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  DECEMBER 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.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.

MERRY XMAS TO ALL READERS

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. Pay Entitlements for the Public Holidays over Xmas and New Year.

  2. Income Tax Act 2004

  3. Applying for a Business Loan- Information Banks Want

  4. ACC :

Injury Cover
For Shareholder Employees
CoverPlus Extra
Classification Units
When do you Pay?
CoverPlus Cover
CoverPlus Extra Cover
Partners in a Partnership
How do you choose betwwen CoverPlus and CoverPlus Extra?
 

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:

Types of Accounting                           www.mcleanandco.co.nz/Page68.htm

Tax Audits- What is IRD Finding?     www.mcleanandco.co.nz/Page93.htm

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

Rental Property Income                      www.mcleanandco.co.nz/Page43.htm

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

 

 

PAY ENTITLEMENTS FOR THE PUBLIC HOLIDAYS OVER CHRISTMAS AND NEW YEAR  

All employees are entitled to a paid day off on a public holiday if it would otherwise be a working day for them (see below Days that would otherwise be working days). You should also get a copy of our fact sheet on Who gets paid what on the public holidays over the Christmas 2004 - New Years 2005 period?

These public holidays are separate from and additional to annual holidays.

The Holidays Act 2003 provides special arrangements for the public holidays that fall over the Christmas and New Year period. These public holidays are:

Christmas Day
Boxing Day
New Years Day
Second Day of January

The Act provides, in certain circumstances, for the transfer of Christmas and New Year’s public holidays. It sets out that, where these public holidays fall on Saturday and/or Sunday and these days would otherwise be working days for the employee, the public holidays will be observed on those days for that employee. Where Saturday and/or Sunday would not otherwise be working days for an employee, the public holidays will be observed on the following Monday and Tuesday for that employee.

Days that would otherwise be Working Days:

A day would otherwise be a working day if the employee would work on the day if it was not a public holiday. In terms of entitlements for public holidays, an employee is only entitled to be paid for a public holiday if that day would otherwise be a working day for the employee.

Example: What day is the public holiday observed?

If an employee normally works on Saturday and Sunday, then the employee would observe the public holidays on:

Saturday 25 December – Christmas Day
Sunday 26 December – Boxing Day
Saturday 1 January – New Years Day
Sunday 2 January – the day after New Year

If an employee normally works Monday to Friday, then the employee would observe the public holidays on:

Monday 27 December – Christmas Day
Tuesday 28 December – Boxing Day
Monday 3 January – New Years Day
Tuesday 4 January – the day after New Year

If an employee works Wednesday to Friday, then the employee would have no entitlement to a paid day away from work.

If an employee works Saturday to Tuesday, then the employee would observe the public holidays on:

Saturday 25 December – Christmas Day
Sunday 26 December – Boxing Day
Saturday 1 January – New Years Day
Sunday 2 January – the day after New Year

The payment of time and a half for the hours worked on a public holiday is only payable to those who work on a public holidays as detailed above. see also our fact sheet on Who gets paid what on the public holidays over the Christmas 2004 - New Years 2005 period?.

An employee is NOT entitled to more than four public holidays over the Christmas and New Year period, regardless of his or her work pattern.

INCOME TAX ACT 2004  

Income Tax Act 2004 – New and Improved?

The Income Tax Act 2004 (“2004 Act”) is a substantial rewrite of the Income tax Act 1994 (“1994 Act”). The 2004 Act will take effect from the 2005/06 tax year. This 2004 Act applies as early as 1 October 2004 for taxpayers with early balance dates. The aim of the rewrite was to enhance the clarity of the existing legislation without making significant changes to the law. There are, however, some intended policy changes in the 2004 Act, and they can be found in Schedule 22A. These are mainly minor changes or clarification of existing rules. Some intended policy changes include:

Land and Associated Persons – generally, the test of association for land transactions applies at the time the land is acquired (not at disposal). In relation to builders, the test will apply at the time the land improvements are completed. Therefore, where a person is not associated with a builder at the time of acquisition of property, but later becomes associated when improvements are carried out, a gain realised on the property may be subject to tax. Conversely, the property will no longer be caught by the association rules where the person was associated with a builder at the time of acquisition but was not associated when improvements are carried out.
Timing of Income Recognition – this change will alter the timing of when certain income is recognised. This means there will be no need to alter any past tax returns where liabilities are remitted or cancelled or expenditure is recovered, for example, from insurance claims. The amounts will now be returned in the year the liability is remitted or cancelled or when the expenditure (previously claimed as a deduction) is recovered.
Motor Vehicle Expenditure – IRD mileage rates may now be used to calculate the business use of a vehicle (up to a maximum of 5,000km per year for each person).
Farm Land Expenditure – this change clarifies the timing of deductions and prevents potential overlaps in relation to some farmland deductions and amortisation.
Livestock Valuation – the rules have been amended to ensure that a valuation election made for partnership livestock does not apply to a partner’s other interests.

