McLEAN AND CO. Chartered Accountants

Accounting          Taxation         Business Advice and Development Assistance           Audits                             

 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 2009
 
 

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

 

NEW CLIENTS

We are happy to accept new clients.  We would be happy to assist colleagues and acquaintances as new clients.

 

INDEX

  1. Increasing Gross Profit Margin

  2. Estimate your Working for Families Tax Credits (1 April 2009 to 31 March 2010)

  3. Job Support Scheme (the Nine Day Fortnight)

  4. Losses from Finance Company Investments- can you claim your losses as a Bad Debt?

 

 

INCREASING GROSS PROFIT MARGIN

For trading type organisation (e.g restaurants, retail shops, tradesman, manufacturers) the Gross Profit Margin is a critical figure.  Very often the General Overhead Expenses remain reasonably constant from year to year, and must be recovered by earning of an equivalent amount of Gross Profit to at least achieve a break even profit. And thus also any excess derived in the Gross Profit in comparison to the Overhead Expenses, or Gross Profit derived which is less than the Overhead Expenses, will make or break a business.

 

How can you boost gross profit -in dollars and the GP margin?

Option 1 - Increase Dollars of Gross Profit by Increasing Total Sales
* make sure your advertising is effective - monitor each programme and either keep  it as-is, refine it, or drop it. Don't just change it for its own sake, if it works!
* make use of in-store displays and demonstrations
* make sure the exterior appearance and identification of the business is clean,   professional and helps customers find your store
* employ effective, hard-working sales staff (and train and motivate all people to stay  that way!)
* seek referrals from existing customers
* seek referrals from related businesses
* use staff incentives and competitions to encourage up-selling or sales of
  companion lines - you can even use this to promote sales of older stock items or  slow-moving stock
* increase the average sales size:
sell higher quality or enhanced features
use merchandising and display to group related products together or to promote  seasonal lines
stock displayed at close to eye-level generally sells better
using more lineal space for a product generally promotes sales of that product (ie  allowing twice the shelfspace will generally lift sales of that product)
look at your stock and sales mix to ensure that they closely match each other
sell accessories or add-on products: either have your staff do this at point-of-sale,  or use signs and 'deals' in the store to encourage purchase of additional, related  items
* increase repeat trade from customers:
through positive, friendly and helpful staff
sales staff members' ability to understand customer needs - promoting only the   products of genuine value to the customer
business image/appearance/housekeeping
provide regular follow-up
create 'clubs' for groups of customers; use newletters or email or letters to tell them  about relevant products; run special events just for regular customers etc; add  promotional pieces into (eg) your mailings of monthly statements
provide high quality service

Option 2 - Manage The Margin
These pointers largely influence the 'cost' aspect of 'Cost of Goods Sold'. Improvements to gross margins can be achieved here without the firm's customers even realising what is going on.

Avoid the factors that reduce your closing stock:
* eliminate shoplifting of minor items with: vigilant staff; well-located cash registers; use of mirrors etc to provide good supervision of all areas
* eliminate staff pilferage of minor items, through suitable penalties, training, etc
* eliminate or minimise damage to stock while it is in storage or on display - place it in suitable locations and use display units to protect it
* make sure that all stock received is checked against delivery dockets or invoices, so that you only pay for what is actually received in good order and condition
* make sure damaged stock is returned to supplier for replacement or credit

Eliminate 'Depressed Sales Values' from the level of stock sold:
* check your pricing practices (inaccurate cost prices lead to incorrect sales prices)
* make sure you re-price stock (e.g. on old lines, or after a promotion)
* make sure your sales mix blends sales of the low-margin items with sales of higher  margin lines
* improve merchandising and display to encourage customers to buy products they  reasonably need
* eliminate excessive discounting (e.g. 'mates rates') by your staff
* minimise the extent of heavily-discounted 'end of season clearance sales'

Option 3 - Look at Your Prices
Check your pricing:
* adjust your markups so that your prices are not out of line with competitors' prices
* price some stock lines to keep customers coming back, then set a suitable margin
  on the related product sales
* make sure all stock on hand is priced consistently (don't let customers pick the  cheapest from amongst identical items on the shelves)
* use technology to make price changes quicker and easier; or to create price tags
  

 

 ESTIMATE YOUR WORKING FOR FAMILIES TAX CREDITS (1 APRIL 2009 to 31  MARCH 2010)

Click on this Link to start your calculation.

This calculator helps you estimate your Working for Families tax credits for the 2010 tax year (1 April 2009 to 31 March 2010). Use of this tool does not result in data being submitted to Inland Revenue Department.

Use this calculator as a guide only.

Your Working for Families tax credits entitlement is calculated using the information you enter into the calculator today. If any of your details change in the future your entitlement may change. 

Don't use this calculator when:

  • you share the care of a child or children
  • the number of dependent children who live with you changes often
  • your income increases during the year to more than $36,827.00.

