Kiwitax - Your Accounting Team

How to Correctly Calculate GST Figures

Brena Smith — Fri, 18 May 2012 04:06:20 GMT

It seems quite a few people are incorrectly subtracting 15% from a GST inclusive amount to find the GST content and exclusive figures. We've posted a super clear tutorial on how to work out GST figures on Kiwitax InfoBase. Definitely worth a quick read if calculating GST amounts is a bit of a grey area. As always please ask if you have any questions!

How to Correctly Calculate GST Figures

How to Correctly Work Out the GST Content from a GST Inclusive Figure

Brena Smith — Fri, 18 May 2012 02:08:47 GMT

We receive many questions asking why the result from our GST calculators is different than simply subtracting 15% off the total GST inclusive figure. Here's a step by step tutorial which hopefully helps explain how to calculate the amounts correctly and why subtracting 15% from a GST inclusive amount is wrong.

First some basic calculations. Let's calculate 15% GST for a GST exclusive figure of $100...

$100 x 15% = $15 GST

To get the total GST inclusive figure simply add the GST to the GST exclusive amount...

$100 + $15 GST = $115 GST Inclusive.

Now let's work backwards to find the GST and GST exclusive amount from the total GST inclusive figure. We'll use Inland Revenue's recommended formula of multiplying the inclusive amount by 3 then dividing by 23. Doing this we get...

$115 X 3 / 23 = $15 GST

We now know the GST amount from the GST inclusive figure. Don't worry about how the multiply by 3 then divide by 23 works, it just does! To work out the GST exclusive amount simply subtract the GST from the GST inclusive amount to get the original GST exclusive figure so...

$115 - $15 GST = $100

We're now back to the start with a GST exclusive figure. As you can see the $15 GST amount stays the same when adding GST on and finding the GST amount from the inclusive figure - when using the correct formula.

Here's why subtracting 15% from the GST inclusive figure is incorrect.

Let's calculate and subtract 15% from our $115 GST inclusive figure from above...

15% of $115 = $17.25 (not $15)

$115 - 15% = $97.75 (not $100)

What's happened is we've calculated 15% of the GST inclusive, not 15% of the GST exclusive! The result is quite different and incorrect. From the correct method above we know the exclusive figure is $100 and the GST should be $15...

15% of $100 = $15 GST

$115 - $15 GST = $100

We hope this shows exactly why subtracting 15% off the GST inclusive amount is the wrong way to work out the GST content. If you're still unsure or would like help with your GST returns please ask us!

Reminder: GST Return & Any Payment Due 7 May 2012

Brena Smith — Mon, 16 Apr 2012 22:50:53 GMT

A quick reminder that the GST return and any payment for period ending 31 March 2012 is due to Inland Revenue by 7 May 2012. This is for 1, 2 and 6 monthly GST returns so pretty much applies for everyone who is GST registered.

If you would like help with making your GST returns super easy or have any questions please ask. We're always happy to help and talking with us is always free.

End of Financial Year 31 March 2012 - Checklists & Information

Brena Smith — Wed, 21 Mar 2012 00:00:33 GMT

The financial year is coming to an end and with this your Annual Financial Reports and Income Tax Returns will need to be prepared and filed with Inland Revenue before 31 March 2013. We're currently mailing all clients with a checklist and related information which should be arriving over the next week or so. It's important for all clients to go through the checklists as there's many things listed for which we can claim to save tax.

How to Have your Annual Financial Reports and Income Tax Returns Prepared

Please go through the checklist and gather the information of any applicable items. If you're unsure of anything check the enclosed help page which describes each item in more detail, if still unsure just ask us. Once ready please forward your collected information to us at Kiwitax. Here's a few options...

Courier it to us - we can arrange a courier pickup, please ask.
Drop it in to Kiwitax HQ - great if you'd like to chat with the team about anything.
Post it, add “Freepost Kiwitax” to the envelope so no need for stamps.
Securely upload via our website, just login and go to the "Your Info" area.
Email it (less secure for sensitive info).
Any combination or another way which best suits you.

