Provisional Tax Made Simple

Most of you will have heard recent releases from IRD relating to their New Provisional Tax option for Small Businesses called AIM (Accounting Income Method).

They’re saying: “Once you’ve opted in to AIM you’ll only pay provisional tax when your business makes a profit. This will help you to avoid cash flow problems. As long as you make your payments in full and on time, there is no exposure to use-of-money interest. If your business makes a loss you can get your refund straightaway rather than waiting until the end of the year.”

This sounds great, and if the stars align it would be very useful.  But we all know the stars don’t always align and we believe this doesn’t work for everyone.

To see if this method will work for you – read on. Read More »

Provisional Tax Changes

You may have heard that the IRD have introduced some changes to the way they manage Provisional Tax.

For many years, some of the biggest gripes we have heard from our clients have related to Provisional Tax.

Why do you have to pay tax based on guesses as to what you are going to earn, and then get penalised if you get it wrong? And yes, we know that Use of Money Interest (UOMI) is actually interest and not a penalty, but people still see it as a penalty, especially as the IRD charge and pay interest as if they are a bank- they pay it at a low rate and charge it at a high rate.

Finally the IRD have listened and have taken the first steps towards making it a bit fairer. Read More »

Phishing Scam – important message from IRD

Over the past two weeks Inland Revenue has received reports of a telephone phishing scam from several hundred customers around New Zealand.

The scam calls have been made to landlines and mobile phones, with messages being left on voicemail if the calls haven’t been answered.

The callers state that they are from the Inland Revenue Department and the following scenarios have been reported, that the customer:

  • is wanted for historic tax evasion or tax avoidance
  • has a red flag on their file
  • is in debt

The caller is then advising customer they or their lawyer must return the call as soon as possible. Some customers have been told to make a payment via Western Union within 30 minutes, or risk arrest.

They are often told to ring a Wellington number – (04) 830 2441 – and recommended to speak to a “Kenneth Matthews”, “James Matthews” or “Kevin Sousa” to arrange an immediate payment so as to avoid serious repercussions.

Customers have reported the callers as having “foreign sounding” accents, with many different accents reported. Sometimes the caller is female. The callers are very confident and convincing, and we have received anecdotal reports that some customers have been taken in and paid significant sums of money to the scammers.

Some customers have called the number referred to above and reported the background as sounding like a Contact Centre environment with multiple accents.
These customers have also reported the callers as becoming angry and aggressive when challenged.

If you receive a suspicious email, SMS scam message or a fraudulent call, please let us know as soon as possible so we can advise IRD.

Interpreting your accounts – Part 2

In my last blog I talked about the benefit of understanding your accounts and having them prepared regularly.

Now I am going to explain this in more detail.

Following are two of the most common misunderstandings of business. Reviewing your management accounts regularly can help your business by understanding these two areas.

1. Profit is not Cash

It’s not uncommon for us to be going over annual accounts with a client, telling them the profit and they say “I don’t believe we made that profit – if we did, where is it? It’s certainly not in the bank.” Read More »

Property Investment

In my last blog I talked about the pros and cons of residential rental property as an investment. If you have the desire to invest in property but don’t want the hassles of tenants there are other types of property investment.

Commercial property is similar but aimed at the business market. Generally it’s a bigger investment as they’re more expensive buildings but the basic concept is the same. One of the advantages is that you can lock tenants in for a longer lease, and it’s usual to have a time to review the rent set in the lease. The tenants want the surety of both the time frame and the cost. However, it can take longer to find a tenant, especially if there’s plenty of property in the market or a down turn in the economy.

Commercial property is valued on the rental return, more so than residential property. Hence where a rent may be agreed, but an incentive offered to get a tenant in, rather than reducing the rent.

You also have to be clear who owns what, has the landlord provided the fit out, or has the tenant. Are you just charging rent, or do you get to pass on rates and insurance costs. Read More »

Running a great business

I spent a few days last month getting together with a group of colleagues who meet twice a year to work “on” our business’s. We’ve been getting together for 5 years now so we know each other very well. As one of them said “Its a bit like getting undressed together!”

