Sterling Accountants Limited : Chartered Accountants, Christchurch, New Zealand

Tax Talk

'Government's view of the economy could be summed up in a few short phrases: If it moves, tax it.  If it keeps moving, regulate it.  And if it stops moving, subsidise it.' Ronald Reagan

Income tax - removing the uncertainty

'There are only two certainties in life - death and taxes!'- Benjamin Franklin. Although it is difficult to tamper with the sand flowing though the hour-glass of life, good habits can slow its pace.  Good taxation planning can ensure that taxes can be managed so there are no nasty surprises resulting in urgent phone calls to the bank manager a few days before due date!

What processes should self employed business people adopt to plan their regular income tax commitments?  Here are some suggestions to get you started.

1.        Prepare annual budgets, forecasts and a tax plan.  'If you fail to plan, you plan to fail.'-so map the business' financial performance over the next twelve months. 

2.        Use a suitable computerised accounting system.  'What you can measure you can manage.'- Talk to us about your accounting system.  Our team supports a number of options, including web based solutions such as Xero.

3.         Update your tax plan.  'If nothing changes, nothing changes.- Re-evaluate the tax plan at least three times a year (around provisional tax due dates) to either increase or decrease your provision. 

Tax planning checklist

It's important to talk to us if you believe your income is going to be significantly higher or lower this income year.  The first two provisional tax instalments for March balance dates have passed, but there is plenty of tax planning opportunity left in the year.  Consider the following circumstances and come talk to us:

4.         Seek Advice.  'A problem shared is a problem halved.'

We can help you with your budgets, forecasts and tax plans or prepare them for you.  If you are considering a new business initiative come and talk to us so we can ensure you are using the right structure and allowing for the diverse range of taxes we can be encumbered with.  Remember, taxes can be legally minimised and it's our job to assist you to do so!

We've worked very hard and very pro-actively to ensure our LAQC clients transition to the right entity, whether that be electing to become an LTC, reverting to a standard qualifying company, exiting the QC regime altogether or restructuring to a fresh entity, such as a sole trader or partnership. Most of our clients have accepted our recommendations and their transitional work is by and large complete.

We do have a small number of clients who, despite our best efforts, have not responded to our suggestions. If you are affected, please get in touch and we will take care of everything.

Simple errors made by small businesses are resulting in penalties worth thousands of dollars.

Last year, the IRD handed New Zealand businesses just over $33 million in shortfall penalties, more than 400 of which were for gross carelessness.

Most small businesses filed a GST return every couple of months, and that was where a lot of mistakes happened.

Small businesses made errors over a range of things, such as using the wrong depreciation rate for things such as carpets in a rental property, arithmetic or transposition errors in the filing of the return or things that were "sometimes a little bit more deliberate", like forgetting to make an adjustment for personal expenses, such as grocery shopping or trips away.

Businesses can cut the penalties by contacting the department and explaining what has happened. If this is done before any audit activity is launched, any shortfall penalties can be significantly reduced.

If you realise you've made a mistake, it is best to make a voluntary disclosure, by talking to your tax agent or going directly to the IRD.

Getting good advice is key to avoiding problems. Asking us first will put you on the right track.

The act of creating a schedule will help you to relax. When you have your time scheduled, it removes the sense of urgency that comes from constantly thinking about the tasks ahead. You can see that it all fits in; you know you are going to accomplish all your activities and work because its mapped out in from of you.

As long as you can stick to your plan, you can focus on what you are doing at any given moment and not fret about anything else. Your mantra, "schedule it and then forget it!"