14th June 2010
I thought it would be good to have all these issues together for your future reference. Scroll down to the headings that impact you - check out our website as well; www.lovetogrow.co.nz for information about our business development, CFO and General Management services.
The amount of tax change affecting us all will be significant over the next year or so, and more changes seem to have just kept coming over this past month. We’ve had the 2010 Budget, an important Court of Appeal decision about Trusts, discussion documents on LAQCs, thoughts about abolishing Gift Duty, as well as suggestions to make PAYE a final tax. Some good things and some not so good things. Below I detail the changes and some of the impacts to be aware of.
Please take particular note below for the following that apply to you:
- You're registered for GST
- You have a LAQC
- You have a Trust (or want to know whether you should)
- You get Working for Families
The 2010 Budget - a plethora of change
The income tax rates are changing per the table below with transitional tax rates in this current year.
Old Current New
Income $ Tax Rate Tax Rate Tax Rate
Y/E Mar 2010 Y/E Mar 2011 Y/E Mar 2012
0-14000 12.5% 11.5% 10.5%
14,000- 48,000 21% 19.3% 17.5%
48,000- 70,000 33% 31.5% 30%
70,000 + 38% 35.5% 33%
Company 30% 30% 28%
PIE rate 30% 28% * 28%
Trusts 33% 33% 33%
GST Rate 12.5% 15% * 15%
* from 1 Oct 2010
Some points to note
- PAYE rates will change from 1 October and the Provisional Tax calcs will change as well. If you earn $100,000 as an individual, you will have $3,630 less tax to pay per annum under the new rates.
- In many cases we will be recommending that dividends are delayed until after 31 March 2011 – but not always, it’s a case by case situation.
- A family with two children will pay no income tax until they have income of more than $50,000 (because of working for families).
- 73% of NZers will pay tax at 17.5% or lower.
- 2/3 of the cost of the tax cuts is in providing changes to the bottom two tax rates.
- Our tax rates are now better than Australia, right up to $200,000 income. This is to encourage talented kiwis to stay here. The average wage in NZ will now be taxed at 17.5% which compares with around an average of 30% for most of our OECD counterparts.
- Keeping the company tax rate 5% better than Trusts and individuals is intended - to continue investment in businesses.
- The Govt wanted to encourage saving and the reduction of debt and also reduce excessive consumption – so they have given us incentives to save the tax cuts we get via the reduced PIE rate immediately (which is a final tax in most cases on investments). The consumer spending deterrent was the GST rise to 15%.
- There will be changes to whether a taxpayer is entitled to working for families – Trust beneficiary income may count, the details of which need to be ironed out cos this creates all sorts of problems in terms of where to ‘draw the line’.
- Existing imputation credits on dividends should try to be used by 2013 so they don’t reduce to the new rates. We will cover this off with you as relevant at the time we do your accounts.
- IRD have an extra $120 million to spend on audits to check budget change issues – and another $27m just for property issues. They want to generate $745m additional tax revenue from this spend.
- Compared with other countries the 2010 budget isn’t too bad. We’ve had an increase of UK immigration requests - with Greek ones expected to follow. Seriously though, we are in better shape than a number of our overseas counterparts.
GST Changes – things you should know
- Gst is 12.5% until midnight Sept 30th. Changes to 15% on Friday 1st October. The last time the rate changed was in 1989 (10% to 12.5%).
- The “Time of Supply” will be critical to know on each transaction as this is the date that triggers which gst rate to apply. We will help you understand this closer to the time. Normally it is earlier of invoice or payment, but there are some exceptions.
- IRD’s audit activity is set to increase (to ensure correct calculations are made).
- There will be adjustment forms to attach to the GST returns themselves – these amend the 15% GST return calcs to correctly show the relevant 12.5% transactions that occur after 1 October. Amounts received after 1 October will still have 12.5% GST if the ‘time of supply’ was 30 Sept or earlier. So there will additional admin for all GST registered people – likely to be for at least a few GST periods.
- Systems and trading practices have changed significantly since 1989 where the point of sale ‘workaround’ was often to have two different coloured price stickers placed on goods – one for “before” and the other “after” the change date. Now the back office systems obviously have to align as well.
- Computer systems will need to be able to cope with both the 12.5% rate and also the 15% rate simultaneously. System changes are not simply a case of changing the ‘GSTrate’ in one field.
- Online transactions, and all other communications around price both online and in the physical world will need updating on 1 October.
- Whereas the old GST ratio was 1/9th, the new ratio will be 3/23rds – just a tad harder to do in one’s head.
- Any quotes you are preparing should be “plus GST”. All internal costing systems, budgets etc should account for new GST cash flows.
- An automatic right has already been legislated to allow an increase in the GST you charge (unless contractually you have agreed to not do so).
- The basics, like monthly APs, lease contracts, and other periodic contracts will need to be reviewed, updated, payment amounts changed.
- Lay-bys, hire purchases, finance leases, second hand goods, bad debts (and recoveries), long term accommodation all have issues to cover.
- Price points will be a marketing issue . The ‘magical $9.95’ translates to $10.17 so business owners will need to consider whether to:
- Pass on the full increased GST cost;
- Take an opportunity to pass on additional price increases as well; or
- Wear the GST increase themselves and reduce their profit (not normally recommended, but there may be circumstances that warrant this).
We will keep you updated on specific impacts to address as we get closer to 1st October.
