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Tax Talk Newsletter Winter 2023
Keep on top of slow payers
Perhaps one of the most unethical and unfair things one can do in business is to not pay the bill when it should be paid.
When you get a bill, you have received the goods or services and you hold the upper hand. There is little your supplier can do to get paid without it costing a lot of money.
Of course some people unexpectedly get into a tight spot financially. The reasonable thing to do is to send a message to the supplier apologising for not being able to pay on time and requesting an arrangement to spread payments. Don’t ignore overdue bills.
There is talk of a recession looming. This is, if it occurs, likely to lead to more people having difficulty paying their bills.
If you think you might be one of them, consider ordering only what you know you can pay for.
If you’re a supplier, you should be planning now, before it’s too late, for how you deal with unpaid invoices.
If your business has a large number of customers, none of them being of a significant size, you are in a much healthier situation than those depending on one or just a few big clients. If not, can you change things now to get more, smaller customers to spread the risk?
In tough times small businesses can get badly hurt when a big customer won’t pay. Continuing to supply that customer to keep them going, in the hope their situation improves so they can pay you can be disastrous.
Can you get deposits or increase the amount of deposit you ask for up-front?
Are you spelling out your terms for payment before you take a job and making sure the customer is aware of them?
If you want to charge interest on overdue accounts, you need to make this clear at the start.
A customer who has to be constantly followed up for payment is wasting your time. You might be better off without them. It might be better to get rid of them now, while there’s still a good chance of replacing them. You could make better use of your time promoting your business.
Are you keeping in touch with customers? Emails are such a cheap and easy way to communicate. Develop a system for sending messages to your clients and customers regularly. Set yourself specific dates when this has to be done. Think about special offers, tips and suggestions that could be useful to them.
Travelling Expenses Overseas
The Inland Revenue Department recently proposed updating tax deductibility of overseas travel expenses.
The cost of meals are excluded if you are self employed. This is because Inland Revenue has separate rules to cover meals.
Roughly, a self-employed person would have to eat anyway so should not be claiming the cost of their meals while away on business. The shareholder employee of a company is in the same situation as any other employee and meal costs while travelling away from home on business are tax deductible.
Here are some examples of how Inland Revenue sees the tax deductibility of travel expenses overseas.
Gertrude travels overseas primarily to go to a 50th wedding anniversary. However, she had to go overseas on business anyway so turns part of the trip into a business trip. She spends 11 days out of 42 on business and therefore claims this proportion of her airfares and accommodation.
Fred goes to Australia to buy stock. He is away for three days, one of which he spends visiting an old friend. He is entitled to claim two thirds of his travel costs.
Oscar buys an airline ticket to go to the United States on holiday. While he is there he takes the opportunity to visit potential clients and promote his business. At the time he bought the ticket his intention was just to have a holiday, so no tax deduction is permitted for the airfare but if he hired a car specifically for the business related activities that would be deductible.
In a 1984 court case, a qualified electrician and his wife were in partnership. They visited a factory in Australia for four days that made the electrical units on which the electrician was doing contract work. The electrician’s travel costs were tax-deductible. His wife’s costs were of a private nature and therefore not tax deductible.
Income tax returns - Don’t be late
After Christmas there are only about 10 weeks of work before the deadline to file tax returns.
If you don’t get your tax return in by 31 March, Inland Revenue has an extra year in which to examine your return. Also, you could lose your right to an extension of time for filing the return.
Late tax returns have a number of other disadvantages:
Provisional tax has to be paid based on the year before last +10%. At times, this figure could be too high.
If you get your accounts done late, it might not be practical to get them completed by 31 March. Reasons could be:
sickness or staff leaving
too many other people have left their accounting too late – overload.
You can become liable for Inland Revenue interest without realising it. The longer this is left the bigger the bill from Inland Revenue. The interest rate is shortly going up to 10.39%.
If there is an opportunity to save tax it’s better to know about it early and take full advantage of it. Sometimes opportunities reveal themselves when the financial statements are prepared.
Selling a loss-maker
Until recently, when the shares in a company were transferred to another owner, which resulted in a change of ownership of more than 51% of the shareholding, the new owners could not use the losses incurred before the ownership change.
Not long ago, the law was changed. If the new owners carried on the business in the same way as the old owners they could use up the company losses as long as they didn’t relate to prior to 31 March 2014.
While there’s a benefit by being able to pass on company losses, there’s also a downside for the buyer of the company shares. Any undisclosed company debts, including if Inland Revenue discovers the company has not accounted for all its profits, will continue to be debts of the company. This includes any penalties or interest Inland Revenue cares to come up with.
Many potential buyers will prefer to buy the business and not its shares. So while this is useful in some situations eg passing a family business to the next generation it may not be as attractive to arms-length buyers.
Trapped arm a sombre warning on imported machinery
A multinational company has been sentenced after a worker’s arm got caught in a bark-stripping machine which did not have the appropriate safeguards for New Zealand use.
