Business and Tax Updates March 2023: IBBZ Accounting

Summary:

Financial year 2023 is about to end. The world economy and New Zealand economy is in weird situation. All the scholars and academics are pointing towards recessions but the impact/effect of it is yet to be seen.

Business Updates 

1. Property Market: Increasing interest rate has been a major worry for everyone. The scholars and property gurus are predicting major correction in the property market. At a time of writing interest rate is looming over 6.5% with an expected rise to 8.5% by mid next year. The talk of the town is how much this will lead to property price correction. In my view, it has happened before the property market go through a cycle boom, bust and recovery. It has always gone towards upwards and onwards. From now until late next year there would be good deals to buy, but current tax regime is not favourable to investors. As a property investor few things can be done mitigate your risks:
   
   
   1.  Break your mortgage into chunks and fix it into different rates so that you can hedge yourself from a sudden rise or a fall in the interest rates.
   2. You can have some part of mortgage on the revolving credit. Unused/spare portion of your cash can be used to lower your interest expense. You only pay what you use.  
   3. Shop around some banks were offering 4.99% interest, banks do offer some backdoor deals to certain customers. So, if you have a good equity then shop around and get a better deal.
   4. Look into paying off the principal faster and sooner. So that you offload the liabilities.
   5. Consider sale. Look at the problem making property if you cannot afford to keep it, its better you sell it now.
   6. If you have a bigger section investigate how you can use part of the section to have another dwelling so that rental income can be increased.
   7. If your property is in high demand areas you can try Air BNB, the rental yield seems to be slightly higher than normal. This way you can make more money from it.

Above all a million-dollar question is what would happen to the property market. Future is uncertain and no one knows this answer. It seems the market will stay where it is, some distressed deals will come in the market. But majority of people will hold on to their investments. Once the interest rates start coming down, the property market will pick up again.
 

Tax Updates

Tidy your books before 31st March
 
In a week’s time we are approaching end of year. Some tricks you can use to lower your tax bill.

1. Buy stock, stationery etc, and make payment to suppliers before 31st March so that we can get the expense.
2. You can defer the billing to your customers after 31st March so that the revenue gets into next year of billing.
3. Go through your Aged Receivable history, its good time to get rid of the invoices which are not likely to be paid.
4. Go through your fixed assets register, dispose the assets that are no longer in use. And let us know to book loss on disposal. Purchase new assets if you were planning to buy those.
5. Defer paying yourself so that we don’t get this amount booked into drawings. You can withdraw money in April. This way your shareholder current account will not be affected, and your balance sheet will look good as cash in hand is an asset.

New Invoicing Rules are coming from 1st April
 
The new GST invoicing rules will allow greater flexibility and easier record keeping. Invoices compliant with the current rules will also be compliance with the new rules. New terminology is being introduced.
The new terms will include:

1. Taxable supply info instead of tax invoice
2. Supply correction Info instead of Debit/Credit note
3. Buyer created taxable supply info instead of buyer created tax invoice
   
   

For taxable supply Information, a minimum set of information must be kept by buyers and sellers as evidence of a transaction. The new rules will also mean that the required info can be held in other forms such as bank statements, contracts and supplier agreements.
The information required is dependent on the value and type of supply.
From 1 April 2023, the thresholds are :

1. $200 or less
2. Between $200 and $1,000
3. More than $1,000

 As the value of the supply increases, the taxable supply information required will also increase. If you cannot meet the usual requirements for taxable supply of information, you can apply to IRD for approval to provide other information instead.


Claiming GST on Mixed Use Assets

The Current Situation on GST apportionment Rules
As GST is not a tax on production, businesses are able to claim input tax deductions on business expenses used in their business. For those assets that are used for both private and business use, the deductible amount is estimated based on an estimated percentage of business use. If the estimate is incorrect, the difference must be accounted for at the end of the year. These current rules are complex, create high compliance costs and in some cases large and unexpected GST liabilities.

The Proposed Amendments to GST Apportionment      
The proposed changes to GST apportionment and adjustment rules would reduce compliance costs imposed on businesses and promote fairness. The changes include:

• Principal Purpose test for goods/services obtained for $10,000 or less allowing registered person to claim a full GST input tax deduction
• Allow GST registered persons to elect to treat assets that have mainly private or exempt use as if they have only private/exempt use

IBBZ Updates

1. We will be sending provisional tax reminders soon. We will also check which clients needs to pay terminal tax and we will be sending reminders to them.
2. 31 March is busier period for us we will be doing GST of all 2 monthly and 6 monthly clients.
3. A team building activity for end of year is a usual thing for us, we will be planning this in April.