Property changes - an area the Govt wants to deter
Why is that? Bill English said, in a recent seminar I attended, that experience has shown them that job opportunities and other stimulus created from investment in the property market, isn’t as valuable to New Zealand long term, compared with the stimulus created when someone instead invests in a business. So they are trying to shift investment into businesses instead of property.
At least they didn’t go ahead a with land tax, or a wide reaching capital gains tax (capital gains on property are already taxed in certain circumstances). In a post budget seminar I attended, John Key reminded that he is wary of capital gains tax, so long may that continue I guess. We are unusual as one of the few OECD countries without a capital gains tax.
Some 2010 Budget property changes :
- Depreciation on buildings is no longer allowed from the 2011/12 income year, unless the building has a estimated useful life of less than 50 years (but the Commissioner has to agree).
- Fitouts are still able to be depreciated, but with exceptions where there is also a non taxable lease inducement.
- There will be tension on re-categorisation of expenditure into fitouts so ‘black hole’ expenditure is minimised. (This is where you miss out on depreciation as well as the general deduction – meaning it just goes into a ‘black hole,’ never to be claimed.
- LAQC changes are expected to be enacted (these are at discussion document stage, submissions close 5 July). These will affect all LAQCs, but will especially affect Property related ones. See below points on that. We need to discuss the impact of this with clients individually.
Other tax changes in the budget
- The 20% depreciation loading on all new depreciable assets no longer applies from 20 May 2010 – so taxable profits will increase.
- New fringe benefit tax (FBT) rates – to align with the new income tax rates.
- Thin capitalization thresholds changed. If you are an overseas investor in NZ, you can only claim interest if the loan is less than 60% geared (used to be 75% before you couldn’t claim the interest). Impact overseas based rental owners as well as normal overseas investors in NZ.
- Repeal of the redundancy payment tax credit (1 October 2010).
- Targeted R&D changes & science assist changes.
LAQC changes
This is an area of significant change, intended to be legislated, that isn’t yet.
The main point to note is we believe every LAQC client will need to be reviewed once the legislation is further drafted (each review to be done before 31 March 2011). There is a chance that we will recommend your LAQC revokes its QC/LAQC status prior to 31 March 2011. For others it will be best to continue having the QC status. Very case specific unfortunately.
The current perspective on what will happen is as follows, but please note that discussion documents have a habit of shape shifting significantly prior to becoming law. Given advice is therefore problematic at this early stage.
- There will no longer be any distinction between QCs and LAQCs.
- They will be treated as limited partnerships, meaning the profits (as well as any losses) will have to be transferred to the shareholders. (At present only losses need to be attributed, meaning there currently room to play re which party receives the profits). Normal companies will still have this choice.
- Interest will only be claimable to the extent each shareholder has ‘contributed’ to the company and a shareholder by shareholder test, (could be nasty). This means that Interest may not be deductible to the same extent it was previously, so again a review will be needed to ensure best results. Thankfully, guaranteeing a bank loan is expected to count as a contribution, so reasonable tax planning is likely to still be available.
- Any revocation of QC status after 1.4.11, will create a deemed sale of the assets of the company and immediate buy back, to the extent of the shareholding being changed. This would trigger depreciation recovered on buildings for example, with no actual sale to fund the resulting tax.
- Dividend and imputation rules won’t apply to QCs – don’t worry about this, we will have it covered.
- Capital gains and revenue income will keep its nature when passed through to the shareholders – can impact when a property is sold for example.
So what do we need to discuss?
- We will be discussing the following with you when we prepare your 2010 year end financials (once the discussion document is a bit further through the process though).
- How long do you think you will keep your property/ies?
- Are you expecting any shareholding changes in your company (e.g. change of investors, Trust shareholdings, personal relationship changes).
- Where the shares are not already owned by a Trust, whether you are interested in asset protection for reasons such as relationship property issues, business risk issues, beneficiary income planning.
- We will discuss how long it is likely to be before the property is profitable for tax – esp given no depreciation claims now. Profitability will impact the tax planning around best ownership.
- The extent to which the additional tax from depreciation changes can be covered by increasing rents – and therefore how much will be out of your own cash flow.
- Where Trusts are involved, the availability of beneficiaries above 16 years old – again tax planning issues, see below.
- Issues for LAQC companies that are not rental property companies.
Based on the above, we will be able to agree whether it is best to keep your LAQC status or revoke it prior to 31.3.2011. It will be difficult to provide a blanket response, so we will be contacting you to discuss.
One point, we believe that whereas previously, it used to generally be a situation of ‘have an LAQC unless there is a good reason not to’, that has now changed to ‘not have a QC unless there is a good reason to do so’. There are some good reasons to continue.
Trusts
The Trust tax rate is 33% which is the same as the new top personal tax rate .
So, is a Trust still a good idea? The answer in most business owner cases is still, definitely.
Profit to other beneficiaries (over 16 yrs), commercial asset protection, relationship property issues, future rest home protection, all still factor as valid and good reasons for Trusts – it was never only about the difference between 33% and the top 38% personal tax rate. However it is still a great idea to discuss issues about Trusts for your own specific circumstances.
How about the Court of Appeal orthopedic surgeon case? This is where IRD attacked the lack of market salaries being paid to the working shareholders, with most of the profit being distributed out to the Family Trusts instead. IRD won the second round in the Court of Appeal very recently (the taxpayer had won at the High Court).
