INDEX
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Your chance to have your say on reducing business tax compliance costs
GST- Dates Due
IRD Phone Numbers
Telephone Rental- if you run your business from home
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Looking at Buying a New Business- how do you decide which is the right one?
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Non Chargeable Time and Factoring it into your Fees
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Dollar Cost Averaging- what is it?
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:
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Buying and Selling a Business- Determining Value www.mcleanandco.co.nz/page88.htm
| Finding Customers www.mcleanandco.co.nz/Page82.htm
| Back Claiming of Rebates www.mcleanandco.co.nz/Page57.htm
| Venture Capital www.mcleanandco.co.nz/Page65.htm
| Franchising Basics www.mcleanandco.co.nz/Page90.htm |
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
YOUR CHANCE TO HAVE YOUR SAY ON REDUCING BUSINESS TAX COMPLIANCE COSTS
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You
have until 31 October to have your say on the proposed changes to the tax rules
aimed at reducing business tax compliance costs.
The
Government released a discussion document in mid-September outlining some
options, including:
You
can find a summary of the discussion document on the IRD website at www.ird.govt.nz
along with an electronic feedback form. You can request a copy of
the summary document from INFOexpress on 0800 257 477. The full
discussion document can be found at www.taxpolicy.ird.govt.nz
GST- DATES DUE
Just
a reminder that the due date for GST Returns and payment is the last working day
of the month following the end of your taxable period. Your return
will be due on the last working day before a weekend or public holiday.
For
example, a GST Return covering the two-month taxable period from 1 September
2003 to 31 October 2003 is due by the last working day of November.
While the last day in November is Sunday 30 November, the last working day is
Friday 28 November, therefore the return is due by the 28th. The due date
is also printed in the top panel of your GST Return.
IRD PHONE NUMBERS
The
following are the toll free IRD numbers for phone enquiries. IRD
have staff available to answer these 8am-8pm weekdays and 9am-1pm Saturdays:
GST.........................................................
0800 377 776
Employers...............................................
0800 377 772
General
Business Tax Enquiries............ 0800 377 774
Overdue
Returns..................................... 0800 377 771
Payment
Options for Overdue Tax......... 0800 377 771
TELEPHONE
RENTAL- IF YOU RUN YOUR BUSINESS FROM HOME
IRD's
policy on deductions for rental of telephone equipment and lines
is to allow for up to 50% of the cost of telephone rental
for businesses based at home if the home has only one telephone
line. This will apply irrespective of whether the rental
charged is at the domestic or commercial rate.
IRD will allow a deduction of more than 50% if the taxpayer can
show that the actual use of the telephone supports a higher
percentage of business use. If the home has two
telephone lines, one charged at the domestic rate and the other
charged at the commercial rate, 100% of the commercial rate is an
allowable deduction. In this case, no part of the domestic
rental is deductible.
IRD's
policy applies to all taxpayers who run a business from home
except for farmers whose principal or full-time occupation is
farming. Such farmers are allowed 100% of their telephone
rental as a deduction.
LOOKING AT BUYING A NEW BUSINESS- HOW DO YOU DECIDE WHICH IS THE RIGHT ONE?
Look
for a business that comes closest to your interests and capabilities and one
that fits in with your long and short range financial goals. For each
business you think you might want to start, ask yourself the questions below.
Write your answers down on a bit of paper so you can easily compare the relative
benefits and drawbacks of one business over another.
NON CHARGEABLE TIME AND FACTORING IT INTO YOUR FEES
Non-chargeable
time is the time spent doing work you can't charge your customers for.
Typically such work involves writing proposals and quotes, making business
contacts, answering customer questions, doing your book-keeping etc.
In
a service business, earnings are tied to the number of hours devoted to income
producing work. In some small service businesses one-third or more of the
total working hours each week may be spent doing work that can't be billed to
any client. In fact, its not unusual for the business owner to work
from early in the morning until late at night without producing a cent of
income.
Under
such circumstances, time is a commodity with significant value. For instance,
assume you work a total of 40 hours a week in your service business and on an
average you make about $25 an hour on time spent on client work. If you
spent 10 hours a week doing non-chargeable jobs, you have only 30 hours a week
left for paid client work. Thus you are losing $250 a week in sales
( 10 hours x $25) . If you normally charge $50 an hour for your time,
those 10 hours of non-chargeable time will cost you $500 each week.
How
do you factor the cost of non-chargeable time into your fees?
Calculate
what your expenses will be for the month. This figure should include
a salary for yourself, plus all expenses including loan payments if any for the
business, allowances for equipment upgrades and repairs etc.
Add in an amount for profit (your own salary is not profit. Profit is what
the business makes over and above your salary and all other expenses)
Multiply
this figure by 12 to determine what the gross yearly income of the business
should be (what you need to make each year). Then divide the gross
yearly income by 48 weeks to determine the amount of money the business will
need to bring in per week on average. The reason for using 48 weeks
instead of 52 is allow for holiday time, sick days etc.
Once
you determine the amount of money you need to earn per week, divide that amount
by your chargeable hours. For instance if you plan to work 40 hours a
week, but will spend 10 of them on non-chargeable work, divide the weekly gross
income needs by 30 to get the hourly fee you should charge.
For
example, if you determine you need to bring in $5000 per month to cover your
salary and other business expenses, here's how you calculate hourly fees:
$5,000
(monthly income) x 12 (months) =
$60,000 (gross yearly income)
$60,000
(gross yearly income) / 48 weeks = $1,250 per week
$1,250 (per
week) / 30 hours =
$41.66 (per hour)
DOLLAR COST AVERAGING- WHAT IS IT?
When
building up an investment portfolio , and especially if you do so with regular
savings, the price you pay to invest is averaged over market highs and lows-
this is called "dollar cost averaging".
For
example, if you are investing in a managed fund and your regular savings
investment is $200 per month. Over a six month period, market fluctuations
cause the funds unit price to go up and down, but each month you continue to
make the $200 investment.
As
shown above, at the end of six months, your instalments have brought 716 units.
Over that period, the average price of the fund (calculated by adding the
monthly unit prices, and then by dividing by the number of months, in this case
was $1.73. But, the average price you paid for your units (calculated by
dividing the total cost of your instalments by the number of units received over
the period) was just $1.68.
With
dollar cost averaging, when prices are higher, your instalment buys less, but
when prices are lower, your instalment buys more.
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