McLEAN AND CO MARCH 2006 NEWSLETTER
YOU SHOULD ADVISE ACC CORPORATION
can assist clients to clarify charges with ACC Corporation, as ACC
Corporation allow access in relation to your ACC Charge records to
members of the Institute of Chartered Accountants on behalf of their
clients, and have done so on a number of occasions, and are happy to do
so for clients, but we find that a number of issues we have to address
with ACC Corporation are a result of issues which ACC stipulate in the
literature that they provide
to business people that the people in business should advise ACC
themselves immediately on occurrence of the below mentioned instances:
Hereís some things you should advice ACC Corporation direct about:
if you cease self employment.
if you cease as an employer.
if you change from full-time self employed to part-time self employed-
a self employed person can be considered full-time if they work 30
hours or more per week over a full tax year.
if you believe your income will be different than the previous year.
if you change your self employment activity.
if you change your status from self employed to shareholder employee-
in this situation a Cover Plus Extra policy may give you a more
correct cover related to your earnings- otherwise you will be
treated as newly self employed with minimal cover.
when you get your Levy Illustration for the year advise ACC if any
changes should be made otherwise they will invoice you as per the
if you wish to query their Invoice charge to you.
if you change your address or any contact information.
if you wish to change from Cover Plus to Cover Plus Extra, or vice
if you cannot pay your account in one lump sum and wish
to pay by instalment arrangement.
if you wish to make a claim.
telephone number is 0508-426837.
would also suggest you look at all the details on your ACC Invoices
before you pay them and check that the details being charged are your
current circumstances as there could possibly be ramifications if you
are paying on the basis of circumstances which are not currently
any income that you receive from renting out a property will be liable
for income tax, so you must include it in your tax return. This income
could be from renting out land or buildings.
Amounts received for tenancy bond and passed on to the Tenancy Bond
Centre are not income.
Amounts received from the Tenancy Bond Centre for payment of damages,
rent arrears etc, should be included as income.
Rates and Insurance
You can claim the rates and insurance on your rental
property as an expense against the rental income.
If youíve borrowed money to finance your rental
property, you can claim the interest that you pay on this money as an
Agentís Fees and Commission
If you use an agent to collect the rent and/or maintain the property,
you can deduct the cost of the agentís fees. Commissions paid to an
agent to find tenants for the property are also deductible.
AND CO MARCH 2006 NEWSLETTER
Repairs and Maintenance
cost of any repairs and maintenance that you do (or pay someone else to
do) on the rental property is normally deductible as an expense.
Examples of repair and maintenance are:
* Replacing a broken shower head
* Plastering and painting a crack in the wall
* Replacing a blown element in a hot water cylinder
* Redecorating the property to return it to the state
it was in when you brought it to use as a rental property.
However, there are some circumstances in which you cannot deduct the
cost of repairs as an expense.
* If you buy a rundown property and spend
considerable amounts of money on substantial improvements or alterations
before renting it out, you canít claim the costs as an expense. The
cost of the work counts as part of the cost of buying the property, so
you should capitalize the costs and depreciate them.
* If you carry out work which substantially improves
the property, you will also have to capitalize the costs and depreciate
them. For example, if you take down a badly deteriorated wall and put a
conservatory in its place, you will have to capitalize and depreciate
the cost of the work.
* If you
replace part of your property in a different material than the
previous material (e.g. if you place the roof in tiles whereas before
the roof was in corrugated iron) this is regarded as an improvement not
Motor Vehicle Expenses
If you use your own vehicle in the course of renting out your property
(for example, travelling to carry out a property inspection or to do
some repairs), you may be able to claim some vehicle running costs as an
expense against your income.
can deduct as an expense any legal fees which you incur in arranging a
mortgage to finance the rental property. You can also deduct the legal
fees for drawing up a tenancy agreement, any bank administration fee for
the mortgage, and the cost of a valuation. Legal costs involved in
buying or selling a property are not deductible.
Mortgage Repayment Insurance
can claim a deduction for the cost of any mortgage repayment insurance
that you have on this mortgage.
