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.nz,  which 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.

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:

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:

YEAR END TAX DEDUCTIONS

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

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:

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 aren’t 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:

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 don’t 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:

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:

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:

These articles can be viewed by pressing the following link:

www.mcleanandco.co.nz/PropertyArticles.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:

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