31 March – what do I need to do before then?
The 31st of March for most New Zealand small businesses, whether companies or sole traders, means the end of the financial year and there are a few things that ideally you consider before 1 April so that you can take the tax planning opportunities into the 2017 tax year end, not the following year.
Accruals and Expenses
If you have committed to an expense then it is deductible in the 31 March 2017 accounts. If you have committed to the amount then you can accrue it and pay it in April or May 2017 but still take the tax deduction in March 2017. The one exception to this is employee expenses. The employee expenses such as commission or bonuses that relate to the 2017 year must be not only incurred but paid within 63 days of balance date (that’s 2 June 2017).
In order to take the tax deduction, the bad debt must actually have been written off on 31 March 2017. It is not acceptable to book the journal in April 2017 as part of the Account preparation work. Make sure you retain evidence that the debt was, in fact, bad – i.e. debt collection attempts
There are 2 options to value stock, the lower of cost or market selling value. Where the market selling value is lower than the cost it is beneficial to revalue the stock at balance date to this value. Again, like the bad debts, you need evidence of the market value of the stock at 31 March 2017. The IRD like valuations by qualified persons, not necessarily external to the company. These valuations should detail actual sales leading up and after 31 March 2017.
If you haven’t paid that donation, including school fees, you have been thinking of, paying it in March 2017 is a good time. The donation rebate form gets filled in and the rebate paid shortly thereafter. If you pay the donation in April 2017 you will need to wait until the end of the March 2018 year to claim the rebate.
However, if you have no taxable income in the 2017 year then it may be best to pay the donation in the following year as once there is income then the rebate can be claimed, or the amount expensed if a company.
Shareholder current accounts
If the company is owed money by its shareholders, consider paying shareholder-employee salaries or paying a dividend. Where the shareholder current account is an asset on the company accounts then there may be fringe benefit tax or deemed dividend issues.
Imputation Credit Account (ICA) balance
Time to make sure that the ICA does not have a debit balance on 31 March 2017. If it does penalties will be incurred. It’s an easy fix, make a voluntary tax payment to clear the debit. Most likely a payment is needing to be made on 7 April 2017 anyway.
Review your fixed asset register if there are assets that you no longer have, they broke, died or you sold them, write them off in the 2017 accounts. If a loss on disposal was made then a deduction can be taken.
File your 2016 income tax return
If you haven’t filed your 2016 income tax return then you must file it before 31 March 2017, if you have a tax agent. If you received your accounts and tax return but haven’t return them then it’s time to do so before you get a letter from IRD.
If you want help with getting things sorted for the end of the tax year, don’t hesitate to contact the Haven team, we would love to help you out.