McLEAN AND CO.

Accounting                    Taxation                      Business Advice and Development Assistance                              P.O. Box 10 , Clive        133 Main Rd, Clive          Tel. (06) 8700952         Fax. (06) 8700955 

Email murray@mcleanandco.co.nz                                  Website www.mcleanandco.co.nz

 
 
EMAIL NEWSLETTER  APRIL 2004
 

Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. We trust you find it informative.  Any feedback would be welcomed.

McLean and Co. is a home based chartered accountancy practice based in Clive, Hawkes Bay.    Readers are invited to peruse the practice website www.mcleanandco.co.nzwhich lists services provided, gives contact details and indicates how to become a client, contains an extensive base of articles on business and taxation matters,  and has links to other websites that may assist your business.    Being a small firm itself,   McLean and Co. strives to provide a personal and professional service largely to a self employed person and small business client base.  Enquiries are welcomed.

 

NEW CLIENTS

We are happy to accept new clients.  Please contact ourselves at the contact points highlighted above if we can assist you in your accounting and taxation requirements. Our website lists information required for this in the following link:

www.mcleanandco.co.nz/Documentationrequired.htm

 

INDEX

  1. Relevant Business and Taxation Articles.

  2. Year End Tax Deductions.

  3. Expenses you can Claim if you are Working from Home.

  4. Family Assistance- Income Threshold increasesn

  5. GST Deregistration

  6. Property Investing Articles

  7. Links to General Business Sites

  8. Holidays Act - Key Changes from 1 April 2004

 

RELEVANT BUSINESS AND TAXATION ARTICLES

The McLean and Co. website contains an extensive number of articles prepared by McLean and Co. relating to taxation and business matters.    Here are a selection that will be of interest:

How Much is a Business Worth?              www.mcleanandco.co.nz/Page116.htm

Business Legal Structures                         www.mcleanandco.co.nz/Page128.htm

Cutting Costs in Your Business                 www.mcleanandco.co.nz/Page80.htm

Family Support                                            www.mcleanandco.co.nz/Page79.htm

Revolving Credit- Hidden Costs                www.mcleanandco.co.nz/Page96.htm

 

 

YEAR END TAX DEDUCTIONS

Some tax deductions are important to consider at year end as follows:

the value of closing stock is taxable income.   The higher the value of closing stock, the higher the value of taxable income and the more tax to pay.   Obviously , your closing stock value must be true and fair and in accordance with IRD's directions, but if you can legitimately do so, minimise closing stock value.

Asset Purchases- if you are contemplating purchasing a new fixed asset around year end, purchase it in March, even if only an unconditional agreement is signed to commit you to the purchase by 31 March. By doing so in March, and even if it was on 31 March, a deduction of one month's depreciation can be claimed.

Income streaming-  if you can legitimately do so, stream income to a taxpayer with a lower tax rate (perhaps a spouse) -  whether you can do this legitimately depends on your business structure and operating methods.

Bad debts- identify these and write them off prior to 31 March.

Are you carrying out an aspect of your business activity from home? -  if so claim Home Office Expenses.

Accounts Payable (or Creditors)-   look at all expenses you owe at balance date, and claim a deduction for these.

Are there any business expenses paid out of your pocket that did not go through the financial books?  They can add up so make sure you claim them also.

 

 

EXPENSES YOU CAN CLAIM IF YOU ARE WORKING FROM HOME

A taxpayer carrying on a business for the purpose of deriving assessable income is entitled to a deduction for any revenue expenditure or loss necessarily incurred in carrying on the business.  

To qualify for deductions, part of your home must be set aside regularly and exclusively for the business.  In this regard, the place must be used as either:

The principle place of business for any trade or business in which you engage
As a place to meet and deal with customers in the normal course of your business
To conduct administrative and managerial activities (e.g. record keeping)
In connection with your trade or business if you are using a separate structure that is not attached to your home or residence (e.g. a studio, garage).

