Newsletter

DIRECTOR’S COMMENT

25 SEPTEMBER 2009

In the past we have prepared and published a firm newsletter on an irregular basis. Typically newsletters were published only when significant tax changes were announced or came in to effect.

The directors are constantly liaising and talking to clients about what is important to them. A common theme in the feedback we have been receiving from clients is a desire for more regular communication from the firm; the call for increased communication and information perhaps reflects the complexity of tax and need for us all to remain up to date on tax matters.

Based on the feedback received from clients we are now going to issue monthly newsletters which we hope will be informative to clients. The September issue includes articles on business valuations, the advantages of using BankLink to record transactions and an important issue relating to the distribution of dividends by companies.

We hope you find the articles in this issue to be helpful and relevant, we welcome any comments or feedback you may have. Please feel free to contact me or any of the other Directors if you wish to discuss any topics covered in this issue or any other business or tax related matter.

Kind regards

Tim Livingstone
Director

SUCCESSION PLANNING AND GROOMING YOUR BUSINESS FOR SALE

Some Facts

• Baby Boomers are the generation born between 1946 to 1964.
• They will start to reach 65 years of age from 2011.
• By 2020 20% of small business owners will be over 65 years old.
• 97% of businesses in New Zealand employ fewer than 19 people.
• 89% of businesses in New Zealand employ fewer than 5 people.

The Situation

Over the next five to ten years there will be an increasing number of small business owners looking to exit their businesses as they look to retire.

If you fall in to this category you should be preparing your business for sale now, not in five years time when you want to retire.

If you are going to maximise what you can realistically expect to get for your business the time to start preparing is now.

What Is Your Business Worth?

The price that someone will be prepared to pay for your business will generally be determined based on a factor of earnings.

A purchaser will look at your businesses previous earnings performance and use this to assess the likely future maintainable earnings.

Most owners do not position their business to optimise earnings which means they may not maximise the sale price when they come to sell.

Action Plan

While it is impossible to know exactly what is round the corner it is certain that the value of your business will be largely determined by presentation and profitability. The sale of your business might be several years away but you should start preparing for it now.

Maximising the value you can expect to get for your business will help maximise the quality of your next investment or your financial security in retirement.

How Can We Help?

We can help you:

• Assess the current value of your business.
• Identify ways to improve profitability.
• Assist with the implementation of profit improvement strategies.
• Assess the likely future value of your business.
• Assist with the eventual sales process.

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WAY TO GO PHILIP AND GAIL...

At UHY Haines Norton we like nothing more than celebrating our client successes, so we were delighted that PSL Construction Limited, owned and run by Philip and Gail Leach, swept all before them at the recently held 2009 Registered Master Builders House of the Year awards for the Auckland/Northland region.

The awards recognise excellence, quality and innovation in building work.

Philip and Gail entered a house they built in Glendowie in the New Homes Over $1 Million category in the hope that they might get an honourable mention at the awards ceremony. Forget honourable mention they walked away with the show, winning Gold for Gib Living Systems and Gold for New Homes Over $1 Million, then to top it all off they won the 2009 SUPREME AWARD AND AUCKLAND HOUSE OF THE YEAR.

Congratulations Philip and Gail and the rest of your staff in winning such a prestigious award and good luck for the Supreme Award Gala Dinner due to be held in Auckland in November 2009.

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YOU CAN BANK ON BANKLINK

Have you considered using BankLink to save time, costs and to improve information reporting for your business; if not you should.

What is BankLink?

BankLink is a secure and easy-to-use system that enables us to receive client bank statements and credit card transactions electronically. Because we receive your bank information electronically you no longer need to provide us with cheque book stubs and bank statements.

Here are some of the other benefits of using BankLink:

• Faster and accurate processing of transactions.
• No more missing bank statements, BankLink eliminates the time and cost of requesting missing statements from your bank.
• GST returns can be prepared quickly and easily.
• Timely and faster processing of your annual accounts.
• Comprehensive reporting including cashflow reporting, reporting against budget and previous year etc.

Many of our clients already use BankLink, here is what some of them have said about it:

“Wish we had started using BankLink years ago; it’s quick and easy to use and best of all, I don’t have to worry about missing bank statements”.

“BankLink has been a great choice for me, and it’s now easy to do my GST returns”.

Joining BankLink is as easy as signing a form. Interested or want more information ring UHY Haines Norton on 09 839 0087.

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LOWER COMPANY TAX RATE NOT ALL
GOOD NEWS

Do you trade through a company? If so you should be aware of the following issue relating to company imputation credits and changes that will come in to effect on 1 April 2010.

Change in Company Tax Rate

The Government lowered the company tax rate from 1 April 2008 from 33% to 30%.

