McLEAN AND CO.

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  JULY 2005
 

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.

 

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. Relevant Business and Taxation Articles.

  2. Personal Tax Summaries

  3. Depreciation Changes

  4. The Seven Financial Stages

  5. Employing Spouse or Civil Union Partner

  6. Employing School Students

  7. How to Sell a Business for its True Worth

 

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:

The Importance of Accounting                 www.mcleanandco.co.nz/Page63.htm

GST- Second Hand Goods                        www.mcleanandco.co.nz/Page108.htm

Liquidation of a Company                         www.mcleanandco.co.nz/Page55.htm

Family Support                                          www.mcleanandco.co.nz/Page79.htm

Bankruptcy                                               www.mcleanandco.co.nz/Page56.htm

 

 

PERSONAL TAX SUMMARIES

Who Automatically Gets A Personal Tax Summary

Some people will automatically be sent a personal tax summary by Inland Revenue Department.  These are issued in June 2005. They are salary and wage earners who:

Receive family assistance payments from Inland Revenue. They will also be sent a Family Assistance (IR541) form that will show the family details IRD have used to calculate their family assistance entitlement. This includes those who choose to claim family assistance payments in one lump sum rather than fortnightly.
Receive family assistance payments from Work and Income and earned over $20,000. If a registration form has been completed in the past, they will be sent a Family Assistance (IR541) form. If not, they will receive a letter with a registration form to complete and return.
Have a student loan and qualify for a full or partial write-off of loan interest.
Have used the wrong tax code or wrong student loan repayment code and have paid too little tax or loan repayment.
Use a special code. IRD can't be sure if these taxpayers have paid the correct amount of tax during the year.
Use a casual agricultural employee (CAE) tax code or an election day worker (EDW) tax code and have earnings of more than $200 using these codes.
Received IR56 income.

 

Requesting A Personal Tax Summary- Compulsory

The following people must request a personal tax summary.

People who:

Receive income between $38,000 and $60,000 with more than $200 of interest taxed at less than 33%
Receive income over $60,000 with more than $200 of interest or dividends taxed at less than 39%
Received income over $38,000 with more than $200 of taxable Maori authority distributions
Received more than $200 in interest, dividends or taxable Maori authority distributions (regardless of whether this was taxed at the right rate) and paid child support
Received more than $200 in dividends, interest  or taxable Maori authority distributions (regardless of whether this was taxed at the right rate), have a student loan and earned over the following repayment thresholds:
$14,768 for the 2001 tax year
$15,132 for the 2002 tax year
$15,496 for the 2003 tax year
$15,964 for the 2004 tax year
$16,172 for the 2005 tax year

 

Requesting A Personal Tax Summary- Voluntary

From July anyone can request a personal tax summary. You may be entitled to a refund so check if any of the following apply to you:

Entitled to claim the child rebate (this applies to schoolchildren who worked part-time and paid tax)
Entitled to claim the under $9,880 rebate (unless you used the ML tax code during the year)
Worked only part of the year, but lived in New Zealand for the whole year
Have an annual income under $38,000 and also have dividend income automatically taxed at 33%
Had income fluctuations during the year
Had more than one employer during the year
Want to claim expenses such as income protection insurance.

 

DEPRECIATION CHANGES

Significant depreciation rule changes in the 2005 Budget were:

building depreiation rate reduced from 4%DV down to 3%DV.

low value asset threshold for writing assets off increases from $200 to $500. 

 

THE SEVEN FINANCIAL STAGES

Age Name Spending Pattern
Pre 18 The Unburdened Years For most people the majority of what we consume and spend is supplied by our parents.
18-24 Years The Burning Years Money's for spending, even if you don't have a lot of it.   There is a "live for the day" attitude and proportionally money is spent on leisure and luxuries than at any time of our lives.
25-34 The Learning Years The realities of self- sufficiency hit home. Careers blossom, as do families and therefore costs.
35-44 The Earning Years We tend to maximise our income.
45-54  The Discerning Years Our tastes are at their most extravagant and people can afford to splash out a bit more with children leaving home.
55-64 The Concerning Years We increase worry about the gap between what we have saved and what we'll actually need for retirement.
65+ The Yearning Years Many wish they had invested and planned more for retirement.

Source- Prudential Insurance

 

EMPLOYING SPOUSE OR CIVIL UNION PARTNER

If you employ your spouse or civil union partner in your business (unless your business is a company) you will need approval from IRD to pay them wages.   If you don't have approval you cannot claim a deduction for their wages in your business accounts.

To request approval to employ your spouse or civil union partner, you need to apply to IRD in writing, giving the following details:

the type of business and full details of the nature of work to be undertaken,

the average number of hours worked each week, anf the number of weeks to be worked during the year,

the amount of wages paid and how payment of wages is made e.g. cash at regular intervals, periodically or crediting to a bank account,

details of any other workers you employ and the total amount paid as wages, not including the wages paid to your spouse or civil union partner.

IRD give approval if:

the payment is solely for services given in the course of carrying on the business, and

the payment is not excessive (the rates must be the same as those you would pay to an unrelated employee for doing similar work).

