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McLEAN AND CO.
P.O. Box 10 , Clive 133 Main Rd, Clive Tel. (06) 8700952 Fax. (06) 8700955
PAYE on Lump Sum Payments
Clothing Costs- Are they Deductible?
Setting Up Office
Finding the right Location for your Business
How Much is a Business Worth? www.mcleanandco.co.nz/Page116.htm
Claim Your Rebates www.mcleanandco.co.nz/Page91.htm
Depreciation of Fixed Assets www.mcleanandco.co.nz/Page72.htm
Borrowing Money www.mcleanandco.co.nz/Page123.htm
ACC- What to Advise them About? www.mcleanandco.co.nz/Page113.htm
KEEPING YOUR COMPANY DETAILS UP TO DATE
Every year a company is required to file an Annual Return with the New Zealand Companies Office. This helps to ensure the CompaniesOffice has the most up to date information on record.
However it is also important that during the year changes to company details are updated with the Companies Office as well. Not only is it required by law but it ensures that any important communication the Registrar may need to send your company goes to the correct place.
Important details that must be maintained are: Company Address Details and Particulars of Directors. Additionally, you can now also update your Share Parcel details online throughout the year as well.
A company is required to record three address types with the Companies Office; Address for Communication, Address for Service and the Registered Office of the company.
|Address for Communication - In the first instance this
is where all communications from the Registrar are sent to. This
may be a postal or a physical address and can also include an
||Address for Service and Registered Office - These must
be physical addresses and five working days notice must be given
before changes to this address will take effect.
||Optionally a company may choose to have an Address for
Records and an Address for Share Register.|
You can update your company address details online at www.companies.govt.nz. Simply select ‘Maintain Company Details’ and ‘Update Company Address Details’ from the left hand menu. You will require the company key to make changes. All changes that are submitted will take place instantly. Changes made to the Address for Communication will also be registered instantly and changes to the Address for Service or Registered Office will be registered in five working days time.
Particulars of Directors
All particulars of company directors must be kept up-to-date with the Companies Office. This includes;
|Appointment of a new director;
||Resignation of a director; and
||Change of address of a current director.|
These can also be updated online by selecting ‘Maintain Company Details’ and ‘Update Director Details’ from the left hand menu. Again, your company key will be required. Resignation of a director and change of director address details will take effect immediately. Appointment of a new director will be complete once a signed consent form for that director has been received.
Share parcel updates can also be achieved online. It is optional to update these details during the year (however these must still be updated on the annual return) and is an online service only. Select the ‘Update Share Parcel Details’ option under the ‘Maintain Company Details’ heading. Your company key will again be required and all changes will be registered immediately.
By keeping your company details up-to-date it ensures not only that communications from the Registrar are sent to the correct addresses but also that anyone who searches your company will have up-to-date, reliable information about your company and can then make sound business decisions based on this information.
All of these online services are available 7 days a week, 24 hours a day from wherever in the world you might be.
* NB If you have misplaced your company key simply select the ‘Obtain Company Key’ function online and follow the simple instructions.
GIVING PUBLIC NOTICE OF AN INTENTION TO REMOVE A COMPANY
Companies wishing to be removed from the register under section 318
(1) (d) of the Act no longer have to give public notice.
On the 14th of April this year the Companies Amendment Act (No 2) 2004 took effect. One of the sections amended was section 320 of the Act relating to a company’s obligation to give public notice when intending to be removed from the register. Companies no longer have to undertake this obligation when applying for removal under section 318 (1) (d). The amendment to the Act now requires the Registrar of the Companies Office to do so on receipt of a properly completed application for removal (Form 16).
To obtain a copy of the Form, ring the Companies Office at 0508 266 726.
IMPUTATION CREDITS RELATING TO DIVIDENDS
Dividends that have imputation credits attached are referred to as imputed and depending on the tax status of the company, dividends may be fully or partially imputed or not at all.
Prior to the introduction of the imputation regime in 1988, when a company or unit trust distributed income it would have been exposed to double taxation, once in the hands of the fund and again in the hands of the recipient.
A company or unit trust that earned $100 will be taxed at the company rate of 33% and pay $33 to the Inland Revenue Department. If the company or fund then decides to distribute the remaining $67 to the unit holder of the fund that $67 then becomes liable for income tax in the hands of the investor. If we assume that this unit holder has a marginal tax rate of 33% then the dividend would be taxed $22 (33% of $67) as income of the investor. Thus from the original $100 the unit holder finally receives about $45 which makes the effective tax rate 55%!
Imputation credits relieve this situation by acting as a tax credit to the investor. Using the same example, with the imputation credit regime applied, the fund would distribute the $67 to unit holders with $33 of imputation credits attached. From the investor’s point of view, the gross dividend is $100 for tax purposes and by attaching the imputation credit certificate to their tax return, no further tax liability is due.
The situation changes slightly for those investors with a marginal tax rate of 19.5% or 39%. If the investor has a personal tax rate of 19.5%, by attaching the imputation credit certificate to their tax return they are effectively reducing their net tax liability by offsetting the imputation credits against other tax paid (PAYE for example). However imputation credits cannot be refunded and therefore are of no advantage to an investor (on the 19.5% tax rate) who does not earn any other income. Similarly, a investor on a marginal tax rate of 39% will have in effect only paid 33% in tax and will be liable for another 6% ($6 in the above example) of tax.
