Adviser to Achievers

Contents• Property Developer Wins

GST Case

• Employing Students Or Casual Staff Over The Holiday Period

• Tax Update

• The Industry Benchmarks Have Been Updated

• Important Dates

• Business New Year Resolutions

• Holiday Pay And Deducting Child Support

• Changes To Student Loans And Allowances

• Introducing The Starting-Out Wage

Summer 2012 Issue No.27

The Adviser

Focusing on your business can be difficult when making the big strategic decisions. It can be hard to be objective and think outside the square, when everyday you work inside the square. Business issues are now more complex than ever before and it is important to make significant business decisions that will profoundly affect future success.

Don’t be a Dinosaur! Avoid some of these common mistakes when making your strategic decisions:

Tunnel vision: It is hard to pull the plug on something you have been involved in. Everything has a finite life.

Silence the critics: Listen to the arguments for and against a course of action. Be the “devils advocate”

Gut instinct: First impressions influence us more than we think and can easily mislead us into making irrational decisions.

More is better: Growth for the sake of growth is not strategy. Big is not always better.

Planning for yesterday: Focus on today and respond to change, rather than trying to win yesterdays war.

Don’t be a dinosaur!Throwing good money after bad: We tend to keep pursuing a course of action long after we should abandon it

The lure of simplicity: We latch on to simple solutions as being the answer to our prayers.

Strategy means choosing the right actions to ensure your future success. You need to understand the forces that will likely impact on your future. Then you make clear choices about how you are going to compete and be successful.

Dinosaurs were big, fast and strong creatures. But as Charles Darwin said, “It’s not the strongest who survive, nor the most intelligent, but the ones most responsive to change”

Enjoy your thinking over the summer reflecting on your strategies. Ensure you don’t become a Dinosaur!

Best wishes

Nick and Christina

CHARTEREDACCOUNTANTS

Whether a person can register for and recover GST from the IRD is a question faced at the start of any taxable activity. The answer to the question is typically a relatively straight forward “yes”, however the IRD has been known to take a contrary view. One such situation recently made its way through the Taxation Review Authority (TRA), with the decision in favour of the taxpayer. In reaching its decision, the TRA made some very helpful comments along the way.

From a technical perspective, GST applies to a “taxable activity”, which is defined as an activity carried on continuously or regularly, involving the supply of goods and services for consideration. To the extent goods or services are acquired for making taxable supplies, the GST incurred can be recovered. If the IRD considers that a taxpayer is not conducting the activity on a continuous or regular

ProPerty develoPer wins Gst Case

basis, it can take the view that the taxpayer doesn’t qualify for registration or the refund. The GST Act defines anything done in the beginning or ending of the taxable activity to be part of the normal trading of the business. There is no capital/revenue distinction as exists for income tax. This allows GST incurred right through the “set-up” phase to be recoverable. The frustrating point for taxpayers is that previous court decisions require that a taxable activity must exist before the preparatory steps can be added to it and the GST incurred through that stage recovered.

The dispute before the TRA related to whether or not a property developer was entitled to a GST refund on costs associated with a development project. The developer intended to buy run-down properties, renovate them and on-sell them for a profit and to this end had purchased and claimed the GST on a

Email: office@hoogeveen.co.nz Website: www.hoogeveen.co.nz

property costing $8.7m. Due to the downturn in the property market and lack of working capital, the project was abandoned and the property sold back to the original vendor. The IRD refused the GST refund as it believed that the taxpayer’s activity was insufficient to constitute a taxable activity. It classed the developer’s activities as “preparatory steps, which realistically, were never going to amount to a taxable activity”.

The TRA referred to the activity required to select and finance the purchase of the property as being not merely preparatory steps, but instead the actual commencement of the activity. In the TRA’s view the developer was engaged in a continuous activity by purchasing the property, setting up the ownership structure, dedicating management time, having a detailed business plan, dealing with real estate agents, completing surveying, subdivisional, accounting, marketing, valuations, insurance, legal work, and by carrying out some refurbishment. The TRA considered that these activities were more than just preparatory or preliminary activities.

