Not too long until Christmas and the season of gift giving and entertaining. And as a business owner, it’s likely you are considering what gifts to give to clients and staff, however, when doing your budgets, remember that some gifts can’t be accounted for as tax deductions.

Here is a brief outline of the general rules for Christmas entertainment and gifts.

Tax deductions for entertainment: 50%

Christmas parties for your employees, in-work celebrations, ‘shouts’ at the local pub and any kind of general entertainment with food and drink allows you to deduct 50% of your party expenses – claimable as tax deductions in your GST or Income Tax returns. The 50% entertainment rule also applies to your clients and suppliers who you may wish to celebrate a good year with.

If you shout them a ticket at a corporate box where they can eat and drink – that’s entertainment; so is accommodation in a holiday home or a journey in a corporate yacht. Basically, where food and drink is provided or consumed on your premises, at a local restaurant or hotel the 50% rule applies.

However, all offshore entertainment is 100% deductible so if you are feeling extra generous, consider taking your team or clients (or your accountant) to Fiji to celebrate.

Tax deductions for gifts and promotions: 100%

Christmas presents for your staff and clients are deductible provided they do not exceed the general employee exemption figure and the maximum employer exemption figure for Fringe Benefit Tax.

The current exemption figures are $300 per employee per quarter and $22,500 maximum employer exemption per annum. If you exceed the exemptions you will need to pay Fringe Benefit Tax on the total value of the benefits.

So that’s the rules in brief, but if you are still unsure or looking at other benefits for your staff throughout the year then give us a call and we’ll help make sure you are claiming the right tax deductions.

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Inland Revenue have made some rates updates that we thought you might like to know about, these have been outlined below:

Motor Vehicles

The kilometre rates for 2019 are:

Tier One rates can be used for the first 14,000 kilometres of travel (for both business and private use), while Tier Two rates are used for travel beyond the first 14,000 kilometres.

Employees can be reimbursed using these rates, with Tier One rates available for the first 3,500 kilometres of reimbursement and Tier Two rates available for travel beyond the first 3,500 kilometres. Employees should keep a log book showing their business-related mileage. They can potentially claim a higher number of kilometres at the Tier One rate. For example, use the Tier One rate for the business portion of the first 14,000 kms (total) travelled by the vehicle in the income year, and then the Tier Two rates after that.

AA rates and actual costs can also be used as an alternate when claiming a deduction or reimbursement for a vehicle used for business purposes.

Home Office Deduction

The square metre rate for 2019 is $41.70 per square metre.  The square metre rate can be used to claim a deduction where you use part of your house for business purposes.  This excludes mortgage interest, rates or rent which can be claimed on a pro-rata basis as an additional deduction.

Money Interest Rates usage

From 29 August 2019, Inland Revenue use of money interest rates will be changing.  The debit rate (the rate you pay to Inland Revenue) will be increasing from 8.22% to 8.35% per annum, while the credit rate (the rate Inland Revenue pays you) will be decreasing from 1.02% to 0.81% per annum.

Got a tricky tax problem, call us now on 0800 758 766 to see what we can do to assist. Alternatively, you can email support@geca.co.nz. 

Download a pdf of the 2019 year-end tax tips

Credit: Information has been collated from www.ird.co.nz and excerpts from this article.

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After you buy your first home and accumulate some equity on the property, it may be time for you to climb up the property ladder further. Now, when you are ready to start investing it is extremely important to do it right from the beginning. And the first question that needs to be asked is what legal structure to choose and what tax consequences it will bring.

Recently, The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 has been enacted. It introduced ring-fencing rental losses, a new rule for New Zealand residential property investors that will apply from the beginning of the 2020 financial year, i.e. from 1 April 2019.