In the letters we've included a scheduled date to prepare your annual accounts. If the scheduled date is unsuitable for any reason another date can easily be arranged. Alternatively just prepare your information and when you’re ready to proceed send it through and we’ll begin your work as soon as possible. We use scheduled dates where possible to balance our workflow throughout the year which helps us to maintain a great level of customer service.

Checklist Downloads

If you would like an electronic copy of the checklists here's the download links...

Business Annual Accounting & Income Tax Checklist 2012

Checklist for the information to prepare your Business Annual Accounting and Income Tax Returns for financial year ending 31 March 2012. Please note this checklist has some starred items which are definitely easier to collect around 31 March 2012 rather than later in the year. These items help to ensure we have an accurate snapshot of your end of year financial position.

Download Business Annual Accounting & Income Tax Checklist 2012

Rental Property Annual Accounting & Income Tax Checklist 2012

Checklist for the information to prepare your Rental Property Annual Accounting and Income Tax Returns for financial year ending 31 March 2012.

Download Rental Property Annual Accounting & Income Tax Checklist 2012

Not a Kiwitax Client Yet?

If you're considering becoming a client but haven't yet you're most welcome to download the checklists and work through them as you'll need the listed information regardless of the accountant you choose. To become a Kiwitax client you may like to request a quote, contact us and ask questions or go ahead and become a client. We'd love to have you come on board!

Any Questions?

You’re most welcome to ask – we’re always happy to help and talking with us is always free. Please do!

Thank You!

Thank you for choosing Kiwitax for your accounting and tax returns, it’s very much appreciated! We’re looking forward to being of service this coming financial year.

31 March 2012 - End of Financial Year

Brena Smith — Wed, 14 Mar 2012 01:16:30 GMT

Just a quick heads up to clients that we're currently working on a mail-out to you with 31 March 2012 information, tips, checklists and so on. We hope to have this out to you in the next week or so and will update once done.

In the meantime if you have any questions feel free to contact us. Thanks!

New Airnet Free Wifi Hotspot at Kiwitax

Brena Smith — Wed, 14 Mar 2012 00:58:49 GMT

We're super pleased to announce there's now an Airnet Free Wifi Hotspot at Kiwitax. We switched to Airnet back in August for our phones and internet and remain totally impressed with their awesome customer service. When the opportunity was offered to host an Airnet Free Wifi Hotspot on our building we were more than happy to help.

What this means for you is whenever you're visiting Kiwitax HQ or our neighbouring businesses you have free internet access for your web enabled devices. It's super easy and blazingly fast too!

Airnet have also been busy rolling out their Free Wifi Hotspots to other businesses around Napier including Thirsty Whale and Red Jungle in Ahuriri and we're honoured to be a part of this fabulous network.

Time's Running Out for 2011 Annual Accounting & Income Tax

Brena Smith — Tue, 14 Feb 2012 23:01:13 GMT

There's still many people yet to have 31 March 2011 annual accounting and income tax returns prepared. With only a few days left until the 31 March 2012 deadline, now is the time for action. If you're in this situation we strongly recommend contacting us to get it sorted. Going overdue results in late filing and payment penalties, may start incurring use of money interest and will lose the extension of time for next year's income tax return. This is not ideal.

If you're worried about costs please do request a quote - we have many easy payment options available.

As always if you have any questions, would like to chat with someone about your accounting and tax please get in touch. We're always happy to help and talking with us is always free.

Reminder: GST Return, Payment Due 28 Feb 2012

Brena Smith — Tue, 14 Feb 2012 22:54:39 GMT

A quick reminder that the GST return and any payment for GST period December / January is due to Inland Revenue on 28 Feb 2012. If you would like any help with your GST returns or have any questions please ask. We're always happy to help and talking with us is always free.

Courier Deliveries from Kiwitax

Brena Smith — Tue, 31 Jan 2012 00:54:19 GMT

When sending out completed work we often use couriers to deliver the packages. For client privacy and security we always instruct the courier to obtain a signature on delivery so we know the package has been successfully received.

It appears sometimes the courier drivers are not following these instructions and occasionally leaving packages unsigned for which is far from ideal. We have discussed this issue with the courier company and hopefully shouldn't happen again. If you do receive a package from us and the courier driver leaves the package without obtaining a signature can you please let us know?

Thanks for your help in highlighting and solving this issue and please accept our apologies if a delivery hasn't gone to plan.

