End of Year Tax Planning
With the tax year-end fast approaching for most taxpayers, there are a number of steps (see below) that you can take prior to balance date to help you maximise any tax opportunities that you’re entitled to. These steps below need to be planned and actioned before/on 31st March 2025. This is not an all encompassing list, more of a general prompt, so do please contact us for clarification or further details specific to your needs and situation.
To Address Prior to 31st March/at 31st March
Bad Debts (Debtors not likely to pay?)
To claim a tax deduction for bad debts, you must have taken (and documented) all reasonable efforts to collect the debt and if you consider the debt unrecoverable, it must be physically written off before balance date (being 31st March).
So please review your debtors now and plan/action accordingly.
Crypto Currency - Records
A current area of focus by Inland Revenue (who can request information direct from various exchanges). Please ensure you keep a detailed record of
all your crypto currency transactions (in NZD) at the time of each transaction - buys, sells, trades, exchanges - amounts and volume.
balance of your crypto currency holdings at 31st March (important as difficult to get retrospectively)
any expenses associated with your crypto currency trading/investing
Stock on Hand at Balance Date (31st March)
Detailed record of stock at balance date. This can be valued using the following methods
Cost
Discounted Selling Price
Replacement Price
Market Selling Price
Business’s that have both a turnover of under $1.3m, and can reasonably estimate there stock to be under $10,000 (cost price) can estimate opening and closing stock (at a value between $0 - $10,000).
Service/trade based business that hold inventory (i.e parts for repairs), need to asses just how much stock is in those trade vans.
For our Farming friends, please get in touch for workpapers. We are after livestock (in categories) at 31st March plus a stock reconciliation accounting for births, deaths, sales, purchases throughout the financial year, including those that may still be onsite, but in the chest freezer.
Work in Progress (at 31st March)
Work undertaken to 31st March, that is, at balance date, “derived” - meaning able to be recovered at that date, but not yet invoiced.
For professional services, income is generally considered derived when the services have been performed, and the taxpayer is entitled to demand payment under the contract. This means that WIP may not be considered taxable income until the services are completed and the income is recoverable. Any doubts, please contact us.
Overdrawn Shareholder Current Accounts / Loan Accounts
Overdrawn current accounts can result in tax implications such as Fringe Benefit Tax (FBT), or deemed dividends which can result in double taxation. If the overdrawn account is not addressed, the company may need to charge interest on the overdrawn amount at the IRD prescribed interest rate. This interest becomes taxable revenue for the company (more tax to pay) and adds to the shareholder's debt.
Solutions to overdrawn current accounts are declaring dividends, or introducing funds back into the company - and all need to be actioned prior to 31st March. Please contact us if you have concerns in this area.
Dividends / Imputation Credit Account Debit Balances
Irrespective of the company’s balance date, it is essential to ensure your company’s imputation credit account is in credit at 31 March. Failing this could result in a 10% imputation credit account debit penalty. As a solution you may wish to consider accelerating terminal tax or provisional tax payments prior to the due dates.
If your company wants/needs to declare a dividend with a payment date of 31st March or earlier, please note that the dividend documentation has to be actually signed on or before the payment date, which needs to be before 31st March
Employees Wages, Bonus or Leave Provisions (63 day rule)
An employer can obtain a deduction for employee-related expenses that are owing at year-end (e.g. holiday pay, bonuses, long service leave), providing payment is made within 63 days after year-end. Therefore, if you have a 31 March balance date, a deduction is permitted if the payment is made on or before 2 June - this is often known a the 63 day rule.
Again, good record keeping and documentation is key here.
Vehicle Logbooks (For those in Business)
If you keep a logbook for your vehicle, make sure it is up to date and complete on the 31st of March.
If you have a vehicle which has not been used 100% for business purposes, a logbook test period can be used to establish a business use percentage for tax, GST and FBT purposes. A new test period might be needed if there has been a significant change in business usage. However, sometimes a representative period may not even be possible, and a permanent logbook will need to be kept.
Fixed Assets Review/Write Off
Good time to review the fixed asset list and advise us of
Assets no longer in use by the business, not intended to be used in future, and cost of disposing would be higher than disposal cost
Assets now used personally
Assets sold - but proceeds were not deposited into the business bank account
Assets scrapped.
Reminder, low value assets, assets under $1,000.00, are those that can be written off immediately.
Likewise, assets that cost over $1,000.00, but have a useful lifespan of under 12 months,