If any of these apply to you please call IRD on 0800 227 773 to find out your correct entitlement.

Check to see whether you are eligible to receive Working for Families tax credits before you use the calculator.

If you currently receive Working for Families tax credits this calculator may not provide an accurate result. Sometimes when your situation changes part way through the year IRD need to adjust your payments to help you avoid an overpayment at the end of the year. Use the My family details and income online service to update your details and calculate your new entitlement accurately. Or you can phone IRD on 0800 227 773.

You will need to advise IRD:

  • details of dependent children who live with you
  • an estimate of your family income for the year
  • details of any child support you are entitled to receive or required to pay for the 2010 tax year - if you are unsure of the amount call us on 0800 221 221.

Many families may also be entitled to extra help with housing and childcare costs from Work and Income. These entitlements are available to people who are working, as well as those receiving a benefit. To find out if you are eligible call Working for Families on 0800 774 004 or visit the Working for Families website

Once you have finished processing the worksheet you can print a copy for your personal records.

 

JOB SUPPORT SCHEME

(Also known as the nine day fortnight.)

This is a Government initiative, administered by Work and Income, to help employers retain employees who could otherwise be facing redundancy. Every employer with more than 100 staff in New Zealand is eligible, with some exceptions.  It is available from 27 March 2009. The Job Support Scheme is one of the Government's initiatives in response to the current economic situation. Work and Income has a role to play by supporting employers and helping employees keep their jobs.

The Job Support Scheme helps employers who are facing temporary difficulty in the current economic conditions and may be looking at either reducing the size of their work force, or the number of paid hours their staff work.

The Job Support Scheme will help employers by paying an allowance to employees who have agreed to work reduced hours. The allowance will be administered by Work and Income as a direct payment to employers. It will supplement the income of workers who have accepted reduced working hours, by up to 10 hours per fortnight, for up to six months. Employers can sign up for one six-month period over the next 18 months.

 

Other information available is as follows:


LOSSES FROM FINANCE COMPANY INVESTMENTS- CAN YOU CLAIM YOUR LOSSES AS A BAD DEBT?

As many of the such finance companies are now in the hands of liquidators or receivers, investors are uncertain about the tax rules which might apply in cases where they are unlikely to receive full repayment of their investment.

If you are a  passive investor (as most investors are), and not in the business of holding and dealing in debt securities (including finance company deposits) then capital losses cannot be written off (the original principal amount invested plus any interest reinvested). However, individual investors can write off interest income in certain circumstances.

 

General rules for writing off Investment Income Losses

All income earned from investments is taxable. However some investors may find that they have been taxed on interest they have derived but not been paid yet. This is most likely to affect companies and trustees, but may also affect individuals. In general:

 

         This includes interest you expected to reinvest, but have not received. You can claim a tax deduction for the amount of interest written off in the year in which you write off the debt as bad.

This may, for example, also apply to "zero coupon" securities where all the interest is paid when the investment matures. If you have had to account for (or accrue) your interest income, you can write off the amount you have accrued if you consider it be unrecoverable.

 

General rules for individual (cash basis) Taxpayers

Companies, trustees and some individuals are taxed on an accruals basis and could be liable for tax on their accrued income, and might therefore consider the bad debt provisions.

However, the great majority of individuals are taxed only when they receive a payment, ie they are taxed on a cash basis. If you earn less than $100,000 from your total debt investments, you are taxed on a cash basis and you are therefore only required to return income when interest is paid to you.

Therefore it is  unlikely that the majority of individual investors will need to claim a deduction for a bad debt, as they are taxed on a cash basis and anything accrued but unpaid is not taxable.

Once interest has been reinvested it forms part of your principal or capital and no bad debt write off is available for capital amounts. In most cases RWT will have been deducted at the time your interest was paid to you, which is a clear indication that the interest has actually been "paid" for tax purposes.

Interest which is simply overdue is not considered as "paid" for tax purposes. So if you are taxed on a cash basis, which most individual investors are, you will not need to account for tax on any overdue interest. If you are not taxed that way however, you may have tax to pay and a bad debt write off could be an effective way to offset that liability.

If you do write off income, and later recover some of your investment from a receiver or liquidator, it will be first treated as a recovery of capital written off, then any balance will be treated as a recovery of interest written off  - and this amount will be taxable when you receive it.

 

 

 

McLEAN AND CO KNOWLEDGE CENTRE AND ARTICLES ABOUT TAXATION AND BUSINESS IN GENERAL PRESS HERE FOR BUSINESS STARTUP KNOWLEDGE CENTRE PRESS HERE
FOR INFORMATION ABOUT COMPANY INCORPORATION PRESS HERE FOR PREVIOUS MONTH EMAIL NEWSLETTERS PRESS HERE

FOR PROPERTY INVESTMENT AND TAX INFORMATION PRESS HERE

FOR FRANCHISE INVESTMENT AND TAX INFORMATION PRESS HERE


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.    

 

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