If you qualify for the home office deduction, you may be able to claim a portion of certain types of expenses that are associated with your home but arenít deductible by the average and non-business homeowner.  

The following is a summary of many of the expenses that can be claimed if you are running a business which is recognised as a business for tax purposes from home:

   

Home Office Expenses

A taxpayer who uses his or her home partly in furtherance of the conduct of a business is entitled to a deduction in relation to that part of the outgoings which relate to the use of the home for the work-related activities, including:

         power and  gas,

         rates,

         insurance,

         interest on mortgage,

         house and contents insurance,

         depreciation on portion of the house  and assets supplied to the business

         repairs and maintenance.

         rent if the home is rented.  

To figure what percentage of your home operating expenses and depreciation is deductible, the usual method is to divide the area used for your business by the total area of your outbuildings.  For example, if your home and outbuildings measure  400 square metres and you are using 40 square metres for your home office, you will be able to deduct 10% of certain expenses.  

Taxpayers should be careful about apportioning  an appropriate % allocation to all expense claims though, as a number of costs incurred around the home will have a personal content as well.   For example:

      with power it is normally to estimate a reasonable amount which is used for business- in most cases there is one power account for the whole of the house.

      house insurance  and depreciation claims will be made in proportion of the building area used for income earning activities divided by the total area of the buildings at the home.

      Rates should be claimed on the basis of the proportion of the land area used for    income earning activities divided by the total land area, if the difference by claiming on this basis is significantly different than the illustration above as to proportionality.  

Claims could be made in respect of a room that is not exclusively used for business  activity.  In this instance an apportionment could be based on a criteria such as the amount of time spent on the income-earning activity.  

Telephone

The following expense claims are allowable:

if a taxpayer has only one line rental charge and is using the phone in furtherance of business activity half the rental cost, regardless of whether the rental charged is at the domestic or commercial rate.  A claim of more than 50% is allowable if the actual use of the telephone supports a higher & claim.
if a taxpayer has more that one line rental charge and is using those other lines for business activity the full rental line charges for those business lines, but not the line rental charge for that line which is effectively a residential line.
any business toll charges on your home telephone lines.
the Yellow Pages Advertising account for your business which may be charged to your Telecom Account.

It is advisable to analyse business/personal toll calls immediately on receipt of the toll accounts, as you may forget what calls were for if you donít do this until the year when your Accountant asks for this.

 

Motor Vehicle Expenses  

If your home is your base, you are entitled to claim motor vehicle expenses incurred in derived business income in travelling from your home.   These could be claimed in the following manners:

the keeping of an analysis of business trips and applying the IRD specified rates to kilometres travelled.
The keeping of a log book against a specific vehicle used, and claiming the total costs relating to that vehicle in proportion to business usage and total usage as per the logbook.

 

Fixed Assets Costs  

Full and immediate write offs are not available against fixed assets (items over $200 which are used over a number of periods).   Instead costs should be phased over a number of periods in the form of depreciation.  

 

Insurance  

Generally only the following insurance types are deductible:

insurance on business assets.
income protection insurance.
professional indemnity.
mortgage repayment if the loan is specific to business activity.

Any insurances where any benefits that may be paid out are exempt from income tax, such as personal life and sickness, are not deductible as business expenses.

   

ACC Levies  

As business taxpayers you will liable to pay ACC Levies.  These are deductible as expenses for tax  purposes.  

 

Books and Periodicals  

You should claim expenditure on newspapers, journals, periodicals, books and other publications.   If you claim a portion of the home newspaper for the business this percentage should have some relationship to the business usage.  

 

Clothing  

In regard to the deductibility of  occupational clothing of a business taxpayer, the basic issues must be whether the expenditure was relevant and incidental to the derivation of gross income or was necessarily incurred in carrying on a business for the purpose of deriving income.   To claim it you would have to show that the clothing is specifically required for that business (e.g. protective overalls) or it is distinctive to that business (e.g. clothing emblazoned with monograms of the business).  

