McLEAN AND CO.

EMAIL NEWSLETTER JULY 2002  

 

Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. A special welcome to new subscribers this month.   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.

 

INDEX

  1. Paid Parental Leave for Self Employed Persons

  2. Salary/ Wage Earners-  Will You Get A Refund?

  3. Late Payment Penalties from 1 April 2002

  4. Cellphones 

  5. Is it Capital or Revenue Expenditure?

  6. Tax Changes for Charities

  7. Protective Clothing and Uniforms

 

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:

Current Tax Rates                                                                www.mcleanandco.co.nz/page4.htm

Obtaining a Business Loan- Key Steps                                      www.mcleanandco.co.nz/Page64.htm

Personal Planning for Business People                                      www.mcleanandco.co.nz/Page30.htm

Pricing your Product or Service                                             www.mcleanandco.co.nz/Page45.htm

Building Up Wealth Through Investing in Property                  www.mcleanandco.co.nz/Page11.htm

 

PAID PARENTAL LEAVE FOR SELF EMPLOYED PERSONS

From the beginning of July 2002, employed people have been eligible for 12 weeks paid parental leave, at up to $325 a week.   It should be noted that this only applies to employed persons and not self-employed persons.

If employees qualify for paid parental leave then it does seem unfair that self-employed parents should not be entitled to similar support at the time their babies are born.

For the large majority of self-employed people, their income is dependent on their ability to get out there and earn it. If they are not working in their business, their income drops or ceases. Moreover, unlike employees who can expect their employer still to be there at the end of 12 weeks or even a year, if an owner-operator shuts up shop for 12 weeks or more there may very well be no customers to come back to and the business will have to be built up from scratch, while hiring someone else in the interim may not be possible or cost-effective.

 

SALARY/ WAGE EARNERS- WILL YOU GET A REFUND?

There are no more tax returns for most salary and wage earners now that the PAYE system is more accurate. This helps you pay the right amount of tax.

However, there are some people who are likely to be eligible for a refund. If any of these situations applied to you in the tax year ended 31 March 2002, you may be affected:

You qualify for a rebate as a child or a salary/wage earner who earned less than $9880
You earned less than $38,000 and were paid dividends
You had more than one employer during the year
You worked for less than a full income year
You can claim expenses against your income, such as income protection insurance.
Worked only part of the year

From late June of this year IRD  have been automatically being sending our Personal Tax summaries to the people they know will need a catch up at the end of the tax year, and they do so if you:

received Family Assistance from IRD,
received Family Assistance from WINZ and earn over $20,000, or
have a student loan and are entitled to an interest write-off, or
have used a wrong tax code or use a Special Tax Code.
If you think you are due a refund and haven't been sent a Personal Tax Summary you should ring IRD at 0800 227 774 and request one (have your IRD Number handy)

 

LATE PAYMENT PENALTIES FROM 1 APRIL, 2002

From 1 April 2002 , for all revenues  (except student loans and child support) the initial late payment penalty is staggered and charged as follows:

an initial 1% penalty charged on the day after the due date.
a further 4% initial penalty charged if there is still an amount of unpaid tax (including penalties) at the end of the 7th day from the due date . The 7th day applies to 7 days after the initial 1% penalty and NOT 7 working days
For example, 2002 income tax due on 7 April, 2003
1% penalty imposed on 8 April 2003
4% penalty imposed on 15 April 2003
A payment is accepted as being received on time if it is mailed and postmarked on or before the due date.   A payment will also be accepted as being on time if it is physically deposited in an IRD office drop-in box or at a Westpac Trust branch by the close of business on the due date.   Therefore, the initial 1% penalty will not be charged if the payment is received, or mailed or postmarked on or before the due date.
However, the above rules do not apply to the 4% initial late payment penalty.  To avoid this penalty, the payment must be received before the end of the 7th day from the due date.
Paying a tax bill by the due date is still the best option.
 

CELLPHONES

Cellphones are becoming an important business tool nowadays as well as a fashion accessory.   If you provide cellphones to employees then your staff may have an FBT accessory as well.

Cellphones can attract FBT if the employee can use the cellphone to make private calls.   Recently there have been cases of IRD staff going through cellphone accounts.    The key question is:   How much does the employee use the phone?    If the cellphone accounts are large, which they may be for some executives or sales people, then you as an employer may have an issue.
One way to minimise the risk is to put a restriction on private use in the individual's employment contract or company policy.  This has the effect of reducing the business's liability if they are ever questioned by the IRD and may save you penalties if you are found to have a FBT liability.
Generally there is no FBT on benefits provided to employees on your premises.   Private calls made by employees from an office phone will not be subject to FBT.

 

IS IT CAPITAL OR REVENUE EXPENDITURE?

The capital/ revenue spending area of asset purchases is a frquent focus for IRD audits.   When accountants work on Annual Financial Statements and Tax Returns they should vet such "grey' items and ask questions of their clients to ascertain:

what was actually purchased

was something new created 

defining  the asset

was the work intended to improve an existing asset or simply restore it to working order

These questions are directed at answering the questioin as to whether the item is capital, and possibly subject to depreciation, or revenue, and immediately deductible.

 

TAX CHANGES FOR CHARITIES

During 2001 the government debated the treatment of charities- both from a tax perspective and a wider administrative view.

The changes recommended include:

a new Charities Commission to oversee the registration, monitoring and reporting requirements for charities.

registration of charities with the Charities Commission to obtain and keep their tax-free status.

anual review by the Charities Commission of each registered charity's on-going qualification for charity status exemption.

changes to the superannuation schemes run by charities.  Historically these schemes were used to give tax-efficient rewards to employees on below market salaries.

a tidy up of the rules on GST input credits for charities.

a slight increase to the donations rebates for individuals and companies.

 

PROTECTIVE CLOTHING AND UNIFORMS

Generally the purchase, replacement or maintenance of conventional clothing is not tax deductible.   However, a deduction may be allowed where the cloting is necessary and peculiar to your business, or where abnormal expenditure is incurred on conventional clothing.

Protective clothing is deductible providing the items are purchased for work.  This is likely to include-- hard hats, safety goggles, work gloves, milking aprons, work boots, leggings, ear muffs, overalls, and rainwear.   The protective clothing costs are not deductible if the items are purchased for a non- business activity, such as fancy dress or a hobby.

Underclothes, socks, jeans, shirts and jerseys are conventional clothing items.   Only in rare circumstances will these items be regarded as protective clothing    

 

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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