If you use an accountant to prepare your accounts you can deduct the
cost of the fees. Any fees paid when setting up the business, such as
for investigating the viability of the business, are not deductible.
can claim a deduction for depreciation on the rental property and any
furniture or fittings in it which belong to you. Depreciation is an
allowance to cover the cost of wear and tear and general ageing of the
building and its contents. You
should be aware that if the property ceases to be a rental property
(e.g. you sell it or go to live in it) that if the current market
valuation is in excess of the original cost at that time that you will
have to declare all depreciation previously claimed back as Depreciation
Recovered in the year of
e. If it is
less than cost but more than Written Down Value in your Financial
Statements you will have to declare back the depreciation recovered to
date. You should also be
aware than if the current market value is in excess of original cost
that that difference is capital gain and not regarded as taxable income.
Expenses that you canít Deduct for Tax
canít for tax purposes, deduct capital or private expenses from your
rental income. Capital expenses are costs you incur to buy or increase
the value of a capital asset.
Examples of non-deductible expenses are:
* The purchase price of a rental property, including
legal fees charged to you specifically in relation to the purchase
* The capital part of any mortgage repayments
* Interest on money, which you borrow for some
purpose other than financing the rental property, even if you use the
rental property to secure such a loan.
* The cost of repairing or replacing any damaged part
of the property, if the repairs or replacement make improvements to the
property, which increase its value.
* Real estate agentís fees and legal fees incurred
as part of buying or selling the property.
* The cost of making any additions or improvements to
AND CO MARCH 2006 NEWSLETTER
the Property is not Rented Out for the Full Year
You can only claim a deduction for any expenses that you incur while
your rental property is either rented out, or is available to be rented
out. If the property is neither occupied by tenants nor available for
rent for part of the year, you will not be able to claim the full
yearís ongoing costs, such as rates, insurance and interest.
For example, suppose you owned a property, which you lived in
yourself for the first three months of the year, then you rented it out
for the rest of the year. When
you work out your rental income for the year, you would only be able to
deduct the ongoing costs for the nine months that the property was
rented out, that is 9/12 of these expenses.
If a property is unoccupied and temporarily unavailable for
letting for a short time, because of redecorating or other maintenance,
the ongoing costs will still be deductible for that period. The
redecorating or maintenance costs will also be deductible, as long as
the work done does not amount to making capital improvements.
If the Property is Rented out at less than
Sometimes a person who owns a rental property will rent it out for less
than its true rental value. This most commonly happens when a relative
or friend of the property owner rents their property
at ďmateís ratesĒ.
If you wish to claim expenses 100% in these circumstances, you should
declare 100% of the normal market rental rate as income.
must keep enough records to be able to calculate the income and expenses
of your rental property, and for IRD
to confirm your accounts. These records include:
* A record of all receipts and payments
* Bank statements, cheque butts and deposit books
* Invoices and receipts
* Working papers for all calculations, including your
list of assets, and receipts with cost price and purchase date
* A copy of the rental agreement and rent book
* A copy of any loan mortgage agreement
must keep accurate records of the purchases and
es of your
rental assets so, if IRD need to, we can check your depreciation
deductions. You must hold
all these records for seven years, even if you stop renting out the
Paying Income Tax
an individual property owner, or as a partner in a partnership youíll
need to send the IRD an Income Tax Return each year.
In this return youíll need to include enough information
to show how you worked out the amount of rental income after deducting
Goods and Service Tax (GST)
cannot charge GST on residential rent, because renting out residential
property is exempt from GST. Consequently, you cannot make a claim in a
GST return for the GST on any expenses you incur for a residential
Most people seek success, not failure, yet
many successful business persons have failed before succeeding.
Abraham Lincoln failed numerous times, he was
defeated and rejected, but it didnít stop him running, and then
becoming, one of
most recognised and respected presidents. Thomas
Edison failed thousands of times before he successfully invented the
light bulb. He would never have succeeded had he given up trying.
