Newsletter March 2010
MERGER NEWS
While there are not too many obvious external indications of our merger with John Bennett Ltd, matters are indeed progressing behind the scenes. It has been agreed that we will take over a portion of the Scanpower building and this will, after renovation and refurbishment, house our storage areas, staff room, Board and meeting rooms. It is anticipated that all staff will be accommodated in the current MCI premises which will also have some modifications carried out to provide additional offices. Plans for these changes in both buildings are well advanced and it is hoped that building work will start in April – just as soon as the appropriate consents have been approved.
Other critical aspects of the merger are being moved forward and the whole pace will pick up over the next couple of months.
We will keep you updated on progress.
Year End Processing
For most taxpayers the end of March represents the end of the financial year, so now is a good time to check that the books are in order. In some cases 31 March is the crucial date for getting things done. Some of these have been outlined below.
Bad Debts - in order to claim a deduction for bad debts they must be written off before the end of the financial year in order to get a deduction in that year. When assessing whether or not a debt can be written off, businesses will need to consider things like the age of the debt and the likelihood of the debt being collected. In the current economic climate, more emphasis should be given to debt collection. However, if debts do not look collectable, they should be written off to provide a more accurate reflection of the business’s profitability.
Assets - equipment purchases should be reviewed to ensure that any assets costing more than $500 (GST exclusive) are capitalised for tax purposes. This can often be overlooked especially where such assets are expensed for accounting purposes.
Holiday Pay - entities wanting to get a deduction for accrued holiday pay or employee bonus payments must ensure that the holiday pay and bonus payments are “incurred” at balance date and paid within 63 days of balance date.
Herd Scheme Election - for farmers wanting to exit the Herd Scheme, the election must be done at least a year and a day before the income year in which the National Standard Cost scheme is adopted.
Income Equalisation Scheme – this is a useful tool for farmers wishing to adjust their taxable income. Where farm income for the year is high, and insufficient provisional tax has been paid, the farmer should consider making an Income Equalisation deposit to reduce the possibility of use of money interest being charged. Conversely, if there are tax losses for the year, an Income Equalisation refund may be sought to offset against the losses.
Imputation Credits and Dividends - if a company has imputation credits that have arisen based on the old company tax rate of 33 percent the question should be asked whether or not to declare a dividend to shareholders to utilise those credits. The cut off date for declaring dividends to utilise those imputation credits is 31 March 2010 irrespective of a company’s balance date. From 1 April 2010 imputation credits are limited to the equivalent of 30 percent - in line with the current corporate tax rate. Before a dividend is declared, consideration should be given as to whether or not it will get taxed in the shareholders hands at the top personal marginal tax rate of 38 percent versus imputation rate of 33 percent and whether cash is available to meet that tax shortfall.
There are quite a number of issues that need consideration before the financial year end - the above are offered as reminders of some of them.
Year End Checklists
The year end checklist that we ask clients to complete for each tax-paying entity provides critical information to us. In addition to the year end financial information they give us the authority to act on your behalf and seek any information we require from financiers, suppliers and others. If the appropriate box is ticked, they also give us your authority to pass your financial statements on to your financiers. Banks are always asking us for copies of these and it is our policy to pass them over to them only when we have your authority to do so. By completing the checklist in full you certainly help to minimize the time (dollars) spent on your financials.
Snippets
Collating Accounting Information - BankLink
If you are spending more time than you would like with accounting information we can help. We offer clients the option of using a product called BankLink. This system automatically transfers a copy of statement information from banks and other sources directly into your ledger at our office. This means that our office receives financial information monthly, straight from your bank or other financial source.
It means that because there is less data-keying the chance of inaccuracies is reduced, saving time for both clients and us when we are finalising accounts. .We can use this information to produce regular reports and complete your GST Return. You will still continue to get a statement from your bank.
There is a small charge for using BankLink, but this is likely to be far outweighed by the cost savings to you on our time which would have been spent manually sorting the information you give to us.
Visit our Website www.mcia.co.nz for further information. There is a course scheduled for BankLink users on 18 May 2010. Please contact our office if you are interested in attending.
