Newsletter

What Lies Ahead?

26 February 2010

Welcome to our first newsletter of 2010, I hope, like us, you had a pleasurable break and enjoyed the generally fine weather that the holiday period brought us.

With the holiday season behind us and the batteries recharged we are now looking forward to the opportunities and challenges that lie ahead over the next 12 months.

Despite what some media analysts are saying, at present the economy does not seem to be showing any significant signs of improvement, negative factors include:

• Unemployment hovering around the 7% mark with this rate not showing any sign of abating. Businesses seem to be adopting a conservative approach to hiring staff;
• Food and other domestic costs are on the increase while wages and salaries remain static. This has lead to increased pressure on household budgets resulting in consumers reducing their spending on discretionary expenditure type items;
• The agricultural sector still looks uncertain with bank lending having tightened considerably post the recession. This applies especially to the dairy sector where for the month of January only 7 farms were sold throughout the country. If this trend were to continue it may lead to a significant price adjustment which, due to the importance of the agricultural sector, would likely impact on the economy as a whole.

While undoubtedly there are challenges ahead it is not by any means all bad news though and positives include:

• Likely tax changes which will put more money in our pockets (hopefully);
• A continuation of low interest rates on home loans which, unless the economy takes off, hopefully should remain in place for at least another 6-9 months;
• A general worldwide consensus that the market has hit its bottom, with a slow recovery beginning to emerge.

So what does 2010 have in store for all of us? No one really knows, but one thing for sure is that businesses that are well run, don’t have excessive debt levels, take advantage of the many opportunities a harsh recesssion creates and continue to spot opportunities will be the businesses that continue to thrive and grow irrespective of the economy.

Kind regards,

Mark Foster
Director

Growing Your Business

With the challenging year that was 2009 behind us and the recession technically over many clients have now turned their focus from cost containment to growing their business.

While business growth should be an objective for every business owner we have found that not every owner is confident about what steps to take to achieve this. Jeffrey Fox in his book “How To Become a Rainmaker” makes the following suggestions:

• Allocate marketing time;
• Send a handwritten note/card to a customer;
• Clip and send an article of interest to a customer or prospect;
• Talk to a satisfied customer and ask who else I could talk to;
• Send a thank you gift to someone who referred you;
• Give your business card to someone with influence;
• Develop a prospect list from your pile of business cards and acquaintances;
• Make an appointment;
• Call a customer you haven’t spoken to in 6 months;
• Leverage off an existing opportunity.

Let us know if you have had success in growing your business using any of these techniques, or alternatively if you have used other methods or tools to successfully grow your business we would love to hear about them.

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Tax Working Groups (TWG) Report

The Tax Working Group released its long-awaited report on 20 January 2010. We have provided a summary of the TWGs key recommendations. Click here to view.

Briefly, some of the key recommendations of the TWG included:

• Aligning the company, top personal and trust tax rates;
• Ensuring the company tax rate is competitive with other country’s rates, particularly that in Australia;
• Increasing GST with a commensurate reduction in personal tax rates and additional compensation for low income earners;
• Broadening the tax base.

It is expected that the government will use the 2010 budget, due to be delivered on 20 May, to announce tax changes. Current political comment indicates that any changes would potentially be limited to increasing GST, restricting depreciation on buildings and lowering personal tax rates.

We will provide commentary on the budget and any tax changes announced at that time.

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Should You Be Deducting Resident Withholding Tax (RWT)

Have you borrowed money from a family member, a trust a partnership or a company? Do you pay interest on the money borrowed? If so you may by law be required to deduct resident withholding tax (RWT) from the interest paid and return the amount deducted to the IRD.

RWT is a tax deducted from investment income before the lender or investor receives it.

If you pay more than $5,000 a year in interest on monies loaned from a family member, a trust, a partnership or a company then you must register with the IRD as an RWT payer.

As a registered RWT payer you must deduct RWT from all the interest paid on loans borrowed from a family member, trust, partnership or company.

If you are required to register for RWT you should get the IRD numbers of the people that you pay interest to.

The rate at which you deduct RWT depends on who you are making the payments to, payments made to an individual can be deducted at 19.5%, 33% or 38% a company at 33% or 38% and all other tax payers at 19.5%, 33% or 38%.

