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  AUGUST 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. Calculating Holiday Pay

  2. Property Investment Debt- Principal and Interest Debt or Interest Only?

  3. What are Loan to Value Ratios?

  4. Student Loans

 

 

CALCULATING HOLIDAY PAY

Before calculating your employee's holiday pay you need to work out the gross amount payable to your employee. Go to the Department of Labour's website at www.ers.govt.nz for more information and on online tool to help you calculate holiday pay entitlements.

To calculate how much PAYE to deduct from your employee's holiday pay go to www.ird.govt.nz  write "Work it Out" in Search, keyword "PAYE".  " Calculate tax on holiday pay- 2010"   You can print a copy of the calculation with your employee's name and IRD number.  Include holiday pay in the period that you actually paid your employees.

 

 

PROPERTY INVESTMENT- PRINCIPAL AND INTEREST DEBT OR INTEREST ONLY

If you are investing in property and all your debt is tax deductible, then it depends on your attitude to risk, and your proposed portfolio growth , as to whether you should be funding only interest free debt, or principal and interest.

The more aggressive you are, and depending whether you want to accumulate a portfolio of several properties, the more likely it is that the debt will need to be interest only.   This will ensure that properties can be accumulated without over-committing your income in the eyes of the banks. You obviously have to pay debt back eventually, but on this basis you can pay it back upon downsizing your property investment portfolio

Alternatively,   you can consider paying back progressively by making principal and interest payments over the life of building your portfolio.

Features and benefits of principal and interest debt payment are as follows:

  • pay less interest

  • lower financial risk

  • pay off mortgage quicker

Features and benefits of interest debt payment are as follows:

  • better tax refund (or less tax to pay)

  • accumulate more property sooner

  • improved cash flow

Principal and interest payment is cheaper, but paying principal and interest debt can sometimes mean outgoings are too high to enable you to borrow further.  If, for example. the property investor pays interest only, then the purchase of another property may be affordable.  Many investors also believe too that the potential capital gains to be made by accumulating more property can also outweigh the cost of paying more interest.

 

 

WHAT ARE LOAN TO VALUE RATIOS?

Your Loan to Value Ratio or LVR is the amount of your borrowings divided by the value of the security (your home), expressed as a percentage.

 

For example, if your new home is worth $300,000 and you have a loan of $240,000; your Loan to Value Ratio (LVR) is 80%.

 

The LVR is really the reverse of your equity. If you have a LVR of 80%, this means that your equity (how much you own in your home) is 20% of the property’s value.

 

So what’s important about Loan to Value Ratios? Well the higher the LVR, the more you owe on your home as a percentage of its value and the more risky the bank sees your loan as being.

 

Banks tend to determine the maximum LVR they are prepared to advance depending on the type of property you are buying (residential , commercial, apartments may require different LVRs).  Also location of the property may come into consideration.  And of course your credit record and past payment record.

 

 

STUDENT LOANS

IRD has a revamped website relating to Student Loans.  There are tools to help keep track of your loans, and information about paying it back, both in NZ and overseas. 

Go to www.ird.govt.nz/studentloans/

 

 

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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