I often get asked at this time of year about the deductiblity of entertainment expenses, here is a quick guide below:
Christmas Party for Staff on or off premises is 50% deductible.
Morning Tea shout for staff, eg savouries, christmas cake to go with their tea or coffee, on premises 100% , off premises 50% deductible.
Taking a Client out for a Christmas lunch/dinner is 50% deductible.
Note Fringe Benefit Tax issues if giving staff gifts - please contact your Accountant for advice on this .
Some things to organise for your end of year tax return:
Often I get asked by clients which is the best option when looking at a vehicle for the business, is it better to lease or buy?
Both options have advantages and disadvantages therefore it isn't just a straight forward question.
Here are some questions you need to think about:
Is the usage of the vehicle able to be claimed by the business? What proportion of the business vs personal usage if any is available for the company to claim ? Each case is different so call us to discuss.
Cashflow impact? What is the impact on cashflow going to be? Operating Lease costs are usually monthly payments and will include GST - all of which are fully deductible to the business (assuming no apportionment is required). If the business purchases the vehicle with cash from the business then only GST and depreciation are deductible. If the business obtains a loan to purchase the vehicle then interest will be deductible as well as GST and depreciation.. Of course in both Lease and purchase (assuming no apportionment) running costs of the vehicle are deductible.
With a lease vehicle you are restricted in terms of mileage, wear and tear and terms of the lease eg 3-4 years. If a vehicle is purchase then you don't have these restrictions and the vehicle is an asset of the company less any loans owing on it.
Tax Implications? GST and FBT - When purchasing a vehicle you need to be aware of the implications of both GST and FBT (Fringe Benefit Tax) relating to any employees or shareholder employees and associated persons.
This is when it gets complicated so please give us a call to discuss.
The world’s population is ageing and population growth will slow and possibly start declining from 2050 so what does this mean for New Zealand Tax system? Statistics tell us that in New Zealand we will have a narrowing gap between births and deaths in the future. This makes sense since the vast majority of women of childbearing age are getting older as the population ages and predictions tell us that by 2061 the proportion of the population aged 65+ will be between 22 -30 percent and will continue to increase in future years. This gradual ageing is a result of fewer births and lower death rates which means that the bulk of the population is ageing.
This means that both central and local governments need to seriously review the way they are going to fund their spending in the future. As the population ages and moves into the 65+ the working population will slowly start shrinking therefore what does this mean for income tax? Income Tax will become a greater burden on a smaller working population, even if there is a move to increasing consumption tax in proportion to the increase in the ageing population there will still be issues with this. If consumption tax, ie GST was to increase over time and income tax decrease then the burden shifts to the older generation and penalises them because they have paid income tax all through their working life, including their contributions to Kiwisaver and they would then be taxed again via consumption tax. This would cause the effective tax rate on those 65+ especially those who have exited the working population to be extremely high, since they will be taxed again through consumption tax at a higher rate than before on expenditure which is funded by previously taxed income, ie Kiwisaver, retirement savings. However, if say the retiree had not invested in Kiwisaver and had all their retirement savings in rental property would they be better off under a scenario whereby income tax was decreased and consumption increased? Possibly with all things remaining equal because their retirement income would be the income received from current rents, taking into account the time value of money . This scenario would even worsen the current disparity between property investment and other types of investments in terms of taxation. Would a capital gains tax help even the playing field between the tax treatment of property investment over other investments? Possibly a capital gains tax may help to level the playing field but what if in the future the property we have today is not the property we need/demand in the future? What happens if with the ageing population there is a change in demand for housing, i.e people downsizing? The bulk of the population is going to move into the 65+ group at the same time hence any change in demand for housing like downsizing will turn the housing market upside down the demand could switch from large 3- 5 bedroom homes to 1-2 bedroom homes/apartments and probably more than ever increase the demand for retirement villages which have aged care and hospital facilities. As we all are becoming increasingly aware the more we age the greater the probability of contracting one of many age related ailments. Many nationalities including many in New Zealand believe in looking after their ageing parents themselves rather than putting them into independent retirement villages, however, this is fine if ageing parents are physically healthy but once their health deteriorates with age then this becomes a burden on the younger generation who will be trying to earn an income in order to provide for their own retirement in the future. Also let us not forget that the working population will shrink over time therefore the burden of work will fall on a few, unless there is an up rise in the use of robots. Therefore depending on the property investors portfolio of rental properties they may find that no one wants to rent or buy their properties if they are in the 3+ bedroom range. We may see in the future no capital gains on property at all and if there is it will swing with the demand on certain types of properties eg units, apartments and retirement villages. It would all come down to the structure and nature of the capital gains tax eg is it based on realised or unrealised capital gain, whether or not it would generate enough taxes to help fund government expenditure would be dependent on its structure.
How will local government taxes adapt to an ageing population? It is expected that with an increase in the ageing population there will be an increase in urban populations as more of the population as they age will move into the cities to be closer to facilities such as medical facilities. There will be a greater need than ever before for both local and central government to work together to help share the burden of funding both local and central services. The tax system will have to replicate itself at both central and local level in order for it to sustain the level of funding required by both governments. The current rating system by local government will be unsustainable going forward. Both local and central governments need to start working together to come up with a future taxation system designed to cover both .
If you get this wrong then the consequences can be severe as there are big timing differences between filing FBT and PAYE which can translate into costly penalties.
Sometimes it can be tricky determining what falls under FBT Fringe Benefit Tax or PAYE, for example, a company has an employee who has worked for them for 10 years and it wishes to acknowledge this loyalty by way of a gift. They decide to set the limit of $500 and discuss with the employee what would be suitable to them. The employee then decides he would like to purchase the gift himself as he has an eye on a new TV so he does so and brings the receipt into the employer. Now what happens next is crucial, the company reimburses the employee $500, that being the equivalent they were prepared to pay for his gift. Is this covered under FBT Fringe Benefit Tax or PAYE? How should the employer now treat the $500? Is it a gift or is it cash- FBT Fringe Benefit Tax or PAYE? After all you have a receipt for the purchase of the gift. However, there are two differences from the first scenario of the company buying the gift for a limit of $500, firstly the employee has purchased himself a gift and secondly the company has paid him cash of $500. This is not seen as reimbursement of costs relating to the business.
Do you know the correct classification between FBT Fringe Benefit Tax and PAYE? At East Auckland Accountants, Tax Gurus we can give you help with tax issues relating to FBT Fringe Benefit Tax or PAYE.
If you get it wrong then you are up for some costly penalties as there are timing differences between filing and paying PAYE and filing and paying FBT – PAYE is monthly and FBT is either quarterly, income year or annually.
In the case above the answer is PAYE – this is because the employer has paid cash directly to his employee and this must be filed in the employers PAYE schedule. Make sure you get FBT Fringe Benefit Tax or PAYE correct if you are unsure contact us for help.