Category Archives: blog

Tax Changes in Response to the COVID-19 Pandemic

There are numerous changes to tax laws from 1 Aril 2020 in response to the COVID-19 pandemic.

Business owners need to take note to make sure they are fully informed going forward.
There are a lot of changes, but broadly speaking, we see the following having the most impact:
• Depreciation deductions for non-residential buildings will be re-instated at 2% diminishing value or 1.5% straight-line. This is designed to reduce the tax liability for non-residential building owners. For example, a building with a book value of $2 million will get a $40,000 depreciation tax deduction at 2% diminishing value or $30,000 depreciation tax deduction at 1.5% straight line.
• Increasing the low-value asset write off threshold from $500 to $5,000 for the 2020/21 year, reducing to $1,000 for the 2021/22 year onwards. This is designed to encourage businesses to spend and keep money flowing through the economy.
• Increase the provisional tax threshold from $2,500 to $5,000. This is designed to remove the burden of provisional tax from smaller businesses and help them with cash-flow.
• The ability for IRD to remit interest charges for late paid taxes. Again, this is designed to ease the burden of meeting tax obligations by their due dates.

If you would like a no-obligation discussion on how these changes will impact on you, or if you would like further information, get in touch.

Mortgage Holiday – Be Careful

One of the measures designed to help ease financial pressure during the COVID-19 pandemic is mortgage holidays being offered by banks.

It pays to check the detail on these to see if the interest on your mortgage accrues or is written off. If the interest accrues then it is added to your loan and you will find the balance increases. With how mortgages work, this could potentially add years to your total repayment period and thousands to the total overall cost of the mortgage, so check the detail before taking up the offer.

To avoid this, if at all possible, arrange to pay the interest on the mortgage during this period. This way the loan balance will stay the same. That being said, if cash is very tight, a complete mortgage holiday will be a great help. Just be fully informed to what you’re getting in to.

If you’re looking for sound accounting and tax advice, get in touch.

Imperfect Information and Business Decision Making

How many business decisions do you make each day? Unless you’ve sat down and thought about it, probably more than you realise. Of the decisions you make, how reliable is your information?

In a perfect world, we would have perfect information for business decision making. For example, take quoting work. With perfect information, you would know exactly the number or level of inputs such as labour, materials and time that would be required and exactly how much each would cost. Furthermore, you would know the exact margin to add on to provide you with your required return on investment and profit. You would also know exactly how much your customer would be prepared to pay, and what your competitors were quoting as well.

The reality of it is however, we do not live in a perfect world. The dynamic nature of the world we live in means business decisions is never made with perfect information. The result of this can lead to cost-overruns, lost profits and failed businesses.

So how can we tip the scales of perfect information a little more in our favour? Whilst perfect information is impossible to achieve, information that is up to date, relevant and reliable goes a long way. Also, strategies such as investing time and resource into accurate costings, keeping accurate records of prior jobs and options for forwarding purchasing also help.

At Insight Accounting Limited we can develop strategies to provide you with good information so you can make better-informed business decisions.

Talk to us today and see how we can add value to your business.

Ring-Fencing of Residential Rental Losses

On 5 December 2018 draft legislation was introduced by the government to ring-fence tax losses for residential rental properties.

The finer details for this new law are still being thrashed out, but broadly speaking, if you own residential rental property that makes tax losses, then from 1 April 2019 you will no longer be able to offset these against other income sources.  Instead the losses will carry forward and accumulate to be offset against future taxable profits earned from the property.

The impact of this change is mainly a timing difference and investors that are heavily negatively geared will be hit the hardest.  Tax losses from residential rental properties can still be used, they are just deferred until a profit is made.  Also, the law will work on a portfolio basis, meaning that profits from one property can be offset against losses from another, provided they are owned by the same individual(s) or a common structure.

If you own residential rental property and would like to discuss your options around this new law, get in touch.

Preparing for End of Financial Year

If your business has a 31 March balance date, then your end of financial year is approaching fast.

Make sure you are prepared by reviewing the following:

  • Debtors – are they all recoverable?  In order to get a tax deduction for bad debts, they must be written off before balance date.
  • Creditors – Make sure you have all unpaid invoices to hand and recorded into your accounting system.
  • If your business holds stock, carry out a stocktake on 31 March.  Stock is valued at the lower of cost price or net realisable value.  However, if your annual turnover is $1,300,000 or less, and your stock value is reasonably estimated to be less than $10,000 then no stocktake is required.
  • If you have a service business, review your work-in-progress at 31 March to ascertain a value.
  • Fixed Assets.  Review your prior years asset schedule and note any that have been sold or are obsolete.
  • Repairs & Maintenance expenditure is generally 100% tax deductible.  If there is any expenditure of this nature then it may be worthwhile doing before 31 March.
  • Low Value Assets.  Generally, minor assets that cost less than $500 are fully tax deductible in the year they are purchased, so now may be a good time to purchase that printer or office chair you’ve been holding out for.
  • Staff Leave Reports.  If you employ staff, make sure you have all leave reports from your payroll system.  Also, remember that IRD’s new Payday filing system is active from 1 April 2019, so make sure you’re prepared for this.

If you need assistance with your end-of-year processes, contact me and I can help.

Planning for the New Financial Year

For most businesses, April marks the start of a new financial year.  It’s an opportune time to review the past year and plan for the next.

How has the last 12 months gone for your business and are you achieving your goals?

What would you like to see improve over the next 12 months?  It could be sales, cashflow or simply more leisure time.

Accounting and management systems.  Are they delivering the information you need to make informed decisions?

Are there any external influences that present threats or opportunities for you?  There are a lot of proposed changes in government policy that will certainly affect you, no doubt you’ve heard about them through the media, but how will they impact on your business?

We are here to help and provide insights into your business environment.  For a no-obligation review of your position and how we can add value, call us today.

IRD Use of Money Interest Rates Rise

From 29 August 2019 the interest rates IRD charge for unpaid or underpaid tax will increase from 8.22% to 8.35%, At the same time, the interest rate IRD will pay on overpaid tax will fall from 1.02% to 0.81%.

Given the current low-interest rate environment, it appears IRD intend to use the interest it charges as a punitive measure, as opposed to compensation for the cost of not having the tax available to it when it is due.

Interest charges for tax can be avoided by staying up to date with your filing and payment obligations. For income tax, in many cases interest costs can be minimalised by leveraging tax pooling.

If you want to stay on top of your tax obligations and plan so you can avoid punitive interest costs, then contact us at Insight Accounting today.

The Importance of Cash Forecasting

There is an old saying, Cash is King, and it is so true.  Cash flow is as important to any business as air is to us for survival.  The importance of robust cash forecasting cannot be overstated.

The timing of cash flows in and out of all business’s ebbs and flows.  For example, GST Registered businesses with a March balance date will have just had to pay their 2018 terminal tax, March 2019 GST and third provisional tax payment – all within the space of four weeks! This is a huge hit to cash balances.

Robust forecasting of cash identifies periods where cash is surplus and where there are deficits.  With these identified, you can plan accordingly and sleep easy.

If this is something you would like to look at further, get in touch!