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      McLEAN AND CO FEBRUARY 2003 NEWSLETTER PAGE 2     

24 LOW COST WAYS TO PROMOTE YOUR NEW OR EXISTING BUSINESS

·         If you dont have a business card and business stationery, have them made up immediately-    your business card, letterhead and envelope tell prospective customers you are a professional who takes your business seriously.

·         Get your business card into a many hands as possible.

·         Talk to all the vendors from whom you buy products or services- give them your business card, and ask them if they can use your products or services, or if they know anyone who can.

·         Attend meetings of professional groups and groups such as Chamber of Commerce, Rotary Club and civic organisations- give your  business cards to people you talk to and ask them what they do and show an interest in them.

·         Become involved in some of these groups- that will give you more opportunity to meet possible prospects.

·         Look for something unusual about what you do, and publicize it-   send out press releases to local newspapers, radio stations or magazines whose audiences are likely to be interested in buying what you sell

·         Write an article that demonstrates your expertise in your field-  send it to newspapers, magazines etc- be sure that your name, business name, reference to your product or service and phone number are included at the end of the article.

·         Whenever you do get publicity, get permission from the publisher to reprint the article containing the publicity-  make photocopies and mail the copies out with sales letters or any other literature you use to market your product or service.

·         Contact non profit organisations, schools and other businesses who have customers who may need your services- ask for work or leads.

·         Network with others who are doing the same type of work you are- let them know you are available to handle their work overloads.

·         Offer to be a speaker on subjects utilising your area of expertise-   you'll benefit two ways from such engagements, the fee you may receive for doing them, and the publicity you, your product or service gets as a result.

·         If your product or service is appropriate, give demonstrations of it to whatever groups or individuals might be interested.

·         Find out what government programmes are in existence to help you get started in business.

·         Send out sales letters to everyone you think might be able to use what you sell- drop a business card in every letter you send out.

·         If you use a car or truck in your business have your business name and contact information professionally painted on the side of the vehicle- that way your means of transportation immediately becomes a vehicle for advertising your business.

·         Get on the telephone and make cold calls to people who you would like to do business with- briefly describe what you do and ask for an appointment to talk to them about ways you can help them meet a need or solve a problem.

·         Get samples of your product or your work into as many hands as possible.

·         Offer a free, no obligation consultation to people you think could use your services.

·         Learn to ask existing customers, prospects and casual acquaintances for referrals- when you get them , follow up on the leads.

·         Use other people to sell your product or service-  instead of (or in addition to) selling your products yourself, look for existing mail order companies that would be willing to include your products in their catalogues, or distributors or sales agents-  be sure your pricing structure allows for the fees or commissions you will have to pay on any sales that are made.

·         Have sales letters, flyers and other pertinent information printed and ready to go-   ask prospects who seem reluctant to buy from you "Would you like me to send information to you?" and follow this up.

·         Run a contest- make the prize desirable and related to your business

·         Take advantage of any opportunities you have to get free advertisements, or to have your  company and its product or service listed free in a directory

·         If your target market would be likely to use the internet , consider putting up a web page-  if you do make it online, be sure to include your email address and your web page address on your business cards, in your promotional materials, in print ads and on your letterhead.

      McLEAN AND CO FEBRUARY 2003 NEWSLETTER PAGE 3     

TALKING TAX

NEW RULES FOR TAXPAYER FINANCIAL RELIEF

The Taxation  (Relief, Refunds And Miscellaneous Provisions) Bill containing the changes to taxpayer relief provisions was enacted on 17 October 2002 and is applicable from 1 December 2002 .  The new taxpayer financial  rules provide a framework for IRD to consider how best to provide relief for taxpayers in financial difficulties.  They provide IRD with considerable flexibility in their approach to debt recovery and to allow IRD to reach a decision which is both right for IRD and the taxpayer.

The effectiveness of the changes relies on and encourages taxpayers to contact IRD as early as possible if they think they will have trouble paying their tax bill or are already in debt.   The key features are:

• IRDs role is to maximise the recovery of outstanding debt, but not if the debt recovery presents an inefficient use of IRD resources or the recovery would place a taxpayer in financial hardship
•  If IRD can collect more of the debt over time through an instalment arrangement than from a bankruptcy or a liquidation, IRD is required to enter the instalment arrangement and any amount not recovered under the arrangement is written off as unrecoverable.
• Fairer instalment arrangements, including provision that late penalties stop when taxpayers contact IRD requesting financial relief.
• Amounts not recovered are written off permanently, and generally cannot be reinstated.
• The definition of a serious hardship in the legislation lists both circumstances which meet that test and circumstances which do not.