Joanne Rowling, creator of Harry Potter, was an unemployed single mother
when she wrote her first manuscript. Today she is one of
wealthiest women. Walt Disney suffered financial
problems and a nervous breakdown before achieving fame and fortune.
The truth is that:
|failure isn't always bad. It can
humble you, teach you, and helps prepare you for success.|
|goals, whether business or personal, have to
start somewhere. The tough times you go through will help you to
prepare for the better times to come. Everything takes time,
persistence, a game plan, a belief in oneself, and the right
Successful people don't fear failure; they
view failure as a temporary setback, not a permanent position.
Successful people don't give up-they believe they will succeed and focus
on possibilities and tend to quickly rebound after a set-back or
AND CO MARCH 2006 NEWSLETTER
GETTING PAID ON TIME
Here are 12 ways to make sure your invoices are paid on time.
invoices out promptly. Send them with the goods, or on the day the
service is completed, instead of waiting until the end of the month.
agreement on payment terms when you make a
customer might negotiate with you, but once youíve both agreed they
should feel obliged to pay on time.
new customers fill out a credit application form stating your conditions
of trade. It pays to have the wording checked by a lawyer to ensure it
covers everything correctly. You can get hold of a sample form quite
easily by applying for hire purchase facilities at a large store, but it
may not be applicable to your situation or may not be legally watertight
so itís best to seek help.
sure the payment terms are spelled out clearly on your invoices (eg
ĎPayment due on June 20í or ĎPayment within 20 calendar days
pleaseí). Also include a statement saying: 'Please pay on this invoice
as no statement will be sent.'
the terms for some of your customers, or for new customers Ė eg if
your payment terms are 14 days from the date of the invoice, reduce them
to seven days.
minimum amounts of business a customer must buy before youíll give
them goods or services on credit. This reduces the time and paperwork
costs involved in sending out accounts for tiny amounts of money.
Alternatively, you could send friendly reminders regarding your terms,
pointing out that the credit facility might be cancelled if business
continues under the stated minimum.
up promptly when invoices aren't paid by due date. Be polite but firm.
If you haven't the time to do this yourself, then appoint someone to do
it for you.
the average age of your Accounts Receivable and set yourself the goal of
reducing this age by a set target every month. If your customers or
clients have been taking advantage of you because of your previous
laxity in invoicing, then you may need to re-educate them. Do this
politely so you don't offend customers:
"Have you received our invoice, Peter? I'm
just checking that you're happy with the goods/services we
"We've got a new invoicing system going here, because we've
been a bit lax in the past. My accountant has set some tough goals
me to meet in reducing the average age of our Accounts Receivable, so if
you could settle that invoice promptly I'd be most obliged."
for a deposit (even a small amount) so you do have something. Some
people get a deposit that covers their expenses. This tactic at least
allows you to stay in business.
offering a discount for prompt payment. Discounts arenít a good option
for low-margin businesses, but can be an option for high-margin
operations. You have to work out whether the use of money gained earlier
is worth the discount you're offering. Never give the discount if
the person has missed the due date for the discount offer (some will try
charging interest on late payments. But remember, this is only
enforceable if the customer is aware of this penalty before the deal is
struck. Ask a lawyer to write the contract wording for this tactic, and
be careful how you apply the rule: itís easy to lose customers if
youíre too inflexible.
selling your debtors to a finance company. That way, instead of
having to wait 30 days or more until an invoice is paid, you receive
your money upfront from the finance company which, in turn, will collect
the money from your customer. The finance company will of course charge
you a commission for this service.
ARE NOT DEDUCTIBLE FOR INCOME TAX
intended to influence a public official in order to act, or fail to act,
to retain business, or obtain an improper advantage in the conduct of
business, are explicitly not deductible for tax purposes.
a member of OECD,
legislation (Income Tax Act 2004 DB 36) to fulfil its obligations under
the OECD Anti-Bribery Convention to stop paying bribes at home and
Our tax law uses the Crimes Act 1961 definition of a bribe as any
money, valuable consideration, office, employment or any benefit whether
direct or indirect. The
law relates to bribes to
public officials. The provision does not apply to a payment made (to a
foreign public official) to expedite the performance of a routine
government action when the value of the benefit is small.
