Want to reduce your end of year tax bill?
With a new financial year about to start for those businesses with a 31 March balance date, it’s time for business owners to start planning for year-end.
Our list below will help guide you through the year-end process and ensure you take the opportunity to maximise your tax deductions which will ultimately minimise your tax expense.
- Expense assets purchased which cost $500 or less, or where the total cost is $500 or less for similar assets purchased acquired together
- Claim depreciation from the first day of the month of purchase
- When you trade-in an asset, treat it as a disposal and capitalise the new asset at its full cost
- Consider depreciating individual chattels for residential rental property purchased during the year
- Separate fit-out costs to maximise depreciation deductions for commercial property acquired during the year
- Update fixed asset register for any assets sold, stolen, scrapped, destroyed or no longer used in the business to determine loss on disposal
- Ensure you have treated genuine repairs and maintenance as deductible and not capitalised the cost
- If an asset sale is expected to result in depreciation recovery, defer the sale until after 31 March
Repairs and Maintenance
- A one year warranty purchased with a fixed asset can be deducted as an expense rather than capitalised providing the cost of the warranty can be separately identified
- Review repairs and maintenance for any capital items that should be capitalised
- Carry out repairs and maintenance before year end
- Value closing stock at market selling value if lower than cost
- Perform a stocktake at 31 March to ensure an accurate closing stock figure
- Write-off obsolete stock
- If turnover is less than $1.3m and you can reasonably estimate you have less than $10,000 in trading stock, then you can use opening stock value as your closing stock figure.
- To claim a deduction the debt must be physically written off the debtors’ ledger by 31 March (if this is your balance date)
- Retain documentation to support the debts as not recoverable
- Remember to make your GST adjustment
- Bad debts recovered need to be treated as income, with the corresponding GST adjustment
Cash donations paid to donee organisations or registered Charities can be deducted to the extent of the company’s taxable income. If the company is in a tax loss position, consider having the shareholder claim the donation rebate.
Certain prepaid expenses can be claimed as a tax deduction in the current income year, but only if they have not been treated as a prepayment (asset) in the balance sheet. Keep documentation to establish when payment was made, what it was for and for what period so we can determine deductibility. Examples include rent, insurance, advertising, service contracts and subscriptions.
Provisions and accruals
- Ensure you capture all expenditure at year end
- These are not deductible in the current year unless you are definitively committed to the expense at year end and the amount can be reliably estimated
- Ensure you have the necessary documentation in place at year end to support this if applicable
Bonuses and Holiday Pay
Amounts owing to employees at balance date for bonuses, holiday pay or long service leave can only be deducted in the current year if the amount is paid within 63 days of balance date (2 June)
- Consider paying a dividend or shareholder salary if there is an overdrawn shareholder current account
- Dividends for the 2016-17 year should be paid or credited before 31 March 2017
- Dividend withholding tax will be payable on 20 April 2017.
- Check the company has sufficient imputation credits, and consider bringing forward a tax payment if necessary
- Review shareholding changes to ensure shareholder continuity has been maintained
- If the company is making a dividend payment to a non-resident, non-resident withholding tax may need to be considered
- Interest deductibility may be impacted by the thin capitalisation rules if there is control by a non-resident, or offshore investment
- Cross-border related party transactions need to be at an arm’s length price or will be at risk of being restated by the IRD under the transfer pricing rules
Income Tax Payments
If your income/ profit is higher than you had expected, consider making a voluntary provisional tax payment to the IRD or a tax intermediary as soon as possible to minimise IRD interest.
Where assets are used for both business and private use, any GST year-end adjustments required under the apportionment rules will go in the 31 March GST return
Taking some time to consider the above before you race into the new financial year will help ensure you maximise your tax deductions for 31 March 2017 and ultimately lower your tax bill.
If you have any questions regarding the above, please contact the team at Hayes Knight.