END OF ANOTHER FINANCIAL YEAR
What Do You Need to Think About for Year End?
For many of us 31 March is our balance date year end. Some things must be done to finalise the tax requirements and to make sure we are ready for the next year before year end. This list is a summary of common matters that you need to address. Not all will apply to you. Please speak to your usual manager if you have any queries.
Extension of time arrangements
31 March is the last day for your previous year tax returns to be filed under IRD's extension of time arrangements ("EOTs"). If you do not file your previous years return in time you risk losing your EOT arrangement and may incur a late filing penalty. The key outcome of losing an EOT arrangement is that you will need to file your previous years and current years tax returns by 7 July if you want your EOT provisions to be reinstated for your next tax return.
Late filing penalties are graduated according to income from $50 to $500.
Review your annual profit (or ask us to do this for you) and ensure sufficient provisional tax has been paid. You can make an extra payment at any time in order to reduce Inland Revenue use of money interest accumulating at 8.27%. You can always make a ‘voluntary’ payment at any time without penalty. And if it looks like you have paid too much tax, talk to us about filing an estimation to reduce your provisional tax payment due 7th May.
Due Date Reminders
If you have a March balance date, any terminal tax for a income tax year is due on 7 April the following year, unless you have previously lost your EOT. For employers, all wages and salaries paid or credited to staff on or before 31 March must be included in the ir-File for March or for the current financial year.
The 3rd and final provisional tax instalment for the previous tax year is due by 7 May.
LTCs (Look Through Companies)
A company that is currently a standard company can elect to become an LTC or an LTC can revoke its LTC status for the next income year provided that it files an election prior to its year end balance date.
If you intend paying a dividend at the end of the financial year you need to pass appropriate resolutions prior to this date for the payment of the dividend. The resolution must be detailed enough to allow the amount of dividend to be determined, either as a figure, or by reference to a formula. Resident withholding tax must be deducted (generally at 5 cents in the dollar) from the net dividend paid to the IRD by the 20th of the month after the dividend is paid.
Mixed Use Assets & GST
Individuals owning mixed use assets are required to make any GST adjustments required for the mixed use asset in the GST return that aligns with balance date. The GST return aligned to 31 March will be the first time this adjustment has been necessary, so care should be taken.
For the previous or current income year, distributions of beneficiary income can be made during the income year or within 12 months of balance date. Appropriate trustee resolutions must be completed within this time-frame even if the amount of the distribution has not been finalised within 12 months of balance date.
We note that many trust deeds still require that distributions must be made within the income year or within six months of balance date, so take care when contemplating distributions.
You need to ensure that you have made an adjustment in your GST return for the GST on non-deductible entertainment expenditure in the income tax return. The adjustment is 3/23rds of the previous year's non- deductible entertainment expenditure
Bad debts must be written off before balance date to be claimed. The IRD expects clear evidence of appropriate approvals and accounting entries having been made. A simple “provision” for bad debts cannot be claimed.
Holiday pay and bonuses
Employee benefits such as holiday pay and bonuses owing at 31 March can be claimed if physically paid by 2 June (i.e. within 63 days of balance date). Bonuses must be finalised before 31 March in order to be claimed. Bonuses dependent on approval or other conditions satisfied after 31 March cannot be claimed.
A stock take is required unless your stock is less than $10,000 and your turnover less than $1.3m. Stock valuations are subject to detailed rules. Generally, no write down for obsolescence is allowed unless this is reflected in sale prices.
Fixed asset review
Review your fixed asset schedule from last year and identify any assets that are broken, missing or disposed of.
If you own investments in companies that are resident outside New Zealand, you will need to list and value them as at 31 March year end. This will form the basis of the portfolio tax calculation which is generally levied on 5% of their value or the actual return made for the year. (There is no such tax payable by individuals who own overseas investments which altogether cost less than $50,000 in total.)
Revenue Account Property (e.g. land dealers or developers)
Losses on revenue account property can only be deducted if the losses are realised on or before balance date. People with property of this nature should consider the options available to them.
This information is of necessity general in nature. Whilst every effort has been made to ensure accuracy, information contained may not be complete, may have changed or may not be relevant to or appropriate for your circumstances. You must not use the information without seeking professional advice. The information is not intended as legal, accounting, financial or tax advice. Ake Accounting Limited, related organisations, employees and directors are not liable to you or anyone else for decisions or actions resulting from placing reliance on this information.