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Welcome to the Vision Accounting e-newsletter for November 2016.  This is a great way for us to share important information you need to know, helpful tips and hints and practical resources to help you in business for the March 2017 financial year end.

What’s very important?

To get your 2016 financial accounts done as soon as possible. Yes, you know who you are, and don’t hide from us. It is so important to attend to your annual accounts in a timely manner. The longer you leave it, the closer you get to the Terminal Tax date, and the less meaningful the reports become. For us as your Chartered Accountants and advisors it is very difficult to give advice on results that are over 6 months old, as so much could have happened since. Taxation planning options for backdating tax payments with Tax Management NZ also become less possible as payment dates pass. It is important to keep an eye on your financial results, so have a read of the next segment about the Profit and Loss statement (P&L) which highlights this and hence we encourage those of you whom still have not sent their 2016 records in, to do so urgently. Don’t stick your head in the sand, hold it up high and come bring your records in with pride and cheerfulness.

Got to love your P&L statement

How often do you look at the Profit and Loss (P&L) statement for your business? Only once a year? It could be more useful to monitor it more often.

Your P&L statement gives you a great way to keep an eye on how your business is doing. Like the name suggests, it shows profit and loss for a given period. That might be monthly, quarterly or annually, as often as you like.

Your P&L statement charts revenue and expenses - incomings and outgoings - so that it can help you see what’s actually happening with your cash-flow. This is why it’s also sometimes called an income and expenditure account or a statement of financial performance.

The basics

When you look over your P&L statement, look for a few basics:

This year/last year? - How do this year’s numbers compare with last year’s?

What’s the margin? - What’s the margin between revenue and expenses? After you’ve taken away all your expenses, the remainder is your profit. This will give you an idea of how much you can take out of the business and how much you are likely to need for your normal business costs. Is there room to factor in a buffer amount for unexpected costs? Do the numbers fit with what you know you need for upcoming tax payments? Should you be reinvesting in the business?

What are the trends? - Do revenues or costs rise or fall in a regular pattern from month to month? Can you see why the patterns occur?

What bucks the trend? - Can you see any incomings or outgoings that don’t fit with the pattern? With windfall revenues, is there anything you could do to extend them so they become the norm rather than the exception? With sudden unpredictable spikes in your costs, are these easily explained or are they symptoms of emerging business risk?

Take action

Regularly checking in with your P&L is a great risk management strategy. And if you’re trying new marketing techniques or running new product lines, it’s a good way to track whether they’re performing well.

You know we love this stuff. We would be happy to talk you through how to gain more meaningful data from your P&L.

Your business performance in perspective

Your P&L statement is accrual based and also includes non-cash expenses such as depreciation.

It will show all income and expenses for the period, whether or not the income has been received or the expenses paid for.
This presents a more comprehensive picture of business performance which makes it a great tool for you to use for analysis or planning.

What you need to know

More on paying yourself from your business

In our last newsletter, we discussed the implications of cash drawings from your business. From the queries we received, we realised many people find this complex and we thought there was room to clarify further.

Drawings are not a deductible expense regardless of whether you operate as a sole trader, partnership or through a company. As drawings are not a deductible expense, they are not separately disclosed in the tax calculation but they will form part of the accounts disclosure which accompanies the tax return to IRD.

Salaries paid by companies or partnerships on the other hand will be a deductible expense against business income but then will be taxable in the recipient’s hands at their marginal tax rates.

Circumstances will be different for everyone, and it’s important that you get this right. Please contact us if you want to discuss this further with us.

GST adjustments on private use

Another area that we notice often confounds clients is how to calculate GST deductions on assets that are partly for business use and partly for private use. You can claim GST but only in proportion to the extent the asset is available for producing income. This is called GST apportionment.
Most commonly, this involves a vehicle used for work but also used privately. Lifestyle blocks where there is some commercial use of the land would be another example.