While the reduction in the company tax rate is to be applauded there are implications for companies that have undistributed profits/retained earnings which were earned prior to 1 April 2008 and which are available to be distributed as a dividend to shareholders.

Undistributed profits earned prior to 1 April 2008 were taxed at 33%, while profits earned after that time are taxed at 30%.

Undistributed Profits Earned Prior to 1 April 2008

Companies with undistributed profits earned prior to 1 April 2008 have until 31 March 2010 to distribute those profits as dividends with 33% imputation credits attached, after that time imputation credits attached to dividends will be capped at 30% regardless of whether the profits were earned before or after 1 April 2008.

Undistributed Profits Taxed Twice

But it doesn’t end there; while the IRD has capped the imputation credits attached to dividends distributed after 31 March 2010 at 30% it still requires the company to ensure that any dividends paid after that time have a full 33% credits attached. To do this companies will be required to deduct 3% withholding tax which has to be paid to the IRD by the 20th of the month after the dividend has been paid or credited.

In the case of undistributed profits earned prior to 1 April 2008, which have already been taxed at 33%, it means the 3% withholding tax imposed is a second round of tax on the same profits. The solution to avoid the imposition of withholding tax on profits already taxed at 33% is to pay a dividend from these undistributed profits before 31 March 2010.

Undistributed Profits Earned After 1 April 2008

Undistributed profits earned after 31 March 2008 can only have imputation credits attached at 30%, but the company is still required to ensure tax credits of 33% are attached. This means 3% withholding tax must be deducted and paid to the IRD by the 20th of the month following payment of the dividend. Penalties and interest will be charged for late payment of any withholding tax deducted.

Timing Issues

Payment of dividends is normally undertaken as part of the annual end of year account preparation process, when the company’s result has been established.

However, under the new rules a timing issue arises between when accounts are prepared and a dividend is paid, and when the payment of the 3% withholding tax must be paid to the IRD. For example when a company’s 31 March 2010 accounts are prepared and a dividend is paid any withholding tax relating to the dividend would need to be paid by 20 April 2010. This would be impracticable to do under normal circumstances. Therefore we recommend that clients with substantial retained earnings consider preparing interim accounts prior to year end to avoid incurring penalties and interest on withholding taxes required to be deducted on dividend payments.

Action Plan

If you think you have substantial undistributed retained earnings we recommend that you contact us to put in place a plan to avoid double taxation on dividend payments and reduce your exposure to penalties and interest.

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TAXING MATTERS

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

Redundancy Tax Credit

A tax credit for being made redundant has been available from 1 December 2006. Qualifying employees receive a tax credit of 6 cents in the dollar on qualifying payments up to a maximum claim of $3,600 per redundancy (covers a redundancy payment of $60,000, the maximum to which a credit can be applied).

Employees can generally claim a tax credit if their employment was terminated because their position was surplus to the employer’s requirements, and the redundancy payment compensated the employee for their loss of employment.

To apply for a redundancy tax credit an IR524 form should be completed, this can be completed and submitted to the IRD at anytime.

IRD Number Applications for Individuals

From February 2008 changes were made to the application process for IRD numbers for individuals. From that date a tax agent was no longer able to apply for an IRD number on behalf of an individual.

Under the new process, identification documentation (along with form IR595) must be taken by the individual to an Inland Revenue appointed verifier. These are AA Driver Licensing Agents, PostShops and other selected New Zealand Post retail outlets.

Non-deductible Expenditure

The following expenses are not deductible for tax purposes:

• IRD penalties including late filing and late payment penalties.
• Parking and speeding fines.
• Premiums relating to personal sickness or accident insurance policies.

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

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UHY HAINES NORTON IN THE COMMUNITY

Don Oliver Youth Sports Foundation Awards and Fund Raising Dinner

UHY Haines Norton has once again been pleased to be associated with the recently held Don Oliver Youth Sport Foundation Fundraising Dinner which was held at The Trusts Stadium, Waitakere. UHY Haines Norton Director, Kerry Tizard has been a Trustee for over 10 years.

The Foundation issues annual sporting scholarships to local athletes to assist them to fulfill their sporting dreams and goals.

This year scholarships in excess of $20,000 were awarded to recipients covering a wide range of different sports including athletics, weightlifting, mountain biking and badminton.

We would like to congratulate all the scholarship winners and wish them well as they purse their sporting ambitions.

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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 is an accounting and business advisory firm based in Henderson, West Auckland. We specialise in providing accounting, tax, consultancy and audit services. We are part of the worldwide association of UHY Haines Norton firms operating in over 180 offices based in more than 60 countries around the world.