As we draw close to the end of another financial year, to assist you with your end of year close off we have provided a list of things to do before 31 March , on 31 March , and soon after 31 March . Before 31 March 2025 Bad Debts Please review your Debtors Ledger for any bad debts. To claim a deduction for bad debts, the defaulting accounts MUST be written off your Debtors Ledger prior to the 31st of March 2025. It is not enough to actually reduce the amount of the debtors after balance date by the amount of estimated bad debts or unrecoverable amounts owing. In most accounting systems this means creating a credit note to the defaulting debtors account and coding it to the account code Bad Debts. If the original invoice included GST, then you can claim GST on the credit note. Fixed Assets Review the fixed asset register for items that have either been sold or scrapped during the year. The Fixed Asset schedule can be found in your previous years Financial Statements. If you need another copy, contact our office for a copy. Please ensure you have narrated the entries coded to fixed assets with enough information for us to determine what has been purchased and have copies of invoices and any related financing readily available for us. Repairs & Maintenance It's a good time to review what you have coded to fixed assets and repairs and maintenance. All assets costing less than $1,000 (excl GST) may be claimed as an expense in the year of purchase, amounts greater than $1,000 (excl GST) could potentially be fixed assets. Please ensure you narrate these well in your accounting system for us to reduce queries on the job. Structures & Financing It may be time to consider an alternative structure or financing method for your business. Now is the time to consider Companies, LTC's and Trusts. If you are interested please contact us. Dividends It may be appropriate to declare a dividend on or before 31 March. This may require top up income tax to be paid by 31 March 2025. On 31 March 2025 Trading Stock Your stock (including work in progress) must be counted, recorded and valued at 31 March 2025. The trading stock rules require that you value at the lower of cost, net realisable value or market selling value. Remember to exclude GST from your calculations and prepare a written record of your stocktake. Stock value less than $10,000 - if your total gross income for the year is $1.3 million or less; and - you can reasonably estimate your stock on hand at 31 March 2025 to be less than $10,000 (excl GST), you can choose not to value your closing stock or to include any change in value. Holiday Pay & Wage Reports Some payroll software systems do not allow for printing reports subsequent to 31st March, so ensure you have the reports printed as close to the end of the month as practical. This is particularly important for clients who accrue holiday pay outstanding at balance date. Shortly after 31 March 2025 Year End Bank Reconciliations If you have a computerised cashbook (Xero, MYOB etc.) , when you receive your bank statement for 31 March 2025, ensure all transactions are entered for the year, perform a bank reconciliation to this date being 31 March 2025 and print a hard copy for your records. PAYE Payments Due 5 th /20 th April 2025 If you intend to pay out Directors Fees or additional bonus / top up salaries to either your employees or shareholder employees, you will need to pay to the IRD the PAYE content of the payments by the 5 th or 20 th of April 2025. Dividend RWT Payments Due 20th April 2025 If you intend to declare dividends on 31 March 2025 you will need to pay relative RWT content by 20 April 2025. Interest RWT Payments Due 20th April 2025 If you intend to pay interest on loan accounts at 31 March 2025 you will need to pay to the IRD the RWT content of the interest by 20 April 2025. 3rd Provisional Tax Instalment Due 7th May 2025 (for 31 March balance dates) The final instalment of 2025 Provisional tax is not due till after the end of the year. While this may be good for cash-flow, it could have negative implications if you want to pay a dividend this year. If you think this affects you, and you would like us to review your imputation credit account or have any concerns, please contact us. PREPARATION OF YOUR 2025 ANNUAL FINANCIAL STATEMENTS & INCOME TAX RETURNS Our Client Annual Checklists are available on our website at www.mcisaacs.co.nz under the "Financial Resources" tab, "Client Annual Checklists". To simplify these checklists we have separated them out into the type of entity and provided specific ones if you have a rental property or mixed use assets. 2025 Business Checklist 2025 Personal Checklist 2025 Rental Checklist 2025 Mixed Use Holiday Home, Boat and Plane Checklist These need to be completed and signed before we process your 2025 information. The accuracy and completeness of this information you provide has a direct influence on the time required to perform your assignment. When you have compiled your financial records for us please remember to include the completed and signed Checklist(s). If you do not have access to our website and require a copy of the Checklists, please give us a call and we can email a pdf of them to you or we will post them to you, whichever you prefer.