In terms of risk, businesses trading on the international market
must be conscious of the countries they are trading with to ensure
compliance with the legislation. Transparency International
(www.transparency.org) lists the international corruption
It identifies 106 of 146 countries which score less than 5
on the 10 point compliance scale. Sixty
countries score less than 3 out of 10, indicating rampant corruption.
If you have treated bribes as tax deductible you may wish to consider
using the voluntary disclosure regime
to get your tax affairs into order.
McLEAN AND CO MARCH 2006 NEWSLETTER PAGE 6
SIMPLE TIPS FOR SETTING EFFECTIVE BUDGETS
you're mapping a path to profitability or simply determining how much to
spend on marketing, setting effective budgets can help your company
manage money optimally. Budgeting is a crucial aspect of financial
planning. It forces you to ask questions about the business
you make, which in turn helps you anticipate the resources you'll need
to reach your goals.
Use these tips to design budgets that keep your day-to-day operations
focused on success.
1. Set goals
Your spending priorities will be easier to identify if you begin the
budgeting process with a clear set of goals and expectations. For
example, you can streamline the development of a marketing budget if
you're clear about what you want to achieve and what outreach tactics
you expect to deploy. Similarly, if you're setting a budget for
technology, it will be easier to pinpoint the amount you need to spend
on staff training and tech support if you know your desired return on
2. Get the big picture
It can be easy to underestimate the amount of money you'll need in
different areas of your budget simply because you don't anticipate all
the costs related to planned purchases. For example, if you're setting a
budget for technology, include obvious expenses such as hardware and
software, but also take into account "hidden" costs such as
training, maintenance, and technical support. Many budgets are quickly
thrown out of whack when these unanticipated expenses pop up.
3. Build in increases
Some costs of doing business ó such as
insurance ó are likely to rise steadily over time. To make
budgets as accurate as possible, these line items should reflect
expected annual changes. You can estimate the amount of these increases
by reviewing cost of living forecasts, inflation rates, as well as your
own historical spending trends.
4. Account for the domino effect
Spending changes in one area of business often impact others. For
example, if you increase advertising spending, revenues may increase,
but so will the amount you need to spend on customer service and
you hone your spending plans, be sure to reflect the impact of changes
throughout each area of your budget.
5. Consider losses
Every business will need to grapple with product returns, shrinkage,
unpaid invoices, and other cash flow drains. Be sure to account for
these losses in your budget. To gather information about the amount of
returns or unpaid invoices to reflect, contact trade associations and
industry organizations, or speak with established companies in your
field about past trends.
6. Look at industry norms
You can use standard spending practices in your industry as a barometer
for your budget. For example, if most businesses in your field spend 6
to 10 percent of revenues on advertising, this range is probably a good
one for you to target. It's okay to vary from industry norms, but only
with an understanding of how spending more or less than average will
enable you to reach your goals. If you plan to double ad spending in
your first year, document how the extra money will be spent and what the
expected payback is.
7. Prepare for the unexpected
Every business has unanticipated costs ó items like last minute
opportunities to sponsor community events or unexpected technology
glitches that need to be resolved. Put a line item in your budget to
cover these expenses.
8. Share it
Review your budget with an accountant or financial advisor. He or she
can verify that you've effectively covered the budgeting basics, and
serve as a sounding board for spending decisions.
9. Be ready to revise
Chances are the initial budgets you set won't be perfect. Update your
forecast quarterly or when new information or events impact your
company. Compare initial plans to what actually occurred, and adjust
figures accordingly. For example, if you discover you're not meeting
profitability, look for areas of the budget that can be cut. If
increasing, note which areas of your business will need to be enhanced
to meet demand, and allocate more money to these areas.