Although the case was in the context of property development, the judgement could be applied to other situations in which the IRD is disputing whether a taxable activity has commenced. These disputes are occurring more regularly of late, as the IRD appears to be taking a more hardline approach to GST refunds. From a practical perspective, taxpayers can reduce the risk of being denied a GST refund by diligently recording and keeping records of all work undertaken on a project; particularly preliminary work.

eMPloyinG stUdents or CasUal staFF over tHe Holiday PeriodWith the Christmas break approaching we thought it would be timely to remind you about your obligations if you employ students or casual staff over this period, and when a Tax code declaration (IR330) must be completed.

school students

Children who earn less than $2,340 for a tax year and have no tax deducted from their wages can continue to have no tax deducted until 31 March 2013. However, from the 1st April 2013 they will need to complete a Tax code declaration (IR330) and have tax deducted from their wages as part of the Government’s Budget this year when the tax credit for children was repealed.

If your school student employees file a return or request a personal tax summary they may be assessed as having tax to pay, as the tax credit already received will no longer be taken into account. If school students think they will need to file a return, we recommend they complete an IR330 now to change their tax code. This will help avoid or at least reduce any tax to pay at the end of the year.

tertiary students and other staff

All other staff, including university, polytechnic or other tertiary students must complete an IR330 and give it to their employer so the correct PAYE or tax is deducted from their pay.

Kiwisaver

If you employ staff for less than 28 days, you do not have to enrol them for KiwiSaver. However, if they are already KiwiSaver members and they want you to make KiwiSaver deductions they must give you a KiwiSaver deduction notice (KS2).

tax UPdateThe Government has announced a number of tax changes in the past few months, resulting in media releases and draft legislation being tabled in Parliament. The draft legislation includes:

• Rules to limit deductions for land, such as the Kiwi bach, and assets costing more than $50,000 (e.g. yachts) that are used both personally and to derive income. The changes don’t come as a surprise, as they were first signalled in the Budget and have gone through a public consultation process. Although one element of the draft legislation that was not expected, is that of ‘ring-fencing’ losses in certain circumstances, i.e. some losses incurred from a “mixed-use” asset will only be able to be offset against income derived from the asset in future years, as opposed to being offset against other income of the taxpayer.

• Proposed changes will allow non-resident businesses to register for GST and claim input tax deductions; subject to meeting certain registration criteria. In general, if a GST registered taxpayer incurs GST on the acquisition of a good or service to make taxable supplies in New Zealand, that taxpayer can deduct that GST in their GST return. In contrast, non-residents are currently often unable to recover New Zealand GST because they don’t sell goods or services in New Zealand, which hurts New Zealand’s international competitiveness.

• When depreciation loading was removed from assets acquired after 20 May 2010, the rules relating to the agricultural and horticultural industries were overlooked. To correct the oversight, the amortisation rates that apply to taxpayers in those industries will be reduced for assets acquired from 13 September 2012.

Building on an Officials’ Issues Paper released in April 2012 regarding the tax treatment of salary trade-offs, the Revenue Minister announced on 3 October 2012 that the provision of car parks on an employer’s premises will be subject to FBT (currently exempt). FBT would only apply to car parks located in the Auckland and Wellington CBDs. Exclusions will also apply for after-hours shift work and disabled car parks. The changes are to apply from 1 April 2014.

Another Officials’ Issues Paper released in July this year proposed to charge tax on lease inducement payments (paid by landlords to entice potential tenants to enter into a lease). These payments are generally non-taxable to the tenant and deductible to the landlord. The proposal sparked heated debate because it was made without warning and was to be effective from the date it was announced. However, on 27 September 2012 the Minister announced the application date will be 1 April 2013 and the form of the proposal will be altered to capture all lease payments. This is in response to criticism that the proposal as originally intended, only captured some lease payments and was therefore one-sided - favouring the Government.