 

Entertainment   

Entertainment carried out specifically for business is deductible, but certain business-related entertainment is subject to a special regime which only allows a claim of 50%.  

Records such as invoices or receipts must be kept to support claims for all entertainment expenses.   Records should be kept of the date the expenses were incurred, the name of the persons entertained, the business they represent, the position they hold, and the reasons for the entertainment.  

 

Interest Paid on Money Borrowed for the Business  

Only interest paid is deductible, not the total amount of loan repayments if they are on a principle and interest basis.    Statements should be obtained from your lender which clearly identify the interest, and an apportionment should be processed if the loan was not totally business related.  

This summary does not represent the total expense categories that can be claimed.   There are likely to be others, depending on the type of home business.

 

FAMILY ASSISTANCE- INCOME THRESHOLD INCREASES

Income thresholds are the points at which family assistance entitlement starts to be abated as family income rises.

Income thresholds for family support, the child tax credit and parental tax credit have been increased to provide an adjustment for inflation for the year ended September 2003.   Income thresholds have been increased from $20,000 to $20,356 and $27.000 to $27.481.

At the new threshold levels, family assistance will abate by 18 cents for every extra dollar of family income above $20,356 a year and by 30 cents for every extra dollar of family income above $27,481.   The increase in income thresholds has meant the low-income and middle-income families with income above $20,000 receive more entitlement.

The amendments apply from 1 April 2004.

 

GST DEREGISTRATION

The Goods and Service Tax Act has been amended to allow notification of GST deregistration to be made by telephone.

Previously, taxpayers deregistering for GST were required to notify the Commissioner in writing.  However, taxpayers were already corresponding with IRD requesting the form used for deregistering in writing.  The entire deregistration process can now be completed in this one telephone call, without the need for a form to be sent, completed and returned.

 

 

PROPERTY INVESTING ARTICLES

We have recently upgraded our website to include a section specifically related to articles for property owners and investors.  Current articles in this section are:

Residential Rental Property- Features and Taxation

Rental Property Income

Typical Property Investment Structures

Depreciation

Obtaining a Business Loan- Key Steps 

Building up Wealth through Investing in Property

Fixed or Floating Mortgages?

Principal and Interest Debt or Interest Only?

Negative Gearing

Rental, Capital and Total Yields

These articles can be viewed by pressing the following link:

www.mcleanandco.co.nz/PropertyArticles.htm

 

LINKS TO GENERAL BUSINESS SITES

Have you looked at our Business Links Webpage lately?       We are continually updating this.   

It can be accessed by pressing the following link:

www.mcleanandco.co.nz/Links.htm

 

HOLIDAYS ACT- KEY CHANGES FROM 1 APRIL 2004

From 1 April 2004:

* Employers must pay staff a minimum of time-and-a-half for work on a public holiday, as well as offer a lieu day, even if they are on salary.

* The five days allocated each year for sick leave and bereavement leave are separated - giving three days' leave for bereavement and five for sickness.

* Sick leave can be accumulated for up to 15 days if not taken.

* 'Pay as you go' for annual leave entitlements is allowed for employees in a job less than a year - meaning they can forgo leave for extra money.

* Penalties for employers are higher if they break the law.

* The minimum adult wage increases from $8.50 an hour to $9.

* The minimum youth wage increases from $6.80 to $7.20.

 

 
 
The information provided in this email newsletter is for informational purposes only.   McLean and Co. accept no responsibility for the opinions and information expressed in the information provided and it is provided "as is" without warranty of any kind.    The user assumes the entire risk as to the accuracy and use of this document.   Readers are asked to seek professional advice pertaining to their own circumstances.    The McLean and Co. email newsletter may be copied and distributed subject to the following conditions:
All text must be copied without modification and all pages must be included.
This document must not be distributed for profit.    

 

If we can assist further, please email McLean and Co as follows:

 CONTACT McLEAN AND CO. BY EMAIL BY CLICKING ON THIS LINK

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