In 2016 the IRD will be continuing their compliance focus on undeclared cash in the construction industry and hospitality sectors, building on existing educational and enforcement action.
The initial construction sector campaigns in early 2015 focused on the trades in Auckland and this work has since been broadened to cover all of New Zealand. Similarly, the hospitality sector is now under the spotlight.
The IRD are continuously improving processes to identify non-compliance, and they are aware that some taxpayers are significantly under-reporting income. The IRD is attempting to correct this through education programmes where appropriate, however they are taking enforcement action against those who do not comply.
We want to help you comply voluntarily and avoid penalties, use-of-money interest and even prosecution. To help prevent non-compliance, we can assist you making a voluntary disclosure, if necessary.
The best way to avoid this issue is to ensure you are declaring all of your income. However, if you have mistakenly omitted to disclose some income to us or IRD, we recommend that you make an early voluntary disclosure you can avoid prosecution action in most cases, and often shortfall penalties can be reduced. If you are operating in these sectors and have questions about undeclared income – particularly cash jobs – please contact us.
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On 4th April 2016 the Health and Safety in Employment Act 2015 comes in to effect, replacing the existing Health and Safety in Employment Act 1992. Under the new Act, businesses of all sizes are required to have an effective strategy to develop worker engagement and safety practices. There will be a greater responsibility imposed on businesses and individuals to ensure compliance with health and safety processes.
The Act introduces a variety of new terminology, increased penalties and enhances participation requirements within the workplace.
Most importantly, all PCBUs (Persons Conducting a Business or Undertaking) will have a primary duty of care to ensure the health and safety of each individual in the workplace by using the “reasonably practicable” standard. Under this standard, all relevant factors must be taken into account and evaluated, including the potential harm caused by each risk, the likelihood of the risk occurring and how a risk may be mitigated or eliminated. PCBUs that don’t comply with the law face a range of enforcement possibilities, including both fines and imprisonment.
A new due diligence duty will ensure that those in governance roles (‘Officers’) proactively manage workplace health and safety. An officer, as defined by the act, is the director of a company, a partner in a partnership or any person in a position that allows him/her to exercise significant influence over the management of the business. This due diligence duty is individual to the officer and is held by the act as being independent of the duty of care owed by the PCBU. As such, an officer can be held liable for failure to exercise his/her due diligence duties regardless of whether or not the PCBU is liable for any offence.
Further to the PCBU’s duty of care as outlined above, all PCBUs have a duty under the new act to engage with workers and enhance worker participation in health and safety issues. All PCBUs must provide “reasonable opportunities” to all workers to “participate effectively” in improving workplace health and safety on an “ongoing basis”. The Act also broadens the definition of ‘worker’ beyond ‘employee’ to include any person who carries out work in any capacity for a PCBU.
What do you need to do?
It is suggested that in addition to identifying, eliminating or minimising risks, companies should take a number of steps to ensure they are compliant with the Act. Firstly, it is important to actively engage with workers on all health and safety matters, allowing and encouraging workers to respond with feedback. This may require the election of a Health and Safety Representative (HSR) to assist PCBUs in meeting their duty to engage with workers. The HSR is elected by workers to provide a point of contact for health and safety related issues, who in turn will convey these back to the relevant PCBU. Alternatively, a Health and Safety Committee (HSC) may be established by the PCBU at their own discretion or at the request of workers. For smaller businesses with less than 20 employees, a committee has to be formed if their industry is defined as “high risk”.
Every workplace is different, and it is therefore important to develop health and safety practices that are effective for your workplace and that encourages worker participation and feedback. It is also essential that all PCBUs develop processes and procedures to effectively manage and resolve any current or potential issues in the workplace.
What happens if I get it wrong?
The Act introduces 3 categories of infringements that each carry different penalties. These 3 categories can be summarised as: (1) reckless conduct exposing someone to death/serious injury; (2) failure to comply, exposing someone to death/serious injury; and (3) failure to comply with a health and safety duty. The penalties range from $50,000 for an individual/employee for a breach under category 3, to $3million for corporations for breaches under category 1. Individuals can also face up to five years in jail for breaches under category 1 as well as substantial fines.
If you are unsure about your obligations under the new act, please contact your Ecovis KGA consultant and we will be happy to talk through any issues you may have.
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When you look at your accounts, can you truly understand your profitability? Here are some things to look for.
Gross profit = Net Sales – costs of goods sold
On your profit and loss statement, gross profit is the difference between revenue and the costs of goods sold (or services provided). It generally appears before administrative expenses and general overheads are accounted for. Ideally, gross profit covers your overheads as well as generating your targeted profit, your net profit.
Net profit = total revenue – total expenses
Net profit is your main priority. It is the actual profit after all expenses and overheads have been paid. Net profit is the bottom line. When you are assessing your business’ actual profitability, bottom line tells you a lot (it is, after all, the bottom line).