From 1 April 2010 the RWT rates change to 30% or 38% for companies and 12.5%, 21%, 33% or 38% for other tax payers with a 38% default rate (with the exception of PIEs which have a maximum rate of 30%).

Once you have deducted RWT you must pay it to the IRD. How frequently you pay the IRD depends on the total amount of RWT deducted. If the amount deducted is $500 or more per month then payment must be made by the 20th of the following month. If the deductions are less than $500 per month then payment may be made six monthly on 20 October and 20 April. If the tax is not paid by the due date late payment penalties will apply.

At the end of the year a Resident WithholdingTax Deduction Certificate must be supplied to each entity you have paid interest to with RWT deducted and a Resident Withholding Tax on Interest Reconciliation Statement must be completed and filed with the IRD.

Note: RWT is not required to be deducted for payments made to taxpayers who have a valid Certificate of Exemption such as registered banks and building societies.

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DESIGNING SUCCESS

The strategic design company, and UHY Haines Norton client, Alt Group is making big waves in the world of design. The company’s latest success was registered at the world renowned Red Dot Design Awards recently held in Germany.

The Red Dot Awards seek to recognise outstanding design quality and design trendsetters from around the world.

Alt Group collected four red dot awards including a red dot grand prix award – the first time a New Zealand design company has received such a coveted prize.

The company won its Red Dot Grand Prix Award in the communications design category for its design work for the Auckland law firm Hudson Gavin Martin. Only six grand prix were awarded out of 6,112 entries.

Congratulations Ben, Dean and your staff on your success and for showing that New Zealand designers can compete on the world stage.

Has your business recently received or been nominated for an award or have you been successful in growing your business? If so let us know, we would love to spread the word about your success.

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TAXING MATTERS

Taxing Matters provides a summary of topical tax information relating to individuals and business.

1. Investors in a PIE (Portfolio Investment Entity) are required to notify the PIE of their prescribed investor rate (PIR) ie their correct tax rate. PIR’s differ depending on who has made the investment as follows:
   
   Individuals – Individuals can currently choose a PIR of either 19.5% or 30%. From 1 April 2010 individuals will have a choice of three PIRs, 12.5%, 21% and 30%;
   
   Trusts – Trusts can currently choose a PIR of 0%, 19.5% or 30%, from 1 April 2010 Trust’s PIR rates are 0%, 12.5%, 21% and 30%;
   
   Companies – Companies have a PIR of 0%;
   
   PIE investors must ensure that they notify their investment provider of the correct PIR, failure to notify the correct PIR may result in paying more tax on investment income than is necessary.
   
   
2. When commencing a new job employees must complete a Tax Code Declaration Form (IR330) notifying their employer of the applicable tax code to use. A copy of the Tax Code Declaration Form can be downloaded from the IRD website.
   
   
3. Taxpayers not using a tax agent should have paid their 2009 terminal tax by 07 February 2010; taxpayers using a tax agent have until 07 April 2010 to pay their 2009 terminal tax.
   
   
4. Friday night drinks for staff or clients are only 50% deductible for tax purposes, this applies whether the drinks are consumed on or off-site.

For further information regarding the above, or for any other tax matters please contact us.

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UHY HAINES NORTON – SUPPORTING THE COMMUNITY

The New Zealand Institute of Chartered Accountants recently held its Leadership and Annual Report Awards ceremony at a gala dinner in Wellington. The Master of Ceremony was the broadcaster Mike McRoberts.

UHY Haines Norton (Auckland) Limited partner Tim Livingstone was one of the judges in the Outstanding Service to the Profession Award.

The Leadership awards are the annual premier event for accountants in New Zealand.

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PASS ME ON

If you know someone that would find articles contained in this publication to be of interest please feel free to pass a copy on to them.

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UHY Haines Norton (Auckland) Ltd is a member of UHY Haines Norton, an association of independent firms throughout Australia and New Zealand and a member of UHY, an international association of independent accounting and consulting firms. UHY firms operate in over 180 offices based in more than 60 countries around the world.

Disclaimer

The comments in this publication are for general information purposes only. This publication and the information contained within it is not intended to constitute professional advice. If you wish to receive specific professional advice please contact a UHY Director.