McLEAN AND CO MARCH 2006 NEWSLETTER PAGE 7
MANAGING YOUR TRUST
discretionary trusts provide that decisions of trustees are to be
unanimous. Most legal commentators agree that providing for unanimous
resolutions is a safeguard against abuse and, when there is an
independent trustee appointed, a safeguard against a claim that the
trust is a sham by creditors including the IRD.
resolutions to be unanimous all the trustees must have put their minds
to the matter to be decided upon.
is an established rule of law, that a trustee must not delegate his or
her duties or powers not even to co-trustees. Delegation is however
allowed where such delegation is specifically permitted by the trust
instrument, is specifically permitted by statute is practicably
unavoidable and is in the usual course of business and the particular
agent is employed in the ordinary scope of his or her business.
trustee has a duty to act personally and this duty requires trustees to
be unanimous in any decisions they make.
must not be thought, for example, that a co-trustee has delegated his,
her or its authority to the remaining trustee(s). The law is simply that
unless the trust deed provides otherwise - and we have suggested that
there are good reasons for not doing so - the trustees are required to
unanimously make a decision and have no authority to delegate to one of
their number a general authority to make decisions on their behalf.
the recent New Zealand Court of Appeal case of Niak and Sommerville v
McDonald and Bank of New Zealand, an independent trustee who had not
been consulted about action which was in line with past practice, tried
to argue that the decision taken by her co-trustee was nevertheless
effective. The Court held that while there was an empowering clause
which authorised the trustee to appoint agents to implement decisions
made by them - it did not empower the trustee to delegate to an agent a
decision making authority which was reserved to the trustees.
moral of this article is that trustees must consult, consider and record
all important decisions to be made in respect of the trust.
INCOME INFORMATION TO THIRD PARTIES
get a number of calls from third parties asking information about
clientís income. Credit
Companies to whom clients have applied for membership, and Bank and
Finance Companies to whom clients have applied for loans, are common
situations. We donít
provide this until we have authorisation to do so by clients. Quite
often we do not get this authorisation first from clients and we refuse
to give the information. If
you wish ourselves to give information about your taxable income to
third parties please contact us first as the processes you are
attempting to do will be held up if you not have authorised us to do so,
as we will not disclose such information, and also to avoid our action
of refusing to give this information when you may require this
information to be provided to the third parties urgently.
All information in this
newsletter is to the best of the authors' knowledge true and
accurate. No liability is assumed
by the author, or publisher, for any losses suffered by any person
relying directly or indirectly upon this newsletter.
It is recommended that clients should consult a
professional adviser before acting upon this information.
YOU OVERDUE IN FILING YOUR 2005 OR EARLIER INCOME
We suggest you contact ourselves quickly
if you have not
as yet provided your records for the processing of your 2005 or
earlier Income Tax Returns.
This will enable you to ascertain your tax position, pay
any taxes on due date, avoid any potential penalties and interest
oncosts, and meet your IRD filing requirements.
We are pleased to assist you in this service.
McLEAN AND CO MARCH 2006 NEWSLETTER PAGE 8
CHANGES TO IRD NUMBERS
Currently your IRD and GST number is 8 digits long. From
1 April 2007
IRD will be adding another
digit to all new and existing IRD and GST numbers, due to the fact that
by then they would have issued all possible 8 digit combinations.
If you already have an IRD Number it'll have a zero added to the front
of it e.g. 12-234-678 will become 012-345-678.
If you apply for an IRD or GST Number after
1 April 2007
you'll be automatically issued
with a 9 digit number.
TO WITHHOLDING TAX RULES
Currently, when you make withholding payments to a contractor who is
trading as a company, you don't deduct any withholding tax.
However, shortly deductions will be required from payments to certain
companies working in the agricultural, horticultural and viticultural
From 1 April 2006, if you hire any type of contractor (individual,
partnership, trust or company) for services or work related to the
pruning or thinning of fruit trees or vines, or the picking or packing
of fruit or grapes, you must deduct withholding tax at the rate of 15
cents in the dollar, unless the contractor has a certificate of
exemption or a special tax code certificate authorising deductions at a
The changes to the rules are being made to reduce tax evasion prevalent
in the fruit picking industry. Some contractors are evading tax
which makes it difficult for honest contractors to compete.