Gross profit percentage and breakeven point
Gross profit percentage is a percentage of sales and it’s a valuable metric to monitor. It is the ratio of your gross profit in proportion to your sales.
Gross profit % = (Gross profit / sales) x (100 / 1)
Now that you’ve calculated your gross profit percentage, you can work out your breakeven revenue.
Breakeven = (Total expenses / Gross profit %) x (100 / 1)
What does your gross profit percentage tell you?
Gross profit percentage is a useful indicator of production efficiency and financial health. Ideally, it is fairly stable, barring drastic upheavals in your business or industry. A drop might mean one of a number of factors which need to be corrected, such as a rise in costs, waste or product pricing.
In a competitive market, where benchmarking data is available, you might compare your business’ gross profit percentage to that of your competitors and take steps to make sure you keep your edge. Gross profit percentage can vary widely across different industries. For food and beverage businesses, for example, margins are relatively small whereas for software businesses margins tend towards the high end. Changes in gross profit percentage might also mean increased competition in the market or increasing demand from customers for discounted products or services. It could be a response to changes in the business, such as expansion driving increased production costs or a higher wages bill.
Keeping track of your profitability gives you the big picture on your business. The key metrics that indicate profitability are all windows onto the big picture. Understanding them will help you set goals and drive growth.
How well do you know your breakeven point?
Most people are familiar with the concept of breaking even. Your breakeven point tells you how many units you need to sell or what dollar value in sales you need to achieve just to cover your costs. Once you know that, you know the point you need to pass to turn a profit. But a breakeven point isn’t set in stone. It will shift as your business grows, costs fluctuate and as you continue to participate in a constantly changing business environment.
A breakeven point therefore becomes a tool for you to think about your sales, costs and pricing in a different way. For instance, say you know your breakeven point and you take it at face value. Tell your team. It’s a powerful motivator for your sales people to know exactly what the required numbers are to put the business in profit. Say you don’t accept your breakeven point at face value. What can you do? Can you reduce your costs to lower your breakeven point so you can start earning profit sooner? That might lead you into analysis of your fixed and variable costs to judge whether you have room to move. Or does your breakeven point uncover an issue with your pricing that you need to deal with? Lifting your pricing might mean your numbers are into profit sooner but you might have to think about whether your market will tolerate that. Does that line of thought indicate that you simply have to lift your sales volume? And this leads to further analysis of marketing strategies, market reach and coaching your team on sales goals.
If you’re not sure that you really have a handle on analysing your breakeven point, we’re happy to act as your sounding board.
With some allowances taxable and others tax free, it’s important to understand the rules. Some allowance payments are reimbursements of expenses and GST input credits may, in some case, be claimed for reimbursements paid to employees for business expenses.
The table below is a general summary of the tax treatment of allowances and reimbursement payments. However, there are exceptions, exclusions and considerations in almost every case.
|Allowance Type||Taxable||Not Taxable|
|Accommodation||In most cases|
|Meal||In most cases||Short-term relocations and working off the job|
|Clothing||In most cases||Uniforms/plain clothes allowance; protective clothing|
|Mileage||Use of own car for business|
|Relocation expenses||In most cases*|
|Travelling||In most cases (if specific criteria met)|
|Reimbursing||Any excess paid above the amount of the expense||On the job expenses|
*If payment is for actual expenses paid to a person for volunteer activities and records are kept, the reimbursement is tax free.
**Specific exclusions apply
IRD provides a detailed discussion document on allowances with explanations and examples on what is taxable and what is tax free. Click here to find out more about a particular allowance type. Alternatively, if you have any questions about allowances please contact us.
Have you invoiced retentions that are not due and payable for another year? If they are payable in the current year they need to be declared as income but if not, the income will be deferred to a subsequent year.
Credit notes issued to customers after 31 March may be applied to the previous year, potentially reducing the current year’s taxable income.
Amounts owing for holiday pay, bonuses, redundancy payments, long service leave etc. can be claimed, if you have committed to them at year end and they’re paid within 63 days.
You need to keep your records for at least 7 years and they must be in English (unless you have permission from the Commissioner). Records can be kept in electronic format as long as it is easy accessible.
Have you taken reasonable steps to recover bad debts? If so, and you write them off before 31 March, you may be able to claim a deduction.
|Dividends and imputation credits
Consider reviewing planned dividend payments. The imputation credit account must not have a debit balance at 31 March otherwise penalties may arise.
Can you pre-pay any expenses before 31 March? You may be able to claim for them.
|Loss Offset elections and subvention payments
Talk to us if you think your company will make a loss.
|Planned maintenance and repairs
If any significant maintenance or repairs are due, bring this forward to get an early tax deduction.
