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2. Click Tracking categories.

3. Enter the desired name of your tracking category, say, Rentals or Properties. There is also an option to enter each property name under this category.

4. Click Save.

5. Now when you reconcile your transactions you can assign payments to a particular property. The category name will appear under Why on your bank reconciliation dashboard and you can scroll down to choose a property that the transaction relates to.

6. Sometimes you can have only one receipt for expenses that relates to different properties. Say, you went to a shop and grabbed a new lamp shade for your three-bedroom house rented for a long term. You also bought a new iron for your Airbnb apartment and a kettle for your holiday home.
There are a few ways to attribute the expenses to the properties in Xero. If you use Xero Bills you can create a new bill for these expenses and while reconciling you can match that bill against the bank payment. Another easy way is to enter the receipt details at the moment you reconcile transactions in Xero. For that:

– Go to your bank account in Xero. Find the transaction then click Add details.

– Then, you can allocate expenses to your rentals. Check whether the amounts in the receipt or invoice are GST exclusive or GST inclusive.

7. Now you can track your properties performance. Click Accounting, Reports and More Reports under Financial. There, you can see Tracking Summary.

If you want to have an easy access to Tracking Summary in future click star. This report will appear under the Accounting tab.

8. Click Tracking Summary. Choose the date range and the accounts groups you want to review. Say, you would like to know the amount of expenses incurred in relation to each property.

9. Click Update. Now you can see your Expenses Summary. Unassigned expenses are those that haven’t been assigned to any property probably by mistake or because these expenses are overhead.

10. You can also see financial statements relating to each property. Probably the most interesting report for you is Profit and Loss. For that go to Accounting, then click Reports, then Profit and Loss.

In Profit and Loss choose the Date Range and click Report Settings.

11. Under Report Settings you can choose the rental you would like to look at.

12. Your Profit and Loss for the selected date range is now displayed.

13. Please note that the reports generated are based on the transactions you have coded while reconciling. These reports are for your reference only and may be subject to year-end adjustments

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

The post Xero Tips and Tricks: Keeping track of different rental properties appeared first on GECA Chartered Accountants.

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.

The post Providing entertainment while promoting business appeared first on GECA Chartered Accountants.

Let’s face it – no one likes paying to get tax returns done, especially when there is a set of financial statements to be done as well. And at GECA Chartered Accountants, where our purpose is to provide affordable expertise with a personalised service, we are doing something about it.

So here are six easy ways to save on your accounting fees each year:

1. Leverage technology

Utilise technology to do things that previously you would pay your accountant to do. Let cloud based software such as Xero automate previously labour intensive tasks done by the accountants such as bank reconciliations.

2. Keep comprehensive records

Keeping accounting fees down is about reducing time spent on your work. Modern accounting software allows you to attach invoices and receipts to each transaction in your accounting system, meaning queries by the accountant can be dealt with by referring to the attached documentation.

Compare this with the inefficiency inherent in the client keeping the records offline; requiring the accountant to contact the client, request the record, receive it and then finally be able to answer the query.

3. KISS (Keep it simple stupid)

I constantly meet people with incredibly complex structures for a relatively simple situation. Often the original reason for these structures no longer applies and yet they are still required to file annual accounts and tax returns.

Review your structure. Understand why it was set up and if it is still warranted. Whilst a liquidation might cost $2400, the on-going savings in annual compliance costs will soon outweigh this.

4. Get a fixed fee agreement for your compliance work

Traditionally, accounting work has been charged on a time and cost basis, exposing the client to unexpected costs and reducing the onus on the accountant to work efficiently.

Progressive accounting firms such as GECA now offer their clients fixed accounting fees in an agreement to provide transparency and certainty of compliance costs. If your accountant isn’t offering fixed fee agreements, find one who is.

5. Don’t use a tax refund service

These services offer to process your refund from the IRD for a commission ranging from 5 to – wait for it – 15%! Instead log on to the easy to use IRD website and process your own refund – for free.

6. Simplify your investments

PIE funds are tax exempt meaning they do not need to be included in a tax return. They are also taxed at 28% instead of the top personal rate of 33%.

Compare this with foreign investments subject to complex and expensive to prepare tax calculations with unrealised capital gains subject to tax. So swap those investments to PIEs and save some accounting fees.

***

So there you have it. Six easy ways to save money on your accounting fees. At GECA, we offer a range of accounting and taxation services. So if you want to save money by working with an accountant whose purpose is to provide affordable expertise with a personalised service, then we can help.

Call Giles at GECA Chartered Accountants now on 0800 758 766 for a free, no obligation discussion of your requirements.

The post Six ways to save money on your accounting fees appeared first on GECA Chartered Accountants.

Referrals
A referral program encourages your current customers to send their friends to your site,
and to earn rewards for their efforts. It’s a great way to generate low-cost advertising:
your customers send visitors and earn a small percentage of every sale (or another
reward), then those new customers refer their friends, who refer their friends, and so on!
Before long, you can have an army of loyal customers actively promoting your business –
with every new referral, you exponentially increase the chance of getting more
customers. And all for the price of a small commission on each sale or some other loyalty
reward.

Joint advertising
A joint advertising campaign works like any joint venture: you find a related business and
you share the cost of the project. At the same time, you share target audiences,
increasing the number of interested people who see your mutual ad campaign.
Good examples of this kind of advertising build on complementary industries. For
instance, if you run a home aquarium cleaning service, you could work with a local pet
shop. Together, you could offer a discount on your cleaning services, provided the
customer buys their equipment (and fish) from the associated pet shop. Both businesses
benefit: you get access to the pet shop’s clientele, and they get a chance at more sales to
people who would love an aquarium, but don’t like the idea of doing their own
maintenance.

Note that joint advertising is rarely an equal proposition: one party almost always pays
more than the other, as they stand to gain more from the advertising or bring less to the
combined project. Be flexible and ready to compromise.

Most relevant advertising medium
Choosing the most relevant advertising channel is absolutely critical in decreasing your
advertising costs. You’ll have to do thorough demographical research, or invest a little
money in trial-and-error learning to figure out the best medium for your business.
For example, television and radio offer a massive return on investment for some
companies, but if your business targets young adults who spend the majority of their time
online, they may be a bad choice. You would almost certainly be better off investing in
online advertising, or a social media marketing campaign.

The post 5 Cheaper Ways to Advertise Your Business appeared first on GECA Chartered Accountants.