Are you ready for the end of the financial year ?
Start getting ready, now, for the end of your financial year.
Some things need to be done in advance when finalising your accounts for 31st March 2023
Here are some of the things that you need to look at:
Bad debts
If you have customers who are not paying their debts and you have taken all reasonable steps to collect the money, write off the bad debt before you get to balance date or you will not be able to claim that cost as a tax-deductible expense.
Kilometre rate
If you claim for the running costs of your motor vehicle on a kilometre rate basis, make a note to get an odometer reading on balance date. The rate is calculated based on the total number of kilometres travelled in the year and the proportion of them used for business. If the total number of kilometres exceeds 14,000 there is a two-step process for the calculation.
Vehicle logbook
If you need to keep a logbook you must do so for a three-month period at least once every three years.
Stock
If you are a retailer, this is a good time to start organising your stock ready for counting it. Get rid of obsolete stock. If you keep it, it still has to be valued at either what you paid for it or its current market value – for which you must have evidence.
Maintenance of equipment
Any maintenance you carry out before the end of your financial year is tax-deductible for that year. If you are planning maintenance in the short term, it might save you tax if you got on with it before the end of the financial year. Maintenance means bringing the asset back up to its original condition.
Interest pitfalls if you had a big year
If you are expecting an annual income of more than around $200,000 from your business and you’re not paying PAYE on any salary from the business, beware of Use of Money Interest, which has now been set at 9.21%.
If your income exceeds $204,820, your tax is going to exceed $60,000, which is the threshold at which Use of Money Interest is applied.
Inland Revenue expects you to know your income for the year ended 31 March 2023 by 7 May 2023.
This is not particularly realistic for small businesses. However, if you haven’t paid enough tax by that date, you must top up the tax or face Use of Money Interest charges on short-paid tax.
What to do?
Try to estimate your taxable income for the financial year. Work out your tax for the year, which is $60,000 +39% on every dollar of income in excess of $204,820.
Deduct the first and second instalments of provisional tax you have already paid and pay Inland Revenue the difference.
Similarly there is a threshold for companies which is $214,285.
Replacement for tax invoices from 1 April 2023
Tax invoices are on their way out. In their place the buyer has to hold “taxable supply information”.
This information can be kept in any form, such as a receipt. These new rules are effective from 1 April 2023. They require less information so you can continue using your current tax invoices.
For purchases of less than $200 the seller must provide: supplier name, date of invoice, description of goods or services and the amount to be paid.
For purchases $200 up to $1000 the supplier must add the GST number and either the GST exclusive amount, amount of GST being added and the total inclusive amount, OR the GST inclusive amount and a statement saying it is the GST inclusive amount.
For purchases of more than $1000 the vendor must also include some additional information. For full details see www.ird.govt.nz and search “Rules for tax invoices”.
Click on “show all”. Down the page you will see “GST recordkeeping requirements and a box inviting you to “Choose your taxable supplies”.
Rules change again on tax payment dates
Inland Revenue has modified the rules, again, on tax payment dates.
Previously, if the due date for payment was at a weekend or fell on a public holiday such as an anniversary day, you were entitled to pay on the next working day.
However, if you usually pay your tax electronically, the banking system still operates and therefore the time is not extended to the next working day.
If you pay physically at Westpac bank, you still get allowed that extra day.
Note April 7 is on Good Friday. Be sure to follow the new rules.
Is 2023 the time to start a business?
The merchants of doom might have you think otherwise, but if you’re thinking about starting a small business, 2023 might be your lucky year.
Advances in technology mean there’s never been a better time to put into practice your ideas, ambitions and work ethic.
Technology means we can run many businesses efficiently and cheaply from a laptop at home, and there’s plenty of online support.
Most of the world is currently experiencing difficult economic times, but many entrepreneurs say the best time to start or expand a business is at the bottom of a downturn – things can only get better.
A big factor to consider is the change in attitude of consumers, who after the Covid pandemic have become more supportive of small businesses.
Build to rent- new asset class proposed
In some places overseas, rental properties are purpose-built for tenants who have the right to stay for the rest of their lives.
New Zealand has taken its first step in this direction. A tax Bill in August 2022 is aimed at creating a “build-to-rent” asset class.
It proposes:
- the landlord must offer a lease for at least 10 years
- the tenant can request a shorter time
- the tenant can terminate the tenancy by giving 56 days notice
- the landlord must have at least 20 dwellings in a single development
- the whole enterprise must have a single owner with all properties sharing a single boundry.
- explicit personalisation policies must be offered over and above the Residential Tenancies Act 1986
- developers can put shops in with the dwellings.
If this type of investment is created, interest will be tax deductible – even though it applies to residential rental property – on the condition the property continues to be operated as a “build-to-rent”.
Existing investors in property will be given a transitional period to come within the build-to-rent rules, if they want to.