A key issue with the 2004 Act is how taxpayers should deal with unintended policy changes or uncertainties resulting from the rewrite. The IRD has issued an exposure draft to deal with uncertainties that arise as a consequence of unintended policy changes. The IRD has indicated that penalties and interest will be remitted where:

The taxpayer relied on the 1994 Act, and the 2004 Act is found to be different.
The taxpayer relied on the 2004 Act and the 2004 Act is subsequently amended.

Therefore, reliance can be placed on either the 1994 Act or 2004 Act, provided the interpretation of either Act is acceptable.

 

APPLYING FOR A BUSINESS LOAN- INFORMATION BANKS WANT

If you are starting a business or expanding or require loan finance for whatever reason, , you may need to get a commercial loan.

There are many types of commercial loans available. A farmer who needs cash to plant his crop will seek a seasonal line of credit, as may a retailer who wants to stock up for Christmas inventory. If a company wants to borrow for accounts receivable and inventory, a revolving line of credit may be the type of loan needed. For long-term financial needs, a permanent working capital loan may be the answer.

Applying for a Loan

Some banks provide guides on how to apply for loans.

It’s likely you’ll need to provide the bank with the information it needs to decide whether your business can be a success. For a new business, that will include your business plan, your business’s statements of projected cashflow and profit and loss, your CV, and details of assets you’ll be offering as collateral to secure the loan.

For an existing business, you’ll also need to provide balance sheets, profit and loss records, order books, and details of money your business owes and money owed to it.

The Interview

A loan officer will interview you to go over details of your business. You’ll need to be able to explain your business plan and projected income and spending, including how you’ll handle a downturn. If you can get a chartered accountant to confirm your projections, it’s worth doing so.

You’ll also need to be able to convince the loan officer of your personal strengths as a manager, including your expertise, experience and professionalism.

Credit Investigation

When your loan request is being considered, the bank will do a credit investigation. It will look into any past dealings you and your business have had with banks and other lending institutions, as well as with suppliers and vendors.

The bank will also analyse the financial statements you have provided to determine the performance of your business.

 

ACC -INJURY COVER  

ACC administers New Zealand’s accident compensation scheme. ACC WorkPlace Cover provides injury cover for employees who suffer a work-related injury.

The Accident Compensation Corporation (ACC) administers New Zealand’s accident compensation scheme. This scheme provides personal injury cover for all citizens, residents and temporary visitors. It covers all accidents, including those that occur at home, at work, in vehicles and at play. In return people do not have the right to sue for personal injury, other than for exemplary damages.

Employers are required to help contribute to the cost of this cover. They must buy work-related cover from ACC for all their employees, including part-timers and casual workers. This cover is called ACC WorkPlace Cover. It entitles employees to assistance with treatment, rehabilitation and compensation for lost wages.

Every business in New Zealand is liable for ACC levies to pay for WorkPlace Cover. ACC will send you an invoice for your WorkPlace Cover levy from June each year. If your levy is over $500 (+GST) you can choose to pay on an instalments basis over 10 months. There is a small charge for taking this option to cover extra administration costs.

ACC invoices you directly for these levies, based on information supplied to it by the Inland Revenue Department (IRD). Levies are based on businesses’ earnings and the industry it works in.

For businesses, ACC levies are deductible for income tax purposes. This means you can claim ACC payments made against your business income. If you are registered for Goods and Services Tax  you can also claim the GST component of the levies as an input tax credit.

ACC WorkPlace Cover entitles employees injured at work to receive ACC assistance towards the cost of their medical treatment and rehabilitation. Employees may also be entitled to compensation for lost earnings if they need time off work.

If the employee needs time off work as a result of a workplace injury their employer must pay the first week of compensation for lost earnings. This compensation is a minimum of 80% of the employee’s weekly wage. Employers must provide ACC with an Employee Earnings Certificate (ACC3), so ACC can pay the employee compensation from the second week. Employers may need to consider alternative duties, which could allow the employee to return to work quickly, benefiting the employer and employee.   ACC will explore this possibility with you.

If an employer doesn’t believe an injury is work-related they have the right to ask ACC to review the claim.

How to Pay Less
 
ACC WorkPlace Cover levy rates are determined by the cost of work-related injuries in an industry sector. So the fewer injuries that occur overall, the less levies each employer will have to pay.
 

If you have an established health and safety system, you can reduce your ACC WorkPlace Cover levy by joining the ACC WorkPlace Safety Management Practices Programme.

You also need to pass an independent safety audit. Find out more
 

If you are willing and able to manage your own accident cover and employee claims, you can also save by becoming part of the ACC Partnership Programme.

It’s more suitable for employers whose annual ACC WorkPlace Cover levy exceeds $100,000. Find out more
 

ACC - FOR SHAREHOLDER EMPLOYEES  

A shareholder-employee is someone who is both a shareholder and an employee of a company. For ACC purposes there are two types of shareholder-employees – those who receive a regular salary/wage from the company that is subject to PAYE deduction, and those who receive an annual salary that is not subject to PAYE deductions.
By default, ACC WorkPlace Cover provides cover for both PAYE employees and shareholder-employees.



