Best practices for heading into the New Zealand tax year

Transitioning into the new New Zealand tax year is a prime opportunity for business owners to adopt strategies that not only improve operations but also enhance financial health and potentially lead to tax savings. ​

Here we unpack six strategies designed to position your business for success in the upcoming financial period.​

Having a good grasp of your tax responsibilities means knowing when you have to file a tax return, when you need to pay your tax liability, and the period which this tax return covers. ​

In New Zealand, all business entities, including sole traders, companies, partnerships, and trusts, share the same financial year, which runs from April 1st to March 31st of the following year. The deadline for filing tax returns is March 31st the year following, with the final tax payment due on April 7th, provided you are registered with a tax agent and have an extension of time (EOT) in place. Failure to file by the due date may result in the loss of the EOT, shifting the next tax return deadline to July 7th, and advancing the tax payment due date to February 7th. ​

Read more: 2024 tax year dates in New Zealand​

If your end-of-year tax bill is over $5,000, then you will also have to pay provisional tax - tax in advance for the following financial year. This can be especially difficult for new businesses as you can end up paying your current year tax and provisional tax in the same year - two years worth of tax in 12 months. Make sure you start preparing and putting money aside for this from the date you start trading.​

If you have a standard March balance date, the provisional tax is due in August, January and May. The exception to this is if you file GST returns six monthly - in this case you make two provisional tax payments in October and May.​

Read more: Residual vs Provisional vs Terminal taxes – confused?​

Directors of companies should be aware of the dates above for their income tax return, and also know the tax obligations for their company. ​

Individuals, trusts, and companies in New Zealand can apply for a different balance date than the standard end of the financial year, but must provide a valid reason for the Inland Revenue Department (IRD) to approve this change. If granted, their provisional tax dates will also shift accordingly, allowing them to select any month of the year as their new financial year-end.​

For both sole traders, companies, and trusts, registering for GST or having employees introduces additional tax obligations.
Admittedly, keeping these dates and tax obligations clear can be a challenge, underscoring the importance of either staying ahead yourself, or engaging a dependable accountant to track these deadlines for you.​

In order to accurately calculate your tax liability you must maintain precise financial records. ​

A common challenge for many business operators is differentiating between business and personal expenses. This distinction is paramount, irrespective of whether you're a sole trader or managing a company. Ensuring a clear separation between business and personal transactions is fundamental.​

Utilising your business card for personal expenses complicates your tax return preparation, necessitating the removal of such transactions to accurately determine your profit.​

Similarly, if personal accounts are used for business purchases, it becomes necessary to sift through bank statements to identify these expenses for inclusion in your tax return. Blending business with personal expenses not only adds to the workload during tax season but also heightens the risk of mistakes, potentially leading to overpayment on taxes.​

While not mandatory, it is highly recommended for those operating under a limited liability company structure to maintain a dedicated bank account, given the company's status as a separate legal entity from its owner(s). Not keeping the company's finances distinct from personal funds can lead to complications with the IRD.​

While sole traders aren't legally obliged to use a separate bank account for their business, taking this step is highly advisable. The clarity it brings to your financial management can significantly ease the process of handling taxes.​

Read more: Do I need a business bank account?​

Robust bookkeeping isn't just a pillar of effective business management; it's a lens through which the financial health of your business can be assessed, guiding both operational decisions and tax liability predictions. Integrating digital platforms like Xero into your bookkeeping practices can elevate this necessary task from a mundane obligation to an efficient, routine process.​

With a current Xero file, you gain instant access to a snapshot of your business's performance, enabling the identification of trends, such as which products or services are excelling or underperforming, and providing an early estimate of potential tax dues on accrued profits. While surprises may have their charm, an unforeseen sizeable tax bill certainly does not fall into that category.​

If you’d rather do anything besides bookkeeping, or you repeatedly leave this task until year's end, engaging a professional bookkeeper could be a strategic move. ​

