Autumn2012

SparkesWalkerCharteredAccountantsLtd

www.sparkeswalker.co.nz

Remunerationofshareholderemployees

RiskandReward

ThePennyandHooperdecisionisalandmarktaxavoidancecase

thathasimplicationsforsmallbusinessesoperatingthroughacompanyortrust.Essentially,theSupremeCourtdecidedin

favourofInlandRevenue,concludingthatsettingartificiallylowsalariesamountedtotaxavoidance.

PennyandHooperweretwoorthopaedicsurgeons,eachearningtaxableincomeofbetween$600kand$850kayear.

Theyrestructuredtheirbusinessesintocompanieswithafamilytrustowningmostoftheshares.Theyprovidedtheirservicesto

thecompaniesinreturnforsalariesof$100k‐$120keachyear.Thebalanceofthecompany’sincomewasdeclaredasdividends

tothefamilytrustwhichthesurgeonsdrewfromregularly.

Eachyeartaxofbetween$20kand$30kwassavedbyhaving

theprofitsaftersalariestaxedatthetrusteerateratherthanatthesurgeons’individualtoppersonaltaxrates.Thecourtfound

thesesavingsa‘morethanmerelyincidental’reasonfortheirlowsalaries.

TheIRDhasputbusinessesonalertandisactivelyreviewingthoseoperatingthroughacompanyortrustwheretheincome

isgeneratedfromservicesprovidedbyanindividual,andthe

individual’ssalaryisunreasonablylow.Althoughtheremaybegoodreasonsforsettingthesalarylowinaparticularyear,e.g.

adversebusinessconditions,oraplannedexpansionofthebusiness,insomecasesthesolereasonforthesalarylevelisto

takeadvantageofthelowertaxratethatappliestocompanies.

TheIRDisentitledtogobackfouryearsintoabusiness’records,buthavepubliclyconfirmedthatwherea‘voluntarydisclosure’is

made,onlythelasttwoincometaxreturnswillbereassessed.AvoluntarydisclosuremightsignificantlyreduceIRDpenaltiesor

avoidthementirely.

Wheneverwe’rediscussingyourbusinesswe’lllookatthisfor

you.Inthemeantime,ifyouareconcernedandwouldliketodiscussthiswithus,pleasedocontactus.

ACCchangesself‐employedinvoicing

ACChasrecentlychangedthewayitinvoicesself‐employedclientswith

regardtotheirfullorpart‐timestatus,dependentonwhetheryouwork30

hoursormoreaweek.

Informationonyourfullorpart‐time

statusnolongerflowsthroughtoACC’sdatabaseontheIRDIR3form.Ifyouheld

part‐timestatuslastyearandthisyearyourearningscrossedthethresholdyou

willreceivealetterfromACCautomaticallyconfirmingyourchangeto

full‐timestatus.Inallotherscenariositisuptoyoutoformallyconfirmachangeof

statuswithACC.

Itwouldpaytocheckyourinvoicethisyearandcallusifthere’sanyconfusion.

Clientscouldgetstung,forinstance,iftheyhavebeenpayingleviesonthe

basisofpart‐timestatus,haveanaccident,andthendeclarefull‐time

status.InsuchacaseACCmayqueryitandcanbackdateleviesuptofouryears.

WeprovideanongoingACCadministrationandadvisoryserviceto

ourclientsonanagreedannualfeebasis.BeingrecognisedbyACCasyour

onlineagentgivesussecureonlineaccesstoyourlevyinformation,your

coverstatusandinvoices,allowingusto

workdirectlywithACC.Asimplesignedauthorityfromyouandwe’dbehappyto

reviewyourcoverstructureandpremiums,toensureyourcoverisappropriateand

leviesareminimised.

TaxTalk WorkingForFamiliesFromApril12012manyofthesmallchangestoWorkingForFamilies

signalledlastyearcomeintoeffect:

Thefamilytaxcreditamountforchildrenunder16willriseforinflation:

QualifyingChild Currentamount Newamount

Firstchildunder16 $4,578 $4,822

Secondchildifunder13 $3,182 $3,351

Secondchildif13‐15 $3,629 $3,822

Thenetincomelevelguaranteedbytheminimumfamilytaxcreditwillrisefrom$22,204to$22,568

Theabatementratewillincreasefrom20to21.25centsinthedollar

Theabatementthresholdwilldecreasefrom$36,827to$36,350

KiwiSaverAsof1April2012employercontributionswillnolongerbetaxfree.

EmployerSuperannuationContributionTaxwillapplyatthe

employee’smarginaltaxrate.

MinimumwageAsof1April2012theminimumwagewillincreasefrom$13.00perhourto$13.50perhour.

Trainingandnewentrants’minimumwageswillincreasefrom$10.40to$10.80‐80percentoftheadultminimumwage.

NewGSTrulesformulti‐useassetsNewrulescameintoeffect1Aprillastyearreplacingtheold

change‐in‐userulesbyapportioninginputtaxdeductionsinline

withtheactualuseofthegoodsandservices.Asthe2012financialyearcloses,thenewruleswillbeappliedforgoodsandservices

acquiredonorafter1April2011.Insubsequentperiods,whenachangetotheactualtaxableuseoccurs,fromwhatwasfirst

intended,aGSTadjustmentwithinanadjustmentperiodmustbemade(anumberofexemptionsmayapply).

Thereisamaximumnumberofadjustmentperiodsaccordingtotheasset'svalueorestimatedusefullifeandspecial‘wash‐up’rules

applywhengoodsandservicesthathavebeensubjecttotheapportionmentrulesaresoldorthepersonderegisters.