Increase in Minimum Wage and ACC Levies
Effective from 1 April 2010 the adult minimum wage is increasing from $12.50 to $12.75 per hour. The new entrants’ minimum wage goes from $10.00 to $10.20 per hour.
Note also that the employee ACC levy rate is increasing from 1.7% to 2% of the gross taxable wage effective on the same date. This will require alterations to pay calculations.
The new PAYE rates can be found via the IRD website under the heading “work it out / calculations & tools / PAYE”. You need to go on-line to access weekly/fortnightly tax tables.
Increase in Minimum Wage and ACC Levies
Until the recent passing of legislation in late 2009, it had been reasonably easy to hold land in entities that are not associated with land dealers, land developers or builders, and in doing so, ensure that any future profit on the sale of that land is not likely to be taxable. The recent legislation passed by the Government greatly expands the “associated persons” rules. The intent of the new legislation is that property dealers, developers, builders, and their associates are generally taxed on all gains on property sold within 10 years of acquisition.
Given the clear intent of the rules, a structure that appears to deliberately circumvent the new rules may be viewed by the IRD as a tax avoidance arrangement. However, gains from the sale of land may not necessarily be taxable even though a person is tainted by association. Generally, if a person holds land for more than ten years, any profit on its sale should not be taxable. If a person is associated to a builder, the land will be taxable on sale only if it is sold within ten years of improvements being completed. If no improvements are made the land will not be subject to tax on sale if sold within 10 years.
In order for an entity to taint a person, that entity must be in the business of developing or dealing in land when the land was acquired by the person. An entity in the business of erecting buildings will taint a person if the person commences building improvements on land while associated with the builder. Whether an activity amounts to a business is a question of fact based on case law.
Finally, there are exemptions to the land taxing provisions to provide relief in specific scenarios. If a property is used by a taxpayer principally as a place of residence then any gain on its sale should not be taxable. In certain scenarios whether the exemption applies will be unclear, for example, where a property has been used as both a residence and to derive income (such as rental income). There is also an exemption for land used as business premises.
With the tightening of the associated persons rules, more land sales will be subject to tax. Application of the exemptions will need to be considered on a case by case basis. Given that the land taxing provisions are now more wide ranging, disputes with the IRD about the application of the new rules and possible exemptions are more likely to occur. In view of this, careful consideration should be given when deciding how a land transaction should be treated.
Our Website
You might like to visit our Website at www.mcia.co.nz which we are developing and improving regularly. This provides additional information about our firm and a number of links to other websites that may be helpful to you.
Staff News
Congratulations to Gloria Hayward on being made an Associate of MCI and Associates in February this year and to Beth Fowler and Fallon La Dette who have been promoted to Accounting Managers.
Congratulations also to Esther and Kevin McHardy who were married at the end of February. Jade Goode has recommenced work having returned from maternity leave.
Principals, Associates & Staff
Ian McKenzie – Principal, CA
Simon Curran – Principal, CA
Neil Ivamy – Principal, CA
Moira Paewai – Principal, CA
John Dodson – Consultant, Merger Manager
Esther McHardy – Associate Principal, CA
Warwick Gernhoefer – Associate
Gloria Hayward – Associate
Administration Staff
Alison McKenzie – Assistant Practice Manager
Francie Edgington – Receptionist
Gay Warrington – Typist/Admin
Jessica Ross – Reception/Admin
Jade Goode – Office Junior
Jo Duff – Wages Clerk
Karen Brooks – GST Clerk
Leah Curry – GST Clerk
Accounting Managers
Beth Fowler, Fallon La Dette
Accounting Staff
Anna Clark, Bronwyn Irwin, Janine Boyden, Kirsten Akast, Maryanne Kroot, Ray Phillips, Sarah Stephenson, Sharyne Wimsett, Sherynn Harold
Annette Kendall has resigned from the firm and she is looking to follow a new career path. Annette’s contribution to the development of the merged practice was enormous and we thank her for that and offer our best wishes to her for her future.
Staff Profile – Beth Fowler
Beth has been with Holloway & Irwin and now MCI & Associates for 6 years and lives in Dannevirke with husband Cory. As a result of her promotion to Accounting Manager Beth will have a much greater involvement in training accounting staff and supporting management.
If you have any questions about the newsletter items, please contact us, we are here to help