Articles by Anna Loginova
We are at the end of another financial year, and it is time to collate your information for your accountant so they can prepare financial statements and file your tax returns.
At GRA, we look for opportunities to optimise our clients’ tax positions for the end of the financial year and this blog contains some of the things you need to consider.
We understand that addressing these things may not be the most exciting thing to do, which is why a lot of people tend to put them off. However, the tax benefits you may get from dealing with them can be significant, making it a very worthwhile exercise.
Listed below are a number of points to be aware of, which I originally discussed in my 'Preparing for the end of the financial year' blog of 24 January 2019. Most of the points noted in that blog are still applicable this year, and will likely continue to be applicable going forward. If you are not sure about anything, contact your GRA Client Services Manager. (Or if you don’t have an accountant, make an appointment to meet with one of our consultants.)
If you are a property investor, consider if your financial statements will need to be updated to reflect the current market value of your properties. Even though this is not a requirement of the IRD, it is helpful to see the true position of your portfolio.
The Government recently announced new tax rules that remove the deductibility of interest for property investors. As a result, you’ll need to consider the cashflow for your portfolio over the next four years, as the new rule will be phased in over this time. Matthew Gilligan’s blog on the bright-line and interest deductibility tax changes includes a table which illustrates how much interest you will be able to claim over each of the next four years for properties purchased before 27 March 2021. (You will not be able to claim interest at all in relation to properties purchased after this date, unless they are ‘new builds’.) For more information about these rules, please visit our Tax Changes Resources webpage.
By identifying assets that are damaged, sold, disposed of, or no longer used, you will be able to save tax. This is known as a fixed asset write off. Examples include furniture, phones, computers etc.
You’ll also need to provide your accountant with accurate information about assets you have purchased for your business during the year.
Note that from 17 March 2020 to 16 March 2021, low value fixed assets with a cost of less than $5,000 could be deducted in the year of purchase. This threshold has now changed to $1,000, effective from 17th March 2021.
If you have commercial or industrial investments, you are now allowed to claim depreciation on the buildings, effective from the 2021 income tax year at a depreciation rate of 2% DV and 1.5% SL.
If you have done everything in your power to encourage customers to pay their outstanding invoices to no avail, that bad debt is deductible (i.e. you don’t have to pay tax on income you will never receive). You must write off bad debts before the end of the financial year, so if these have not been written off before 31 March 2021, review them carefully now and take the appropriate actions to write off bad debts before 31 March 2022.
Accurately record everyone to whom you owe money, as this can reduce how much tax you have to pay.
Review holiday pay accruals, as these could be different compared to prior years due to disruptions in travel caused by COVID 19. Additionally, the travel bubble that has just opened with Australia may also have an impact. To be deductible, holiday pay and bonuses accruals must be paid within 63 days of balance date.
For more detailed information about holiday pay, read John Heaslip’s December 2021 blog on annual and sick leave.
If you have not done your stock count yet, ensure that you do this on a regular basis going forward. Closing stock calculations can have a significant effect on your taxable position.
By now, all of the dividend calculations for the 2021 income tax year are finished and completed, as the due date was 20th April 2021, which was when RWT on the dividends was required to be paid. If your accountant is not pro-active with your tax planning and declaration of dividends, please get in touch with us for assistance.
As you may have heard, effective from the 2021 income tax year, there is an increased provisional tax threshold from $2,500 to $5,000. If you paid all of your provisional tax for the 2020 or 2021 income tax year but the IRD continues to charge you penalties and interest, GRA can help you.
There is a temporary loss carry-back scheme, where if your business made a loss in either the 2020 year or the 2021 year, you can use that loss to offset profits made the year before. In this situation, if your business made a profit in the 2020 year but in the 2021 year there is a loss, by offsetting the two the IRD will refund any overpaid tax.
Ensure your logbook is up to date so you can get the maximum deduction. If your logbook is not up to date, you’ll have to use the default rates, which are much lower than what you would otherwise be able to claim. (Have a look at my October 2020 blog on claiming motor vehicle expenses for more detail around this.)
If you work from home, as many people do these days, you can include a portion of your household expenses as business related. Undertake measurements of your home and office space so your accountant can apportion the appropriate share of things like rates, insurance, electricity, internet etc. as business expenses.
All of the above, and more, is included in our Annual Client Questionnaires, which GRA clients receive at the end of the financial year. These are sent to you via IQOnline, our online software system that allows you to answer your questionnaires and upload all relevant documents digitally.
There are a lot of points that should be considered at the end of financial year. We know this can be challenging, so if you’d like help with your end of year tax planning, please get in touch with us – we would be very happy to assist you.
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Investing in residential property?
If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.
Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.