McLEAN AND CO.

 
 
EMAIL NEWSLETTER APRIL 2003
 

Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. We trust you find it informative.  Any feedback would be welcomed.

McLean and Co. has installed Norton Antivirus software to minimise risk of virus transmission in the provision of this service.

McLean and Co. is a home based chartered accountancy practice based in Clive, Hawkes Bay.    Readers are invited to peruse the practice website www.mcleanandco.co.nz,  which lists services provided, gives contact details and indicates how to become a client, contains an extensive base of articles on business and taxation matters,  and has links to other websites that may assist your business.    Being a small firm itself,   McLean and Co. strives to provide a personal and professional service largely to a self employed person and small business client base.  Enquiries are welcomed.

INDEX

  1. Relevant Business and Taxation Articles

  2. Valuation of small amounts of Trading Stock

  3. Rebates and Legislation Changes

  4. Double Taxation of some Investments in Australian and New Zealand Companies  

  5. Holiday Pay/ Bonuses

  6. Revolving Credit- Hidden Costs

  7. Cutting Costs in your Business
 

RELEVANT BUSINESS AND TAXATION ARTICLES

The McLean and Co. website contains an extensive number of articles prepared by McLean and Co. relating to taxation and business matters.    Here are a selection that will be of interest:

Creating a Successful Market Niche                 www.mcleanandco.co.nz/Page83.htm

Finding Customers                                               www.mcleanandco.co.nz/Page82.htm

Goal Setting in Business                                     www.mcleanandco.co.nz/Page81.htm

Cutting Costs in Your Business                          www.mcleanandco.co.nz/Page80.htm

Are you making one of the 10 Deadly Business Mistakes?      www.mcleanandco.co.nz/Page85.htm

 
 
NEW CLIENTS

We are happy to accept new clients.  Please contact ourselves at the contact points highlighted above if we can assist you in your accounting and taxation requirements. Our website lists information required for this in the following link:

www.mcleanandco.co.nz/Documentationrequired.htm

 

VALUATION OF SMALL AMOUNTS OF TRADING STOCK

From the 2002-2003 income year there is new legislation concerning the valuation of small amounts of trading stock at the end of the income year.   This means some taxpayers won't be required to do a stocktake as at 31 March, 2003.

Taxpayers are no longer required to value their closing stock or include any change in the value if:

their turnover (total gross income) is $1.3 million or less for the year, or

they reasonably estimate that their trading stock on hand at balance date is less than $5,000

In such cases taxpayers are entitled to use the same figure for closing stock in the financial statements as the opening stock.

Please note that even if taxpayers qualify for this simplified method for valuing stock, they dont have to use it- its optional. They are still entitled to do stocktakes and get a true value for their trading stock if they wish to.

This change is designed to reduce compliance costs associated with valuing and making adjustments for small amounts of trading stock at the end of the year.

 
REBATES AND LEGISLATION CHANGES

Currently there is legislation before Parliament which will change the maximum taxpayers can claim for donations  to $630 for donations made totalling $1890 or more.    It is intended that the new amount will take effect from the 2002-2003 year

For donations made in the 2001-2002 and earlier years, the maximum rebate claimable is $500 for donations totalling $1500 or more.

If you send in a claim for more than $500 the refund will be held until the legislation is passed. this action is expected to occur in April 2003.
 

DOUBLE TAXATION OF SOME INVESTMENTS IN AUSTRALIAN AND NEW ZEALAND COMPANIES

Changes to the trans-Tasman triangular tax agreement were announced in February 2003 to remove the double taxation of some investments in Australian and New Zealand companies.

The issue dates back to the late 1980s, when both countries adopted the approach that income derived through a company is effectively the income of the shareholders, and therefore should be taxed at the marginal tax rate

Any tax paid by the company was treated as a withholding tax and when the company's income was distributed through dividends or other methods, additional tax is payable if the shareholder's marginal tax rate is higher, or a credit is given against other tax if it is lower.  However, under the present law, these franking credits, as they are known in Australia (imputation credits in New Zealand) cannot be used if the company is not a domestic resident.

The changes announced by Finance Minister Michael Cullen and Australian Treasurer Peter Costello mean the imputation credits will be extended to New Zealand shareholders in Australian companies and Australian shareholders in New Zealand firms.