Many Chartered Accountants call themselves “Accountants and business advisors”. To be honest, many of them have never really run a business themselves, or they have run a pretty sloppy one so I’m not really sure quite how they can advise their clients on how to.

I’ve been an owner of BW for over 20 years, and have many clients running small and medium businesses so I’ve gathered a bit of knowledge over the years.

Here are a few simple tips to running your business from me:
Read More »

Investment Properties – How does the 1st October law change affect you?

You will all have seen the media reports about the Government introducing a ‘Not a Capital Gains Tax, Capital Gains Tax’ on Rental Properties.

John Key announced on Sunday that the Government planned a law change for October 1: that will make residential property bought and sold within two years subject to tax on any profit on sale, unless it was the family home, inherited, or needing to be sold because of a relationship split.

In reality how does this affect you? The answer is that for most people it doesn’t actually make much difference at all.

The law already says that if you buy a property with the intention of selling it for a gain – That gain is taxable. The situation though was that everyone says that isn’t their intention.

Now intention won’t come into it if you sell within 2 years, it’s taxable regardless of your reason for selling. I guess the reverse will also apply. If there’s a crash and you sell at a loss this may be claimable!

Extra funding has already been provided to Inland Revenue to enforce this.

This new law and the policy change requiring overseas buyers to have a New Zealand bank account and tax number, are extra tools to ensure those looking for a quick profit are taxed on any gain.

If you have any queries about your own situation give us a call.

A few things to remember as we head towards 31 March.

For most NZ businesses and people it’s the end of the financial year. Time to draw a line in the sand and total up how your business has gone for the last year, or how much income you have made and file another tax return. There are a few things to remember as we head to the 31st of March:

Stock takes need to be done –
For all businesses carrying more than $5,000 of stock we need to record the closing stock balance at 31 March, at its cost (or net realisable value).

You should do a physical count of all stock; if you keep a computerised stock system you should still do a physical count and compare it to your computerised records. Dispose of any obsolete stock so we don’t have to include it.

Write off any bad debtors
– in order not to have to include bad debtors in your accounts, and pay tax on them, you should write off any bad debts prior to 31 March. It doesn’t mean you have to stop chasing the debt, but you do have to write them off your normal debtor’s ledger.

Keep copies of all bank statements, loan statements and Interest & Dividend statements
that arrive in the coming weeks to give us poof of the balances at 31 March.

Are you likely to have tax to pay?
I’ve had a few clients contact me and ask this question, not only are they really busy but money’s sticking to the sides too. (Yeah finally!) So they’re thinking that a tax bill may be coming. And of course there may be the double whammy of having to pay tax on an increase in profits in the 2015 year and then the increase in provisional tax on the anticipated income for the 2016 year.

Also, remember that for a company, or a Trust or a high earning individual IRD charge interest on your tax. Clients hate paying the IRD interest. So even though the tax isn’t due yet it may be sensible to make some voluntary payments to keep the interest to a minimum.

Even if you choose to only pay when it’s due, it really pays to be aware that the bill is coming. Make it a financing decision, rather than a shock. There’s nothing worse than when a client gets a shock at their tax bill, or they’ve spent all the money! Give us a call if you think you’re business has been doing better than previous years, you’ve got cash in the bank or been able to buy expensive assets or repay debt. We can look at your management accounts and tell you what to expect, we don’t have to wait until your end of year accounts are done.

What is it we do for your end of year accounts? Why do you have to have them?

It’s coming up to the end of the financial year for most of our clients. That means we start another annual cycle of preparing the financial reports and tax returns for our clients.

You might wonder why you have to have this done.

It’s called compliance for a reason. There are laws that say you have to prepare annual accounts.

The Companies Act and the Financial Reporting Act 2013 state that a company has to provide its shareholders with an annual report every year. These need to be prepared in accordance with Generally Accepted Accounting Practice (GAAP) and include all the things that Clayton spelled out in his blog “Will you still need to prepare Financial Statements?”

It’s also an obligation under the Income Tax Laws to file an annual Income Tax return for the year ended on the businesses Balance Date. Fortunately these two things tie together and can be done at the same time. Read More »

What happens if the IRD come knocking on your door?