There are a number of factors which affect the GST apportionment and the resulting claim for GST deductions including:
  • proportion of time the asset is available to produce income
  • market value of the asset
  • costs directly associated with the asset being available to produce income
  • overall costs which must be apportioned between business and private use
The calculation changes with factors such as:
  • Was the asset acquired before or after 1 April 2011?
  • Did it cost more or less than $5,000?
This can be tricky to work out but it becomes trickier when the proportion of business to private use changes. Obviously the amount claimable will change too. In these situations we may need to make an adjustment.

Questions to be asked in these situations are:
  • Did the asset cost less than $5,000?
  • Is the changed proportion of business to private use less than 10%?
  • Is the value of the adjustment worth more than $1,000?
There are limits on the number of adjustment periods for which you need to make this adjustment. These are determined by the acquisition value of the asset. Once the limit is reached, no further adjustments are made. For land assets such as lifestyle blocks, there’s no fixed limit for the number of times the adjustment needs to be made.

Adjustments are also required for ‘mixed-use assets’ which include holiday homes, boats and aircraft with a cost or market value of $50,000 or more. An example of this is the family bach or crib which the family use for breaks but also rent out during the year. These particular assets are earmarked as special from an income tax standpoint, and the GST treatment reflects that. The GST deductions will be subject to a proportional limitation based on the income-earning days and days used for private use.

In all of these situations, it’s vital to keep good records of when the asset was available to produce income and of any associated costs.

We see a lot of cases where people have landed themselves in a mess trying to work the deductions out themselves. We’d like to make this easier for you – please let us know if you have assets split across business or personal use and certainly let us know if the proportion of business to private use changes. We can also provide you with some guidance to help you keep track of your usage.

Tax Talk

Have your say on tax changes

You will have heard ads on the radio from Inland Revenue raising awareness on their initiatives to change the administration of the tax system.

Inland Revenue have been working on this for a while, taking into consideration many submissions from different sources. Their website Changing for You provides an overview of some of the things Inland Revenue are proposing to change, mainly focused on automating the gathering and filing of information. They invite New Zealanders to comment on the proposed changes and make it easy for people to say whether they agree or disagree with the changes. Bear in mind when viewing these proposals that automating processes will provide more efficiency, however these processes will need to ensure the correct amount of taxes are paid according to tax legislation. Having incorrect information submitted without being properly reviewed may result in additional tax and penalties.

There is a lot going on and the changes may or may not have a significant impact on your business. If you would like to find out how these changes could affect you please feel free to call us.

Provide GST registration details to remote vendors

From 1 October 2016 non-resident businesses, must charge and return GST where they meet the criteria to register for GST and they supply remote services (including online services) to New Zealand residents. As a New Zealand resident business, you won't be charged GST on these supplies, if:
  • you are GST-registered
  • the supplies are part of your taxable activity, and
  • you let the non-resident supplier know you're GST registered and provide your New Zealand GST registration number or business number
Non-resident suppliers don't have to give you a tax invoice and you can't claim back any incorrectly charged GST in your GST return, except where the supplier treats your business as an individual customer and charges you GST by mistake. If that happens, you contact the supplier who either refunds the amount to you or issues a tax invoice for you to claim the refund on your GST return. You can only obtain a tax invoice when the supply is less than $1,000. So it’s just easier to let the supplier know upfront.

If you have not already done so, please advise your regular suppliers and instruct your purchasing team to remind your suppliers at time of purchase.

Ask us a question

Have you got an accounting question that leaves you worried or confused?

We love a challenge – see if we can come up with the answer that gives you the ‘ah ha! moment'.

Contact Virginia at Vision Accounting NOW on 09 415 0319


We offer the service of a one on one meeting to review your financials and help set you up for a strong 2017.
This one meeting can make a huge difference to the cashflow and profit of your business.

If you would like to schedule a business review meeting, or have a no-obligation chat – we’re happy to help.     

Thanks, and have a great month,
Virginia and the team at Vision Accounting

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Contact Us

Tel: (09) 415 0319
Physical Address:
106A Bush Road, Albany, Auckland
(When posting documents please use the PO Box address, as there is no mail delivery to our street address. Thank you.)
Postal Address:
PO Box 303 157
North Harbour
Auckland 0751

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Vision Accounting Solutions Ltd · PO Box 303 157 · North Harbour · Auckland, . 0751 · New Zealand

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