ACC -COVERPLUS EXTRA  

As an alternative to ACC WorkPlace Cover, non-PAYE shareholder-employees may apply for ACC CoverPlus Extra.
See the self-employed section for details, including how the two types of cover compare.



ACC -CLASSIFICATION UNITS  

When it comes to allocating an appropriate Classification Unit, generally speaking, the activity that the shareholder-employee carries out is part of the business of the employer and not separate to it.

That means that earnings for shareholder-employees should be classified under the same classification unit as that of the employer.



ACC - WHEN DO YOU PAY?  

ACC WorkPlace Cover invoices for shareholder-employees are sent separately from invoices for PAYE employees. This is because information on the liable earnings for shareholder-employees is available later from Inland Revenue than for PAYE employees.

If your shareholder-employee is covered by ACC CoverPlus Extra they can expect their invoice from September.

 

ACC -COVERPLUS COVER  

 

This is the standard ACC cover, with levies and weekly compensation based on your previous year’s earnings from self-employment. ACC automatically cover you with this option.
However, if:
•  Your income varies from year to year
•  You have not been self-employed for long
•  You can continue to receive business income after injury
•  You want a guaranteed level of compensation
•  You are in a partnership
•  You are a non-PAYE shareholder-employee
 

It is  recommended you take a look at ACC CoverPlus Extra.

ACC -COVER PLUSEXTRA COVER  

ACC CoverPlus Extra is an alternative to our standard ACC CoverPlus personal injury cover.
It will give you a guaranteed level of weekly compensation, agreed in advance with ACC, if you are unable to work as the result of an injury.

What Are the Benefits?


•  You can tailor the level of cover to suit your own personal circumstances.
•  If you make a claim, there is no need to prove your earnings, as the weekly compensation will already have been agreed.
•  You’ll receive 100% of the amount of weekly compensation purchased until you are fit for full-time work.

How Much Does it Cost?

ACC CoverPlus Extra levies are calculated much the same as ACC CoverPlus levies. In addition, they reflect:
•  The differences in rates between your normal entitlement and the nominated weekly compensation
•  Your age.
 

See What do I have to pay for more information about levies and how they are calculated.

You can also estimate your own levy by:
•  Using the  online calculator
•  Contacting the ACC Business Service Centre.

What Will you Get?


ACC will work with you to agree on a level of weekly compensation.
•  The minimum level of weekly compensation that you can nominate is $14,144 each year.
•  The maximum level of weekly compensation that you can nominate is $73,751 each year.
 

These amounts are for the 2003/04 levy year, and are subject to changes due to indexation each year.

To calculate levies and weekly compensation entitlements, ACC classify self-employed people into three groups:
•  Established in self-employment – means you have passed more than one balance date (last day in the tax year)
•  Recently self-employed – means you have passed only one balance date and therefore may not have an entire year of liable earnings
•  Newly self-employed – means you have not been in self-employment long enough to lodge a tax return with Inland Revenue.
 

The amount of weekly compensation you receive and levies you have to pay is determined by these classifications.

 


ACC -PARTNERS IN A PARTNERSHIP  

 

ACC CoverPlus Extra could be the right cover option for you as:
•  Cover can be negotiated based on 100% of the partnership’s income rather than on a maximum of 80% of each individual’s income (provided all partners apply for CoverPlus Extra at the same time)
•  Where one member of a partnership is a “passive earner” (with little involvement in the actual management or operation of the business), the other partner’s/partners’ level of cover can be negotiated to take into account the total partnership liable earnings.

ACC -HOW DO YOU CHOOSE BETWEEN ACC COVERPLUS OR ACC COVERPLUS EXTRA  


Not sure whether to go for ACC CoverPlus Extra or stick with ACC CoverPlus?

To help you choose the cover that’s right for you, we’ve set out the key differences between the two options:
ACC CoverPlus Extra
ACC CoverPlus
Weekly entitlements
•  Weekly compensation based on 100% of the amount you agree with ACC.
•  Stays the same if your business continues to generate income during any time off work.
•  Pays up to 80% of your previous year’s earnings (limits and conditions apply).
•  May be reduced if your business continues to generate income during time off work.
Special conditions apply for newly or recently self-employed people or shareholder-employees.
Calculating levies
Calculated using:
•  The agreed amount of cover
•  Your business activity.
Calculated using:
•  Your previous year’s liable earnings
•  Levy rates specific to your business activity.
Payment of levy
•  An invoice is sent once you agree to the terms and conditions of the cover.
•  A reassessment invoice to include your residual levies is sent once your earnings details become available from Inland Revenue.
•  An invoice is sent once your earnings details become available from Inland Revenue. The invoice includes your residual levies.

 

 
 
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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