CHANGES TO GST
There are two changes to GST that come into effect from 1 January 2005:
GST on Imported Goods
From 1 January 2005 GST will apply to certain supplies of services that are imported to New Zealand, for example , management, legal and accounting services downloaded through the internet. This change may effect taxpayers who are not registered for GST, who make exempt supplies and who import services for their own personal use.
If a taxpayer receives imported services from an overseas supplier they may need to account for GST on the cost of the services under the new "reverse charge" mechanism. The reverse charge requires affected taxpayers to add 12.5% (GST) to the price of services they have received.
GST will have to be returned and paid to IRD if:
|the imported goods would be subject to GST if supplied in New Zealand (including services that are not able to be supplied in New Zealand but which are imported into New Zealand), and|
|the taxpayer makes more than a minimal level of exempt or other non-taxable supplies, i.e. more than 5% of their total annual supplies are not subject to GST|
Taxpayers who have not previously registered for GST will be required to do so in the event that the value of imported goods takes them over the $40,000.00 per annum GST-registration threshold.
Zero-rating of Business-to-Business Supplies of Financial Services
Also, from 1 January 2005, if you are a financial service provider, you may elect, in writing, to zero-rate certain supplies of financial services (for example, dealings with money, certain dealings with securities or the provision of credit and loans), to
|GST Registered customers making, in a given 12 month period, taxable supplies that are equal to or exceed 75% of their total supplies for the period, or|
|customers who are GST-registered and do not meet the 75% threshold but are part of a group that does meet the threshold in a given 12 month period.|
PAYE ON LUMP SUM PAYMENTS
Lump sum payments are payments you make to your employees for annual or special bonuses, returing allowances, redundancy payments, gratuities or backpay.
There are three tax rates (inclusive of ACC Earners Levy) for lump sum payments:
Retiring Allowances and Redundancy payments are not liable for ACC Levy so the rates for these are 21 cents, 33 cents and 39 cents in the dollar.
The rates are usedin the following circumstances:
|22.2 Cents in the Dollar- when the combined total of the lump sum payment and the grossed-up annual value of the employee's income for the previous four weeks is $38,000 or less.|
|34.2 Cents in the Dollar- when the combined total of the lump sum payment and the grossed-up annual value of the employee's income for the previous four weeks is $38,001 to $60,000.|
|40.2 Cents in the Dollar- when the combined total of the lump sum payment and the grossed-up annual value of the employee's income for the previous four weeks is greater than $60,000.|
|You are going to pay a bonus payment of $1,800 and the employee's earnings for the last four weeks was $2,800|
|Multiply by 13 to get 52 weeks income ($2,800 x 13)||36,400|
|Add bonus payment||1,800|
|Total Income for the Year||38,200|
CLOTHING COSTS- ARE THEY DEDUCTIBLE?
In regard to the deductibility of occupational clothing of a business taxpayer, the basis issue must be whether the expenditure is relevant and incidental to the derivation of income or was necessarily incurred in carrying on a business for the purpose of deriving income. In general, New Zealand couts have taken the view that clothing expenses constitute expenditure of a private/ domestic nature and not deductible.
However, there are situations where the items of expenditure may be regarded as not being of a private or domestic nature: each case must therefore be considered on its own facts. For example, clothing that is required for a taxpayer to earn their income and which is not suitable for day-to-day work and out of the work location may be deductible. Similarly, the cost of clothing in the nature of a uniform and protective clothing (e.g. overalls, boots, and smocks) may be deductible.
In setting up a new office, your first decision is where to put your desk. Computer equipment must be close enough to an electrical outlet that you don't need extension cords to plug in that equipment. Ideally, your computer should have its own electrical circuit to shield it from fluctuations caused by other electrical equipment going off and on. At the minimum, don't put the computer on the same electrical circuit as the air conditioner or heater. Also, your computer, monitor, printer, and even the phone line that goes into your modem should be plugged into a top-quality surge protector.
Another consideration is light. Don't place your monitor where light -- either natural or artificial -- will reflect off the screen. Unfortunately, this may rule out placing your desk right next to a sunny window, but your eyes will thank you. For artificial light, it's better to have several adjustable lamps rather than one bright overhead ceiling fixture.
Avoid putting your CPU on the floor under your desk -- it's too easy to bump into it with your foot which can jostle the hard drive. Put it in a more protected area. If your office air is very dry, or you generate static electricity by walking on your carpet, you may get a small shock when you first sit down at your keyboard. Unfortunately, your keyboard is getting shocked too. The solution is to place an anti-static rubber mat underneath the keyboard. You touch this before touching the keyboard to dissipate static charges safely.
Your Desk as Control Central
Now that you've decided where to put your desk, let's look at the details of desk configuration. A poorly designed desk area causes office clutter and wasted time. Ironically, the picture-perfect, minimalist offices you see depicted in magazines -- the sleek glass-top table with nothing on it but a laptop computer and no files anywhere to be seen -- are the worst clutter magnets. These office set-ups are designed to showcase the furniture. No functioning office can look like this -- at least not for long.