Our Client Annual Checklists are available on our website at www.mcisaacs.co.nz under the "Financial Resources" tab, "Client Annual Checklists". To simplify these checklists we have separated them out into the type of entity and provided specific ones if you have a rental property or mixed use assets. 2025 Business Checklist 2025 Personal Checklist 2025 Rental Checklist 2025 Mixed Use Holiday Home, Boat and Plane Checklist These need to be completed and signed before we process your 2024 information. The accuracy and completeness of this information you provide has a direct influence on the time required to perform your assignment. When you have compiled your financial records for us please remember to include the completed and signed Checklist(s). If you do not have access to our website and require a copy of the Checklists, please give us a call and we can email a pdf of them to you or we will post them to you, whichever you prefer.

Although not desirable, it is not unusual for an employee to raise a personal grievance with their employer. Section 123 of the Employment Relations Act 2000 (ERA) provides for a number of remedies where an employee has a personal grievance. If an employee suffers humiliation, loss of dignity, or injury to feelings one remedy is for a compensatory payment to be made, whether as part of a court ordered award or an out of court settlement. The question often then arises regarding how the payment should be treated from a tax perspective. Depending on the circumstances, such compensation is not considered to be derived "in connection with employment" and is therefore non-taxable, and there is no requirement to withhold PAYE. However, because the treatment is very fact specific it is common for payments that are treated as non-taxable to be reviewed by Inland Revenue or as part of a due diligence process. Because of that potential scrutiny it is important to have key documentation, guidance, and evidence to support the treatment adopted. In June 2006, Inland Revenue released BR Pub 06/05 providing further commentary on the topic. The key conclusion from the commentary is that payments that are genuinely and entirely for compensation for humiliation, loss of dignity, or injury to feelings, under section 123(1)(c)(i) of the Employment Relations Act 2000, do not meet the definition of income per section CE 1 of the Income Tax Act 2000, and PAYE does not apply. The IRD’s view in this publication is that there must be sufficient evidence to prove that firstly, there is the presence of a genuine Personal Grievance, secondly, that there is a sufficient nexus between the amount paid and the severity of the claim, and thirdly, that the payment made is entirely tied to the grievance and not another statutory payment obligation. One of the key areas of this section is determining whether the payment is genuinely and entirely in relation to the Personal Grievance. Payments made under section 123(1)(c)(i) are a benefit in money. An employer would therefore need to demonstrate that the payment was not actually made “in connection with the employment or service” of the recipient. For example, a payment which is in substance based on lost wages, but labelled for ‘humiliation’ would be at risk of being taxable. In Inland Revenue’s view there needs to be valid and documented proof of the Personal Grievance which would usually require an admission in writing by the employer that they acted in a manner that was unfair or unjust. However, in a settlement scenario it is common for the employer to not make such an admission and often have asserted otherwise, and therein lies the ‘catch 22’. In the absence of an admission, it becomes very difficult to demonstrate that a payment is for humiliation, loss of dignity, or injury to feelings.

