the shareholder. These losses will be limited to the amount the shareholder has invested in the LAQC – very similar to Ltd Partnerships. The new rules mean that where investors want to be able to access the losses at their own personal tax rates by passing through the losses, they must also pay tax on the income in the good years at their personal rates.
Investors in properties, may need to look at whether an LAQC is the best investment for the future.
Budget - May 2010 - Depreciation - on Buildings goes / New Plant & Equipment Reduced
Depreciation deductions will no longer be allowed for buildings with an estimated useful life of over 50 years or more. This applies directly to rental houses and the commercial sector. From a conceptual view, this is one scenario that is hard to agree with, as we all know that properties that are tenanted do depreciate, while the land they sit on appreciates.
What we may see coming out of this, is commercial property managers fronting up to the IRD and attempting to prove that their buildings have depreciated in terms of having a short life option of less than 50 years. For example cool store operators and meat operating plants.
However, on the positive side landlords will not face the feared ringfencing option, which would have meant they could not use losses on their rental to reduce their overall tax bill.
One item that has crept into the equation but has not been given too much media comment is the effect on QCs / LAQCs (residential property investors are still the greatest users of these sorts of entities) on the actual taxation of these companies. We will discuss those next.
One other item of concern is the commercial building fit out policy. At this stage is still exists but MAY yet be tightened as the Government has hinted that it intends to review the deductions if it deems fit. With respect to residential properties, any rethink is likely to be a continuation from previous years, where the focus goes on what constitutes part of a building and what does not.
Businesses will also not be allowed to claim the 20% accelerated depreciation on new plant and equipment. This change is effective immediately. So assets purchased up to and including the 19 May will still get the deduction while assets purchased from the 20 May will not. We consider this a bit harsh as the justification for the reduction is that some businesses may buy a car or a computer and get the 20% loading but not invest in a second hand piece of machinery, because they cannot load the depreciation claim.
What we may see coming out of this, is commercial property managers fronting up to the IRD and attempting to prove that their buildings have depreciated in terms of having a short life option of less than 50 years. For example cool store operators and meat operating plants.
However, on the positive side landlords will not face the feared ringfencing option, which would have meant they could not use losses on their rental to reduce their overall tax bill.
One item that has crept into the equation but has not been given too much media comment is the effect on QCs / LAQCs (residential property investors are still the greatest users of these sorts of entities) on the actual taxation of these companies. We will discuss those next.
One other item of concern is the commercial building fit out policy. At this stage is still exists but MAY yet be tightened as the Government has hinted that it intends to review the deductions if it deems fit. With respect to residential properties, any rethink is likely to be a continuation from previous years, where the focus goes on what constitutes part of a building and what does not.
Businesses will also not be allowed to claim the 20% accelerated depreciation on new plant and equipment. This change is effective immediately. So assets purchased up to and including the 19 May will still get the deduction while assets purchased from the 20 May will not. We consider this a bit harsh as the justification for the reduction is that some businesses may buy a car or a computer and get the 20% loading but not invest in a second hand piece of machinery, because they cannot load the depreciation claim.
Budget - May 2010 - Company Tax Rate Change
From the 1 April 2011, the Company tax rate will reduce from 30 cents down to 28 cents. For once, this puts us ahead of Australia, who plan to reduce their Company tax rate to 28 cents but phased in over 3 years commencing from 2012 / 2013. So what does this do for us? A lower company tax rate will encourage productive investment in NZ, thereby increasing productivity, raising wages and creating jobs (that political speak, as it comes from Treasury).
Budget - May 2010 - GST to Increase
Tempering the tax reductions will be the fact that GST increases from 12.5% to 15.00%. This increase will take effect also on the 1 October 2010. So with the GST increase and the tax deductions, what does that mean for us, the following table gives a brief overview.
Budget - May 2010 - Income Tax Changes for Individuals
As expected, the Budget cut the top and bottom income tax rates for individuals, but delivered larger than expected benefits for middle income earners. Previously, personal tax rates were hinted at falling from 38cents, 33 cents, 21cents and 12.5cents to 33 cents, 19cents and 10 cents. In reality they fell as follows:
ncome above $70,000 pre budget 38 cents - 1 October 2010 33 cents
Income from $48,001 to $70,000 pre budget 33 cents - 1 October 2010 30 cents
Income from $14,001 to $48,000 pre budget 21 cents - 1 October 2010 17.5 cents
Income from $0 to $14,000 pre budget 12.5 cents - 1 October 2010 10.5 cents
ncome above $70,000 pre budget 38 cents - 1 October 2010 33 cents
Income from $48,001 to $70,000 pre budget 33 cents - 1 October 2010 30 cents
Income from $14,001 to $48,000 pre budget 21 cents - 1 October 2010 17.5 cents
Income from $0 to $14,000 pre budget 12.5 cents - 1 October 2010 10.5 cents
Tuesday, March 2, 2010
Income Tax Explained In Simple Terms....
Read this, it makes sense out of all the flowery language our politicians use....
People who grizzle about tax breaks for the rich should read this. Tax system explained in beer. Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
People who grizzle about tax breaks for the rich should read this. Tax system explained in beer. Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
- The first four men (the poorest) would pay nothing.
- The fifth would pay $1.The sixth would pay $3.
- The seventh would pay $7.
- The eighth would pay $12.T
- The ninth would pay $18.
- The tenth man (the richest) would pay $59.
So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80. The group still wanted to pay their bill the way we pay our taxes.
So the first four men were unaffected. They would still drink for free. But what about the other six men? The paying customers? How could they divide the $20 windfall so that everyone would get his fair share? They realised that $20 divided by six is $3.33.
But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:
- The fifth man, like the first four, now paid nothing (100% savings)
- The sixth now paid $2 instead of $3 (33% savings).
- The seventh now pay $5 instead of $7 (28% savings).
- The eighth now paid $9 instead of $12 (25% savings).
- The ninth now paid $14 instead of $18 ( 22% savings).
- The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $ 20,"declared the sixth man. He pointed to the tenth man," but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a Dollar, too. It's unfair that he got ten times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, this is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier!
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