Tax Bites #26: Fiscal Year End Issues
About the Author:
MURRAY McCLENNAN
Director at Tax Central
A chartered accountant and a member of the International Fiscal Association and the Society of Trust and Estate Practitioners, Murray has over 30 years experience in tax.
Thirty-one March, the standard New Zealand balance date is not far away. This article discusses year-end issues that it may be prudent to consider.
Fixed Assets
There is a concession that ends in mid-March allowing the immediate write-off of fixed assets costing up to $5,000.
Are you using the correct depreciation rates?
Have fixed assets been disposed of? If so, were there gains or losses on disposal?
Were fixed assets transferred within a wholly-owned group of companies? If so, it can be done so at tax book value.
Trading Stock
Under a valuation of trading stock, write down stock that has declined in value and write off obsolete stock.
Was trading stock transferred within a wholly-owned group of companies? If so, it can be done so without an income tax consequence.
Bad Debts
To be able to claim a bad debt deduction the debt must be bad and written off before year end. Also, there must be evidence of this.
If you are registered for GST on an invoice basis, an adjustment may be claimed for bad debts written off that have been returned in past GST returns.
Work in Progress
Generally, work in progress (WIP) at balance date is income. Review WIP before balance date and write off or write down any that cannot be recovered.
WIP relating to land held on revenue account is not deductible until the land is sold or distributed.
Imputation Credit Account
An imputation credit account (ICA) in debit at 31 March results in a shortfall penalty. If your company’s ICA is in debit you can avoid this penalty by paying sufficient income tax to restore the account to at least a nil balance.
Were there changes in shareholder continuity that will result in a debit to the ICA?
Losses
Can losses carried forward or losses incurred by companies within the same group of companies be used?
Were there changes in shareholder continuity that will result in a forfeiture of losses or an end in membership of a group of companies?
Shareholder Current Accounts
An overdrawn shareholder current account will trigger the need to charge the shareholder interest, the company pay FBT, or the shareholder receiving a non-cash dividend that requires the company to pay withholding tax. The most common ways of dealing with this are paying shareholder salaries or dividends. To be effective a dividend must be declared and paid before the start of the next tax year. An alternative is for the company paying FBT, however, this is usually tax inefficient and will be more so in 2022 and later income years due to the rise in FBT due to the new top marginal tax rate.
I suggest that you review before year end and determine what approach, or approaches, to take.
GST
Has turnover increased to a level that triggers a change in return periods (six-monthly to two-monthly or two-monthly to monthly), or registration basis (payments to invoice)?
Director
Tax Central Ltd
027 244-5365
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