In today’s business environment, effective decision-making is key to navigating change and achieving sustainable growth. For small to medium sized enterprises where there can be fewer individuals at a senior decision-making level, there is arguably a greater need to have a strong decision-making process to ensure decisions are not made in a vacuum. However, how many business owners make decisions, that are ad hoc, ‘on the fly’ and inconsistent. There are various decision-making frameworks that can be beneficial in ensuring that decisions are clear, well thought out, and have the business’s vision in mind. Some common elements to those frameworks are: Define the criteria against which a decision will be tested and ensure the criteria is transparent, measurable and where possible assign explicit probabilities to whether the criteria are achievable. For example, rather than aiming to ‘increase profitability’, aim to ‘increase gross margin by 5% over an 18 month period’ and assess the likelihood of achieving that objective. Discuss the decision with others. Whether discussing a proposition at the dinner table or with a trusted business advisor or ideally an independent Director (whether formal or someone who provides that support informally), valuable feedback will be received. The process of ‘thinking out loud’ will also help crystallise your own thinking and help form a view. Pro-actively seek out and consider information that might contradict the investment hypothesis. Consider whether the decision to proceed aligns with the strategic objectives of the business and is in alignment with previous decisions. Is there an opportunity cost? This could be readily identifiable or something unforeseen, i.e., commitment to a path now may rule out the option of pursuing a different opportunity later. Is the rationale, expected outcomes, and plan for implementation able to be clearly communicated to others. Finally, there is the consideration of speed. Sometimes decisions do need to be made quickly. But ideally, pause, and take your time. It’s a bit like the decision to reply to an angry text, email, Facebook message or on-line review as soon as you read it … we all know it is best to not hit reply, but to wait and reply later when you are cool and calm. The above list is not based on a formal decision making framework, but it does provide a sense of what it takes to ensure good decisions are made. By employing a structured process business owners can test their ideas at a fact-based level to ensure the best possible outcome.

Tax compliance can be complex, between income tax, GST, PAYE there is often a lot to manage and get right. It is therefore inevitable that from time-to-time mistakes will happen. When these moments occur the question then becomes “what do we do?”. The Inland Revenue requires taxpayers to make a correct assessment of their tax liability when a tax return is filed. If an error has given rise to an underpayment, taxpayers are obligated to submit a voluntary disclosure to Inland Revenue to have the tax return amended, thereby ensuring the assessment is correct. To make a disclosure, details of the error need to be provided. Inland Revenue will then review the information and decide if they agree that an adjustment is required. Where an adjustment is required that gives rise to an increase in the amount of tax payable, Inland Revenue will consider whether a shortfall penalty should be charged. Shortfall penalties also apply if the adjustment reduces the amount of a tax loss. There are five different categories of penalty which can apply. These penalties range from 20% for taking an unacceptable tax position or exercising a lack of reasonable care, right up to 150% for tax evasion. The nature of the error and the facts surrounding how it occurred determine what type of penalty should apply. There are various concessionary provisions which can apply to reduce a shortfall penalty. For example, if a voluntary disclosure is made prior to being notified of an audit or investigation a shortfall penalty can be reduced by 75% or even 100% in certain scenarios. Where the taxpayer has already been notified of an audit or investigation shortfall penalties are only able to be reduced by 40%. Some taxpayers will choose not to make a disclosure. This comes with the risk that Inland Revenue may themselves identify the error and if it becomes clear the taxpayer knew about the error and chose not to disclose it, the shortfall penalty implications could be worse. In addition, the perception on Inland Revenue’s part that the taxpayer is ‘non-compliant’ could give rise to increased scrutiny in the future. The reduction in shortfall penalties for making a voluntary disclosure provides a material benefit to do so and should be the default option. Inland Revenue practice in the context of a voluntary disclosure is also typically a positive experience, given the circumstances. Therefore, if a “what do we do” moment does occur, making a disclosure may come with some short-term pain, but be better in the long run.

