Newsletter May 2009
Welcome
Thank you to all those who took the opportunity to provide us with feedback via the Annual Feedback Form sent out in February. We had a 20% return of these forms which is a good response. The winner of the draw for the $250 giftcard was one of our farming clients from Pongaroa – congratulations.
The feedback received enables us to determine if your perception of how well we are doing is in line with ours and helps us to improve the service we provide to you.
The greatest area of “don’t knows” was in the We Serve Our Region part of the survey. Supporting our district is important to the principals and staff. MCI & Associates provide heavily discounted accounting services to over 35 clubs and societies within the region, which equates to over 500 hours of staff time per year. In addition to this we sponsor local events, teams and individuals to the tune of $8,000 annually.
All of our staff are encouraged to take part in local clubs, societies and events and we provide those staff with the use of our accounting packages, computers and facilities free of charge to assist them with any president, treasurer or secretary roles they may hold.
Once again, thank you for your feedback.
Family Businesses – Making Them Work
Many SME operators are also family businesses. Family businesses present their own unique challenges relating to:
• Planning for the retirement of the principal
• Succession planning
• Employment of family members
• Employment of outside management
• Appointment of external directors
• Distinguishing the ‘business’ from the ‘family’
• Reviewing the ownership structures with regard to:
o Superannuation
o Capital gains tax
o Fringe benefit tax
It is also a good idea to conduct an annual review of the business to ensure that:
• All important matters have been written down
• Systems and procedures are documented and up to date
• A succession plan has been prepared
• Insurance policies both on the business assets and on the key individuals have been reviewed
• Full and frank consideration of what would happen if the key persons are not available the next day
There are many questions relating to successful operations of a family business. Please contact us if you would like to discuss the effective planning of your family business.
Renting out your holiday home
The income tax treatment of a holiday home that is used both privately and rented to third parties can be difficult to determine because of its mixed use. The difficulty arises because expenses of a private nature cannot be claimed, but expenses incurred to derive income can be claimed. The issue then becomes how to apportion expenses between the private and taxable use of the home.
The IRD has recently clarified its position based on general tax principles of how holiday homes should be accounted for, but has stated that each situation will need to be considered on an individual basis. Where a taxpayer can show that a particular expense directly relates to a time when rental income is being derived, then the expense may be deductible. For example, a telephone or power bill that shows actual usage while the home is being rented. However, the deduction may be limited to the lesser of the actual expenditure or rent received, (i.e. deductions cannot exceed rent received).
If the holiday home is treated as a genuine income producing asset and is only partially used for private purposes, deductions may be available for the periods during which it is available but not occupied. Proof of the home being “genuinely made available for rent” requires evidence of “active and regular marketing” of the holiday home for desirable periods at attractive rates. If the holiday home is only sporadically made available, for undesirable periods at unattractive rates it is more likely to be a personal asset for the intervening periods and deductions therefore would not be available.
Where a part of the property is not made available, the expenses should be apportioned to exclude an amount reflecting that proportion.
The IRD also contends that where the home is made available to friends or family at less than market rates, deductions should be limited to the amounts received, so the net income is nil.
Insurance for SMEs
It’s no use working very hard in building up a small business if you then have a fire, flood or cyclone or are sued by a customer or client and potentially lose a lot of money or even your business, when for a relatively small cost, you could have insured against many of these catastrophes.
Just as you plan how your business is going to operate from a marketing, staff, operational, premises point of view, you also need to plan appropriate insurance covers which give you a realistic amount of cover in the event of a loss.
Many small business operators utilise the services of an Insurance Broker to research the market and make recommendations to the SME operator on appropriate insurance covers available within the market.
You need to prepare a list of the assets owned by your business and ensure that those assets are insured for their replacement value. This is normally referred to as ‘Fire and Specified Perils’ insurance cover.
There are policies available to compensate the business in the event of an economic loss. These are normally called ‘Consequential Loss of Profits Insurance’ and you might need advice on an appropriate level of cover for these types of policies.
We can assist you in a review of your insurance requirements and will be happy to liaise with your Insurance Broker or alternatively recommend an experienced Insurance Broker to advise you on your insurance requirements.
What Does It Mean
Accounts Payable (aka Sundry Creditors) are short-term or current financial obligations that are created through the purchase of merchandise, obtaining of services, etc. At the end of each month it is normal to prepare a list of the money that is owing as accounts payable or sundry creditors.
Accounts Receivable (aka Sundry Debtors) is the amount owed to the business by customers in the form of regular accounts for sale of goods or services rendered. It is normal to prepare a list of accounts receivable or sundry debtors at the end of each reporting period, e.g. monthly.
Inventory (aka Stock on Hand) is the value of goods that have been purchased or manufactured that the business expects to sell to customers during the next accounting period or year.
Snippets
Making the most of the changes
The Government’s relief package for small to medium sized businesses includes a new provision which provides beneficial treatment for legal expenses. Under the general deductibility provisions of the Income Tax Act if an expense is of a capital nature it is non-deductible. The process of analysing expenses to determine if they are of a capital nature can be complicated and time consuming. Legal fees are often reviewed for this purpose as legal services are often required for transactions that are of a capital nature, such as the acquisition of a building.
The new legislation provides that in deriving income or running a business, where a taxpayer incurs legal fees of $10,000 or less in a tax year, the legal fees will be deductible irrespective of whether they are capital in nature. However, it is important to note that if more than $10,000 of legal fees are incurred the whole amount will be subject to the capital limitation and require analysis to confirm deductibility. The definition of legal services is tied to the definition under the Lawyers and Conveyancers Act 2006, which is very wide and is likely to cover most types of services. A further requirement is that the services be provided by a person holding a practising certificate issued by the NZ Law Society or an Australian equivalent.
A practical method of applying the provision is to monitor legal expenditure and where possible request that your lawyer defers further services until the following tax year.
Staff News
Anna and Fallon have returned from maternity leave. It is great to have them back in the office. We are now at full capacity here at MCI & Associates and continue to appreciate what a great atmosphere we have here. All of our staff have input into the day-to-day running of the office and they are a fantastic source of knowledge, experience and innovation for our firm.
We have been busy getting to grips with new software. This is designed to streamline a lot of the protocols and procedures we have developed and assists greatly with training and upskilling.
Some staff are getting ready for exams in June. It is great that they have support for these within the firm as there are a number of staff doing the same papers this semester.
We have had a great past few months here in the office, finishing one financial year on a very positive note and now into the next with all signs pointing to another positive year for our clients and everyone here.
Staff Profile – Annette Kendall
Congratulations to our Practice Manager, Annette Kendall. Annette has been selected to receive a 2009 scholarship from the New Zealand Institute of Management Foundation. Applications were received from all over New Zealand and three were selected to receive the scholarship for 2009. This involves an extensive 6 day study tour to Sydney in June. The other two recipients were a national manager with NZ Couriers in Auckland and an area manager with the NZ Fire Service in Christchurch. Their individual achievements are indicative of Annette’s own high standard of performance in her role as manager.
Annette not only manages our practice, she also provides mentoring services to many small businesses both locally and further afield. The services she provides include documentation of office policies and systems, motivation of staff, change management and redundancy procedures amongst many others.
The study tour involves attendance at the Australasian Human Resources Convention, boardroom briefings at iconic Sydney businesses and a day with international leadership and management guru Wilf Jarvis. Annette is looking forward to this fantastic learning opportunity which will further increase her ability to provide motivational, leadership, systems training and other management skills to our practice and our clients businesses.
If you have any questions about the newsletter items, please contact us, we are here to help