Business and Tax Updates September 2022: IBBZ Accounting

Summary:

Day light saving is upon us, so getting an extra hour would be nice. However, the concept of seasonally adjusted the clock has always been controversial. Some people love it, but other companies that it messes with your circadian rhythm and has negative health effects.

In business updates: Tips to improve mental health for small business owner, Things most lenders look for when applying a loan for business, RBNZ update for lifting OCR.

In tax updates: Deductibility of overseas travel expenses, Travel expense- deductibility of a companion travel cost and Income tax and GST - Treatment of meal expenses.

We are working to ensure 2022 tax returns to be filed on time.  

 Business Updates  

1. It’s a mental health week. Business NZ has tips to improve mental health for small business owner. We are often overwhelmed with multiple things.

   The tip is “Do not get overwhelmed by all of the things you ‘should’ be doing for your mental health. Sometimes less is more, so pick one or two things that interest you and try them.”

   For instance, if you think breathing exercises might help, just do that.

   Or you might be keen to expand your network. Options to choose from include:

   a. organising a regular coffee catch-up with another business owner

   b. seeing what events your local Chamber of Commerce has coming up

   c. tapping into your industry association or professional body.

   This will help combat social isolation as well as keep you up to date on new developments and put you in touch with your peers.

   The idea is keep talking. Call for free support to 0800 543 354 or text 4357.
   
   
   

2. Applying for a loan this is what lenders looks for. In research conducted by Business NZ, most lenders commented on setting out your vision, purpose and why you need funding is a key part of a successful finance application. Most lenders who took part in this research had a list of four to five things they wanted to understand about a business:
   

   a. Motivation: Why are you in business and what is your vision for the future?

   b. Capability: What experience and skills do you and your staff – including advisers – have? What technology do you use? Have you developed any processes to make your business run better?

   c. Financial position and performance: What are the business’s current financial position i.e. what is the state of the balance sheet (assets and liabilities)?

   d. Personal finances: You might also be asked to share details of your personal spending and financial habits, such as showing a history of saving and repaying debt.

   e. Financial forecasts: Lenders commonly want to see a financial forecast for the next 12 months.

   f. Purpose: What is the funding for? How will the money be used and, importantly, how will you be able to pay it back?
   
   
   

3. RBNZ would do next update of OCR on 05 October 2022 which is likely to go up from 3%. The current inflation rate is 7.3% which is quite high. The expected range of which is 1-3%
   

   a. NZD is quite low which is bad for imports, but exporters and tourist operators welcome this.

   b. Labour shortage, general slowdowns is a key concern for business owners.
   
   

Tax Updates 

1. Deductibility of overseas travel expenses: IRD issued a guidance of deductibility of overseas travel expense. The key point is here is the overseas travel could be a business and there must be a sufficient nexus with income
   
   a. Costs are usually deductible in the income year they are incurred. However, where costs are prepaid, deductions may be spread over multiple income years. This applies to advance bookings for travel and accommodation over $14,000, or to bookings that are for more than six months after a taxpayer’s balance date
   
   b. Apportionment; dual purpose. One way of apportioning overseas travel costs is an apportionment based on the number of days spent on business as a fraction of the total number of days spent on travel. This method was accepted as a reasonable method of apportionment on the facts considered in Case G5 (1985) 7 NZTC 1,011.c. Capital in nature: The capital limitation denies a deduction for costs to the extent to which they are of a capital nature.
   
   

2. Travel Expense- Deductibility of a Companion travel cost. Income Tax- Deductibility of a companion's travel expenses a detailed analysis of the travel expense deduction is discussed in the IRD guidelines. Case 16 and Case K75 both concern the deductibility of a companion’s overseas travel expenses. Basically, the key point is:
   
   a. In most cases, the companion’s travel expenses will not be deductible. If the
   
   b. companion is accompanying the taxpayer simply for companionship or to attend social functions, then this expenditure will not have a sufficient nexus with the taxpayer’s business or income-earning activity.
   
   c. However, a deduction may be permitted where the companion supports the taxpayer, to a reasonably substantial degree, in the business being undertaken. The companion does not need to be an expert in the affairs of the business, but they do need some knowledge of the business being undertaken or they must possess some special skill or expertise to be able to provide support in a material way. If these qualities are present, then the Commissioner considers a sufficient nexus will exist between the companion’s travel expenses and the taxpayer’s business or income-earning activity.
   
   

3. Income tax and GST – Treatment of meal expenses IRD issued interpretation statement explaining the meal allowance and its tax treatment. IS 21/06
   
   a. This statement covers the income tax and GST treatment of meal expenses incurred by self-employed persons. It also discusses the treatment of meal allowances paid to employees to illustrate the differences with the treatment of self-employed persons, and the treatment of entertainment expenditure for the same reason.
   
   b. the Act denies a deduction for an amount of expenditure or loss to the extent to which it is of a private or domestic nature (the “private limitation,” s DA 2(2)
   
   c. There are limited circumstances where amounts expended on food may be deductible, such as where the requirements of a taxpayer’s business imposed extra meal costs because of a remote working location or unusual working hours
   
   d. Employees receiving meal allowances or reimbursements while performing their duties (deductible expenditure to the employer, exempt income of the employee, not subject to FBT); or
   
   e. “Self-employed” persons incorporating a closely held company and becoming an employee to receive the same treatment as any other employee.  

IBBZ Updates

IBBZ has been selected as a FINALIST in ‘Excellence in Customer Service Delivery’ at the Westpac Auckland Business Awards 2022 – South and East region.