Deductions of withholding tax should help "level the playing
A further change is that all payments for these activities will need to
be recorded on the payer's employer monthly schedule, whether they
deduct withholding tax or not. The requirement to notify IRD of
the details of the payments only relates to payments made for the
specific work mentioned.
If you are currently not an employer and you are a grower hiring a
contractor or a contractor hiring a subcontractor you will need to
register with IRD as an employer by
TO FAMILY ASSISTANCE
1 April 2006
the income thresholds for family assistance will increase and the rate
at which family assistance payments start reducing will change.
Families on higher incomes may now qualify for family assistance.
website shows the income limits for each type of family assistance
1 April 2006
. Go to www.mcleanandco.co.nz
and then Past Email Newsletters
and then March 2006.
You can choose whether to receive your family
assistance payments weekly or fortnightly based on your estimated income
or as a single lump sum after 31 March based on your actual income.
If you are already receiving family assistance and you want to change
to weekly payments (instead of fortnightly) just give IRD a call
on 0800 257 700.
THRESHOLDS FOR REPAYMENT OF STUDENT LOANS
The income threshold at which borrowers must
begin repaying their student loans will rise from $16,588 to $17,160 a
The increase is in line with annual movement in the September Consumer
Price index of 3.36%.
McLEAN AND CO MARCH 2006 NEWSLETTER PAGE 9
FREE STUDENT LOANS FROM
1 APRIL 2006
Interest free student loans
will be delivered by an interest write-off. Your Inland
Revenue and StudyLink Student Lloan statements will show interest being
charged but if you are eligible, this interest will be written off after
the end of each tax year (31 March).
you have met the 183-day requirement then leave
for 184 or more consecutive days, you may still be entitled to an
interest write-off for the period up and including the date of your
Any entitlement will be credited to your loan account after the
end of the tax year (31 March).
is written off?
the interest you are charged while you are eligible to the interest free
loan will be written off.
IRD will write off the interest charged from
1 April 2006
including any interest charged by StudyLink for the period you are
eligible. This write-off will happen after the end of the tax year (31
requested on or after
30 November 2005
excluded from interest free write off
you have requested a refund from your Student Loan account on or after
(and the reason for your request was not due to significant financial
hardship - see below for an explanation), you may not be entitled to
have all of your interest written off. This only applies to
refunds for the 2005 and 2006 tax years. Over-payments relating to
tax years prior to 2005 can no longer be refunded. (An overpayment
is an amount paid in excess of a repayment obligation.)
you may still qualify to have all or part of this interest written off
under one of the other interest write-offs.
financial hardship includes significant financial difficulties that
arise because of:
|a borrower's inability to meet minimum
borrowing expenses; or
|a borrower's inability to carry out his or her
usual occupation because of his or her temporary or permanent
illness, injury, or disability; or
|a borrower's inability to meet mortgage
repayments on his or her principal family residence resulting in the
mortgagee seeking to enforce the mortgage on the residence; or
|the cost of modifying a residence to meet
special needs arising from a disability of a borrower or a
borrower's dependant; or
|the cost of medical treatment for an illness
or injury of a borrower or a borrower's dependant; or
|the cost of palliative care for a borrower or
a borrower's dependant; or
|the cost of a funeral for a borrower's
TO PAYE DEDUCTIONS FROM
1 APRIL 2006
Employers would have received their 2007 PAYE Deduction Tables by now.
You should review these and use these from
1 April 2006
as PAYE deductions for employees will change from that date for
the exact same amount of gross income.
The reason for this is that:
ACC earnerís levy rate increases from $1.20 to $1.30 (GST inclusive)
per $100 of earnings
maximum earnings on which earnerís levy is payable increases to
who have a student loan and use the M SL tax code can earn up to $17,160
($330 per week) before having student loan deductions made.