We have always recommended that each year, we agree a ‘reasonable’ market salary prior to distributing super profits out to other shareholders (in most cases, Trusts). So we believe that our clients are likely to be far less affected than taxpayers who blindly only paid themselves $60,000 per annum (increasing to $70,000 when the thresholds changed). We recommend a ‘middle of the road’ approach which is expected to hold our clients in good stead. In my view this issue was always a ticking time bomb. IRD are already looking to apply this Court of Appeal decision via their increased audit activity.
As long as market salaries (or reasonably close) are being paid, the remaining profit can still be played with. Child beneficiary distributions (above 16yrs) or lower income spouse beneficiaries can be paid up to $70,000 per annum, creating a saving of up to $9,080 tax each year (compared with taxing it at 33% in the owner’s hands).
A saving of up to $9080 per beneficiary is still worth a little bit of additional admin each year. Commercial asset protection, relationship property issues and long term retirement planning are still valid.
To show other comparisons, distributing $14,000 saves $3150 tax overall per annum and $48,000 saves $8420 per annum.
Gift Duty
Peter Dunne has been recently mooting the abolishment of Gift Duty – this would be very welcome news, depending on how they would do this.
This could potentially make the forgiveness of debt when property or shares are transferred into a Trust very simplistic (rather than being forgiven at $27,000 per annum, which can take ages sometimes).
I imagine the rest home claw back rules would still apply and so would the claw back relating to liquidation rules etc. Watch this space to see whether this idea gets much traction and the actual rules being developed (if any). It may not fly.
Working for Families
The 2010 Budget referred to tougher rules around working for families criteria – Investment losses may not qualify and Trust income where someone is a beneficiary may reduce working for families' entitlements. How, and the extent to which one should apply beneficiary income may be problematic. It is designed to trap adult beneficiaries who own a business but don’t receive beneficiary income themselves. Where to draw the line though? For example, should my working for families' entitlement be impacted if I am the adult beneficiary of my elderly Parent’s Trust? How about if I don’t actually receive any beneficiary income this year from my elderly parents?
The business adjustments will also get more refined. All with the intent to reduce entitlements. Some business owners don’t fully utilize working for families anyway, out of a sense of social responsibility or similar, but there are also significant numbers who ‘work the system’ within the current rules.
There are a few things to iron out, so again we will need to watch this space.
PAYE being a ‘final tax’
They are also raising the issue of making PAYE a final tax, meaning it stays outside of a tax return at year end. I imagine this won’t affect anyone who has to file a tax return – business owners, rental property owners etc. It is designed to prevent the old IR5 employee still trying to file tax returns to get refunds that result from incorrect PAYE deductions – to save compliance costs.
A whole industry in checking employee tax positions has developed in shopping malls because the PAYE deduction system has some glitches – so in my opinion they will need to fix the glitches first. So we will need to wait and see whether this will get changed.
Let‘s have a chat
Drop us a line if you want to discuss any of the above. Rest assured we will be raising relevant issues with you as we go through your accounts anyway and also once the relevant discussion documents are more progressed. In the meantime, we will be happy to answer any queries between us.
1st March 2010
How about saving some money when you meet for a coffee?
We want to help just a little for the hard work businesses have made over the past 12 months.
Atlanta on 105 the Terrace is a favourite location for me, with excellent service and the quiet part round the back is a really good place for meetings.
Vic and the team want to say thank you to all of the custom we bring between us - from Love to Grow clients, affiliates and colleagues.
So, for 2 months, you can treat yourselves . . .
Buy a coffee and get 1 FREE (or choose a free muffin or slice)
Most cafes have a loyalty program that accumulates a number of coffees before you get a reward. Not this one. If you work with, are a client or potential client of Love to Grow, you are welcome to take up this offer. If you buy before 4pm, the second coffee or else muffin / slice is on Atlanta. Awesome!
So what do you need to do to get this deal?
- Order before 4pm
- Give the counter staff your business card
- Tell them you are part of the Love to Grow deal
That’s it! You will receive a FREE item of your choice. (within the available food range for that day).
Offer valid 1 March – 30 April 2010
Feel free to pass this on to business owners that have similar business values to ours. We know we won’t be able to prove someone is a Love to Grow associate, so please use your professional discretion in forwarding this to businesses that could benefit from dealing with Love to Grow (as well as getting great coffee.)
Your business card details will be saved, with your permission, to inform you of any future promotions by Love to Grow and Atlanta. (Going onto our newsletter lists.) Should you NOT wish to be kept informed of our collaborative programmes, please indicate this on the back of your business card.
It’s okay to use this offer more than once btw, Atlanta genuinely want to provide a benefit to all the Love to Grow clients/associates as often as you want for the two month period. If you have received this in an email from me, you definitely qualify. I hope you enjoy it.
Thanks Atlanta !
Give Vic a call on 499 5209 if you also like to discuss catering for functions or company meetings.
Btw . . . if any of you have other practical offers or collaborative opportunities you could offer through our network, feel free to drop me a line. As always we want to help businesses save costs and time, make more money and enjoy things more.
Cheers!
Trish
Atlanta Bar and Cafe contact details
Vic Hughes
Manager
Great beverage and food makers
ph 04 499-5209
email : atlanta@duo.net.nz
18th February 2010
Here’s an offer to help your business save money– become a Stationery to You customer and get great discounts on your business stationery. And if you’re a Love to Grow client or associate, you get even better discounts.
Also see below for an awesome giveaway if you order at least $50 before 31 March 2010.
What does Stationery to You do best?