To keep it simple here is what it means for property investors:

• If expenses related to your rental are higher than your rental income you cannot reduce your other income by the amount of your rental loss.
• You can use that loss amount against the profit from your rental – in a tax year when it gets profitable. Before this happens, ring-fenced losses can be accumulated.
• The amount of ring-fenced losses can be used to reduce or offset against taxable gain on sale of property for example if a rental is bought on or after 29 March 2018 and sold within five years after the purchase (so called the bright-line test). Un-utilised ring-fenced losses can be used in future when an investor buys another rental.
• An investor can elect to apply the rules on a property-by-property basis or on portfolio basis. This means that if an investor has got more than one rental, they can choose to track their ring-fencing losses by property or by the whole portfolio. Also, there is an option for an investor to include some of the properties to the portfolio and keep the others separate.
• Ring-fencing losses rules do not apply to your main home, business premises, commercial property, farmland, mixed used assets, employee accommodation, property bought as part of a land dealing business or bought with the intention of resale

This is the minimum that every investor may want to know about the new legislation. Now let me come back to the main question: what structure will suit better a new investor in the changed tax environment?

1. The first and simplest structure to be used is to buy a rental under a natural person’s name.If you get profit from your rental it is going to be taxed at your marginal rate. If you get a loss then the new rules will apply and you can offset the loss against your future profit.

The biggest disadvantage of this business structure is that even though it looks like a cheap option in reality it may appear that it is the most expensive one. Rental property under your personal name is not separated from your other assets.  This means that has no protection against your creditors and relationship property claims. Also, under some circumstances the process of inheriting this property may get complicated.

2. Another option is to set up a trust and transfer your residential property to this trust. It can by a costly and time-consuming option since proper trust setting and running implies that you will need to work closely with your financial adviser, lawyer and an accountant. However, it may be worth it: your property will be kept secured and protected against claims by creditors and ex-spouses / partners. Assets kept in trusts will be inherited by the people you want, and not the people that persuade the court that they were disadvantaged.

Taxwise, if the trust makes a profit out of rental property it may keep that profit in the trust or distribute it to the beneficiaries. If the profit is kept in trust it should be taxed at the flat rate of 33%. If it is distributed to the beneficiaries, it will be taxed at the beneficiaries’ marginal rates except for children under 16 (for them, the rate of 33% applies).

If the trust makes a loss it is subject to the above-described ring-fencing losses rule. The loss cannot be distributed to the beneficiaries and cannot be offset against other income that the trust may have.

3. There is an option for you to create a limited liability company and transfer your rental to the company. It will help you protect your property better than if it was held by a natural person but not as well as if it was held in a trust. However, the tax consequences will be similar. If profit is held in the company it will be taxed at the flat rate of 28%. If it is distributed to a shareholder as a shareholder salary it will be taxed at their marginal rate. Ring-fencing losses rule will still apply to the company losses.

There is one minor exception from this rule. As per s EL 11 of The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019, if a company is not a close company, i.e. has got more than six not associated natural persons, the ring-fencing losses rule does not apply. However, the majority of New Zealand companies are close companies and will be still caught by the new rule.

Summary

Nowadays due to the implementation of ring-fencing losses legislation, holding rental properties individually or keeping it in a trust or in a close company will not differ significantly in terms of tax liabilities. Each ownership structure allows distribution of profits to individuals and tax at individuals’ marginal rate. However, the losses will be still subject to the new rules.

Therefore, when choosing a business structure, it is worth considering other pros and cons such as security, compliance costs and accessibility of profit.

The Author.

The article is written by Valiya Gafarova, Certified Xero Adviser and Accountant at GECA Chartered Accountants. If you want to know more about tax consequences of having a rental feel free to get in touch with us on 0800 758 766.

Please note that this blog post should be considered as a general overview but not as a tax advice relevant to your situation.

The post How to choose the right business structure for your residential rentals after ring-fencing losses were introduced appeared first on GECA Chartered Accountants.

You will never get a second chance to make a first impression. And yes, fortunately or unfortunately, a first impression is usually a long-lasting one and changing it can be a challenge. So when promoting your business, you want to make a good impression and be remembered in the right way. One of the ways to win over potential clients is through entertaining them in a social setting.

