Tax Tips to help prepare for Year End
12 March 2020
For many of us 31 March 2020 is our balance date year end so it’s important to start preparing now to finalise the tax requirements of 2019 and make sure you are ready for 2020 before year end. This list is a summary of common matters that you might need to address noting you should consult your adviser to understand which apply to you.
Extension of time arrangements
31 March 2020 is the last day for 2019 tax returns to be filed under IRD's extension of time arrangements ("EOTs"). If you do not file your 2019 return in time you risk losing your EOT arrangement and may incur a late filing penalty. The key outcome of losing an EOT arrangement is you will need to file your 2019 and 2020 tax returns by 7 July 2020 if you want your EOT provisions to be reinstated for your 2021 tax return. Late filing penalties are graduated according to income:
Less than $100,000
$100,000 to $1 Million
More than $1 Million
Imputation credit account
Irrespective of a company's balance date, you need to ensure that your imputation credit account (ICA) balance is not in debit at 31 March. If an ICA is in debit at 31 March, further income tax equal to the debit balance must be paid to the IRD together with a 10% penalty. This 10% penalty does not create a credit in the ICA.
Checking the ICA balance before 31 March and voluntarily paying income tax sufficient to clear the debit balance by 31 March can avoid the penalty tax.
Review your annual profit and ensure sufficient provisional tax has been paid. You can make an extra payment at any time in order to reduce Inland Revenue use of money interest accumulating at 8.22%.
Loss offsets and subvention payments
Loss offsets and subvention payments relating to last year’s taxes must be filed with the IRD. These must be paid by 31 March of the year following the year the deduction was claimed (again, regardless of your balance date).
Due Date Reminders
If you have a March balance date, any terminal tax for 2019 is due on 7 April 2020, unless you have previously lost your EOT.
For employers, all wages and salaries paid or credited to staff on or before 31 March 2020 must be included in pay-day filing for March 2020 or for the 2020 financial year. The latest payment dates are 5 April 2020 and 20 April 2020 for large and small employers respectively.
A company that is currently a standard company can elect to become an LTC or an LTC can revoke its LTC status for the 2020 income year provided that it files an election prior to its 2020 balance date.
If you intend paying a dividend at the end of the financial year, you need to pass appropriate resolutions prior to this date for the payment of the dividend. The resolution must be detailed enough to allow the amount of dividend to be determined, either as a figure, or by reference to a formula.
Resident withholding tax must be deducted from the net dividend paid to the IRD by the 20th of the month after the dividend is paid. For a dividend imputed at 28/72 this equates to an extra five cents in the dollar liability.
Mixed Use Assets
Sole traders owning mixed use assets are required to make any GST adjustments required for the mixed use asset in the GST return that aligns with balance date.
The GST return aligned to 31 March will be the first time this adjustment has been necessary, so care should be taken.
Residential Rental Property Losses
For the 2019/20 and later income years, losses arising from residential rental properties can no longer be offset against other sources of income.
To the extent that deductions exceed the income derived from the residential rental property (or properties), the amount must be carried forward to offset against future residential rental income or income arising from the sale of the residential property if that sale is taxed under any of the land sale provisions.
If you had previously offset residential rental property losses against your other income you may have a higher tax bill for the 2020 income year or may not receive the refund that you have become accustomed to in prior years.
Subscriptions to newspapers, journals, and other periodicals
Postage and courier costs
Road user charges
Audit and accounting fees
Prepaid insurance premiums (where the total annual premium is less than $12,000)
Lease or bailment of livestock
Rent for land and buildings
Service or maintenance contracts (total annual cost less than $23,000)
Subscriptions for trade professional associations (total annual subscription less than $6,000)
Telephone and other communication equipment
Travel and accommodation expenses
Pre-paid expenses can be claimed even though they relate to the following year. In some cases, pre-paid amounts must be less than both specified time or dollar limits to be claimed.
Fixed asset review
Review your fixed asset schedule from last year and identify any assets that are broken, missing or disposed of.
If you own investments in companies that are resident outside New Zealand, you will need to list and value them as at 31 March 2019. This will form the basis of the portfolio tax calculation which is generally levied on 5% of their value or the actual return made for the year. (There is no such tax payable by individuals who own overseas investments which altogether cost less than $50,000 in total.)
For the 2019 or 2020 income year, distributions of beneficiary income can be made during the income year or within 12 months of balance date. Appropriate trustee resolutions must be completed within this timeframe even if the amount of the distribution has not been finalised within 12 months of balance date.
We note that many trust deeds still require distributions to be made within the income year or within six months of balance date, so take care when contemplating distributions.
You need to ensure you have made an adjustment in your GST return for the GST on non-deductible entertainment expenditure in the income tax return. The adjustment is 3/23rds of the previous year's non-deductible entertainment expenditure.
Bad debts must be written off before balance date to be claimed. The IRD expects clear evidence of appropriate approvals and accounting entries having been made. A simple “provision” for bad debts cannot be claimed. We suggest you review your bad debts regularly to have a better chance of collection. Our credit consulting team can assist you with the collection of bad debts if you require.
Holiday pay and bonuses
Employee benefits such as holiday pay and bonuses owing at 31 March can be claimed if paid by 2 June (i.e. within 63 days of balance date).
Bonuses must be finalised before 31 March in order to be claimed. Bonuses dependent on approval or other conditions satisfied after 31 March cannot be claimed.
A stocktake is required unless your stock is less than $10,000 and your turnover less than $1.3m. Stock valuations are subject to detailed rules. Generally, no write down for obsolescence is allowed unless this is reflected in sale prices.
Revenue Account Property
Losses on revenue account property can only be deducted if the losses are realised on or before balance date. People with property of this nature should consider the options available to them.
Fringe Benefit Tax
31 May is the due date for filing and paying FBT for the fourth quarter of the year and furnishing annual FBT returns. The election to use the multi-rate FBT rates is made when filing the FBT return and paying at the FBT rate elected.
In my experience, many people avoid the use of the multi-rate rules because of the perceived complexity. However, we are often able to gain FBT savings by using the multi-rate provision.
For assistance or advice with your year-end preparations, please contact the Findex Tax Advisory team.
[Findex NZ Limited, trading as Findex ]
While all reasonable care is taken in the preparation of the material in this document, to the extent allowed by legislation Findex NZ Limited accept no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Findex NZ Limited assumes no obligation to update this material after it has been issued. You should seek professional advice before acting on any material.