- 5 star focus on service and prompt delivery
- They don't just take orders, they recommend other options that add value, save money
- At least match, if not better a price that you’ve been quoted elsewhere
- Full range of business stationery
- No printing downtime if you’re caught short. If they can't get a cartridge to you in time, they will temporarily provide a laser printer instead
Special Offer for Love to Grow Clients and Associates
Hubert will provide a further discounted price if you are a Love to Grow client or associate. If you have received this email directly from me, you and your business qualifies.
Email Hubert@stationerytoyou.co.nz with your contact and delivery details. He can then fill out a quick application form so you can start to get the Love to Grow discounted rates.
Check out www.stationerytoyou.co.nz or contact Hubert Kuzel on ph 04 232-8548 for more information.
How easy is that !
We don’t want to exclude any Love to Grow customers, so if you’re a client that works for a Corporate, you and your employer also qualify. Forward this email to your relevant internal person and ask them to mention your name as the referral so Hubert can verify with me.
Extra OFFER if you order before 31 March 2010.
FREE Cookies from The Protein Bakery LTD . . . creators of The Protein Cookie, The Protein Brownie & The Grab ‘n’ Go Cookie
The Protein Bakery provides healthy, baked products to consumers wanting a healthy lifestyle without losing the chance for the occasional treat. Their Protein Cookie range is wheat/gluten free - high in protein, fibre, calcium and low in carbs.
Also, here’s your all day breakfast cookie!
Now, with the introduction of the Grab 'N' Go Cookie , boost thru your day with this delicious all day breakfast, bursting with jumbo raisins, diced apple and the goodness of whole grains & a hint of cinnamon ( This one has gluten).
Spend $50 or more before 31 March and Hubert will deliver you a 12 cookie box of The Protein Bakery Apple Crumble cookies totally free - check out www.theproteinbakery.co.nz......... That’s $42 worth of large, delicious and healthy …. and it’s free!
Trust me, these Apple Crumble cookies are big and yummy, 26% fruit, great as a breakfast or lunch ‘grab and go’.
So, what do Stationery to You provide?
- Free same day ( or next day) delivery ( within greater Wgtn) on orders above $40
- General Stationery
- Writing Instruments
- Labels
- Self inking Stamps
- Filing Solutions
- Postage and Packaging
- Paper and Books
- Computer Supplies
- Computer Accessories
- Business Machines
- Visual Presentation
- Furniture
- Cafeteria supplies
- Hygiene and Safety products
Thanks for this offer Stationery to You!
We’re doing our best to help our clients have more profitable businesses. If you have any offers that could benefit our clients, we’re happy to discuss them with you.
21st January 2010
Does your business give you the lifestle you want?
Happy New Year!
First week back for many, thought we’d contact you now that it’s time to get serious again, (but not too serious). We aim to help you with the serious bits, so you can do more of the fun parts of your business.
Freeing you up for that lifestyle you want (and deserve)
In my Xmas email, I suggested you think about the results you want most. We are doing a series of offers over the next few months, with many available at an affordable price range between $199-$599 plus GST.
The series is aimed at freeing you up to continue what you’re good at, and helping you with the bits that you don’t like, or find difficult. We can start with helping you work out what those areas are.
So tell me, what do you need most?
- How can you get more time?
- What can you do differently so your business just works better?
- What numbers in your business are the most important to know?
- What needs to happen so you have more cash?
- How do you get less stressed financially?
- Being able to take a break and know your business is in safe hands?
Give me a call on 972 4182 for a FREE chat about which of these are best suited for you.
Here’s some of this month’s ideas that might help you.
More Cash
- Finance Health Check - What are the most important tasks to improve your cash flow?
- Personal Budget requirements – What profit does your business need for you personally? What can be improved in your personal finances?
- Cashflow Model or review – What cash impact is there by changes in your sales, customers, staff, overheads, margins?
More Time
- Virtual Financial Controller . . . What aspects of your finances can you delegate externally to an expert who understands which numbers you have to get right?
- GST returns preparation . . . Do you want to delegate that boring financial admin so that you have more time to work on the areas of your business you enjoy most?
- Office efficiency review . . . Do you need an efficient way of setting up your files and internal process to improve information flow and communication?
Help with Business Management
- Virtual General Manager . . . Do you need someone to manage your business part time so that you can take time out knowing your business is in safe hands?
- Business Gaps Report . . . Do you know which areas in your businesses are a weakness? How important are they in impacting your clients? What perception gaps are there between you and the staff?
- Business plan/budget for 2010/11 . . . Do you have your goals sorted yet?
Better Tax Benefits
And okay, if you want us to . . . we can talk about how to get your tax bill down. Cos let’s face it, it might be boring, but it is much better to have the cash in your pocket. We know that for some, this time of year can be difficult with IRD grabbing Prov tax, GST and PAYE within a week. And then they do GST again in February as well!
Not to mention some tax changes in the wind you may have noticed in the paper.
So here’s some ideas this month that might help you with the Tax side of stuff....
- Business structure advice . . . Are your affairs well set up for your current plans?
- Negotiating IRD instalment plans . . . Do you need a breather from IRD without incurring penalties?
- Setting up a Company or Trust . . . Not sure how, whether it’s a good idea, or just want someone else to sort it for you?
So yes, we are saying that we do have some magic wands. We can give you some practical, grounded advice, that won’t cost the earth, but in areas that are very important to address.
Drop me a line if you want to chat about any of these - trish@lovetogrow.co.nz.