A bookkeeper can diligently maintain your financial records, affording you the freedom to dedicate your time to the aspects of your business that you excel in, enjoy the most, and that contribute to your revenue stream.
Read more: Bookkeeping basics: how to make bookkeeping as stress-free as possible​

Nearly every business owner, whether operating as a sole trader or within a corporate structure, recognises that taxes are levied on business profits. It's essential, then, to grasp how 'profit' is determined, with many entrepreneurs pondering over which expenses are considered allowable deductions for tax purposes.​

The key principle to remember is that expenses incurred 'wholly and exclusively' for business operations are generally deductible when calculating taxable profit.​

Consider, for instance, if you're producing bottled fruit juices and purchase glass bottles for packaging. This expense, incurred solely for your business needs, is an allowable deduction.​

This seems obvious, but complications arise when you purchase something that might be used for both your business and for personal use. For example, you might buy a car that you intend to use for your business, visiting customers and suppliers for example, but you might also intend to use it for picking up the kids from school, or your trip to Fiordland. ​

Now, depending on whether you trade as a sole trader or through a limited company, the treatment of the personal use element will be slightly different, and your accountant will be able to do the sums to work out what deduction can be claimed. In both cases, however, the tax relief will be limited if there is an element of personal use. ​

Thus, it's wise to carefully consider the dual-use nature of significant purchases throughout the fiscal year, as expecting full tax deductions for such expenditures is unrealistic.​

Familiarising yourself with the nuances of tax-deductible expenses can significantly enhance your decision-making process over the New Zealand tax year. Understanding these regulations can be complex, which is why at Beany, we provide our clients with unlimited support and advice for everyday inquiries. ​

This ensures our clients can confidently discern between deductible and non-deductible expenses, offering peace of mind that expert guidance is always within reach.​

Read more: Life hack: save time with this checklist for business expenses (FREE DOWNLOAD)​

Understanding available tax benefits such as the Independent Earner Tax Credit and R&D tax credits can be challenging, especially with the ever-changing tax laws and regulations. This is where consulting with a skilled accountant can be highly beneficial. ​

At Beany, our accountants do more than just ensure you're meeting your tax obligations through timely account and tax return filings. They are constantly updated on legislative changes and are committed to assessing your overall tax situation. ​

At Beany, we can help you to strategically allocate profits in a way that minimizes your overall tax liability, ensuring you leverage all available tax allowances and reliefs to your advantage. Contact Beany today to discover how we can assist you in navigating your tax obligations and optimizing your tax savings throughout your business journey. ​

Drafting a budget is an important practice for businesses of all scales. However, for small business owners, the sheer volume of competing tasks often relegates budgeting to the back burner, leading to situations where budgets are either hastily constructed and forgotten, or entirely neglected.​

The significance of a well-thought-out budget cannot be overstated. It serves as a financial compass, guiding cash flow forecasting and monitoring to ensure sufficient funds are on hand for forthcoming expenses, thereby averting potential cash crunches that could disrupt operations. ​

Furthermore, a budget acts as a blueprint for future planning, whether for investing in new assets, exploring expansion possibilities, or augmenting the workforce. It instils a culture of financial discipline and accountability, spotlighting areas ripe for cost reduction or efficiency enhancements, directly influencing the bottom line. ​

Moreover, a budget is instrumental in assessing business performance, enabling more strategic decision-making.​

The creation of a budget is merely the beginning. Regularly revisiting and contrasting actual financial outcomes with budgeted projections is critical. This routine check-up allows for the prompt detection of any deviations, facilitating swift corrective measures to realign with financial targets.​

A new financial year presents an ideal opportunity to implement strategies that enhance your business's financial well-being. ​

Key actions include:​

These steps can collectively equip you to approach the 2024 New Zealand tax year with confidence.​

At Beany, our commitment lies in empowering small businesses with unwavering support, offering advice and guidance to effortlessly navigate through the intricacies of tax compliance and financial stewardship. If you have any questions or you would like to learn how Beany can help you, reach out today.​