Reminder: GST Return, Payment Due 6 January 2012

Brena Smith — Sun, 08 Jan 2012 22:17:33 GMT

Hi everyone, we're back on deck after a lovely break and are looking forward to a busy 2012.

A quick reminder for the GST return period ending 30 Nov 2011, the due date for the return and any payment is 16 Jan 2012. The later date than usual is to allow for the holiday period.

We hope you have a fabulous year and let's hope the economy keeps improving. As always if you've any questions about your GST, accounting or anything tax please ask! Always happy to help and talking with us is always free.

Christmas / New Year Holidays 2011/12

Brena Smith — Tue, 20 Dec 2011 22:12:21 GMT

Please note Kiwitax will be closed for Christmas / New Year holidays from about 12pm 22 Dec and we'll reopen Monday 9 January. If you need us urgently please email us, we'll check in from time to time. With regard to quote requests and enquiries we will respond ASAP on Monday 9 January. Thanks in advance for your patience.

If you're around Hawkes Bay tomorrow (22 Dec) you're most welcome to come join us for an end of year / Christmas drink at Thirsty Whale in Ahuriri, from about 1pm. It will be lovely to see you if you can make it.

Thank you so much for choosing Kiwitax to help with you accounting and tax this year, we very much appreciate it. We hope you have a wonderful Christmas and super successful 2012. Stay safe, drive carefully and enjoy!

Business Tax Types & What they Mean

Kylie Berry — Wed, 23 Mar 2011 21:53:39 GMT

Here is a brief description of the types of tax that you are likely to come across in business:

GST - Goods and Services Tax - this is chargeable by businesses whose annual sales turnover is over $60,000 per year. It means that the seller needs to add +15% onto their sale price - this 15% is then returned to Inland Revenue on a monthly, 2 monthly or 6 monthly basis via GST returns (less the GST that the business has paid to their suppliers).

Income Tax - This is the main type of tax that all NZ'ers pay - in a business it is paid to Inland Revenue on an annual basis based on the amount of profit the business has made. As an employee it is paid through the payroll system and is classed as PAYE.

Terminal Tax - This is the same as Income Tax but just a different name for it.

Provisional Tax - This is Income Tax as well, however for business it is paid as you go rather than in arrears. Provisional tax is payable when the Income Tax for a financial year exceeds $2,500 tax to pay, the provisional tax is usually based on the prior year income tax figure and is payable in 3 instalments over the current trading year. When the Income Tax Return is prepared the following year, all of the provisional tax payments made will show as a credit for that year.

PAYE - Pay as You Earn - this is the tax that comes out of employees wages each payday and is passed onto the Inland Revenue in the following month. As an employer the responsibility is to pay the employee the net wages for the period, withhold the PAYE tax and then pay it over to IRD the following month on behalf of the employee.

FBT - Fringe Benefit Tax - this is a tax based on 'perks' given to employees/owners of business. These may include private use of company vehicles, entertainment, gifts, medical insurance and low interest loans. It is wise to seek advice from your Tax Agent about these if you are planning on making payments so that you're fully aware of the tax implications in doing so.

First Year in Business Do I Pay Income Tax?

Brena Smith — Thu, 10 Mar 2011 21:13:45 GMT

A common myth people often share is that "you don't have to pay income tax for the first year in business". The fact is any profit earned will require income tax to be paid to Inland Revenue, it's more a case of when you have to pay. In the first year of trading you don't make any income tax payments to IRD. After the first financial year's trading the business financial accounts are prepared which calculates the amount of profit. The income tax amount is then calculated based on the profit earned. Then...

If your business has income tax payable up to $2500 in the first year of trading...

In the second year you pay income tax for the first year's profit
This repeats for each year based on the previous year's income tax payable while income tax for the year remains under the $2500 threshold.

If your business has income tax payable over $2500 in the first year of trading...

In the second year you will have to pay income tax on the first year's profit
You will also have to pay provisional tax payments for the second year's estimated profit during the second year.

If your business runs at a loss in the first year of trading...

There will be no tax to pay for the first year's trading.

