31 March is just around the corner – as a business or rental property owner, do you know what you need to do?
Generally, 31 March simply marks the end of the New Zealand Financial Year and it’s after this date that you need to prepare and file your tax returns. If you have an accountant or tax agent preparing returns on your behalf, it usually marks the due date for filing the years’ prior tax returns (e.g. 31 March 2023 tax returns need to be filed by 31 March 2024)
However, there are a few things you can do on or around 31 March, to save you a lot of time later.
Check out our quick tips below.
Preparing for your Annual Accounts and Tax Returns
By recording these few things now, it can save a lot of back tracking later.
Loans/Interest – Keep aside any information that comes from banks and lenders over the next few weeks showing interest earned or paid during the year.
Debtors – make a list of everyone that owes you money at the 31st March – review this list and identify and write off any bad debts – by doing this you don’t have to include the bad debtors as income for the year.
Creditors – make a list of everyone that you owe money to at the 31st March – these will be suppliers that have invoiced you dated 31 March or earlier but you won’t’ pay them until April. These costs get claimed as expenses for you in this financial year.
Stock – if you carry more than $10,000 worth of stock you will need to complete a stock take to add up the value of stock you have at the end of the year – this stock is recorded at cost excluding GST.
Outsource your Accounting and Tax Returns
Ensure your tax compliance is accurate and you don’t pay more tax than you need to by aligning yourself with a small business or rental property expert (like us).
You can also save tax by using an accountant to look after your end of year accounting. Firstly, because this is a deductible expense, but you’ll also get access to the combined wisdom of accountants to help with advice on further tax minimisation strategies. That means more money in your pocket, rather than the IRD’s, and you can focus on doing what you’re good at!
Also, by being linked to an accountant or tax agent you will gain an extension of time to file your return with IRD.
It takes just two minutes to request a quote from Kiwitax.
Spending up before 31 March?
People often ask us if it’s a good idea to spend money to save tax. The idea is by creating additional expense the business can claim the cost as an expense in the business income tax return. This does work but it depends on a few factors.
Firstly, is the purchase something actually required? Just spending money to reduce tax may not be a great idea and potentially wasteful. The profit could be kept and tax paid which is often better than buying unnecessary things.
There’s also common myth that if you buy an asset before the end of the financial year, it will save you lots of tax. Unfortunately, buying assets such as vehicles and equipment (over $1000) doesn’t immediately reduce your tax. You can claim depreciation on these items, but this happens over a number of years.
If there are suitable purchases to make then do so before the financial year ends (31 March for most businesses), so any claims can be made sooner rather than later.
The key thing to understand is that when a business buys something it doesn’t “get back” the full purchase price via its tax return. The most it will save you is 39% and may be much less depending on income. The next thing to be clear on is income tax is only paid on profit, if there’s no profit, there’s no income tax to pay.
But if you’re using your overdraft facility to make the purchase, then it could compromise your cashflow. The key is don’t run yourself short of funds (especially the money you’ve put aside for tax bills) thinking you’re saving tax!
Review your Accounting Systems
Is it time to look at a new/easier way of keeping track of your income and expenses?
Cloud based options such as Xero or MYOB Essentials are a game changer when it comes to managing your business finances and allows for better forward planning. Here at Kiwitax, we don’t take a ‘one size fits all’ approach to helping you choose the right cloud accounting software option. Check out this article for some helpful tips when choosing which software to adopt in your business: Xero or MYOB
We offer a set-up and starting-out tutorial for both MYOB and Xero to help get you on the right track!
Review your Structure
Many small and medium-sized businesses start out as a Sole Trader, yet have a spouse or partner who also helps in the business with invoicing, GST Returns, organising schedules and other support work.
If this is the case for you, forming a company and adding your partner as a shareholder can be a sensible way to save tax.
For example, the average salary for a part-time administrator is approximately $22,000 per year. By allocating a sum like this to your partner, the personal tax you and your partner pay can be reduced significantly in certain situations.
31 March can be a nice and clean time to transition to a new ownership structure, to avoid any cross over of activity in either entity, which requires you to prepare 2 separate sets of accounts.
For Rental Property owners, changing ownership structures will require caution, particularly with Brightline Implications and Interest deductibility:
Rental Property Trading Structures Overview
As always, please keep in mind this is a brief overview and you should seek specific advice from a professional. Kiwitax can help! Please contact us if you want to discuss your situation further or request a quote – it takes less than 2 minutes!
About Kiwitax – Award winning business improvement, tax and accounting service
Here’s the thing. As a business, rental property owner or start-up, you get a kick out of having your own gig. But chances are dealing with your tax and accounting leaves you cold. Good news! We love it, so hand it over to Kiwitax and we’ll look after it all for you.
Whether you deal with us online, by phone or drop into our Napier office, you’ll find a friendly, professional hardworking team ready to work with you, however you keep track of your financial information and from wherever you do business. And all for a fixed price. It takes just two minutes to get a quote.
Plus if you’re at a loss to know how to improve aspects of your business – from growth planning to cashflow management, even tax debt and so much more – we’re all over that too. Our Business Improvement advisors can help you make a plan and put it into action.
Kiwitax are a preferred training provider for Business Improvement services through the Regional Business Partner Network Capability Voucher Scheme. This is a government funded scheme designed to boost business capability by providing funding of up to 50% of approved training programs with specified training providers up to a maximum value of $5000.
If you liked this article and want to make improvements in your business, with quarterly coaching sessions specifically tailored to support you to identify and achieve your business goals, lets chat!
