End of Year Tax Planning Opportunities

Posted: 28th March 2011

As the end of the financial year is fast approaching we have prepared a list of issues that need to be considered before the end of the year.

 Bad Debts

 To claim a tax deduction, the bad debt must be physically written from the accounts receivable ledger before the end of the financial year. 

 Definition of a Bad Debt:-

   If a reasonable business person would be of the view that it is unlikely that the debt will be paid.

 (Need to consider the length of time debt has been outstanding and the efforts taken to collect it)

Donations

Companies are entitled to a deduction for donations made to approved doners/charitable organisations.

 Trading Stock

 (a)    Stock take

 If you carry stock, generally you will need to carry out a stock take at balance date.  Stock figures for tax purposes need to be supported by the appropriate documentation. 

 Generally, stock should be at lower of cost or market value.

 Note: Some industries have special provisions.

 (b)   Valuing Closing Stock Under $10,000

Businesses can value closing stock at the opening stock value where turnover has been less than $1.3 million per year and the closing stock can be reasonably estimated to be less than $10,000.

Fixed Assets

Review your Fixed Assets Schedule.  Are there assets included that have been disposed of or are no longer used in your business?  Ensure that you advise us of these when we prepare your annual accounts.  Assets purchased during the year that cost less than $500 can be expensed. 

Income Recognition

In some circumstances, there may be opportunities which allow  income to be deferred until the next or financial year.  For example, services are generally recognised as income when there is an entitlement to bill.

Dividend Payments

With the change in tax rates and the requirement of withholding tax on dividends, timing of dividend payments is critical.  If you have excessive drawings, please contact us.

Employee Bonuses and Holiday Pay

Wages paid for holidays and bonuses earned during the 2011 year, taken and paid within 63 days of balance date, i.e. payments on or before 2 June 2011, are tax deductible for the 31 March 2011 income tax year.

 Please keep a record of these payments.

Timing

Consider the impact of significant transactions.  You may be able to sell an asset after balance date rather than before to defer the depreciation recover to the next tax year.  Sales or purchases, particular of consumables, rent, insurance, advertising, travel etc, can also be managed to get the best tax result subject to cash flow, shareholder drawings/dividends, ICA issues and other areas.

Subvention Payments

Subvention payments to enable companies with common ownership to offset profits and losses must be in place by 31 March of the year following the offset.  Note there is no longer a requirement for these to be physically paid though the debt does need to be extinguished by 31 March the following year.  This can be done by journal entry.

Reimbursing Allowances

It is recommended that employees review all reimbursing allowances paid to employers and ensure that they can be treated as tax free reimbursements.

 If you have any questions regarding the above, please do not hesitate to contact Martyn Henderson on 09 308 4050 or martyn.henderson@tbag.co.nz