Christmas is fast approaching and so is the time that businesses may reward customers and staff with Xmas functions and Xmas gifts. This article considers the deductibility of these expenses. Fully Deductible Gifts to clients are 100% deductible, provided they do not come within the Entertainment Rules (below). For example, gifts to clients of movie tickets, books or calendars would be fully deductible. Entertainment Rules The following is a list of the types of entertainment where deductibility is limited to 50%: The cost of corporate boxes, corporate marques or tents The cost of accommodation in a holiday home or time-share apartment The cost of hiring a pleasure craft The cost of food and beverages enjoyed in any of the three locations listed above Food and beverages enjoyed on or off the business premises for a social event GST on these expenses is also limited to 50%. So gifts of beer, wine and food to clients will be 50% deductible, as will food and beverages provided at a Xmas social function with clients or staff. However there is an exception where the benefit is provided to an employee and the employee can choose when and where to enjoy the benefit, or the benefit is enjoyed outside of New Zealand. For example, a meal voucher given to an employee would come within the FBT rules rather than the entertainment rules, as the employee can choose when and were to enjoy the meal. FBT Rules Gifts to staff are generally treated as a fringe benefit unless the benefit is covered by the entertainment rules. However, if the value of the gift is less than the FBT exemptions for employees and employers, then FBT will not be payable. These exemptions are: $300 per quarter per employee (if the employer pays FBT quarterly); or $1,200 per annum per employee (if the employer pays FBT on an annual basis); and Total unclassified fringe benefits provided by the employer to all employees is not more than $22,500 per annum

Inland Revenue has commenced consultation on what topic should be covered in its next Long-Term Insights Briefing (LTIB). Inland Revenue, like other government departments, is required to produce a LTIB once every three years. The purpose of an LTIB is to identify and explore long-term issues to help plan for the future. Initial work has noted that New Zealand’s tax revenue is just below the OECD average – 33.3% of GDP compared to the OECD’s 34.2%. The means by which New Zealand’s tax is generated differs from other OECD countries as follows: no compulsory social security contributions, no tax on capital gains, higher comparative tax revenue generated through GST, higher company tax rate, high effective tax rates on inbound investments, and higher than normal revenue from local government rates. The proposed topic is “Our tax system: Bases and regimes”. This will focus on two key aspects: 1. How to maintain a tax system with a stable core structure that can flex to changing revenue needs (such as due to an aging population). 2. How to address the current tensions within the tax system – integrity versus efficiency versus equity. Both aspects become important if there is the need to increase revenue. Income tax is New Zealand’s largest revenue source and increasing income tax rates could generate substantial revenue. However, raising income tax, especially for high earners, could discourage investment and economic activity. It may also prompt tax avoidance and reduce foreign investment, as New Zealand’s current corporate tax rate is already higher than the OECD average. Increasing the GST rate is another possibility. New Zealand’s GST is already broad-based and effective in raising revenue, contributing more to GDP than many other OECD countries. Raising GST further would disproportionately impact lower-income households, as they spend a larger share of income on goods and services. This could exacerbate inequality, making the option an unpopular route unless offsetting measures are introduced to protect vulnerable groups. Both options, raising income tax and GST, could provide immediate revenue boosts, but they can come with challenges. Another option is to introduce new tax policies, with a comprehensive Capital Gains Tax (CGT) being the most discussed. Currently, New Zealand does not tax capital gains on asset sales, except in specific cases like the bright-line test on property sales. This hints at the renewed possibility of a CGT as a way to diversify New Zealand’s tax base and ensure that wealth accumulation is taxed similarly to wage income. As fiscal pressures grow, New Zealand needs to decide whether to raise existing tax rates or introduce new tax policies to meet its future needs. Both options come with significant trade-offs, and the decision will shape the country’s economic landscape for decades to come. The LTIB’s exploration of these issues provides opportunity for public debate, as New Zealand looks to ensure that its tax system is fit for the future while maintaining fairness and economic efficiency. 

