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For many years, the low value asset threshold for depreciation had been set at $500.00. This meant that everything over $500.00 had to be capitalised and depreciated as a fixed asset. The cost of many business items has increased significantly since the rules were last reviewed. At the same time, the useful life of the items has decreased. This is why the government was reviewing the rules and planning to increase the threshold.

The pandemic came along and the under review low value asset rules were a perfect option to allow some quick action to help stimulate business investment. The updated rules were one of the first COVID-19 Business Response measures, announced in March 2020.

The New Low Value Asset Rules

From the 17th March 2020, the low value asset threshold for depreciation has been increased to $5,000.00.

This is a ten-fold increase from the previous threshold of $500.00. The governments intention for this is to spur business investment. It is hoped that businesses will be encouraged to spend more in order to take advantage of the ability to expense items costing up to $5,000.00. This was a direct reaction to the drop in business confidence as a result of COVID-19.

12 Month Time-frame for New Rules

This new threshold is strictly limited and expires on the 16th March 2021. In order to expense a low value asset costing up to $5,000.00, you must purchase it on or after the 17th March 2020 but before the end of business on the 16th March 2021.

There was initially some confusion around when the rules would come into effect. This was largely due to the chaotic situation in the early days of the pandemic and the requirement for the rules to be amended by legislation. The 12-month period is as outlined above and is not in line with the standard 2020-2021 tax year.

Low Value Asset Rules from March 2021

From the 17th March 2021, the low value asset threshold for depreciation will be $1,000.00.

This is double the old limit of $500.00 and is in line with the original uplift intentions signaled before COVID-19.

There is no time limit on this adjustment. It will remain effective until varied by future legislation.

Benefits of the Adjusted Low Value Asset Rules

Benefits for Small Business Owners

If you have been put off investing in your business because you would have to wait years to claim the full tax benefits, this may be the opportunity you have been waiting for. Need a few new computers? Now’s the time to invest. Need to refresh the workspace to make it a bit more inviting and productive? Now’s the time to invest. Need to optimise your online presence for post-covid growth? Now’s the time to invest.

If you run a small business selling to other businesses, this is a perfect opportunity to market the tax deduct-ability of your products. For many savvy business owners, it might be just the sweetner they need to convince them to spend up to $5,000.00 with you.

Benefits for Residential Property Investors and Landlords

The Healthy Homes Standards are a potentially costly burden for may landlords and property investors to bear. These changes offer the ability to implement the required expenses and claim the full tax deduction in this tax year.

This means that you can invest in the new heatpump, glazing or insulation and claim the full amount as an expense (as long as it remains under $5,000.00).

The requirement for you to include a statement of compliance with the Healthy Homes Standards has also been extended by the government. You were required to comply with this new regulation from the 1st of July 2020. This has now been delayed until the 1st of December 2020.

There will not be a better time to get the required upgrades done.

Depreciation Adjustments Announced with Same Legislation

The government also announced changes to the commercial investment property depreciation rules in the same package of tax changes. This will allow depreciation in much the same was as prior to the 0% rules which were passed in October of 2010. If you would like to view the IRD information on this announcement, click here. This depreciation rule may apply to your AirBNB properties.

 

If you would like a run-through of the new rules and how they may benefit your business, feel free to get in touch with us. You can book in a free chat with one of our team or simply flick us an email.

New Zealand’s Budget 2020 was promised to be the “jobs budget” by the Prime Minister just prior to its announcement.  Unfortunately, it is difficult to see how this budget saves or creates many jobs in the short to medium term.  Of course, it must be noted that there is $20Billion+ in COVID-19 recovery spending yet to be announced and some of this additional funding could be well-targeted.

There are a few announcements that will certainly save or create jobs in the long-term.  These include:

An existing $12Billion infrastructure fund has been increased by an additional $3Billion. This $15Billion will be used to fund soon-to-be-announced infrastructure projects.  Some 1,500 projects, totaling $136Billion, have applied for a share of this funding. This suggests we may see less than 200 projects actually break ground nation wide.

This additional $3Billion will help to plug the gap that will inevitably be left by private and council infrastructure schemes that are deferred or cancelled. So this will likely save jobs as opposed to create many new ones.  However, while changes are being made to the Resource Management Act to fast-track these projects, it is still safe to assume that it will take some time for these projects to commence. This will add to short-term pressures in the infrastructure sector with skilled workers in high demand globally.