You should apply for approval before you start paying wages to your spouse or civil union partner.  You need to apply if you increase the wages as a result of:

an increase in the duties performed, or

an increase in pay that is not a general wage increase.

 

EMPLOYING SCHOOL STUDENTS

If you employ primary or secondary school students you deduct PAYE as follows:

Weekly Earnings less than $20.00

Schoolchildren whose total earnings from all employment are less than $20 a week do not have to complete a Tax Declaration (IR330).  You don't need to deduct PAYE or Earner's Levy from their earnings or include them on your Employee Monthly Schedule.   However, you still need to keep wage records for them.

Weekly Earnings more than $20

Schoolchildren who earn more than $20 a week and/or whose annual earnings are not expected to be more than $1040 do not need to fill in an IR330.   You don't need to deduct PAYE or Earner's Levy from their earnings or include them on your EMS.

Schoolchildren who earn more than $20 a week and/or expect to earn more than $1040 a year must fill in an IR330 and you need to deduct PAYE or withholding tax from the full payment.  Children are entitled to a rebate of $156 each year if their income is over $1040.

Any employee who is at a tertiary institute is treated as an adult employee.

 

 

HOW TO SELL A BUSINESS FOR ITS TRUE WORTH

Business owners work hard for many years building a successful business. The rewards are worth the effort, but only when they sell their business do they finally realize the full value of their investment of time, effort and money. To sell a business for all it's worth, business brokers commonly recommend these steps.

1. Have a valid reason to sell.

Prospective buyers will want to know why you're selling. Their fear is that something is wrong with the business. Having a valid human reason for selling is your best first step. You will get better buyer response if there isn't any reason to doubt the viability of the business.

If you're just tired and burned out, say so. The most common reasons for selling are burnout, retirement, poor health, death, divorce, partnership disputes, relocation, and pursuit of other interests.

2. Don't wait until pressured to decide to sell.

Deciding to sell your business will be one of most difficult decisions you 'll ever have to make. Many people wait too long to decide to sell and find themselves pressured by poor health, financial problems, or emotional stress. Avoid, if at all possible, selling under duress.

Make the decision before circumstances force you to make it. Businesses generally take from 120 to 180 days to sell. Often it takes longer, so allow yourself plenty of time.

3. Maintain confidentiality.

One of the biggest mistakes made by sellers is telling people the business is for sale before it's a done deal. When one sells a home or a parcel of real estate, they want everybody to know it's for sale. There is no stigma attached to selling a home. Everybody does it.

But it's different with a business. The rumour mill starts grinding when word gets out that a business is for sale.

Customers are afraid they won't be served. Employees are anxious about their jobs. Suppliers fear they won't get paid. Competitors tell everybody that you're going out of business. Sales slip; profits shrink.

Buyers perceive your business is in trouble, and that drives down its value. Talk to prospective buyers only, and require them to sign a confidentiality agreement before they know the name and location of your business.

4. Gather information needed to market your business.

Your business must be marketed and sold just the same as any other product or service. Put together a marketing package that shows your business in its best light.

Assemble complete financial statements, income tax returns, a list of fixtures and equipment, copies of deeds and leases, copies of any franchise agreements, copies of equipment leases and maintenance agreements, the approximate value of inventory at your cost, and the names of your outside advisors.

In addition, you'll need a list of all loans showing the lender, the balance due, the interest rate, and the payment schedule.

5. Engage competent professionals.

Unless you're an experienced negotiator, it's recommended you engage professionals who are knowledgeable in the sale of businesses. Find a business broker with experience in marketing and selling your type of business.

6. Be part of the marketing team.

The broker may ask you to meet with the sales staff and tell them about your business. If the broker doesn't ask, volunteer to make a presentation to the brokers and to answer all their questions. You know your business better than anybody knows it.

Follow your broker's advice about dealing with prospective buyers. Some of the suggestions may seem odd to you, but there is a reason--you want to maintain confidentiality, and you want to get some offers to buy. An experienced broker will help you do both.

7. Don't let things slip.

Don't let things slip because you're selling. Keep normal business hours. Keep inventory constant. Advertise and promote the business to keep sales strong. Paint up and fix up. Make the business look as prosperous as it ever has.

8. Put yourself in the buyer's shoes.

Suppose you're visiting your business for the very first time. How impressed are you? How does the place look? Are your people friendly and helpful? Do the customers you speak to have good things to say about the business, its employees, its products, and its service?

9. Consider all offers carefully and make counter offers.

Don't panic if the first offer you receive seems too low. Be patient. Keep the ball rolling once an offer is made. Study it carefully. Make a counter offer. Even if you decide to market and sell your business yourself, it sometimes can be profitable to hire an experienced broker or lawyer to negotiate the terms. Don't allow your emotions to stifle your objectivity.

10. Create a win-win situation for everybody involved.

There are no strict rules about selling a business. It will be worth to you what you can get somebody to pay you for it. As in all areas of life, there must be something of value for everybody in the transaction.

When you set out to sell your business, ask yourself: Will it be beneficial to all concerned?

If your deal benefits all concerned, you probably will sell your business for all it's worth.

 

 

 
 
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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