Taxpayers may apply for relief either in writing or over the phone.   IRD will discuss their current circumstances, consider their payment history and their ability to meet future obligations, and determine the best option for dealing with the current amount due.  

Paying a tax bill is obviously the best option but if taxpayers cant pay, the sooner they contact IRD the less it will cost over time.   There are a range of options available for paying the amounts due.   IRD take the taxpayers individual circumstances into account in reaching a decision and the form of relief granted depends on the applicant’s financial situation.   The options for payment are:

• Payment in full.
• An instalment arrangement where a taxpayer repays an agreed amount over time.
• Writing off an agreed amount if IRD determines that payment in full would cause a taxpayer serious hardship.
• A combination of an instalment arrangement and a serious hardship write-off.

PAYING FAMILY TAX CREDIT TO THE PRINCIPAL CHILD CARER  

From the 2003-2004 income year, family tax credits will only be paid to the principal child carer.    Previously , family tax credits were paid to both spouses in two-parent families  

INCOME OF $200 OR LESS WITH NO TAX WITHHELD  

From the 2002-2003 income year, the requirement to file an IR3 income tax return has been removed for taxpayers with small amounts of income from which no tax has been withheld.   This applies where the total amount of this income is $200 or less, before any allowable deductions.   For example, a person who works full-time for a salary is not required to return income for a one-off cash job of $150.   However, due to other reasons, they may still receive or request a Personal Tax Summary.

McLEAN AND CO FEBRUARY 2003 NEWSLETTER PAGE 4     

TALKING TAX  

SUNGLASSES, SUNHATS, SUNBLOCK            

The current spell of hot and sunny weather  brings the question to mind as to whether we can claim any tax relief for expenditure on the above items.  

As a general rule, the Courts have taken the view that clothing and personal items are of a private or domestic nature and therefore not deductible.   But when expenditure is incurred in the purchase of clothing which replaces or is used to protect or maintain normal apparel, a deduction can be claimed, subject to the usual conditions of tax deductibility, that is necessarily incurred in the operation of a business for the purpose of deriving income.  

It is therefore difficult to prove validity for sunhats.  They are normally worn by normal people as part of their normal summertime and outdoor apparel.   Building hardhats used on a construction site would of course be deductible.   , as they are normal working attire.  ( N.B. you see people at the beach wearing sunhats, but you don’t see too many wearing hardhats)  

Similarly it may be difficult to prove validity for sunglasses.  They are also worn by normal people as part of their normal summertime or normal apparel.  Welding goggles would of course be fully deductible.   ( N.B. you see people at the beach wearing sunglasses, but you don’t see too many wearing welding goggles)  

Sunblock is a normal item of expenditure incurred by normal people in their normal sporting or leisure lives, so as per the court ruling would not be deductible.   But when it is supplied by an employer to an employees, such as a gang of forestry or horticultural workers in a sunny environment to assist in health of the employees it is certainly a tax deductible item, as it is a cost which is necessarily incurred in the operation of the taxpayer’s business and it cannot be categorised as of a private or domestic nature because it is not use privately or personally by the employer.  

TAX AUDITS- WHAT IS IRD FINDING            

IRD recently announced the major tax discrepancies identified by tax investigations.  

The results represent a good indicator for you  of common errors made by taxpayers, which may assist with checks that can be made to minimise the risk of you falling into the same trap as those taxpayers who have suffered the pain of getting it wrong and being caught by IRD.   The interesting factor is that the list bears a striking resemblance to one we saw a few years ago.    The major discrepancies are:

·         Losses ineligible to be carried forward.

·         Capital expenditure claimed in error.

·         Taxable income treated as a capital receipt

·         Failure to deduct or account for Non Resident Withholding Tax

·         Group loss offsets

·         Non-compliance of the accruals regime

·         Reserves disallowed

·         GST- time of supply

·         Losses on sales of assets claimed in error

·         FBT on vehicles

·         Superrannuation

·         Failure to deduct PAYE/ Withholding Tax

      McLEAN AND CO FEBRUARY 2003 NEWSLETTER PAGE 5     

COMPANY PASSED ITS USED BY DATE  

Occasionally clients decide that a company has passed its “used by”date.  It is common practice to simply let the company lapse.   This is done by ignoring the reminder issued by the Companies Office for the filing of the company’s annual return.   Eventually a notice arrives announcing that the company has been struck off.    