You don’t drown when you find yourself under water . . . you only drown when you stay there!
We want to do our bit to help ensure everyone thrives. And we don’t want the issue of price to interfere with your need for good advice. If there is an area of your business that needs help, we will help you work it out in a way you can afford.
Never let what you can’t do, interfere with what you can do.
Please forward this onto people who want better results. We are able to offer both of you a special discount as a thank you.
Here’s to a fabulous 2010!
17th December 2009
The few months after Christmas can be a real challenge, can’t it?
January 15th is the payment date for both your GST, as well as 1/3 of the year’s tax. Five days later the PAYE for your holiday pay is due and at the end of February another GST payment is required. That can be tough.
We all know that these payments are supposed to be waiting patiently in a savings account, but the reality is some businesses have been hurting just a bit, evidenced by how slow debtor receipt averages have become across the country. The small business community seems to be holding hands and hoping for the best, which frankly won’t be enough to make a positive difference in your results.
So, we are going to continue to do our bit to make a positive and lasting impact on improving your results. In January, we will be starting a series of offers with will include Health Checks and business reviews for under $600!
Why? We think the next four months are going to be the most critical business phase in many years for most SME businesses. We want to do our part to ensure you actually get the results you work so hard for.
If you know which area in your business can best change for most impact, you can focus your attention so much more effectively to get the results you need. Correct the cause, instead of just the symptom.
What you need to do:
- When you are doing your New Year’s resolutions, think about the type of life you want and importantly, the results your business needs to achieve that.
- Book a ‘business gap’ meeting with Trish to work out which type of health check or business review would be best for you (and your budget) during the special offer period. Do it after hours and it’s free, during work time it will still be cheaper than normal. Twice the value and much better than market price is our intent for Jan- Mar.
- Be open to getting some help. Seriously.
In January we will be letting you all know more, so in the meantime think about which parts of the business you would like to weave a magic wand across.
Remember, you don’t drown when you find yourself under water…. You only drown when you stay there.
Sometimes all you need is a hand to reach down and grab you back up to the surface.
7th November 2009
In order to help our clients more, last year I floated some ideas around free advice such as focus groups and free clinics. We would love to hear from you as to whether this would work for you, and what kind of topics you feel would be of most interest.
As you all know, I enjoy the social aspect of meeting getting together for coffee, so if any of you wanted to chat at say 5-6pm on a Thursday or Friday, I tend to not charge for this ‘after hours’ meeting time. So if you want some help with tax, accounting or business development issues, feel free to book a time. The only catch is, I figure it might be fair for you to pay for the coffee! And given I like to use clients’ cafés/bars where I can (to also support their business); I might also reserve the right to suggest the venue.
“Free clinics” feedback from 2008
We got HEAPS of replies – all really good ideas thanks, much appreciated. We will be able to suggest a better concept as a result and will incorporate your feedback when setting these up. So watch this space.
Tania Davis Law won the $100 dinner voucher – well done They do all aspects of family law. If you need help at any stage with separation and disputes over property or children, Tania and her team are really awesome. Based in Porirua, they service all of Kapiti and the greater Wellington region. Their website’s good, check it out.
Contact details:
Tania Davis Law
Ph (04) 237-0501
Email: tania@taniadavislaw.co.nz
www.taniadavislaw.co.nz
28th March 2009
Although this doesn’t apply to everyone, thought you might know other businesses that might benefit. Not everyone knows this is an option.
With terminal tax due on April 7th and prov tax on May 7th, cashflow can sometimes be difficult at this time of year. Btw, if you haven’t had a letter from us recently about tax due on April 7th, it is because you don’t have any, so don’t stress.
If anyone is struggling with their cashflow, an installment option with IRD may be of benefit, which avoids late payment penalties. Important to note the following though:
- We can organize a instalment plan simply via a phone call with our IRD contacts as long as it is done before the due date.
- The repayment term for a phone call approach needs to be 24 months or less.
- Interest will be charged at the applicable use of money rates ( currently 9.73%, but subject to change).
- The interest charged by IRD is generally deductible – but talk to me about this.
- All other taxes ( e.g. income tax, paye, gst, fbt, etc) need to be paid as they fall due.
- Penalties ( as well as the interest) will be auto charged by the IRD computer throughout the repayment term, but IRD will manually reverse the penalties at the end, as long as the agreed terms are complied with. You cannot avoid the interest.
It’s always best to fully pay IRD as the amount becomes due, however I don’t think this is a good idea for everyone. If you are finding cashflow, this is an option that we could discuss. It avoids penalties being charged and keeps IRD at bay from the perspective of them taking legal action.
Key point is you need to enter into the deal before the due date and other tax types need to stay paid up on time. IRD prefers dealing with taxpayers who are proactive compared with those who bury their head in the sand. They have little tolerance with the latter and are generally very accommodating of the former.
Contact me if this is an area you may want to pursue - trish@lovetogrow.co.nz
28th March 2009
There are a stack of tax changes happening, and most, once enacted, will be effective from 1 April 2009. If you know other business owners who might benefit from this type of info, let me know and I can get their permission to add them to the list.
