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.

The post Tax Updates appeared first on GECA Chartered Accountants.

The end of financial year deadline 

As the end of the financial year approaches, it always pays to spend a little extra time examining your financial records and considering ways to increase your after-tax income. 

There is a high chance that you will find a couple of extra savings from 2018-19, which can add up to reduce your tax bill by a significant amount. It is also a good time of year to reflect on your financial position, and think about tax minimisation strategies and goals for 2019–20.  

Top tax tips for the end of financial year: 

Write off bad debts 

Businesses with outstanding amounts owed, no matter the size, that are unlikely to be recovered in full should consider writing these off as bad debts. Bad debts can be used as a tax deduction, effectively reducing your taxable income for the relevant year. 

In order for a debt to be considered bad, you must have formally written the debt off in your accounts, and be able to prove to Inland Revenue that you have taken reasonable steps to recover the amount. 

Pre-pay expenses 

By pre-paying for tax deductible expenses before March 31, you will be able to minimise your tax bill. Some categories of business expenses can be pre-paid without any limitations, meaning that you can claim as much as you like. Examples include stationery, vehicle registration, accounting and auditing fees and postal charges. Most other expense categories have caps that limit the amount that can be claimed in a year. 

Split business income 

In some circumstances, it may be possible to minimise your tax liability by redistributing the flow of income from your business. For example, if your partner is a low-income earner, it may be advisable for you to split the business income with them. It may also be possible for you to redirect some of your income towards your children. 

However, if your family members are employed in your business as wage earners, you should be aware that Inland Revenue may elect to make tax adjustments if they consider the remuneration to be excessive. 

Discount reserve 

You are able to claim a deduction for a discount reserve. For example, a discount for speedy payments, if your debtors are traditionally entitled to this discount. In the years following on from the first year that you are allowed, you can claim a discount reserve deduction, adjustments will be made to maintain the discount level at a consistent level. 

Trading stock valuation 

Trading stock must be valued using a cost valuation method unless the market selling value is lower than the cost. Therefore, in order to lower the value of your stock before the end of the financial year, you should either physically dispose of it or sell it at market price (if the market price is lower than  cost). 

Work In Progress (WIP) 

It is recommended that on 31 March you assess all the jobs in progress.  Make a list of these jobs and add up the costs associated with these jobs (exclusive of GST).  The costs will include any stock items used and employee/contractor time on these jobs.  These costs are treated as closing Work In Progress as at 31 March and are costs yet to be billed to the customers.  These won’t be deductible as an expense at the end of the financial year. 

Fixed Asset Schedules 

We suggest reviewing your fixed asset registers and assess whether any assets are no longer in use by the business, not working or stolen or disposed of during the year.  By writing off these assets (only if they meet the write off criteria) a deduction will be allowed with respect to those assets. 

Bonuses and holiday pay 

It is possible to claim amounts payable to your employees as a deduction for the current financial year, so long as the full amount is paid to the employee within 63 days of the balance date. Amounts that are paid more than 63 days from the balance date can only be claimed in the following financial year. 

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

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