8,000 additional public/transitional homes will be built. This will undoubtedly help save the jobs of builders as some private sector projects will likely be delayed. We have already seen some developments delayed till next year at the earliest based on the prospect of falling house prices making them less economical in the short term. Like with the infrastructure boost, this will not happen overnight. The government has already demonstrated how difficult it is to build even 1,000 homes over the past two years. This suggests we may be waiting at least 8 to 16 years to see the outcome of this announcement.

11,000 “green jobs” will be created in the regions.  These will be for the likes of pest and predator control and in upgrading DOC tracks and huts.  These initiatives will add real value to the nation, but again these jobs will not be created overnight. Many of these jobs will also not be long-term. With predator free targets in place and limited land for planting trees, once the work is done what will these jobs evolve into?

$1.6b towards training – a significant investment will be made in training.  Long-term this will definitely benefit New Zealand, but it will do little to solve the immediate problems created by the pandemic.  It is also questionable whether jobs will exist for these newly up-skilled people in a potential recessionary environment. The infrastructure spending and target of 8,000 homes will give some work. However, policy and legislative pressures on other sectors to benefit from the training boost, like farming and the primary sector, will likely see less demand for jobs in this sector over time. This investment needs to be targeted to the future of work or the government needs to change its legislative agenda towards the primary sector if it wants these trainees to have somewhere to work.

Policy consultants and bureaucrats. While very little funding has been allocated towards assisting the private sector, the Government sector has been sprayed with “helicopter money”.  This will certainly support the Wellington job market and economy.

What is in Budget 2020 for Small and Medium Businesses?

Disappointingly, there is very little in this budget in the way of near-term support for businesses. However, Government spending is stimulatory and there is certainly no shortage of new Government spending in Budget 2020! There is no doubt that this additional spending will help support the economy in the long term. However, it will take some time for the stimulatory effect of that spending to filter down into the wider economy and many small businesses are crying out for help now.

In terms of short-term relief, there really isn’t much for businesses (yet).  However, here are some of the measures that were announced:

  • An 8-week extension to the Wage Subsidy for businesses that have suffered a 50% decline in revenue for 30 days prior to applying for the extension when compared to the same 30 days last year.  See below for more detail on this.  This will be a welcome relief to the accommodation, hospitality and tourism sectors who are really hurting.
  • A $400m tourism recovery fund.  This seems to be aimed mainly at accessing advice around adapting tourism businesses towards domestic and Trans-Tasman markets. There also appears to be a focus on marketing New Zealand to Kiwi’s. Unfortunately there was limited detail in the budget announcements and it seems this fund is destined to be ‘working grouped’ over the coming weeks.
  • $150m in loans to R&D providers.
  • Additional funding for WINZ to place 10,000 primary sector jobs.
  • Financial support for businesses to retain apprentices.

Overall, the $50Billion COVID-19 recovery fund includes just $4Billion in business support. With $3.2Billion of this being consumed by the extension to the wage subsidy there is certainly not a lot to be optimistic about in the short to medium term. These announcements have simply bought the government a few more weeks to come up with some targeted, practical support for the sectors most damaged by the economic shutdown.

Extension to the Wage Subsidy Scheme

From the 10th June 2020, businesses who continue to be severely affected by COVID-19 will be able to apply for another 8 weeks of Wage Subsidy. Applications will be open for the extension for 12 weeks from the 10th June 2020.

The qualifying criteria around turnover has been substantially tightened from the first phase of the scheme. To qualify, a business must have suffered a 50% turnover reduction for the 30 days before the application is made compared to the same period last year (or a comparable period for a business that is less than 12 months old or experiencing high growth before COVID-19).

The same full-time rate of $585.80 and part-time rate of $350 will apply. At this stage, we understand that all other criteria will remain broadly the same.

