The legislation regarding allowable prepayments is complex and we recommend clients discuss with us any plans for prepaying expenses prior to committing to any expense.
Prepaid expenditure on items other than those covered above is only tax deductible to the extent the services have been performed or goods provided. Therefore, a payment for repairs made before balance date will generally not be tax deductible unless the repairs have actually been carried out.
16. Repairs & Maintenance
Generally, no deductions are allowed for a repairs and maintenance reserve. It may be worthwhile undertaking repairs and maintenance prior to 31 March 2024 to obtain a full deduction. Deciding on the nature of the expenses (revenue or capital) is often a difficult decision. Please contact us if you require any assistance in this area.
One year warranty purchased with a fixed asset can be deducted as an expense rather than capitalised. However, if you purchased a warranty that is longer than a year, this will need to be capitalised.
17. Trading Stock
The closing stock value affects the profit or loss of the business. Higher closing stock values result in higher profits whereas lower closing stock value results in lower profits, thus affecting the taxation figure as well. The closing stock value must be true and fair as per IRD’s requirements.
For businesses with turnover of less than $1.3m, you can value closing stock the same as opening stock if closing stock can reasonably be estimated at less than $10,000. You may be able to use the market value for the closing stock if this is lower than cost. Please, also ensure you take into account for any obsolete stock or stock that is stolen or disposed of for any reason.
18. Shareholding Continuity
Any change in shareholding during the financial year has implications on one or more areas for taxation purposes. These include Imputation credit accounts, losses to carry forward, Qualifying company/Look Through Company status, loss attributions, shareholder salaries, etc.
Shareholding continuity must be maintained in relation to the carry forward and grouping of losses. 49% continuity must be maintained in the loss company from the time the loss is incurred until the time the loss is utilised. The loss, however, can be carried forward if the main business activity is the essentially the same although the shareholder continuity is breached under the new business continuity test.
For grouping, commonality of 66% is required. That is, the same group of persons must own 66% in both companies at all times during the continuity period.
To rely on the wholly owned group exemptions, 100% common shareholding must be maintained throughout the year.
In order to retain the company ICA balance, 66% shareholding continuity must be maintained throughout the year.
Please consult with one of our accountants first if you intend to and/or are expecting any change in shareholding in the company.
19. Subvention Payments & Loss Offsets
You should ensure that any prior year group loss offsets and subvention payments are completed and lodged with the IRD prior to year-end. Loss offsets and subvention payments relating to the year ending 31 March 2024 are due on or before 31 March 2025.
20. Look Through Companies (LTC)
If you wish to elect the company to be LTC, you need to elect by 31 March 2024 to become effective from 01 April 2024. Any new companies (including shelf companies if non-active declaration filed) have exceptions whereby they have until the first tax return due date to be filed to make the election. There are various reasons as to why you would want to elect company to be LTC (i.e. if you are planning on restructuring company assets for asset protection purposes etc.).
However, there are other factors to consider as well such as LTC entry cost arising from not having enough imputation credits for retained earnings and existing associated person gains.
The benefits of having LTC are now limited for rental property investors for rental losses being ring-fenced and not able to offset income from other sources.
21. Transitional Resident Exemption
This rule applies to individuals who are becoming new residents or residents returning to NZ after 10 years absence from 01 April 2006 for those arriving on/after that date. It allows exemption on all foreign sourced income from tax other than employment and services income derived while NZ resident for 48-month period. There are times when you are better off to elect out of this exemption (i.e. if offshore losses exist with NZ income) so it is prudent to discuss this with us should you fall under this exemption.
22. Company Advances
If you have a company and the company has advanced the funds that result in an overdrawn shareholder current account, loan to associated entities (where not 100% commonly owned), associated trust, staff, shareholder-employee/associated person, shareholder then it may trigger tax implications. There are ways to deal with any potential tax implications (salary, dividend or restructuring debt) which can be discussed.
23. Imputation Credit Account (ICA)
Please check your imputation credit balance to ensure that it is either a nil or credit balance at year end. If the ICA is in debit balance this will create a 10% imputation penalty which is not treated as a “tax payment” for income tax purposes.
24. Dividend Resident Withholding Tax (DWT)
If dividends declared and /or paid during the year have been imputed at 28% the DWT return and a payment of 5% will need to be filed and paid to IRD by 20th April 2024. Therefore, please advise us if the dividend has been declared and imputed at 28% and forward us dividend statement in order to fully impute the dividends.
25. Accruals
Make a list of all expenses that you owe at balance date i.e. 31 March 2024. These can be claimed as a deduction in the 31 March 2024 income tax return.
26. Home Office Expense
If you have an office in your home, you may be able to claim a portion of all expenses that relate to all your home expenses. The details of expenses that may be claimed are noted in the enclosed questionnaire or please contact one of our accountants for an excel template that you can use to summarise your home office expenses.
27. Legal Expenses
For the 2010 income year and beyond, legal expenses incurred when buying capital assets used to derive taxable income are tax deductible, provided total legal expenses for an income year are equal to or less than $10,000.
28. Business Expenses Paid Personally
All business expenses which have been paid personally and did not go through the business books or bank account can still be claimed as a business expense for taxation purposes. Please provide lists of such expenses.
29. Fringe Benefit Tax (FBT)
If certain benefits (e.g. motor vehicle) are enjoyed or received by employees as a result of their employment the benefits are liable for FBT. Employers pay tax on benefits provided to employees or shareholder-employees. For motor vehicles however we have new vehicle ownership structure mechanisms available to minimise this FBT exposure. Please contact us for further information on this matter.
Close companies can elect to calculate the deduction for the business use proportion of vehicle expenses as an alternative to FBT. The requirements to use this option are:
(1) Employer is a close company
(2) Only fringe benefits provided to all employees are 1 or 2 vehicles to shareholder employees
(3) Vehicle is acquired or first used for business use on or after 1 April 2017
(4) Company gives notice to IRD of election by the income tax return due date for the relevant income tax year
30. Land Sales – Zero-rating Transactions
The GST registered vendor is to charge GST at the rate of 0% on any supply that involves land or in which land is a component to a registered person who acquires the goods with the intention of using them for making taxable supplies.
31. Research and Development
(A) Research and Development Loss Tax Credit
The research and development (R&D) loss tax credit is a refund of R&D business losses. The credit can only be for eligible R&D business expenditure up to 28% of your tax losses from R&D activity companies who are a tax resident of New Zealand dates on or after 1 April 2015.
Generally, you carry forward tax losses to the next income year, however the R&D loss credits are not carried forward but rather cashed out. These losses must then be repaid when the business begins to make a profit or owes repayment tax following a loss recovery event.
(B) Research and Development Tax Incentive
The research and development (R&D) tax incentive operates as a tax credit, rewarding businesses and individuals who perform R&D activities. This is different to the R&D loss tax credit.
Key features of this incentive include:
15% tax credit available from the beginning of business (2020 tax year)
minimum eligible R&D expenditure of $50,000 a year
maximum eligible R&D expenditure of $120 million a year
definition of R&D to span more sectors
limited form of refunds in the first year
In order to take advantage of this, you must be eligible in all three of the following criteria:
eligible R&D activities
eligible R&D entities
If you wish to discuss about any listed above or have queries regarding this checklist, please feel free to contact your accountant for assistance.