Please note you only pay tax on profit, no profit = no income tax. Ideally you're not in business to lose money so profit is the goal and you will always have to pay tax on profit. Also you can only get a tax refund if you have paid tax in the first place. A refund is exactly that, a refund.

In the first year if things are going well and you're making profit it is a good idea to put some aside to pay your tax later, especially if you're heading into provisional tax territory. The combined payments are a double hit in the second year. Many small businesses struggle with this.

It is a little confusing initially so if you're having problems understanding this please ask us.

Paying Inland Revenue by Credit or Debit Card

Brena Smith — Tue, 08 Mar 2011 02:44:36 GMT

Inland Revenue now have the facility to make payments using your credit or debit card on their website. There is a 1.4% convenience charge that you will incur, however there may be some advantages to using this payment method if you are having cashflow difficulties.

A few things to consider:

You may have up to 55 days interest free on your credit card - so by paying Inland Revenue when your payment is due you can then use this free credit time to repay your credit card
Unless a repayment arrangement is setup with IRD prior to an amount being due they will charge you a 1% late payment penalty on payments 1-6 days late then another 4% for payments overdue 7 days or more. They will keep adding additional penalties and interest until the amount is paid or until a formal arrangement is in place
The 1.4% convenience fee is tax deductible however the late payment penalties charged (and in some cases interest) are not tax deductible
The payment is not treated as a cash advance so if you are enrolled in Air Points, Hot Points or other credit card rewards plans you should get points for this transaction

How Can I Pay Myself From My Business?

Kylie Berry — Thu, 03 Mar 2011 03:18:39 GMT

There are a couple of ways to pay owners of a business and to account for the income tax on these.

The most common way is the owner taking drawings - drawings are withdrawals from the business for personal use.

The alternative is wages - the owner will become an employee of the business and PAYE will be deducted each payday like any other employment arrangement. Please note this option isn't available if you're a soletrader as you can't be an employee of yourself!

If you take drawings out of the profits the business is making you will need to put some money aside to account for the tax payable on this. Depending on your level of earnings this can range from around 10% to 33%. For example say you are drawing $2000 a month from your business - you should be saving around 15% of this for income tax. You don't pass this over to IRD each month (unless you wanted to setup a voluntary automatic payment which is helpful on cashflow sometimes) it is paid to IRD in lump sums so can be quite a bit when added together over several months.

If you become an employee the PAYE that is deducted from your wages each week/fortnight/month is paid by your business to the IRD on the 20th of the following month. The tax is taken care of/paid on a more regular basis.

However please be aware that if your business makes extra profits annually over and above these there will be extra income tax payable.

What are Schedular Payments?

Kylie Berry — Thu, 03 Mar 2011 01:45:02 GMT

If you are carrying out services in certain industries and are a soletrader or partnership, the person or business paying you is required to deduct a pre-determined percentage of your income and pass this onto Inland Revenue on your behalf. Schedular Payments are kind of a self employment PAYE where your employer is your customer. Schedular Payments used to known as Withholding Tax.

Your customer or client needs to advise IRD of how much they've paid you and how much tax they have deducted from your payments. You're still able to claim all of your business operating costs against this income and most of the time a tax refund results at the end of the year if you make these claims. Make sure you keep all of your invoices and receipts for all business costs.

You will also be responsible for paying your own ACC levies on this income and are not entitled to holiday, sick, statutory or Kiwisaver payments from the people paying you.

In some circumstances an exemption certificate may be obtained from IRD to allow full payment from the client then you become fully responsible for making tax payments to IRD.

Only certain industries are required to have Schedular payments deducted, these include self employed labour only builders, agricultural contractors and freelance contributors to newspapers and other media. The IRD have a full list of these industries and are found on their IR330 form, if you’re not sure about this you’re welcome to contact us.

Removal of Depreciation on Buildings for Tax Deductions

Kylie Berry — Thu, 03 Mar 2011 01:34:10 GMT

From the 1 April 2011 financial year and onwards, there is no longer the ability to claim depreciation on buildings with an estimated useful life of 50 years or more. However chattels (for example stoves, carpets, dishwashers etc) are still able to be depreciated.