The changes are due to take effect in May this year.

 

HOLIDAY PAY/ BONUSES

Holiday Pay/ Bonuses paid within 63 days of 31 March 2003 i.e. by 2 June 2003 , will be deductible in the 2003 income year.   The holiday pay entitlement or the decision to pay the bonus must have arisen before balance date.

 
REVOLVING CREDIT- HIDDEN COSTS

There has been a big rise in the use of flexiloans or revolving credit. Major lenders now offer the ability to bundle business and private debt. Surplus cash can be used to reduce your interest costs, and if you pay more than the minimum payment in one period, the buffer can be drawn down later.

These products are promoted as minimising interest costs and the term of the loan.  But the ability to redraw, if exercised, will negate some of the savings.  And, if the facility combines business and private borrowings, the apportionment of interest can create a tax headache and in extreme cases a complete haemorrhage. 

 

For example, a farmer has a flexiloan which permits deposits and redraws up to a set limit at any time.  Deposits are made to reduce the loan balance by $60,000.  Later on the farmer draws down $40,000 for a new boat.

 

Here’s the rub.  The interest on the boat is not tax deductible – ouch!  Tax deductibility requires a link between the money borrowed and earning taxable income.  No link - no deduction.

 

Our farmer example was straightforward.  Imagine what happens when the flexiloan goes:     up for a boat, down for a dairy cheque, up for a trip to Aussie, up to buy more cows and pay provisional tax, down for a stock sale deposit.  Technically each draw down must be tested for a link to the farming business.  Analysing the interest is an accountants nightmare.  He/she has to look at each and every transaction and calculate a new percentage of interest to claim for business from that transaction. 

 

To avoid the work involved in analysing the loan interest, we recommend:

 

·         Private and business transactions are kept separate.

 

·         Planning before paying extra off your business loan.  It may be more efficient to hold surplus cash in a savings account rather than repay the business loan and have to draw again for private spending. 

 

·         Setting up two flexiloans:  one for the business and the other for private transactions.

 

Loan interest is often a “big ticket” item for businesses.  Losing part or all of the tax deduction for interest can be a big cost, and taxpayers may get pretty upset if their accountants have to tell them some of their interest bill is not deductible. 

 

 

CUTTING COSTS IN YOUR BUSINESS

 

Do you know where to start? You know when something big goes wrong in your business when a contract isn't renewed, or a product line doesn't sell. But not every business owner knows when little things go wrong. little expensive things, that have a big impact on the bottom line.

When business is good, it can be easy to ignore the little things and spend your energy on the bigger picture. but when the economy takes a downturn, it really pays to take a good hard look at every aspect of your business.

Customers
Which of your customers are actually costing your money? I'll bet there are more than you think. Customers who require a lot of support, who aren't satisfied with the work you do, who demand large discounts or special deals, who never seem to appreciate your service or product. Find out who they are - it may be time they looked elsewhere, and you concentrated on the customers that value your company.

Suppliers
Don't take things for granted, While it's true that long standing relationships with trusted suppliers can make things smoother and easier, you need to be aware of competitors' prices and services. you want to be sure you're getting the very best deal you can on every transaction. And don't be afraid to ask for a discount.

Employees
Got a feeling that someone's not pulling their weight? Think you might have to downsize, but don't know where to make the cuts? Keep track. Get people to write down what they do each day.  Find out who's doing what and how long it's taking them. Because without that knowledge, you'll end up hiring and firing on a hunch. And you might just lose your most valuable employees.

Overheads
Negotiate, reduce, cut. But first, find out how much you're paying now. What does your phone cost per month - is there a cheaper plan out there? How many color copies, faxes, printed and bound reports does your company produce each month? Do you track and charge for them? What about travel expenses? Stationary supplies? Rent? Before you start cutting, you've got to know where to cut. If you're not keeping track and recovering this type of cost, you're loosing money.

Big pictures are painted with small brushstrokes
Being successful during difficult economic times means paying attention to each small brushstroke that makes up the big picture of your profitability. Because what you don't know will hurt you. And what you do know will help you build a stronger, leaner, more profitable company.

 

If we can assist further, please email McLean and Co as follows:

 CONTACT McLEAN AND CO. BY EMAIL BY CLICKING ON THIS LINK

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