Hospitality and Tourism Sectors

It goes without saying that two of the worst affected sectors are tourism and hospitality.  The shift to Level 2 is only a partial relief in these sectors so the extension to the wage subsidy will be much welcomed news for these businesses struggling for survival. While the wage subsidy scheme is not without its flaws or critics, there is no doubt that so far it has saved jobs and businesses, especially in the hospitality and tourism sectors. However, many employers in these sectors are going to need more than just the wage subsidy to survive long enough to be around for the recovery.  Presumably, there will be some more targeted relief in the coming weeks, but what these sectors need the most is some certainty about when restrictions will be loosened so that they can properly plan ahead and take necessary steps to mitigate the losses until they can begin trading again.

Tax Changes in Budget 2020

No tax changes were announced in budget 2020. However, New Zealand’s debt is forecast to balloon from $118Billion to over $317Billion in the next 4 years. Core crown debts alone will be well over $200Billion, 54% of GDP. This massive increase in Government debt and makes future tax increases a very strong possibility, if not ineviatble.

Where will the Additional $20Billion+ in Spending Go from Budget 2020?

As we mentioned earlier, there is still approximately $20Billion+ in funding to be allocated. The Finance Minister suggested that there will be further announcements in the residential housing space but hasn’t really signaled where the rest will go.

Perhaps the Government wants to stand back and get a feel for how much of a positive impact shifting to Level 2 has before deciding how to spend this money.

Considerable Room for Improvement

While the government has moved quickly with things like the wage subsidy to help save jobs in the immediate term, the recent announcements in budget 2020 have very little impact where it is most needed. We will continue to monitor announcements closely to see if some targeted, long-term relief is announced to support the hundreds of thousands of small and medium businesses across New Zealand. These businesses are a lifeline for countless families and the backbone of local communities across the country. While large organisations benefit from hundreds of millions in loans and large infrastructure projects, the government has so far overlooked the little guys in their long-term plans.

We’re Here to Help

At MBP, we’re here to help. The government’s additional COVID-19 funding for the regional business partner network has already dried up after helping less than 1% of the businesses desperately in need. That’s why we partnered with local business leaders to fully fund a range of our services that are essential for business survival and success in the face of the challenges we are presented with.

If you and your business need a hand, reach out and book in a chat with our team. We’re happy to help however we can.

As a small business owner, you’re probably keeping a close eye on every cent you spend. You need to have a good eye on your income and expenses to manage your cashflow, so that’s a good thing. However, it might mean that you are wasting time micro-managing your finances and not hiring people to help give your business a boost. Hiring a bookkeeper can be a great investment fro any small business.

What Does a Bookkeeper Do?

A Certified Bookkeeper will take care of your daily business financial management. They’ll make sure your books are up to date, balanced and reliable so they can support the best possible decision making. They’ll manage your invoicing (accounts receivable), track your receipts and general expenditure and reconcile your accounts payable.

All of the frustrating daily and weekly financial tasks that you hate or that just sucks up half your day, they love doing. Not only do they love that work, they are likely a lot faster and more efficient at doing it than you are.

Hiring a Bookkeeper Saves You Time

Unless you’re a bookkeeping whizz and love those debits and credits, you might find your bookkeeping to be a headache-inducing waste of time. Chances are, you’ll put off your bookkeeping until its a massive chore. This means it takes up more time and you like it even less. Even if you do enjoy it, doing this day-to-day book work is dragging you away from the parts of your business where you should be focusing your energy and passion. Your time is valuable. You’re much better investing your time in value-adding activities like sales, networking and marketing your business.

The time you spend trying to understand your financials could be better spent on tasks you’re good at. A Certified Bookkeeper will be more efficient than you, they won’t spend all day reconciling bank accounts and attaching invoices and receipts. They’ll have it done in minutes. They won’t have as many errors and overall, they will save you a mountain of stress.

Your time, and your sanity, are worth investing in a Certified Bookkeeper.

A Bookkeeper is on Top of Your Cashflow

Hiring a bookkeeper means that you’ll always have someone with an eye on your cashflow.

They’ll help you get paid. Many small business owners have a hundred things to get on and do. It’s easy for things like invoicing and accounts receivable t fall down the list. It is essential to your business survival that you send out invoices as soon as possible. It is equally as important to follow up with late payers to see what’s going on. These are harassing calls, just a friendly, personal reminder that the invoice is outstanding and due for payment. You might feel bad doing this, which is why its the perfect task for your friendly, professional bookkeeper.

Your bookkeeper will also ensure that you don’t end up getting any of those calls from your creditors. They’ll ensure that your bills are paid on time.