The depreciation rate for non-residential buildings has been reduced to 0%, effective from the 2024 / 25 income year. However, commercial fit-out remains depreciable. This makes the distinction between the two important because it is the difference between not being able to deduct any depreciation at all versus being able to claim a good proportion of a building’s cost as ‘fit-out’. Inland Revenue has recently issued a draft interpretation statement that provides essential guidance on how to correctly identify what the asset is for depreciation purposes. The guidance can be used for the purpose of identifying components of fit-out and depreciable assets generally. At its core, depreciation is an allowance for the loss in value of a capital asset as it is used to derive income. An asset’s correct depreciation rate is a function of its estimated useful life and the industry in which it is used. The legislation treats property as depreciable and therefore it is important to isolate separate items of property to depreciate them independently. The following indicators serve to ascertain whether an item is considered separate property or not. Is it physically distinct - can the item be separated based on its physical characteristics such as location or size? Is it functionally complete - can the item function on its own? However, this does not necessarily mean that the item must be capable of independent use or be self-contained. Does the item vary in function from another? The item remains separate where one item varies the function of the other, rather than combining to form a larger unified item. Items are not required to be applicable to all three indicators as it always comes down to a matter of fact and degree. Identifying the relevant item of property can be straightforward in many cases but challenging in others. The draft interpretation statement provides the example of a vehicle and a trailer, giving several reasons why they are treated as separate items of property for depreciation purposes. Firstly, they serve different functions: the primary purpose of a vehicle is to transport people, while a trailer is designed to carry cargo. The trailer is used to transport items that cannot be suitably carried by the vehicle, acting as a supplementary addition, rather than an integral part of the vehicles function. Additionally, the vehicle is functionally complete and can operate independently of the trailer. Although a trailer cannot transport cargo without being towed by a vehicle, it is still considered functionally complete as it contains everything necessary to fulfil its role as a trailer. Therefore, for depreciation purposes, a trailer and a vehicle are regarded as separate items of property. By understanding and applying these principles, businesses can achieve accurate tax compliance, avoiding the risks of under or overclaiming depreciation. Once finalised, the new interpretation statement will provide comprehensive guidance on the identification process for separate items of property, ensuring that depreciation deductions are correctly claimed.

If a company sells a capital asset (e.g. commercial land) and derives a non-taxable capital gain, it’s reasonable to expect the shareholders to want access to the cash. However, the problem often arises that in order for a capital gain to be distributed tax-free, the company needs to be wound up. This is a result of the fact that if a capital gain is distributed in the absence of a wind-up, the distribution comprises a taxable dividend. Winding-up a company is not always desirable or the most practical route because it may own other assets or otherwise serve a purpose that means it needs to stay in existence. This can mean the capital gain becomes ‘trapped’. Enter the look-through company (LTC) to save the day. An LTC is legally an ordinary company, that elects to be treated as a partnership for tax purposes. As such, the income, expenses, tax credits and losses of the company are attributed to the shareholders based on their ownership percentage. Just as important in this situation, dividends paid by an LTC to its shareholders are ignored for tax purposes. Hence, electing for a company to be an LTC is an option to enable a capital gain to be extracted tax free. But this gives rise to the question, is this tax avoidance? This exact question was recently covered by Inland Revenue in Technical Decision Summary 24/16 (TDS) issued in August 2024. The TDS notes: The Applicant’s decision to elect into the LTC regime was to allow the shareholders to retain administrative and financial reporting simplicity, while also allowing tax-free capital gains (e.g., from the sale of assets) to be paid out to the family without requiring the liquidation of the Applicant. It was acknowledged that the LTC rules clearly provide for a company to be treated as transparent as intended by Parliament. Therefore, Parliament would consider that the tax treatment of the arrangement is consistent with Parliament’s purpose and is therefore not tax avoidance. It is important to note that the TDS did state that it is a summary only, and does not include various facts or assumptions and hence cannot be relied upon. However, it would be unusual for Inland Revenue to release the TDS without a stronger comment to the contrary if the LTC option was not acceptable for this purpose. However, the LTC option is not perfect. A tax cost to enter the regime can apply, calculated based on the company’s retained earnings. There are also a number of criteria that need to be satisfied, such as it needing to have five or fewer ‘look-though counted owners’; which itself can be complex to confirm. That being said, it is an option to have ‘in the back pocket’ if the need arises.