There can be problems with this approach.  Struck off companies can be reinstated by application of a creditor.    If money is owed to the IRD, they too can seek reinstatement.  

For example, sometimes companies are allowed to lapse where a shareholder has an overdrawn current account.   An overdrawn current account means that a shareholder  has borrowed money from the company ( e.g drawings).   The company is required to charge interest on the amount owing, using the FBT prescribed rate.   If the company does not charge interest there will either be a FBT liability for the company or the shareholder will owe tax on a deemed dividend.   If the company is struck off and the overdrawn current account is still in place the liability for the interest will continue to tick on.   The company will owe income tax on the interest income,  even if nothing else is happening.  

Under a formal winding up process the company is required  to give public notice of the intention to remove the company.  A specified notice period permits objection to the removal.   If no objections are received the removal proceeds.   Reinstatements will be more difficult to obtain.  

Although a formal wind up takes time and involves more cost , it is more difficult for the company to rise from the grave.   

RESIDENTIAL RENTAL INCOME  

INCOME  

Generally, any income you receive from letting out property will be liable for income tax and must be included on an IR3 Income Tax Return.   This income could be from letting out land  or buildings, and in some circumstances, having flatmates or private boarders living with you, or caring for other people’s children in your home.  

EXPENSES THAT CAN BE DEDUCTED FROM RENTAL INCOME  

When you earn income from a rental property, there are often a number of expenses you incur.  The following examples are examples you may be able to deduct from your rental income for tax purposes:

• Interest- you can only claim interest on the mortgage taken out for the purchase of the rental property

• Legal fees- you can claim legal fees incurred in arranging a mortgage to finance the rental property, arranging a tenancy agreement, collecting bad debts

• Rates

• Insurance- on property, furniture and effects, mortgage repayment

• Motor vehicle and other travel

• Letting agent’s fees and commissions

• Depreciation

• Repairs and maintenance

• Accounting fees

• Bank charges on rental bank account

• Postage

• Landlord Association, Property Investors, related magazine subscriptions

• Gardening, lawnmowing

      McLEAN AND CO FEBRUARY 2003 NEWSLETTER PAGE 6     

 RESIDENTIAL RENTAL INCOME cont

WHAT EXPENSES CAN’T BE DEDUCTED  

Some expenses cannot be claimed for tax purposes.   For example, you cannot deduct capital or private expenses from your rental income.    Capital expenses are costs you incur to buy or increase the value of a capital asset.    Private expenses are incurred for your own benefit, and are not connected with producing taxable income.  

Examples of non deductible expenses are:

• The purchase price of the rental property
• The capital part of any mortgage repayments
• Interest on money you borrow for a purpose other than financing the rental property, even if you use the rental property to secure the loan
• The cost of repairing or replacing any damaged part of the property, if the repairs or replacement make improvements to the property and increase its value.
• Real estate agents’ fees and legal fees incurred as part of buying or selling the property
• The cost of making and additions or improvements to the property.

These last three points may be added to the purchase price of the property and depreciation claimed on them, as part of the cost of the property.

SELLING THE PROPERTY OR GOING TO LIVE IT IT YOURSELF

 When you sell the property, or cease it as a rental and go to live in it yourself, there are depreciation recovery implications.   That is, you have to declare back as income all depreciation previously claimed as an expense.    

If you sell the property at a greater price than you paid for it, the depreciation recovery will be the full amount of depreciation previously claimed.  

If it is for a lesser amount, you should obtain a valuation of the depreciable assets on which you have previously claimed depreciation, and compare this with the initial cost of these depreciable assets to establish the depreciation recovery.

McLean and Co prepare Property Investment Financial Statements for a number of clients.   Please make contact with us if we  can assist you in this regard.

NEW ADDITIONS TO OUR WEBSITE  

We  have recently added the following to our website:  

Hawkes Bay Commerce and Attraction Sites

www.mcleanandco.co.nz/Links.htm

Company Incorporation

www.mcleanandco.co.nz/CompanyIncorporation.htm

Eight Steps to starting a Business

www.mcleanandco.co.nz/Page76.htm

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

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