_ Tax is a major focus for New Zealand companies at this time of year. BNZ’s taxation team provide their top tips for managing the challenges involved. _
April brings the beginning of the new tax year. Although most companies and business owners are relieved that March is over, and all the last-minute tax housekeeping matters for the last year have been dealt with, BNZ Head of Taxation, Campbell Rapley says it’s a good time to consider important tax matters for the year to come. He and his team have some key advice for managing what’s required.
Making payments and filing tax returns on time can save a business a lot of money. Inland Revenue’s use-of-money interest rates and penalties can quickly add up. The Inland Revenue website (ird.govt.nz) has a good example of a $1000 debt costing another $96 in penalties and interest if paid three months late - equating to an annual interest rate of 38.4 percent. Using bank credit lines or a tax-pooling intermediary (such as Tax Management New Zealand) can help reduce this cost if cash flow is tight. Alternatively, contacting Inland Revenue prior to the tax due date and agreeing to pay the tax due in installments can also reduce the penalties charged.
Provisional tax payments are an area which may seem straightforward but getting it wrong can cause cash flow issues. The final provisional tax payment for the 2015 tax year (for those with the standard March 31 balance date) is due on May 7. This is an opportunity to quickly recalculate your tax liability for the year. If your tax payable for the year looks higher than was anticipated when making the first two provisional tax payments, you could increase the payment due on May 7 to reduce any interest costs.
Keeping good records during the year makes life a lot easier. Remember that to be able to claim GST back on purchases, you must hold a valid tax invoice. The only exception is where the purchase of goods or services was for less than $50, but even in this situation you should keep a record of the date of the transaction, a description of the goods or services, and the cost and name of the supplier for both GST and income tax purposes. All tax records need to be kept for at least seven years.
Tax is a complicated business and mistakes can happen. If an error is uncovered after a return has been filed, you should contact Inland Revenue as soon as possible to discuss the correction of it. If you do this before Inland Revenue announce that they are going to undertake a tax audit of your business, some of the shortfall penalties that could otherwise be applied may be remitted. It may be that the error led to an overpayment of tax and you would be due a refund, but either way, advising of an error is evidence of you taking your tax responsibilities seriously and having a good review procedure in place. Now is a good time to put all those tax filing and payment dates in the diary and to do a stocktake of your document retention policy.
This publication has been provided for general information only and should not be relied upon. To the extent that any information or recommendations in this publication constitute tax or financial advice, they do not take into account any person’s particular financial situation or goals. Bank of New Zealand strongly recommends readers seek independent tax/legal/financial advice prior to acting in relation to any of the matters discussed in this publication.
Originally published in Kia Ora magazine.