The company is a forest management and export company. Its parent company, exports logs from New Zealand to China.
The worker was troubleshooting on the debarking machine when its rollers closed and trapped his wrist. He required surgery and plates put in for a broken arm and a dislocated wrist.
WorkSafe opened an investigation into the June 2021 incident, which found significant safety modifications were made to the debarker before it was put into use. However, the company did not ensure the debarker met New Zealand safeguarding standards before operation. Nor did the company bring in a qualified expert to assess the safeguarding of the machine before it was used.
“It is vital that any business bringing new machinery into the country does its due diligence to bring the equipment into line with New Zealand safety standards. Get the right experts and advice to ensure none of your workers are exposed to the type of danger seen in this incident,” says WorkSafe’s area investigation manager, Danielle Henry.
“About 80 percent of acute work-related injuries involve machinery and equipment. Protecting people from machines is a priority for WorkSafe, and we are increasing our focus and enforcement activity in this area.”
Background
The company was sentenced at Whang?rei District Court on 19 May 2023
A fine of $180,000 was imposed and further reparations of $10,000
The company was charged under sections 36(1)(b), 48(1) and 48(2)(c) of the Health and Safety at Work Act 2015
Meatworks’ oversights led to horrific injury
Poor training and supervision contributed to a worker having his hand seriously injured on unsafe machinery at a Hawke’s Bay meatworks, which has now been sentenced.
The incident occurred on the lamb brisket cutter at a Meatworks in Hastings in October 2020. The injured worker was 17 at the time and was two weeks into the job – having just left high school.
The worker was trained to use the machine by a co-worker who started on the same day as him. The co-worker demonstrated how to use the machine with one hand. When the worker followed this method, his right hand was struck by the brisket cutter blades. This partially amputated his thumb, index finger, middle finger and ring finger.
Following a trial in December 2022, Judge Geoff Rea found the Meatworks guilty of health and safety failures. His decision noted the “training was completely inadequate and… positively dangerous”.
Supervisors, senior management, and the company owners were unaware of the brisket cutter being used single-handedly and, until this incident, did not believe it could be used in such a way.
“He was at the very start of his working life when this awful injury was inflicted. It’s unfair for him to have been robbed of the full function of his hand,” says WorkSafe’s area investigation manager, Paul Budd.
“I echo the Judge’s view that proper training must always be given and the safety aspects explained when workers deal with potentially dangerous equipment such as this.”
Background
The company was sentenced at Hastings District Court on 18 May 2023
A fine of $280,000 was imposed and reparations of $48,000
The company was charged under sections 36(1)(a), 48(1) and 48(2)(c) of the Health and Safety at Work Act 2015
Find files with search functions
Losing computer files can be frustrating, but they can usually be found using search functions.
Let’s look at both Windows and Mac.
To search for files on Windows, open File Explorer by clicking the File Explorer icon on your taskbar (or shortcut Windows+E). A search box will be in the upper right of the Explorer window. Type in the file name you’re looking for. The location will default to “This PC”, so it will look in all the folders and sub-folders in your PC.
If you can’t remember the exact file name of a document file, you can refine your search by typing in a word or phrase you know is in the file.
You can also further refine it by sorting the list by “Date Modified” to find the most recent files.
Another useful function is to look for everything with a file extension such as docx or jpg, because you can type in *.docx, *.jpg etc, which will give you all the files with those extensions.
On Mac computers, the default search function is Spotlight, which is the magnifying glass at the top right of the home screen. It allows you to search for any apps, files, and folders on your Mac.
However, since it scans all the files in your external hard drives, Time Machine backups, and more, Spotlight can slow your Mac down.
For most file searches, many Mac users just use Finder (Command+F or the icon in the dock). Options allow you to look for the kind of file (name, content, last opened etc) and whether it’s a document, image, folder, app etc.
When you become bank of Mum ‘n Dad
In the past responsible parents would consider their job done when their children were fully educated for the work they had chosen.
Increasingly parents and grandparents today are having to help their children buy a first home – they are referred to nowadays as the Bank of Mum and Dad.
Beware the tax man if you’re helping out! If you buy a property either jointly with your offspring or in any other way involving your ownership of that property, you can be taxed on any gain in value.
There is a capital gains tax on property sold within five or 10 years of purchase. This time varies depending on when the property was bought, whether it is a new build and the tax law at the time acquired. It’s called the Bright Line Test. It was designed to help take the heat out of the property market.
Of course, with falling property prices this might not be an issue.
Important: This is not advice. Clients should not act solely on the basis of the material contained in the Tax Talk Newsletter. Items herein are general comments only and do not constitute nor convey advice per se. Changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Tax Talk Newsletter is issued as a helpful guide to our clients and for their private information. Therefore it should be regarded as confidential and should not be made available to any person without our prior approval.