Tax changes expected to be enacted, are as follows:
- Safe harbour threshold for use of money interest on individuals rises from $35k to $50k ( from 2009/10 year)
- GST registration threshold raised from $40k to $60k (from 1 April 2009)
- GST payments status threshold raised from $1.3m to $2m (from 1 April 2009)
- PAYE once a month filing threshold raised from $100k to $500k (from 1 April 2009)
- Minor fringe benefits exemption raised to $300 per employee per quarter and $22,500 pa per employer ( from 1 April 2009)
- Standard uplift calculations of provisional tax changes from 105% to 100% and 110% to 105%
- Business with $10k or less of business related legal expenses will be able to fully deduct in the year incurred (from 2009/10 income year)
- FBT annual filing threshold raised from $100k to $500k ( from 1 April 2009)
- FBT annual filing will be able to include closely held businesses with one or two vehicles used by owner-employees regardless of their annual PAYE deduction levels (from 1 April 2009)
- Exemption threshold of low value stock raises from $5k to $10k ( from 2009/10 year)
- Six monthly GST filing threshold rises from $250k to $500k ( from 1 April 2009)
- Use of money interest rate on underpayments reduced from 14.24% to 9.73% and on overpayments from 6.66% to 4.23% ( already enacted from 1 March 2009)
- Allowing Companies and Trusts to use the cash basis person rules on financial arrangements and raising the thresholds for accounting on a straight line basis from $1.5m to $1.85m ( from 2009/10 year)
- FBT prescribed rate of interest on low interest employment loans lowered from 10.90% to 8.05% ( already enacted 1 March 2009)
- Personal tax rate changes will be effective from 1 April 2009. Check out an earlier email under “Notice Board” on our website for that - issued 1/10/08.
March 2009
I had an interesting chat to Neil Budgen from Seriously Sorted Ltd the other day. He helps with exit strategies for businesses and like me, tries to keep business things simple. He has an acronym MDC that I liked. It refers to everything, any business, ever does. Stands for Make the sale, Deliver the thing (product/service) and Collect the cash. Whatever element you get wrong, is likely to be correlated to the reason a business struggles.
I want to provide my perspective on the “Collect the Cash” part, esp with this being very topical at the moment for most punters. As a lot of you know, I often have conversations with varied businesses about how well things are going. And they all seem to be saying the same thing.
Debtors days are stretching out a lot, for most businesses, stemming the flow of money from business to business and at the same time, banks are also getting a lot tougher. Some Govt Depts seem to be really bad at paying the small punters (which has an element of irony).
“Make the sale” is also an element of concern for some businesses right now, but I imagine the cause is not because the prospect doesn’t want the deal being offered, but because they are scared about not having the cash to pay for it. They seem to be worried about how quickly they will be paid by their own debtors. It may be helpful to Brain storm together on how to remove those resistance points before they even arise.
Here are some things to consider when you are looking at the “Collect the Cash” type issues.
- Have you done everything you possibly can to speed up your cash flow cycle? Invoicing sooner, more often, etc as appropriate. Are you actually chasing the debtors per your credit policy?
- Is any current business relationship absolutely critical to the future sustainability of your business? Understand that although a business relationship may be critical, no business relationship should more important than the sustainability of your own business. So take care to ensure your actions are consistent with this. Obviously continue to act under your same business values though and relationships are a very important aspect.
- Do you know what the most important item on your balance sheet is to ensure the sustainability of your business? What $ level should this be at?
- Do you know how close to the wire you can get with your cash, before your own business will be in cashflow trouble?
- Do you know your Companies Act responsibilities in terms of reckless trading, trading whilst insolvent etc?
- Do you have credit policy/procedures and is this consistently applied every month?
- Are your actual terms of trade appropriate, in writing and signed up to?
- Are you prepared to talk instalment terms with a debtor as long as they do what they say they will do? How easy are you prepared to be on them?
- To what extent are you prepared to act, if your debtor does not do what they say they will do, at the time they said they would?
- What do you need to do so you don’t effectively operate as a bank for other businesses, or just deal with businesses that understand your payment terms simply need to be enforced?
- Do you have someone else besides yourself to do follow up on the cash owed to you?
- Do you know who your “A”, “B” and “C” clients are? Every business has these, whether the owner realises it or not.
If these questions are difficult for you to answer for any reason, I suggest we meet at some stage to discuss. Easiest way is to email me to request a time.
March 2009
As many of you know, Stephen Reid from Ramp has been an instrumental part in our Love to Grow branding evolution thus far. He made a passing comment to me ( quite a while ago now) which I have fairly regularly quoted ever since. It was along the lines of “Trish if you want people to think you are funny, what you can’t do is go into a room and say you are funny. What you need to do is go into the room, and tell a joke. So, using that analogy, in terms of Love to Grow™ teaching people how to grow their business, how does Love to Grow “tell the joke?”
There are many ways that we try to ‘tell the joke’ when helping clients grow their business. One of the most important things we need to do in my opinion is to ensure we consistently lead by example, especially with the things we consider to be critically important for the success of any business. It is also important that Love to Grow itself continues to appropriately manage its own growth stages. So that we, like you, do not get taken out by changes in the economy, or from our own clients’ inability to thrive, or pay us etc.
As part of managing our own growth, the main change is that on 1 April 2009, we will be changing to operate as Love to Grow ( Wgtn) Ltd, which I view as the first (existing) branch of a number. This structure will enable better investment, governance, growth and exit strategy and is an exciting phase for us, with a view towards continuing a positive outlook.
As part of this change, we will be tweaking our credit policy, but not significantly. From most clients’ perspective, we imagine that the changes will go unnoticed. There are some housekeeping items that need to be covered off, given at some stage we will officially have to change engagement letter entity and IRD tax agency to the company, which we expect to do at the time we commence your next work etc. Specifics will follow subsequently, via correspondence to each of you.