TaxpoolingYoucaneasilysavemorethan25%ofIRD’sinterestcost

onyourprovisionaltax.AllwiththesealofapprovaloftheIRD.

Ifyoudon’tpaythecorrectamountoftaxontimetheIRDchargeyouinterest.Thecurrentrateis8.89%.

TaxpoolingisaserviceintroducedbyInlandRevenuein2003thatallowsprovisionaltaxpayerstoreducetheir

exposuretoIRDinterestcosts.

Howitworks:Whenwehavefinishedyourincometax

return,wewillinformyouwhetheryouoweanyfurthertaxtoIRD.Inmanycases,youwillalsooweIRDinterest.

Taxpoolingallowsyoutobuytaxcreditsthatothertaxpayersdonotneed.Thesetaxcreditshavealready

beenpaidtoIRD,butthroughthetaxpoolcanbetransferredfromthesellertoyou.Thecostofbuying

thosecreditsissubstantiallylessthanpayingIRDinterest.

Thetablebelowshowsthesavingsyoucanmakeon2011

underpaidprovisionaltaxifpurchasedinMarch2012.

UnderpaidProvisionalTax EstimatedSavings$10,000 $268$20,000 $536$30,000 $803$50,000 $1,338

$100,000 $2,675

WecanquicklyarrangeataxpurchaseonyourbehalfasweworkcloselywithNZ’sleadingtaxpoolingcompany,

TaxManagementNZ.They’veassistedthousandsofNZcompaniesandindividualprovisionaltaxpayersinsaving

money.

Deathandtaxesmaybeinevitable,buttheyshouldn'tberelated.J.C.Watts,Jr.

FinancialNewYearChecklist! BusinessPerspectiveTakethetimetoconsiderwaystominimisetaxandmaximisecashsurplusesforthecomingyear.Willthecompanymakealoss?

Filelossoffsetelectionsandmakesubventionpaymentsforthe2011incomeyearby31March2012.

Canyoupre‐payexpenses?

Manyitemscanbeprepaidandclaimedasataxdeductionintheyearto31March2012.

Doyoudiscountforpromptpayment?

Youmayclaimdeductionsforadiscountreserve.Inthefirstyearadeductionfortheactualdiscountpercentageisallowed.

Subsequentlytheamountiscalculatedatapercentagelevel.Differentrulesapplyifcreditextendedtocustomersexceeds93

days.

Areyoucommittedtoemployeeexpenses?

Amountsowingforholidaypay,bonuses,redundancypayments,longserviceleaveetc.canbeclaimed,iftheemployeris

committedtothematyearendandthey’repaidwithin63days.

HaveyoutalkedtousabouttheICAanddividends?

Theimputationcreditaccountmustbalancesothereisnodebitbalanceatyearend.Ifyouhaveimputationdebitbalance,we’ll

contactyoutodiscussfurther.

Haveyouscheduledastocktake?

Disposeofobsoletetradingstockby31Marchoralternatively

writeitdowntoitsnetrealisablevalue,thelesserofcostormarketvalue.

Haveyourreviewedyourdebtors’ledger?

Toclaimadeductionyouneedtophysicallywriteoffbaddebts

inyourdebtors’ledgerbefore31March.Youmusthavetakenreasonablestepstorecoverthedebtfirst.

Haveyoureviewedfixedassets?

Ifyouhaveassetsnolongerinuse,thebookvaluecanbewrittenoff‐providedthecostofdisposalisexpectedto

outweightheproceedsfromitssale,e.g.thekeyboardyouspiltcoffeeon.

Haveyoureviewedallcontracts?

Haveyouinvoicedretentionsthatarenotdueandpayableforanotheryear?Iftheyarepayableinthecurrentyeartheyneed

tobedeclaredasincomebutifnot,theincomewillbedeferredtoasubsequentyear.

Arerepairsandmaintenancedue?

Considerundertakingrepairsandmaintenancetokeyassetsbefore31Marchtoensureafulltaxdeduction.

Haveyoureviewedallcreditnotes?

Reviewcreditnotesissuedtocustomersafter31Marchwhichmightbeappliedtothepreviousyear,potentiallyreducingthe

currentyear’staxableincome.

Getyourdocsinarow...

Weaimtoprepareyourfinancialstatementsandtaxreturnsingoodtime.Todothisweneedyourcompletedannualquestionnaires

withfullsupportingdocumentation.Minimisecostlydelaysbykeepinginmindlikelysupportingdocumentsfor:

NewBankLoans,balanceoutstandingatyearend,security,interestrate,loanterm

FreshHirePurchasesItems,interestrate,termandrepaymentplan

Vehicle/Plant&equipmentpurchases,agreements.Wasfinanceobtained?

ClosingStockandWIP(WorkinProgress).Stockonhandatyearend?Anyun‐billedworkinprogress?

Income,includedetailsofWageorEmployerSubsidies,additionalincomeasdefinedforWorkingforFamilies

BankStatements.IfyouuseMYOBorasimilarsystem,copiesoffinalbankandcreditcardstatementsletuscheckthereconciledbalance

Property/BusinessSales/Purchases,agreementsandsettlementstatements

DebtorsandCreditors.Whatisowedbyortoyourbusiness,includingwhetheramountsareGSTinclusiveorexclusive?

Donations/schoolfees?Receiptsneededplease

Interest,dividendsandrebates?Providedetails

Disclaimer:Thispublicationhasbeencarefullyprepared,butithasbeenwritteningeneraltermsonly.Thepublicationshouldnotbereliedupontoprovidespecificinformationwithoutalsoobtainingappropriateprofessionaladviceafterdetailedexaminationofyourparticularsituation.