Do you have any that you are no longer using or don’t intend to use in future? If so, the book value may be able to be written off.
Dispose of obsolete trading stock by 31 March or write it down to net realisable value (lesser of cost or market value). If the stock is worth less than $10,000 and your turnover is less than $1.3m for the year, you won’t need to include your stock movement for tax purposes.
|Discounts for prompt payment
If you maintain a discount reserve, it is deductible. In the first year a deduction for the actual discount percentage is allowed. In subsequent years, the amount is calculated as a percentage. Different rules apply if credit extended to customers exceeds 93 days.
Paid parental leave will increase from 16 to 18 weeks in April. To be eligible for this increase, the child must be due or born on or after 1 April 2016.
If you have pregnant employees due on or after 1 April who intend to take parental leave, are they aware of the:
• Increase in the length of payments
• Forms they need to complete and send to IRD?
If they’ve already applied and their due date is on or after 1 April, IRD will ensure they receive 18 weeks of payments. If their baby is due before 1 April but arrives late, they need to advise IRD so IRD can pay the correct entitlement.
To find out more about paid parental leave, click here.
From 1 April 2016, the qualifying age for children to be included in a child support assessment is under 18 unless the child is aged 18 and enrolled at and attending a school. This change applies to children you receive or pay child support for and children you’ve named as dependents. Before a child’s 18th birthday IRD will send you a letter or email asking about the child’s plans.
What do I need to do?
If they’re leaving school before turning 18 you don’t need to tell IRD. They will stop child support the day before their 18th birthday. If they’re staying at school, advise IRD so they can continue assessing child support. If you don’t tell IRD your child support will stop, and this may result in an underpayment. If your child decides not to complete the school year you need to let IRD know so they can make sure there isn’t an overpayment.
A child will stop qualifying for child support before their 18th birthday if they:
• start living with another person in a marriage, civil union or de facto relationship
• become financially independent (ie, work more than 30 hours average per week, receive a student allowance or benefit from Work and Income), or
• are not a New Zealand citizen or no longer ordinarily reside in New Zealand.
If you have any questions about your child support obligations please contact us. Alternatively, you can contact IRD directly to discuss your situation with them.
Low-income working families eligible for the minimum family tax credit (MFTC) will receive an increase for the 2016–17 tax year. The MFTC currently guarantees recipients an after-tax income of $23,036 a year ($443 a week). Starting on 1 April 2016, this will increase to $23,764 a year ($457 a week) for the 2016–17 tax year.
Certain benefits provided by employers to employees are not subject to fringe benefit tax (FBT) if they are used or consumed on the premises of the employer. BR Pub 15/11 and BR Pub 15/12 address how this on-premises exclusion applies to car parking owned or leased by an employer.
These recent public rulings enacted a new FBT calculation on car parks from 17 November 2015. These rulings set out that car parks provided by an employer to an employee will be exempt from FBT where:
• The car park is on the premises that the employers owns or leases; or
• The car park is on the premises of a company that is part of the same group of companies as the employer.
If you have any questions about FBT on car parking, or any other employee benefits, please contact us.
Inland Revenue Orders in Council signed on 23 November 2015 set the following new rates. From 1 October 2015 the prescribed interest rate used to calculate FBT on low-interest employment-related loans has decreased from 6.22% to 5.99%.
Trustees are personally liable for the tax obligations of the trust. If you have resigned as a trustee, you must notify IRD in writing as soon as possible following your resignation. If IRD is not notified in writing you will continue to be recognised as a trustee of the trust, and you will continue to be held liable for the tax obligations of the trust.
Even after you have resigned as trustee and notified IRD in writing, you may still be liable for any outstanding tax of the trust for the periods in which you were a trustee. This includes the period of time between which you resigned as a trustee and when IRD received written confirmation of your resignation. This liability will continue until any debt is paid in full.
If you have recently resigned as a trustee or are intending to do so, please ensure that you notify IRD in writing as soon as possible to avoid any unnecessary liability. Alternatively, please contact us and we can assist you in notifying IRD.
Once a year, you have to make an adjustment on your GST return to pay GST on the 50% non-deductible expenses you’ve previously claimed – these are supplies under the GST rules. You make this adjustment in the GST return that covers the earlier of:
• The date your income tax return is due to be filed, or
• The date you file your income tax return.
The GST adjustment is 3/23 of the non-deductible entertainment expenses, exclusive of GST (except non-taxable allowances). Include the adjustment on the GST adjustments calculation sheet (IR372) under “Entertainment expenses” and in the adjustments total in Box 9 of your GST return.
Note: You can’t claim this GST adjustment amount as a deduction for income tax purposes. For more information, and an example, go to www.ird.govt.nz “Forms and guides” (search keyword IR 268).
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