This rule change will predominantly affect rental property investors and will have the result of creating less loss or more profit which may result in more tax to pay or lower refund amounts. It would be wise to speak to your tax agent about the impact of this change. If you have been claiming depreciation on your buildings it may be advisable to start budgeting for this and perhaps saving money for tax if a profit will be the outcome.

Tax returns up to 31 March 2011 will not be affected, the first year to impact will be 31 March 2012.

If you've not been claiming depreciation on chattels it would be wise to identify and value the chattels for the the 31 March 2011 returns and start claiming these to achieve tax benefits now and in the future.

What's Happening to LAQCs on 1 April 2011?

Kylie Berry — Thu, 03 Mar 2011 01:07:43 GMT

From the 1 April 2011 LAQC's (Loss Attributing Qualifying Companies) will cease to exist as we know them today. Inland Revenue are giving these companies the option of changing into another "style" of company or even move to a partnership or soletrader structure. The main two options most companies will move to are a QC (Qualifying Company) or the new LTC (Look Through Company). The final date for LAQCs to transition to an alternative tax structure is 30 September 2011.

In the past an LAQC company has meant that if it made trading losses these losses flowed through to the shareholders to be offset against their other personal income. However if the company made a profit a choice could be made to transfer the profit to the shareholders or leave the profit in the company to be taxed. The government considered this was an uneven tax position so have changed the legislation to prevent this occuring.

Moving to a QC company will mean that any losses the company makes will remain in the company to be offset by future year's profits. If the company makes a profit you can choose to allocate it to the shareholders or leave it in the company to be taxed. Losses cannot be passed onto the shareholders.

Moving to a LTC company will mean that all losses and all profits have to flow through to the shareholders based on their shareholding percentage in the company. No profits or losses can be retained in the company for tax purposes.

There is also the option of transitioning to a partnership (ordinary & limited) or soletrader structure and the appropriate tax implications will be based on those structures rules.

Every company has different circumstances and there is no "one size fits all" answer on which way to go. However as a general idea if your company is making profits transitioning to a QC could be the likely way to go - if your company is making losses maybe the LTC is the best option.

Kiwitax Team are working with clients to help them choose the right way forward. We have a service available to carry out a review where we take an in-depth look into each person's situation and future plans with a view to a desirable outcome. If you'd like us to help you with this please contact us.

How to Add GST to a GST Exclusive Price

Brena Smith — Fri, 08 Oct 2010 03:23:54 GMT

If you have a GST exclusive price and you need to add GST to it here's how...

For 15% GST just multiply the GST exclusive price by 1.15

For 12.5% GST just multiply the GST exclusive price by 1.125

The result with be the GST inclusive price.

Hope it helps!

Should I Spend More Money to Save Tax?

Brena Smith — Mon, 20 Sep 2010 01:59:22 GMT

People often ask us if it's a good idea to spend money to save tax. The idea is by creating additional expense the business can claim the cost as an expense in the business income tax return. This does work but it depends on a few factors.

The key thing to understand is that when a business buys something it doesn't "get back" the full purchase price via its tax return. The most it will save you is 33% and may be much less depending on income. The next thing to be clear on is income tax is only paid on profit, if there's no profit, there's no income tax to pay.

What happens when something is purchased it is often an expense to the business (not always though, see below). Making a purchase reduces the overall profit. As you pay tax basically on a percentage of profit, the tax will decrease in proportion. For example if you buy something for $100, your profit will be reduced by $100 and if you pay income tax at 33% then there will be $33 less tax to pay than if the purchase was not made, less if on lower tax rates.

Some things to consider...

Any item purchased that's over $500 excluding GST becomes an asset. With an asset only depreciation can be claimed which may be a slow process with partial claims being made over several years. You could buy multiple items under $500 though, in separate transactions (if from the same supplier do so on different days too) so each purchase stays below the asset threshold. In general, services (e.g. accounting) are not assets.
Anything purchased must be business related and intended for the business to use in its activity.
Is the purchase something actually required? Just spending money to reduce tax may not be a great idea and potentially wasteful. The profit could be kept and tax paid which is often better than buying unnecessary things.
If there are suitable purchases to make then do so before the financial year ends (31 March for most businesses), so any claims can be made sooner rather than later.

Please keep in mind this is a brief overview and any tax advice should be sought from a professional advisor.