It came to our attention recently that teams of IRD staff have arrived unannounced at the business premises of some mechanics and motor repairers in the Porirua/ Plimmerton region.

These teams are made up of members of the investigation team (who’s role includes identifying gaps in cash collection and reporting), and the community compliance team (who’s focus is more on assisting businesses with understanding their obligations).

This raises a couple of issues:

  1. Is this legitimate – are they allowed to do this?
  2. What are your rights, what can you do about it?
  3. What are their powers?

Yes, they can do this. They do have to carry ID and warrants. But if they arrive on your doorstep, other than ensuring they are wearing the appropriate ID, all you can do is co-operate, and call your accountant to ensure you understand what they are trying to achieve.

Having robust, transparent systems and good records will ensure they leave quickly.

The IRD have stated that they want to visit small businesses more.  These teams will continue to “target” specific industries and identify areas that they think need addressing. They will collate their findings and issue a report. We will pass on any useful information we get from it.

The forbidden topic of Politics!

At dinner parties they say never bring up politics or religion, the same should probably apply to this blog. But with an election looming it is pretty hard to avoid its effect on businesses in Wellington.

No matter what your politics are, the effects of an election year seem to be felt widely through the Wellington economy.

From the consultants who are uncertain about their contracts, or businesses unwilling to commit to contracts due to uncertainty about changes with the incoming government, to the legislations that didn’t make it through before parliament shut up shop on July 31. Many things go on hold, at least until parliament resits in November, possibly until the start of the new parliamentary term next year.

Examples of this are the changes to the Consumer Guarantees Act I mentioned in an earlier blog and our Chartered Accountants Institutes merger with its Australian counterpart which has the go ahead in Australia but is on hold here.

And this isn’t even taking into account any jitters around proposed changes to tax, minimum wage rates, government funding etc…

For most, these delays will be only minor irritants and business goes on as usual but for others these can have serious effects. So from a business perspective I can see real merit in 4 year terms. So bring on the election, let’s hope coalition talks go smoothly and we can all get back to business as usual as soon as possible.

Make sure you get out and vote (Especially since by not voting it means that you don’t have a moral right to criticise the outcome).

If you have any feedback on any of my blogs I would love to hear it, send me an e-mail on

Paper records taking over? Find out what you actually need to keep.

Got piles of paper stacked all over the house?

Even though we are moving more and more to a paperless society it is amazing how much paper we still accumulate in trying to run a business.

How many times have you considered sorting it out or been tempted to bin the lot?

Exactly what are the legal requirements for record keeping?

Basically Inland Revenue require you keep to all your tax records for 7 years. They have authority to access all of these records and all forms of media on which this information is stored so the records need to be maintained in a form that can be retrieved without delay or cost to Inland Revenue.

Tax records include any information or document about:

  • Sales
  • Income
  • Expenses
  • Assets and
  • Liabilities

This is a pretty broad definition and can amount to a fair bit of paperwork so, to keep with the times; the form these can be kept in has expanded to include electronic records such as scanned documents, computer files and files in the cloud. For further details on the requirements see here .

Some of the cloud computing providers such as Xero and MYOB have been given special authority to store the data offshore but this still needs to be readily accessible to Inland Revenue. If you store records offshore and your provider is not on the approved list you will need to apply to IRD for approval.

Here at BW thanks to a great effort from Pete we have scanned and reduced the bulk of our paper records and now have a couple of extra walls that need to be painted. It is a great feeling to clear that much space. You just need to be aware that you are still legally responsible for the storage of your records, so whichever method you choose, looking after them and keeping backups is crucial.

This is particularly an issue for the subscription based cloud computing options. It is fantastically convenient to scan your invoices straight to the system, possibly directly from your phone, without ever having a paper copy, but then what happens if you stop your subscription? As well as saving all the relevant reports and transaction details you would need to retrieve all the invoices that have been scanned onto the system. So like with any of the other methods backups are essential.

After 7 years you can ditch the lot. Although we still recommend keeping important records such as property/business sale and purchase agreements permanently (where you can retrieve them) as they can often be required well beyond the 7 year time frame.

If you have any queries about the records you have and what you need to keep give Peta or myself a call.