Here to support all your accounting requirementsPh 07 862 9090

Tel: (07) 862 9090 Fax: (07) 862 9091 Adviser to Achievers

tHe indUstry benCHMarKs Have been UPdatedIndustry benchmarks are a tool to help you assess and improve your business performance by comparing your business with others in your industry. The IRD have recently updated the industry benchmarks with the latest data.

The IRD published industry benchmarks earlier this year as part of a pilot for 16 industries. These have now been updated with the latest financial data from 2010-11.

One of the IRD’s key functions is to help you manage your tax obligations by providing useful information, self-assessment tools and online services. Industry benchmarks are one such tool to help you get it right.

If you are a small-to medium-sized business, or a new business, you can also use industry benchmarks as a tool to help your planning and budgeting.

How do you compare with other businesses in your industry? Find out now by going to www.ird.govt.nz/Industry-benchmarks

The benchmarks were calculated by Statistics New Zealand using information provided on financial statements and income tax returns by businesses that have an annual turnover between $60,000 and $10 million.

The IRD use benchmarks, along with other indicators, to identify businesses that may be avoiding their tax obligations by not reporting some or all of their income or overstating their expenses. Being within, above or below the benchmark range does not mean your business is compliant or non-compliant with its tax obligations; it is simply one indicator of business performance.

bUsiness new year resolUtionsGenerally, we want to indulge less, exercise more and be better people.... However it’s time to ponder some specific (and accomplishable) new year’s resolutions for your business.

1. nurture your most loyal and profitable clients. Chances are they’ll sing your praises and refer more business to you.

2. Give something back to your community. Help a cause that matters to you and you’ll potentially give your team new purpose whilst boosting your reputation.

3. Promote your business effectively.Join a networking or business group and get your business in the public arena. Consider the benefits of social networking and marketing.

4. read a business book every month.Keep up with the changing world, enhance your knowledge and leadership skills.

5. Get professional education and development. As a leader you must continue evolving, extend your education to remain engaged and focused on the future of your business.

6. learn to listen more. Be available and engage your team daily to see how they’re tracking. You’ll diffuse potential problems before they arise and witness valuable raw idea creation.

7. empower your team. Only your team can grow your business - they need to share your vision and have the necessary drive or incentive to achieve the goals that you set.

8. if it’s not working, get rid of it. Whether it be a product offering, a machine, a supplier or even an employee, don’t waste time and energy squeezing a round peg through a square hole. Trim the fat and invest in new muscle.

9. Prioritise and leverage your time.Implement efficient systems to allow effective delegation. Employees with greater responsibility often have greater job satisfaction. Work more on the future direction of your business rather than in the everyday running of your business.

10. take time for yourself!Be a good role model - don’t skip lunch or work endless overtime. It could lead to burnout. Enjoy breaks for exercise or a new hobby and achieve a healthy work-life balance.

Summer 2012 Issue No.27

The Adviser

“There is a time to let things happen and a time to make things happen”

“The greater the difficulty, the more glory in overcoming it”

“There is no worth in anything that is not difficult to achieve”

“Don’t ask for tasks equal to your powers……ask for powers equal to your tasks”

“Achieving is easiest when we work the hardest, and hardest when we work the easiest”

CHARTEREDACCOUNTANTS

iMPortant dateslast day for filing oct/nov Gst is

15th January 2013

If we are doing your GST, your paperwork must be in to us prior to the 21st of December.

Provisional tax for some is due 15th January 2013

nov/dec Gst is due 28th January 2013

If we are doing your GST, your paperwork must be in to us prior to the 11th of January.

Don’t forget to send your paperwork to us before

you go on holiday

Adviser to Achievers

DisclaimerAll the information published in The Adviser is true and accurate to the best of the author’s knowledge and should not be a substitute for professional advice. No liability is assumed by the authors or publisher for any losses suffered by any person relying directly or indirectly on this newsletter. Views expressed are the authors own. Articles appearing in The Adviser may not be reproduced without prior approval from the editor and credit being given to the source.