The key to working efficiently and avoiding clutter is to make effective use of your immediate desk area. Any space you can reach without getting up from your desk chair is prime real estate and should be used to the maximum.
The ideal desk shape is an L-shape or U-shape. Most modern desks don't contain the traditional "return" that can be pulled out on one side, but if you are stuck with a standard rectangular desk you can improvise: Put a smaller table to one side of your desk, or even a low file cabinet can do double duty as a work area. This gives you extra work space so you can spread out when you need.
The space above your desk is prime real estate too. Your desk should have either shelves above it or a hutch -- you need a place to put files currently in use, reference materials, and the supplies you use every day. This frees up enough desk space that you can put your printer at your desk, which will save you time.
Another space extender is a swivel shelf for the phone, which attaches to your desk and can be moved, up, down, left, and right. This keeps your phone handy without wasting valuable desk space. If your desk lacks a pencil drawer, you'll need a desktop holder for pencils, stapler, paperclips, etc.
A good chair is one of your most important business tools. You need a wheeled chair of adjustable height with good lower-back support. Lastly an acrylic chair mat increases the maneuverability of your chair.
Filing & Storage
Obtain enough file cabinets to hold your papers. You should have at least one file drawer that you can reach without leaving your desk chair
-- it can either be under your desk or beside it. If you keep extensive old files saved for legal or historical reasons, save money and space by putting files in boxes and storing them in a closet, or in an off-site record storage facility.
Filing supplies -- purchase hanging folders to keep interior folders standing tall and permit them to slide easily in the drawer. Avoid legal size folders if possible -- they take up more space.
You'll need a place to keep supplies. A cabinet or credenza is ideal, but open shelves will suffice. Save time by keeping extras of everything on hand -- you don't want to run out of laser toner 30 minutes before that proposal is due! Keep your inventory of paper sealed and dry -- many papers will curl and jam during printing if they're exposed to moisture during storage. Tape shut the half-empty paper package or even wrap in a plastic bag.
You need at least one book case, not only for books, but for trade publications and computer manuals.
Phone Lines and Peripherals
If you have broadband, you won't need a second phone line for internet access. But if you have a dial-up connection, you must have that second line -- you can't afford not to have one. Giving callers a busy signal when you're downloading your E-mail is unprofessional.
You definitely need a printer and probably a fax and scanner. Fortunately, there are reasonably priced multi-function machines that will do black & white printing, make copies, send and receive faxes, and even scan documents. A multi-function machine is fine for most offices, if most of the copying and scanning you do is from loose sheets. But if you copy often from bound material, you need a flatbed copier. Same goes for scanning -- if you want to scan things from books, the scanner in a multi-function machine won't work; you need a flatbed scanner.
Another drawback to a multi-function! machine is that if your fax goes down you're also lost your printer and copier and scanner. So there are advantages to buying these machines individually, and it's affordable because prices have dropped dramatically in the past few years. Ditto for color inkjet printers. They're affordable, and the output doesn't smear like their predecessors' did. Last but not least, in this age of identity theft, you need a paper shredder.
FINDING THE RIGHT LOCATION FOR YOUR BUSINESS
How do you go about choosing a good business location? While there are many issues to consider when you are looking for space to house your business, make sure you ask yourself these questions:
|Is location important for the success of my business?||What type of location is best for my business?||How much rent can I afford?||Is my proposed location appropriate for what I plan to do there?||Will I be able to retain and/or attract quality employees at the
For some businesses, location is everything. But for other enterprises, location may be much less important than finding affordable rental space. For instance, if you are a service business that does all your work at your customers' locations, such as a roofer or a plumber, or a business that has little contact with the public, such as a wholesaler or Internet-based business, location might be irrelevant.
The key to picking a profitable location is determining the factors that will increase customer volume for your business. Spend some time figuring out the habits of the customers you want to attract, and then choose a location that fits. Also, ask yourself:
|Will more customers come if I locate near other similar
businesses?||Will the reputation of the neighbourhood or even of a particular
building help draw customers?||Will customers drive? If so, where will they park?|
One major concern when looking for commercial space to lease is finding a place that you can afford. You should know, based on your financial projection, how much rent you would be able to pay each month. Do some homework. Research average rental costs in your area to make sure the amount you budgeted for rent makes sense given the cost of commercial space in your area. Brokers and agents can be good sources of information on rental costs in various neighbourhoods. They will generally give you an average figure for the cost of commercial space per square foot, per year, in a given area. Once you have this figure, you can compare it to the costs of other spaces you are considering.
Keep in mind that the location you choose needs to be legally acceptable for whatever you plan to do there. A certain spot may be good for business, but if it is not zoned for what you plan to do, you could be asking for legal troubles. You should never sign a lease without knowing whether you will be permitted to operate your business in that space. If your council zoning department has a problem with any of your business activities, and it is not willing to work out a way to accommodate your business, you may want to look elsewhere.
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:
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