With the new financial year almost upon us, there’s not much time left to ensure you have your ‘house’ in order for 31 March.

Our 40-point checklist below will guide you through the year-end process and ensure you maximise your tax deductions and minimise your annual tax bill.

Assets

  • Assets purchased costing $500 or less should be expensed
  • Claim depreciation from the first day of the month of purchase
  • Ensure assets traded in are disposed of and the replacement asset depreciated at its full cost
  • Depreciate residential rental property chattels purchased during the year
  • Separate new commercial property fit-out to maximise depreciation
  • Ensure assets sold, stolen, scrapped, destroyed or no longer used in the business are removed from the asset register and loss on disposal calculated
  • If an asset sale is expected to result in depreciation recovery, consider deferring the sale until after 31 March
  • Ensure deductible feasibility and R&D costs have been expensed

Trading Stock

  • Value closing stock at market selling value if lower than cost
  • Carry out a stocktake 31 March to ensure an accurate closing stock figure
  • Write-off obsolete stock
  • If trading stock is less than $10,000, and turnover is less than $1.3m use opening stock value as closing stock figure

Provisions and Accruals

  • 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 supporting documentation in place at year-end

Employment provisions

  • Keep a record of employment provisions paid out between 1 April and 2 June as that portion of the provision is deductible at 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 fixed asset register to ensure genuine R&M has been expensed and not capitalised to fixed assets
  • Consider carrying out R&M work before year end

Bad Debts

  • The debt must be physically written off the debtors’ ledger by 31 March to be deductible
  • Retain documentation to support the debts as not recoverable
  • Claim the GST adjustment

Prepaid Expenses

  • Some expenses paid in advance (eg, rent, insurance, advertising, service contracts and subscriptions) can be tax deductible in the current year if not treated as a prepayment in the accounts
  • ACC levies are deductible when paid

Donations

  • Cash donations paid to donee organisations or registered Charities are deductible up to the level of net income.  If the business is in a tax loss position, consider the owner making the donation and claim the donation rebate

Cut-off

  • Ensure your team are aware of year-end cut-off procedures to ensure sales, stock, expenses etc are accounted for in the correct year

Shareholder Matters

  • Consider paying a dividend or shareholder salary if there is an overdrawn shareholder current account
  • Check the company has sufficient imputation credits; consider bringing forward a tax payment if necessary
  • Dividends for the 2019-20 year should be paid or credited before 31 March 2020
  • Dividend withholding tax is payable on 20 April 2020
  • Review shareholding changes throughout the year to ensure shareholder continuity has been maintained
  • If a dividend is being paid to a non-resident, non-resident withholding tax may need to be considered

International Matters

  • 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

  • The third instalment of 2020 provisional tax is due 7 May 2020 based on actual results to 31 March so it is important to have your records up to date in order to determine this
  • If your income/ profit is higher than expected, discuss with your Hayes Knight business advisor what your options are to minimise IRD interest
  • If you wish to use the AIM provisional tax method, you must be using the correct accounting software by 1 April 2020
  • If you have not yet filed your 2019 income tax return, ensure it is filed by 31 March otherwise late filing penalties will be charged, your extension of time to file 2020 may be lost and the 4-year statute bar periods extends a further year
  • A loss offset subvention payment for the 2019 income year must be paid by 31 March 2020

Look-through companies

  • If you want your company to enter or exit the look-through company regime for the 2020-21 income year, the election notice needs to be filed by 31 March 2020

GST

  • Where assets are used for both business and private use, make your year-end GST apportionment adjustment in the 31 March GST return

In Summary

Putting aside 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 2020 and ultimately lower your tax bill.

Contact a Hayes Knight Knight advisor