Terms of trade will change from 7 days following invoice to 20th of the month, which in light of the current economy, enables you more time to pay without consequence. We do expect to invoice a number of you via instalments, partly at we start and partly at the end of work, (rather than all at the end). This is designed to make your invoices individually smaller and more manageable, as a result of requested feedback to this effect. It will also still provide acceptable cashflow timing for us.
In this upcoming year, our hourly charge out rates are to stay the same as they have been this past year. Our new terms will include the right for us to choose to add interest on overdue payments and collection costs, should you not pay as agreed. And although this is a change, we hope we will not have to enforce this too often. I am hopeful that most of the Love to Grow clients will flourish and this will not even be an issue. But from the perspective of setting a good ‘leading example’, we consider it important to set down and apply a better credit policy and procedures all the same.
In summary
It may be some time before small NZ businesses are out of the woods, but I don’t think this is necessarily a bad thing at a holistic level. Business like water, will always find its own level. The good businesses that survive this period will rise stronger than before in relative terms, by virtue of having less or weaker competitors.
The trick is to ensure you are actively doing the right things, in the right sequence, with the right people, so you are on the right side of the situation. So please contact me if you think either us, or any people we deal with, can help out with any aspect of your business.
December 2008
Duncan Holland from ToTal Risk Management tells me they are seeing a noticeable increase in fraud and staff theft related issues – so keep an eye to this issue in your processes please. The increase can be a factor of more difficult times and also Christmas. Although you surround yourself with trustworthy staff, you still need to be vigilant that your systems mean you don’t need to. Human error is a reality, as well as bad intent at times unfortunately.
Please discuss with me your internal controls if areas of your business don’t seem to be working properly– that can be an indication that something is wrong. Doesn’t matter whether it is incompetence or intentional, losing cash needs to get fixed. Revenue is often lost due to inefficiencies more than anything, so a general review of your systems is also advisable periodically, to improve your cash and also business value.
We will be happy to discuss this issue for your place of work ( whether you are a client, L2G associate or employee of a corporate, as relevant for each reader). We can discuss options to improve your results and operations, potentially referring you to others, depending on the issues at hand.
December 2008
The National Govt legislated a number of promised changes last week. Key points as follows:
Kiwisaver – changes from 1 April 2009
- Compulsory employer contributions will be 2% maximum
- The minimum member contribution will reduce from 4% to 2%
- Employer tax credit will be removed
- Employer superannuation contribution tax ( previously SSCWT) will be capped at 2%
- The member fee subsidy of $40 per year will be scrapped
There is going to be a new Independent Earner Tax Credit (IETC) for workers who don’t get either working for families or any benefit, and earn between $24,000 and $44,000 pa. $10 per week from 1 April 09, increasing to $15 per week the following April.
Fraud on the rise, free clinics and tax changes
October 2008
IRD have today officially advised that the majority of property companies registered in NZ as loss attributing qualifying companies (LAQCs ) are going to receive a standard letter in October. ( I gather there are about 46,000 letters nationwide expected to go out)
Their letter will ask whether any Director or Shareholder personally lives in any property owned by their own LAQC. IRD has issued various types of public notices over the past year or so expressing concern where people live in their own LAQC property. You may recall that Love to Grow has also consistently advised against this situation because of the general anti avoidance aspects of the Income Tax Act. This has even more become the case in recent years since IRD has been making public statements in newspapers etc.
IRD state in their standard letter that they view this approach to be tax avoidance, even where market rent is paid. They further view some approaches as tax evasion ( which is much worse). The standard letter reminds taxpayers that tax evasion is a criminal offence ( can come with a jail term). They are suggesting that taxpayers make a voluntary disclosure to IRD if the circumstances relate to them. It is fair to say that IRD are expected to take a fairly hard line on this issue. Activity like this has not been witnessed to this extent for a long time.
Almost without exception, unless your circumstances have changed, we know you will have no need to do anything if you receive one of these letters because this situation does not apply to you. So please do not get concerned as a result of receiving this request from them.
However we would still like to be kept informed as you receive these please. If your circumstances do now include a situation where you live in your own LAQC rental, we strongly recommend that you allow us to respond to IRD on your behalf. Please contact me if this is the case so we can assist in managing the situation to minimise any penalties that may otherwise arise.
You may be aware that the Government has funded IRD $14.6 million to investigate general property related issues, which presumably includes these LAQC requests. It is widely anticipated that a much wider sweep of tax related property issues will also begin to unfold.
October 2008
Upcoming Events
Trish is compiling a series of workshops to present on current issues topical for small and medium sized businesses. Please contact her on trish@lovetogrow.co.nz if you have particular topics you would like Love to Grow™ to address.
Recent seminars
I have done some seminars in the past few months. If anyone would like to get copies of the slides, please reply email for the ones you want.
Maus Business Development Annual Conference (Sydney)
“Teaching clients a Business Development Roadmap”
Women Creating Wealth Workshop
“Understanding the impact of the numbers in your business”
Wellington Chamber of Commerce
Small Business Expo
“How to Improve Cashflow”
Wellington Chamber of Commerce
“Understanding your Business Value”
Crombie Lockwood client series
“The next eighteen months – What should your business do?”
National Small Business Expo - National Bank Seminar series
“How to Grow your Business – what to focus on.”
