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YEAR-END TAX REMINDERS 2012


With the tax year end quickly approaching for most taxpayers, there are a number of steps that you can take prior to balance date that can maximise tax efficiency. It is therefore a good opportunity to consider the following and to tidy up your accounts in anticipation of the financial year end.

ACTION AREA
BAD DEBTS

ACTION
Have you written off all debts that you consider are bad? Individual debts must be reviewed and actually written off in your debtor ledger prior to balance date for them to be allowed as a deduction in the financial year. Could a current account or loan account be in debit (e.g. overdrawn)? Current accounts and loan accounts should be reviewed to avoid any possible problem. If you know or suspect that a current account or loan account is (or has been) in debit, please call us as there are some actions that could possibly be taken to reduce any interest which may need to be charged or FBT that may otherwise be payable. If you have paid a dividend in the current year that we did not prepare the documentation for, please let us know the details before 31 March to ensure that all aspects have been properly dealt with. Deduction for gifts of money to charitable organisations which are approved for donation tax credit purposes need to be identified and receipts obtained. Have you considered encouraging staff to take leave within the 63 days following balance date? An employer can obtain a deduction for employee remuneration (e.g. holiday pay, bonus) which relates to the current year, provided payment is made within 63 days after balance date. Fixed asset registers should be reviewed for accuracy and any not in use. Assets can be written off if they are no longer in use by the business, do not intend to use the asset in the future and the cost of disposing the assets is more than its disposal value. Is your income significantly higher than the previous year? If so, you should consider whether an additional voluntary provisional tax payment may be appropriate or alternatively it may be beneficial in aligning your tax payments with turnover. Have you paid more than $5,000 in interest to someone other than a bank? If you have, you may be required to withhold Resident Withholding Tax. Legal expenses should be well narrated and invoices provided to ensure the expense is correctly treated. Do you own a Look Through Company (LTC)? The Government made significant changes to the Qualifying Company regime, with effect from the first income year that starts on or after 1 April 2011. If the company was an LAQC, then unless an election has been made to be an LTC, losses will no longer be attributed to the shareholders. There are a number of rules applicable to LTCs and their ability to attribute losses to their shareholders. If you have an LTC it is important to discuss your particular circumstances with your BDO advisor. Do you have any investments or interests in overseas entities? The tax treatment of overseas investments is quite specific, so it is important that we are aware of the types and amounts of overseas investments, and any changes in these investments.

STATUS

COMPANIES

DIVIDENDS

DONATIONS EMPLOYEE WAGES AND LEAVE

FIXED ASSETS

HIGHER INCOME

INTEREST PAYMENTS LEGAL FEES LOOK THROUGH COMPANIES (PREVIOUSLY QC & LAQC)

OVERSEAS INVESTMENTS

ACTION AREA
PAYMENTS TO CONTRACTORS

ACTION
Have you employed a labour-only builder, a fencing contractor or any other contractor? The PAYE and withholding payment rules apply to a wide range of contractors. With the penalties and use of money interest regimes it is particularly important to ensure that the rules are complied with. Have you made any payments to non-residents for services performed in New Zealand? The PAYE rules might apply to these payments. There are certain exemptions available, but because of the penalty and use-of-money interest regimes, it is particularly important to ensure that the rules are complied with. Have you made any interest, dividend or royalty payments to non-residents? The non-resident withholding tax rules might apply to these payments. There may be specific exemptions available in certain cases, but because of the penalty and useof-money interest regimes, it is particularly important to ensure that the rules are complied with. Have you considered prepaying items of expenditure? Certain types of expenditure can be claimed as a tax deduction in the year in which they are incurred regardless of the fact that the good or service will not be used until a future year, but only if they have also been expensed for financial reporting purposes. Some of these prepayment concessions have a dollar limit and/or a limit on the length of the period after year-end. Please detail those items of expenditure prepaid for us to analyse. Examples of expenditure which you could consider are - advertising, insurance, rates, rent, trade or professional subscription/membership fees, advanced travel and accommodation bookings, service or maintenance contracts, audit and accounting fees, stationery, newspaper subscriptions, vehicle registration fees and other services. Have you considered incurring repair or maintenance expenditure prior to balance date? If it will be necessary to incur such expenditure in the near future anyway, consider incurring it before balance date to obtain an earlier tax deduction. However, some expenses may be subject to the prepayment rules referred to earlier. Trading stock (excluding livestock) on hand at year end must be valued, subject to meeting the relevant criteria, using one of the prescribed methods such as: cost; discounted selling price; replacement price or market selling value if lower than cost. Generally, these methods must be applied consistently. There is a concession where a business with a turnover of less than $1.3 million per year can value their closing stock at the opening stock value, as long as the the closing stock can be reasonably estimated to be worth less than $10,000. If you have a vehicle which has not been used 100% for business purposes, have you kept a logbook? A logbook test period can be used to establish a business use percentage for tax, GST and FBT purposes. A new test period might be needed if there has been a significant change in business usage. However, sometimes a representative period may not even be possible, and a permanent logbook will need to be kept. Please give us your logbook details, and the details of any vehicles which have not been used 100% for business purposes. If you have any doubts or require clarification on any of the above, then please contact us. Often timing is of importance and action may be required before balance date or within a specific timeframe to enable you to take advantage of the above.

STATUS

PAYMENTS TO NONRESIDENTS

PREPAID EXPENDITURE

REPAIRS AND MAINTENANCE

TRADING STOCK

VEHICLE EXPENSES

CONTACT
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This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact your local BDO member firm to discuss these matters in the context of your particular circumstances. BDO New Zealand Ltd, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO New Zealand Ltd, a New Zealand limited liability company, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO New Zealand is a national association of independent member firms which operate as separate legal entities. For more info visit www.bdo.co.nz BDO is the brand name for the BDO network and for each of the BDO Member Firms.

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