However, you need to remember that providing entertainment while promoting your business is subject to specific tax rules.

Promoting your business at events

The general rule is that promoting expenses that include entertainment are 100% deductible as long as the promotion addresses the general public, not particular people associated with the business.

For example, your company participates in a cultural festival and organises some entertainment for anybody who comes to the event. Say, people are offered some food, get involved in games and draw prizes. These expenses are fully deductible. However, if your existing business contacts, employees or somebody else has a greater opportunity to enjoy this entertainment than the general public these expenses will become only 50% deductible.

Let’s extend the example further. At this festival you distribute samples of your products or other freebies. You can deduct the 100% of the samples costs that have been given to the general public. However, if freebies are given to your employees or people associated with your business the expenses are just 50% deductible.

Promoting your business at conferences and educational courses

If the conference, educational course or other similar event is held for business purposes the deductibility of the expenses can be known using the following scheme.

Entertainment provided for the purposes of review to an external reviewer

If you are engaged in an entertainment business and you decide to render your services for free to a person who is going to review the entertainment, for income tax purposes you can deduct 100% of your actual expenses.

Say you run a tour around New Zealand. You invite a top blogger to enjoy the tour and write a review in his blog. The expenses associated with this tour including food and accommodation are 100% deductible.

Entertainment for charitable purposes

You can deduct 100% of your expenditures if your business provides entertainment for charitable purposes. The Charities Act 2005 says that ‘charitable purpose’ must fall under one or more categories:

• the relief of poverty;
• the advancement of education;
• the advancement of religion;
• other purposes beneficial to the community

For example, if you donate food to the Salvation Army the expenses are fully deductible.

Summary

When you do promotion and provide entertainment it is worth paying attention to who is going to enjoy the entertainment. If the entertainment is meant to be enjoyed by the general public more likely the expense is going to be 100% deductible.

The Author.

The article is written by Valiya Gafarova, Certified Xero Adviser and Accountant at GECA Chartered Accountants. If you want to know more about tax treatment of entertainment expenses feel free to get in touch with us on 0800 758 766.

Please note that this blog post should be considered as a general overview but not as a tax advice relevant to your situation.

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Avoid making loans between companies

Avoid making inter-company loans if you are operating two or more companies. Unless the shareholdings in both companies are identical interest needs to be charged between the two entities. If it is not charged, the value of the interest that is supposed to be charged can be deemed a dividend. This can lead to tax complications.

If you want to move money between companies we suggest using the shareholder(s) current account as an advance or drawings in both entities. This is assuming you have a sufficient balance in the current account.

We also suggest not paying another company’s bills from the other company’s bank account. It usually creates a lot of accounting work. This can be avoided by a simple transfer of funds, as described above.

If you have a complicated structure and too many inter-entity loan balances, have a chat to us to see if we can assist you with the loan restructures.

Accounting & tax tips for personal trainers

Motor vehicle – If you are using your personal vehicle, then take note of how much you use your car for work purposes.  This might include travel between clients, picking up supplies, heading to a seminar or anything directly business related.

Bootcamps – If you are running a boot camp or training session for clients outside you can claim particular expenses.  Any equipment or resources used are tax deductible. This includes mats, sunglasses, sunscreen, and hats.

Uniforms – IRD is very particular about what type of expenses fall under the uniform category.  Clothing which has the business logo on it can be claimed as an expense for business purposes only.  Note, running shoes also fall outside of this rule.

Separate business accounts – We recommend clients setting up separate bank accounts or credit cards.  Your clients can pay into this account and you can pay all your business expenses from these accounts.  This ensures we as accountants spend less time processing and separating out your business and personal expenses. Therefore, reducing your accounting costs.

Xero Invoice Reminders – With busy schedules, chasing up debtors can be a chore.  Now in Xero, you can turn your automatic invoice reminders on. This saves you time on debt collection and allows Xero to chase up any late payers and overdue invoices.

Please contact GECA if you need more tips on how to structure your business and if you need to know more on which expenses you can claim for better record keeping.

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