MAUS Business Development Conference (Sydney)
”Important things to remember when teaching clients”
October 2008
These take effect from today. For those that have staff, use the new PAYE tables for any wages paid from now on. If you haven't received updated PAYE tables, please contact us if you would like us to send one to you.
Because the tax rate changes are being implemented part way through the income year, IRD have released composite tax rates for the March 2009 year so that an average is effectively applied. Below are the tax rates that will be used to determine your annual tax liability in your 2009 tax returns.
| Income |
Composite Tax Rate 08/2009 Year |
New Full Year Tax Rate for 09/2010 |
Old Income - Rates |
| $0 - 9,500 |
13.75% |
12.5% |
$0 - $9,500 15% |
| $9,501 - $14,000 |
16.75% |
12.5% |
$9,501 - $38,000 21% |
| $14,001 - $38,000 |
21% |
21% |
| $38,001 - $40,000 |
27% |
21% |
$38,000 - $60,000 33% |
| $40,001 - $60,000 |
33% |
33% |
| $60,001 - $70,000 |
36% |
33% |
$60,001 and higher 39% |
| $70,001 and higher |
39% |
39% |
The low income rebate has been removed and although there is a new low 12.5% tax rate, no new matching secondary tax rate has been introduced.
There will also be changes to the dollar thresholds in the 2010/2011 and 11/2012 income years. At the top levels, you will need to earn over $75,000 to pay 39% tax in the 2010/11 income year and over $80,000 the following year before the top tax rate applies. All of these changes have been legislated already. It remains to be seen how/if a National Government might suggest improving on them.
October 2008
You have no doubt seen in the news the impact that the US markets are expected to have on NZ. To provide some ground zero insight, in the past 6-8 months I have witnessed increasing information requests from banks whenever a client wishes to continue existing funding, or increase facilities. They have also been implementing much tighter credit criteria given economic occurrences over that time. Some applications are being refused where before they would have bolted in.
Very little funding has been reapproved without first completing a proper application that is accompanied by the latest set of financials as well as cashflow projections. Although we have found the bank personnel to be helpful as best they can, the feedback is that their hands are tied a lot more than they used to be. All of this is borne out in the news as well.
In the newspaper today, Gareth Morgan suggested that those with mortgage funding up to 90% may be requested to reduce this to 80% before too long and to try to attempt paying off debt at least down to that 80% level before the bank forces your hand. Sound advice from my perspective.
Easier said than done for some punters, but I think it is fair to say the writing will be on the wall for some and assets may need to be sold in time if cashflow issues worsen at an individual level. Not the best time to sell assets over the next period either, so it may result in a double whammy unfortunately. So it is important to actively manage this situation.
As a chartered accountant I am unable to give financial planning advice about where to place your spare funds (if any), but one thing I do generally suggest is that you consider your own debt positions carefully and ensure you live within your means. Ensure that your businesses only have to fund a market salary level for the work you do (if either you or your business starts to experience financial difficulty at any stage). Advice should be sought from financial planners that are very competent I suggest. It is also very important for legal reasons to not personally bleed your business of its cash.
If either your business or your personal cashflow is struggling, I suggest you discuss this with me sooner rather than later. There is often a better way to structure things, generate more cashflow or reduce expenditure. And if there isn't, it is far better to understand this properly soon, before it gets worse to the point of no return.
We all know that very good businesses can sometimes be the cruel casualty in difficult times because their own customers start to struggle. So I suggest that managing your own customer base in terms of credit criteria and cashflow management may be critical in times to come. There is that saying, "When waters are rising, all ducks float. It is only when the waters fall that you see which ones are dead". Acceptance criteria for your new customers and debtor management may be critical over the next 18 months I suggest.
If you would like to gain my perspective on any business issues you may be facing please contact me. I have a number of key professionals that I can recommend in many business areas, so even if I cannot assist personally, I may know someone who is best placed to help.
I hope this doesn't come across as too much doom and gloom. :-) It is important at Love to Grow™ that we do the best we can to help our clients prosper and grow to the extent they wish. It is therefore equally important to provide advice in relation to protecting the businesses you have already built up to date. And provide some general advice just in case you need it now or in the next period of trading. I would hate to see any of you suffer at the hands of your customers getting into financial trouble. It is important to take things by the neck and manage the situation before it manages you.
Dominion Post
Sept 2008
What does a Chartered Accountancy firm and a Brand Elevation company have in common?
Besides being the start of a joke with an Irishman in a bar, in this case the answer is they both show their clients how to grow.
Trish Love from Love to Grow™ started her business around ten years ago. Stephen Reid from Ramp has been a client ever since.
In growing her business, Trish regularly adapts Love to Grow’s™ strategy, operational structure, staffing, systems and cashflow. The firm helps clients combine practical strategies with a focus on key drivers to create cashflow. Bringing these elements together, they lower risk, increase sustainable profits and value.
Five years ago Ramp helped change their branding to better communicate. Trish says this was a critical step, directly increasing the firm’s value.
Trish has found that any credibility questions on growth advice are best answered with action, working on growth opportunities for clients, rather than just discussing the theory. Experiencing her own business growth has been critical to assist in understanding how to best do this.
Stephen says that “Love to Grow’s™ approach helps us seek opportunities based on realistic goals and a real understanding of where we are at, at any given time. It is accountancy with an eye to future growth, rather than retrospective bookkeeping.”
Although their businesses are different, much of their focus is similar. And they can even tell the occasional Irish joke.
The 2010 Budget - a plethora of change