With year end fast approaching, it's time to think about what's needed to minimise your tax bill and maximise tax deductions.
Your OneTeam accountant will be in touch to let you know what you need to do - but in the meantime, here are some of the things to be getting ready for:
Income Tax
The third instalment of 2021 provisional tax is due 7 May 2021 based on actual results to 31 March, so it is important to have your records in order to determine this.
If you have not yet filed your 2020 income tax return, ensure it is filed by 31 March otherwise late filing penalties may be charged, your extension of time to file 2021 may be lost and the 4-year statute bar period extends a further year.
If you have profitable and unprofitable companies with common shareholding a loss offset subvention payment for the 2020 income year must be paid by 31 March 2021.
Under new laws a loss carry back is available to you and you can use this to reduce the previous years tax or get a refund on previous years tax.
Repairs and Maintenance
A one-year warranty purchased with a fixed asset can be deducted as an expense rather than capitalised, providing the cost of the warranty can be separately identified.
Review fixed asset registers to ensure genuine R&M has been expensed and not capitalised to fixed assets.
Consider carrying out R&M work before year-end.
Bad Debts
The debt must be physically written off the debtors’ ledger by 31 March to be deductible.
Retain documentation to support the debts as not recoverable.
Claim the GST adjustment.
Prepaid Expenses
Some expenses paid in advance (e.g. rent, insurance, advertising, service contracts and subscriptions) can be tax deductible in the current year if not treated as a prepayment in the accounts.
ACC levies are deductible when paid.
Donations
Cash donations paid to donee organisations or registered charities are deductible up to the level of net income. If the business is in a tax loss position, consider the owner making the donation and claiming the donation rebate.
Assets
Assets purchased prior to 17 March 2020 and costing $500 or less should be expensed. Assets purchased after this date, but before 17 March 2021 and costing $5,000 or less can be expensed. Assets purchased from 17 March 2021 and costing less $1,000 or less can be expensed.
Claim depreciation from the first day of the month of purchase.
Ensure assets traded in are disposed of and the replacement asset depreciated at its full cost.
Claim depreciation on commercial property from 1 April 2020.
Ensure assets sold, stolen, scrapped, destroyed or no longer used are removed from the asset register and loss on disposal calculated.
If an asset sale is expected to result in depreciation recovery, consider deferring the sale until after 31 March.
Ensure deductible feasibility and R&D costs have been expensed.
Trading Stock
Value closing stock at market selling value if lower than cost.
Carry out a stocktake on 31 March to ensure an accurate closing stock figure and write-off obsolete stock.
If trading stock is less than $10,000, and turnover is less than $1.3m, use opening stock value as closing stock figure.
Accruals and Provisions
These are not deductible in the current year, unless you are definitely committed to the expense at year-end and the amount can be reliably estimated.
Keep a record of employment provisions paid out between 1 April and 2 June, as that portion of the provision is deductible at 31 March.
Cut-off
Follow year-end cut-off procedures to ensure sales, stock, expenses etc. are accounted for in the correct year.
Shareholder Matters
Consider paying a dividend or shareholder salary if there is an overdrawn shareholder current account.
Check the company has sufficient tax credits for a dividend; consider bringing forward a tax payment if necessary.
Dividends for the 2020-21 year should be paid or credited before 31 March 2021 and dividend withholding tax is payable on 20 April 2021.
Review shareholding changes throughout the year to ensure shareholder continuity has been maintained. This may change with new laws about to be passed.
If a dividend is being paid to a non-resident, non-resident withholding tax may need to be considered.
International Matters
Interest deductibility may be impacted by the thin capitalisation rules if there is control by a non-resident, or offshore investment.
Cross-border related party transactions need to be at an arm’s length price, or will be at risk of being restated by the IRD under the transfer pricing rules.
GST
Where assets are used for both business and private use, make your year-end GST apportionment adjustment in the 31 March GST return.