RESOURCES
Newsletter March 2022
Year-end Checklist
Before you say goodbye to the 2022 financial year, make sure you work
through a year-end process to maximise your tax deductions and
minimise your tax bill. Here are the must-do items:
Assets
- Assets purchased for less than $1,000 can be expensed.
- Depreciation can be claimed from the first day of the month of purchase
- Ensure assets traded in are disposed of and the replacement asset is depreciated and recorded at its full cost
- Depreciate residential rental property chattels purchased during the year
- Depreciation can be claimed on commercial property, provided it has been claimed previously or the property was newly acquired in the 2022 year
- Review your fixed asset register. Ensure assets sold, stolen, scrapped or destroyed 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
- Review repairs and maintenance codes to ensure all assets are moved to the asset account where appropriate
- Ensure deductible feasibility and R&D costs have been expensed
Trading Stock
- Value closing stock at market selling value if this is lower than cost
- Carry out a stocktake at 31 March to ensure an accurate closing stock figure
- Write-off any obsolete stock
- If trading stock is less than $10,000, and turnover is less than $1.3m, you can use the opening stock value as the closing stock figure (even if this is nil) Accruals and Provisions
- 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
- Keep a record of employment provisions paid out between 1 April and 2 June as that portion of the provision is deductible in the 31 March financial year. This includes holiday pay and bonuses
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 registers 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 of any bad debt adjustment if you are on invoice basis
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 only 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 claiming the donation rebate
Cut-off
- Follow 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 2021-22 year should be paid or credited before 31 March 2022
- Dividend withholding tax for any dividends paid in March 2022 is payable on 20 April 2022
- 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 (NRWT) 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 Inland Revenue under the transfer pricing rules
- Ensure NRWT filing obligations are met and payments to Inland Revenue for March 2022 transactions are made before 20 April 2022
Income Tax
- The third instalment of 2022 provisional tax is due 7 May 2022 based on actual results to 31 March, therefore it is important to have your records in order to determine this if you are not paying based on standard uplift. Remember, the tax rate for individual’s income over $180,000 is now 39%
- If you wish to use the AIM provisional tax method, you must be using the correct accounting software by 1 April 2022
- If you have not yet filed your 2021 income tax return, ensure it is filed by 31 March otherwise late filing penalties will be charged, your extension of time to file 2022 may be lost and the 4-year statute bar period extends a further year
- A loss offset subvention payment for the 2021 income year must be paid by 31 March 2022
Look-through companies
- If you want your company to enter or exit the look-through company regime for the 2022-23 income year, the election notice needs to be filed by 31 March 2022
GST
- Where assets are used for both business and private use, make your year-end GST apportionment adjustment in the 31 March GST return
- Ensure you have made any GST adjustments required from the preparation of 31 March 2021 financial statements
System Considerations
- Ensure bank reconciliations are completed to financial year end and that all bank and loan balances in the accounting system match the bank statements that will be provided to your accountant
- Confirm the balances of outstanding creditors and debtors are accurate
- Where possible, lock your system at the year end to ensure no changes can be made once the final position has been determined
Putting aside time to consider the above before you race into the new financial year will help ensure you maximise your tax deductions for 31 March 2022 and ultimately lower your tax bill.
Minimum wage on the rise again – what does it mean for businesses
While some were expecting it, confirmation of a 6% increase in the minimum wage only weeks before it takes effect is a concern for many businesses. The increase will no doubt result in upwards movement in other employees’ wages too.
The minimum wage increases by $1.20 per hour to $21.20 from 1 April 2022. The starting-out and training minimum wage will increase from $16 to $16.96. The increase is to ensure those paid the minimum wage are keeping pace with the current rate of inflation (5.9%).
The increase will impact those businesses who have a large percentage of minimum wage earners the most. With hospitality in this classification, this comes at a time when Government relief for Covid is being reduced, and demand is still down due to restrictions in place and people choosing not to socialise as much.
Many businesses are already adjusting their prices for inflation, and it is expected that prices will continue to rise to account for the additional cost the increase in the minimum wage brings. This then leads to flow-on implications with inflation continuing to increase, requiring another increase to wages, and so on and so forth.
So what can you do? Here are some ideas to help you keep
ahead of the game:
- Review your pricing (if you haven’t already done so). Consider the market and the ability for you to increase your prices
- Identify your unique selling point and highlight any benefits and/or advantages of your product. Communicate this with your customers
- Prepare a financial forecast for the year ahead to understand the implications for you
- Review the mix of your staff and look for areas where you can make savings
- Consider what processes can be automated and/or streamlined. There may be more time savings than you realise.
With the right planning and review of your current position, your business can be ready for this increase, and move into the new financial year with confidence.
Are you a director of an Australian company?
New rules in force for Australian directors
New rules require directors of Australian companies to have a Director Identification Number (DIN), including overseas directors, and t provide that DIN to the company record-holder.
Specifically, a DIN will be required if you are a director, or alternate director, of a Corporations Act entity (i.e., a company, a registered foreign company, or a company responsible for a managed investment scheme).
DINs are intended to prevent the use of false or fraudulent director identities, make it easier for regulators to trace directors’ relationships with companies over time, and identify and eliminate director involvement in unlawful activities.
If you are an existing director of an Australian company, you need to apply for your DIN by 30 November 2022.
If you are appointed as a director between 1 November 2021 and 4th April 202x2 you need to apply for a DIN with 28 days of appointment. From 5th April 2022, and you will need to have a DIN before being appointed as a director of an Australian company.
Applications for DINs are made through the Australian Business Registry Services (ABRS).
Do you pay insurance premiums to an overseas insurer?
If yes, then you may have a New Zealand tax obligation on behalf of the overseas insurer
That is because when a New Zealand insured person pays a premium to an overseas insurer, and the insurer does not have a branch in New Zealand, the insured person is considered to be the insurer’s agent, and is required to file an annual income tax return as agent for the foreign insurer. Ten percent of the premium is treated as taxable income, which is then taxed at the corporate tax rate (28%).
Guarantee fees paid by a New Zealand subsidiary to an overseas parent company are also captured in this “agent for foreign insurer” regime, as are recharged premiums from an overseas related entity.
The responsibility for filing the income tax return, and paying the income tax, lies with the party paying the premium. They will need to apply for an ‘as agent’ IRD number and file an income tax return (IR1215) each year, in line with the usual tax filing deadlines.
If the overseas insurer is resident in Switzerland the ‘agent for foreign insurer’ regime does not apply as Swiss insurers are not subject to tax in New Zealand.
