All text must be copied without modification and all pages must be included.
This document must not be distributed for profit.
Do you provide Accommodation or Meals to Employees?
Borrowing Money to Finance Business Activity
DO YOU PROVIDE ACCOMMODATION OR MEALS TO EMPLOYEES?
Accommodation and accommodation payments are tax exempt for employees:
Some employees have longer tax exempt time periods. Specific rules apply to:
Meals and meal allowances are tax exempt for employees:
What You Need to Do
How to Tax a Benefit Allowance
Benefit allowances are the provision of the benefit or payments made in addition to salary or wages that benefit the employee. Examples include:
Unless exempted the taxable value of the benefit is the difference between the market value of the benefit provided, and any amount the employee actually pays.
If providing free board you need to take into account what is being supplied, eg, meals, own room, power and phone when calculating the taxable value.
The taxable value of the benefit is added to the employee's wages each pay period it's paid in and PAYE is deducted from the total. Include this in the gross earnings when you complete your Employer Monthly Schedule (IR348).
Regan works on a farm with a farm house on the property. His employer lets him rent the farm house for less than the market value. Regan will have to connect and pay for any of his own utilities, eg, power, phone, internet, etc.
|Market value of accommodation||$150 per week|
|Rent paid by Regan||$100 per week|
|Taxable value (to be added to wages and taxed)||$50 per week|
If Regan is paid a weekly rate of $500 each week, the calculation is:
|Taxable value of accommodation||$50|
|PAYE on $550||$85.37|
|Regan would be paid the following:|
|Less taxable value of the accommodation||$50|
|Net amount paid to the employee||$414.63|
When completing your Employer Monthly Schedule (IR348) Regan's gross will be listed as $550 (inclusive of the taxable value of the accommodation).
BORROWING MONEY TO FINANCE BUSINESS ACTIVITY
Borrowing money is one of the most common sources of funding for a small business, but obtaining a loan isn't always easy. Before you approach your bank for a loan, it is a good idea to understand as much as you can about the factors the bank will evaluate when they consider making you a loan. This discussion outlines some of the key factors a bank uses to analise a potential borrower.
Key Points to Consider
Your bank will review the following key points:
to Repay/ Capacity
The ability to repay must be justified in your loan package. Banks want to see two sources of repayment -- cashflow from the business, plus a secondary source such as collateral, as security. In order to analyse the cash flow of the business, the lender will review the business's past Financial Statements. Generally, banks feel most comfortable dealing with a business that has been in existence for a number of years because they have a financial track record. If the business has consistently made a profit and that profit can cover the payment of additional debt, then it is likely that the loan will be approved. If however, the business has been operating marginally and now has a new opportunity to grow or if that business is a new business, then it is necessary to prepare a thorough loan package with detailed explanation addressing how the business will be able to repay the loan.
One of the first things a bank will determine when a person/business requests a loan is whether their personal and business credit is good. Most banks have access to this information. Therefore before you go to the bank, or even start the process of preparing a loan request, you want to make sure your credit is good.
If you have been late by a month on an occasional payment, this probably will not adversely affect your credit. However, if you are continuously late in paying your credit, have a credit that was never paid and charged off, have a judgment against you, or have declared bankruptcy in the last 7 years, it is likely that you will have difficulty in obtaining a loan.
In some cases, a person has had a period of bad credit based on a divorce, medical crisis, or some other significant event. If you can show that your credit was good before and after this event and that you have tried to pay back those debts incurred in the period of bad credit, you should be able to obtain a loan. It is best if you write an explanation of your credit problems and how you have rectified them and attach this to your credit report in your loan package.
Financial institutions want to see a certain amount of equity in a business. Equity can be built up in a business through retained earnings or the injection of cash from either the owner or investors.
Don't be misled into thinking that new businesses can obtain 100% financing. A business owner usually must put some of her/his own money into the business. The amount an individual must put into the business in order to obtain a loan is dependent on the type of loan, purpose and terms. For example, many banks want the owner to put in at least 20 - 40% of the total request.
Example: A new business needs a $100,000 to start. The business owner must put $20,000 of her own money into the new business as equity. Her loan will be $80,000. The debt to equity ratio is 4:1. Note also that this is only one of many factors used to evaluate the business -- just having the right debt/equity ratio does not guarantee you'll get the loan.
Financial institutions are looking for a second source of repayment, which often is collateral. Collateral are those personal and business assets that can be sold to pay back the loan. Most loan programmes require at least some collateral to secure a loan. If a potential borrower has no collateral to secure a loan, he/ she will need a co-signer that has collateral to pledge. Otherwise it may be difficult to obtain a loan.
The value of collateral is not based on the market value. It is discounted to take into account the value that would be lost if the assets had to be liquidated.
Questions Your Bank is Likely to Ask
The key questions the bank will be seeking to answer are as follows:
|TOTALACCOUNTING 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|
If we can assist further, please email TotalAccounting as follows: