What is Bookkeeping?
Bookkeeping is the day-to-day accounting administration of a business, such as Paying bills, raising Sales invoices and managing cashflow, which are necessary for any business to carry out on a regular basis, in order to ensure that:

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Why is Bookkeeping important?
Failure to undertake bookkeping activities can result in:

What is the difference between Bookkeeping and what my Tax Accountant does?
The services your Tax Accountant provides are the filing of your annual Tax Return and the provision of tax-related advice, including trusts and company structures. Tax Accountants are specialists who keep up to date with all tax-related developments. Their expert advice can save you money on your taxes.

Why should I outsource my Bookkeeping?
Bookkeeping is frequently carried out by Business Owners or their family members. Often they do not understand the importance of the key activities, or do not have the time to do all of them. Employing an experienced bookkeeper in-house can be expensive. That cost is not just comprised of salary, but the other costs in time and money involved to place classified ads, interview, screen, test and train an employee, payroll taxes, ACC and additional hardware and software. Additionally, there are employee holidays and sick days to consider, along with the ongoing management of the employee.

Why do I have GST to pay when I have no money?

This is a common question when GST is due and the bank account is empty. You feel as though you are making no money for yourself, only for the IRD. It is important to put aside GST out of every banking you make. If you are a labour intensive business with little costs apart from labour then you need to put a 1/9th of all bankings into a separate special purpose account. If you have significant purchases and running costs you can put 5% of bankings aside. Where you have purchases and running costs that attract GST (i.e. you pay GST when paying for the items) then you have contra GST to claim against the GST you charge. It is an easy trap to spend all the money as you receive it - you must analyse your money to find out what portion is available for drawings, debt repayments, running costs etc including GST and income tax.


What is fringe benefit tax?
Fringe benefit tax (FBT) is a tax on benefits that employees receive and enjoy as a result of their employment. FBT replaces the PAYE tax that would be deducted from the employee if the employee was given the money to purchase the benefit as part of salary or wages instead of the actual benefit.

Who is Liable?
Employers and companies are liable to pay FBT on benefits provided to employees or shareholders or other people associated with the business. These benefits include provision of a car, low interest loans and discounted products. For more information see the section of the IRD website.

FBT rates
You have choices regarding the rate of fringe benefit tax you use, depending on which type of return you file. You should also be aware of the rates required for major shareholder-employees. For more information see the section of the IRD website.

When is FBT payable?
If you are liable for FBT, you must file regular FBT returns. These may be:
  • for each quarter
  • for the income year, or
  • annually

Note for any type of FBT return, where fringe benefit tax is not paid by the due date, late payment penalties will be charged.

Are there any benefits to you?
When you pay FBT on a vehicle you are then able to claim 100% of all costs incurred in relation to that vehicle including registration, insurance, fuel, HP interest and depreciation. You are not required to run a logbook. You can claim GST (if registered) on the purchase.


New Business
A popular misconception is that you have no tax to pay for the first two years in business. While this can be true in terms of due dates you still incur tax liabilities from the moment you make a profit or taxable income. It is very important to be aware of how much profit is being made at all times so that an accurate tax savings program can be put in place immediately rather than wait until you have incurred a large bill on due date. The two-year delay comes about by the payment system and provisional tax regime.

Existing Business
Once you have been trading for more than two years you are well in the system for tax payments on certain due dates. You become liable for Provisional Tax when your Residue Income Tax (RIT) is above $2500. RIT differs from Terminal Tax when you have paid some Provisional Tax for that particular tax year. Terminal Tax is the difference between the total tax due on your total taxable income (from all sources) and tax paid at source (i.e.. IR12 or interest) and provisional tax paid for that year. You can end up in a refund situation if you have paid more tax than you were liable for.

Why do I have to pay tax when I have taken no drawings?

Tax is payable on profit. Profit is the difference between income and expenses incurred to make that income. The amount you take in drawings does not affect profit. There are three types of transactions:
“ Revenue - this includes income received (turnover) and running cost such as vehicle expenses, purchases, wages, bank fees etc. The net result of these transactions is your profit or loss - or your taxable income. Your cashflow profit and loss statement or statement of financial performance show these.

“Capital - these reflect the structure of your business in terms of assets and liabilities. These entries are shown in your statement of financial position or on the bottom part of your monthly reports.

“Equity - these are items of a personal or private nature eg. drawings, tax and capital introduced.

Drawings is not a revenue item and therefore does not affect profit or tax liabilities. If you take too much profit in drawings your tax does not go up but you will be having difficulty paying your creditors and meeting commitments. Again we remind you it is important to know what profits you are making at all times so you are able to manage your cashflow.

When do I have to run a vehicle log book?

Sole-traders and partnerships may have to run logbooks if the vehicle they use for business is also used for private running. A logbook is required to be kept for 3 months every 3 years. You start with the kilometres at the start of the 3 month period then record the number km travelled that day and the reason for the trip. At the end of 3 months the total private km divided by the total km travelled during that time will give you the private use percentage eg.

If your situation changes within the 3 year period after that then you will need to do another log book. Companies do not have to do a log book, they are liable for FBT instead. Shareholders are deemed to be employees of the company and are therefore subject to FBT for cars available for private running.

If I spend lots of money on my business does that come off my tax?

When you spend money on the business itself then it is either capital or revenue in nature. Revenue items are deducted straight off the income for the amount you spent (less the GST) while capital items are deducted over the life of the asset by way of depreciation.
The amount of tax relief is not equal to how much you spend, your profit is reduced by that amount but the tax is reduced in proportion at the tax rate that applies to you.

Tax Calculator

Income Tax Calculator
Use income tax calculator to work out income tax and income tax rates for any income year from 2007 to 2016.

This calculation doesn’t take into account any tax credits which may reduce your tax. It only calculates the income tax on the taxable income you enter.

When to use this calculator:
  • If you're completing an income tax return, and
  • You are an individual person, a company, a trust or an unincorporated body, and
  • Once you know what your total taxable income is, then you can work out the tax on that taxable income.
For more details see the section of IRD website

Personal tax Calculator
Use personal tax calculator to check if you've paid the correct amount of tax, or whether you'd have a refund or tax to pay. If the result of your calculation is a refund, you’ll need to request a personal tax summary. If the result of your calculation is tax to pay, you don’t need to do anything. Find out whether you’ll automatically be sent a personal tax summary or whether you must request one.

What you will need:
  • Your income details for the year
  • Any interest, dividend or taxable Maori authority distribution details
  • Whether you’re entitled to one of the low income rebates
  • Details of any expenses you can claim
For more details see the section of IRD website

Home-Based Boarding Services Calculator

Use home-based boarding services calculator if you have paying boarders living in your home and want to find out if you are required to return income using the standard cost basis for an income year. Note this calculator result is as accurate as the information you enter. If you leave out some income, the calculation will be incorrect.

When you have paying boarders living in your own home you must pay tax on the profit (taxable income) that you make.

There are two ways you can work out the amount of taxable income:
  • Keep a record of all your household expenses and payments received for boarding services. Work out the proportion of expenses that applies to the boarders and deduct that amount from the total payments received for the year, to arrive at taxable income.
  • Use the standard household costs determined by IRD and deduct these costs from the total payments received, to arrive at taxable income.
For more details see the section of IRD website

Tax and Property Transactions

Income earned from property sales is like any other income. You may have to pay income tax on it.

If you buy a property with the firm intention of selling it when prices rise, to make a gain from the increase in its value, the profit is likely to be taxable. There are special rules for people in the business of dealing in, developing, or subdividing land or in the the building business, and for people associated with them.

To help you understand whether you should be paying tax when you sell a property, use the property decision tree and see the IR313 under ”forms and guides”, your guide to your tax obligations when buying and selling residential property.

To learn about the tax rules that apply to property, including when you need to pay tax on property sales, the tax rules for qualifying companies and rental properties see the section of IRD website

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