With the end of the financial year fast approaching, now is the time to review recent tax updates, optimise tax deductions, and ensure compliance with evolving GST legislation. Whether you're a business owner, property investor, or trustee, these changes could impact your taxable income and overall cash flow.
Several significant tax changes could affect your financial position this year:
Increased trust tax rate: Trustees planning income distributions should consider the timing, and purpose of the trust deed provisions to understand the tax implications.
Commercial building depreciation: While general depreciation for commercial buildings has been removed, businesses should determine whether specific fit-out components remain depreciable.
Residential rental interest deductibility: Recent tax updates have increased the deductibility of interest expenses on residential rentals. However, this is still subject to limits on tax deductions and residential ring-fencing rules. Full deductibility should apply from the 2026 financial year, albeit the residential ring-fencing rules will still apply.
A critical change in GST legislation allows taxpayers to opt out of GST if they made only a partial claim on an asset that was not acquired for taxable supplies.
Act by 31 March 2025 – If you don’t opt out, you could be required to pay GST on the entire sale proceeds of the asset.
Writing off bad debts
To claim a tax deduction, businesses should write off bad debts before 31 March 2025. A debt is considered "bad" if there is no reasonable likelihood of recovery. Key factors include:
Length of time unpaid
Collection efforts made
Debtor’s financial position
For those using cloud-based accounting software, ensure an authorised entry records the debt as written off.
Prepayments and unexpired expenditure
If your business has prepaid for goods or services not yet used, these may need to be added back as taxable income unless an exemption applies.
To maximise tax deductions, businesses must meet specific timing rules for holiday pay and bonuses:
Employment-related expenses must be legally committed to at year-end and paid within 63 days of year-end to be deductible.
Bonuses for non-shareholder employees must be committed to at year-end and paid within 63 days to be deductible.
Meeting these deadlines ensures deductions apply in the current tax year, even if employees receive payments in the next financial year.
With the 7 May 2025 provisional tax deadline approaching, businesses should calculate their taxable income in advance to manage cash flow effectively. Use-of-money interest (UOMI) can apply from this date, increasing costs.
TIP: Consider tax pooling to defer or spread payments and reduce exposure to Inland Revenue interest rates.
Understanding these tax complexities is crucial for effective financial management. You can watch our NZ Year-End Tax Considerations webinar to explore these topics in more detail.
Our experts discuss the latest tax strategies, compliance requirements, and practical tips to navigate the year-end efficiently. By staying proactive and informed, businesses can optimise their tax position, reduce liabilities, and ensure compliance with the latest tax regulations.
This document contains general information and does not constitute legal or taxation advice. If you need legal or taxation advice, we recommend you speak to a qualified adviser.
The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex.
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February 2025
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