Holiday Pay and dedUCtinG CHild sUPPortHoliday pay is both pay for an employee’s annual leave and pay for statutory holidays. Holiday pay is included as earnings in the period you actually pay your employees and is calculated on 4 weeks of the employee’s gross income (or 8% if they are casual workers).

To help calculate the tax on your employee’s holiday pay use the IRD “Calculate tax on holiday pay (1 April 2012 to 31 March 2013)” calculator at www.ird.govt.nz (keyword: holiday pay 2013).

deducting child support from holiday pay

If you make child support deductions from an employee’s wages, you need to deduct it at the usual rate from their holiday pay.

If your employee requests their holiday pay before going on leave, you still need to deduct child support. This also applies to KiwiSaver and student loan deductions.

When you complete the child support box in your Employer monthly schedule (EMS/IR 348), use the child support code “A” to show a deduction made in advance. If the child support deducted is less than expected, use the child support code “D” to show a shortfall.

example

Paul normally has child support deductions from his pay at $80 a fortnight. In December, he is taking three weeks annual leave. In the last week of November Paul will be paid three weeks holiday pay in advance, along with his normal fortnightly wages.

Normal fortnightly child support deduction $80

Divided by two to get a weekly amount $40

Multiply by the number of weeks of holiday pay being $120 paid (in this example three weeks)

Total child support deducted ($80 for the normal pay, $200 plus $120 for the three weeks holiday pay)

november eMs: The child support deductions will be more than the amount expected. Use the child support code “A” to show a deduction made in advance for Paul.

december eMs: The child support deductions will be less than the amount expected. Use the child support code “D” to show the shortfall was deducted in the previous month, ie November.

For more information on child support variation codes, read IRDs last month’s article “Using the right child support codes on your EMS”. You will find the October 2012 Business Tax Update at www.ird.govt.nz “Newsletters and bulletins”.

For questions about child support, please call the IRD on 0800 220 222. If any of your employees have questions about child support they can call the IRD on 0800 221 221.

For more information about the rules for holiday pay and how to calculate it, go to the Department of Labour’s (now part of the Ministry of Business, Innovation and Employment) website at www.dol.govt.nz/holidaytool/ or call them on 0800 20 90 20.

CHARTEREDACCOUNTANTS

CHanGes to stUdent loans and allowanCesThe following changes will come into effect on 1 January 2013:

• Student Allowances will no longer be available for postgraduate study commencing from 1 Jan (except for Bachelor degrees with honours).

• All exemptions to the 200-week limit for Student Allowance will be removed from 1 Jan 2013 (except for special circumstances).

• Borrowers making significant under-deductions will be forced to make a compulsory extra student loan deduction - IRD will arrange directly with their employer to recover the outstanding amount.

• Those 55 and over will no longer be eligible to borrow living or course-related costs (with exceptions, depending on when you were enrolled).

introdUCinG tHe startinG-oUt waGeThe starting-out wage is the latest government initiative designed to help get more young kiwis into jobs by giving employers incentive to take them on.

The starting-out wage will be simple for employers to implement and should provide more 16- to 19-year-olds with the opportunity to earn money, gain skills and the work experience they need in this tough labour market.

those who’ll qualify for the starting-out wage are:

1. 16 and 17-year-olds in their first six months of work with a new employer

2. 18 and 19-year-olds entering the workforce after more than six months on a benefit

3. 16 to 19-year-old workers in a recognised industry training course involving at least 40 credits a year

Expected to be effective from 1 April 2013, the starting-out wage will ensure 16- to 19-year-olds are paid no less than 80 per cent of the minimum wage for the first 6 months with a new employer. After the first 6 months, they’ll be eligible for the minimum wage. Workers between 16 and 19 years of age who fill training or supervisory roles must at least be paid the minimum wage.

nick, Christina & staffwould like to thank all clients for their support through 2012 and

look forward to being of service to the business & farming sector in 2013

We will be closing on Friday 21st of December 2012 and re-opening

Monday 7th January 2013