Id there any better investment in your business than one that makes sure you’ve always got cash flowing and money in the bank?

Hiring a Bookkeeper Prevents Costly Errors

A Certified Bookkeeper knows their stuff. They are committed to professional excellence and undergo ongoing professional development to make them experts in their field. They won’t make the same mistakes that you’ll make, either because you’re rushed or because you haven’t got around to reading the latest 53 page IRD tax bulletin.

Some mistakes might seem small and insignificant at first. However, data entry errors, mixing up expenses and mis-claiming GST, can all quickly add up. These mistakes cost you more time and more money.

If you are doing your bookkeeping and then relying on your accountant to clean things up a year-end, you’re burning money. What you are doing is then getting your accountant to be your bookkeeper, at accountant’s hourly rates! It also takes a lot longer to unpick and re-reconcile transactions that happened months or even years ago.

At the worst end of the scale, consistent mistakes, even little ones, could flag you for an IRD audit. An audit can cost thousands to resolve, and that’s even if things are nice and tidy!

It’s best, and cheapest, to get it right from day one. Get in an expert to keep your books in order.

Certified Bookkeepers are Experts

Are you up to date on every movement in tax law? Do you understand how small changes to the rules effect your business? A Certified Bookkeeper is. They can advise you about any changes that are coming that may impact on your business and can offer insight into how to prepare and minimise any impact or maximise any benefit.

Hiring a bookkeeper can also provide you with insight into your company’s financial position. If you’re short on cash, overspending in certain areas or struggling to collect accounts receivable, your bookkeeper will tell you. They can also work with you to help remedy these issues. If there is something you don’t understand about your business finances, your bookkeeper can help to explain it to you. Because they are slightly more human than accountants, they can even explain it all in plain English, not accountantese. So your business financials will never be a mystery again.

Hiring a Bookkeeper is an Investment in Your Business

With a Certified Bookkeeper on board, you can sleep easy knowing your business books are in the hands of a professional.

Not all bookkeepers are created equal. At MBP, all of our bookkeepers are trained professionals and are Certified Bookkeepers with the Institute of Certified New Zealand Bookkeepers (ICNZB). The ICNZB ensure that they are professionally competent and that they uphold the highest standards of continuing professional development and ethics. And the best part, our Ceritfied Bookkeepers are about half the cost of an accountant, so you get exceptional value from your investment.

Want some help with your bookkeeping? Get in touch with the team of Certified Bookkeepers at MBP, or book in a chat with us today.

The government’s latest COVID-19 support package includes further measures to try and ease the pain of the lockdown. It includes ‘tax breaks’, business advice funding and guidelines for tenants and landlords.

At first glance it seems this package, unfortunately, may not do a lot for small businesses and leaves a lot to be desired. There are no in depth details available yet, so we will have to hold on, likely until 27th April.

Tax Loss Carry-Back Scheme

A large portion of the package is the tax loss carry-back scheme which will allow some businesses to access previous tax payments as refunds. Essentially this means a forecast loss in the current financial year can be offset against the tax paid on a profit from the prior year. Basically 2 tax years become 1 year.

This scheme relies heavily on perfect forecasting for more than 11 months into the future. Any mistakes in the calculations or forecasts will result in Use of Money Interest being charged by the IRD, likely back to early in the 2020 tax year when the adjusted provisional payments will have arisen originally.

This scheme has the potential to help some larger, more established businesses with steady monthly turnover year to year, but really does nothing for growing or smaller businesses with less certain profitability.

We recommend that in the short-term, your efforts are much better spent looking at ways to make your business thrive after lockdown. Don’t distract yourself with this poorly thought out policy until it actually has some usable detail or some tweaks that make it more applicable to the businesses its supposed to help.

Commercial Landlords and Tenants

The Government has announced its intention to put in place some temporary law changes to support commercial tenants and landlords impacted by COVID-19. The goal is to make it easier to keep lease arrangements and get back to business as usual after the epidemic. Many businesses have been unable to operate due to the level 4 lockdown alert, so they may have difficulty payment rent. Landlords, in turn, may have trouble making mortgage payments.

Important Note: Landlords and tenants will not receive financial support in the form of cash payouts.

The temporary bill that is set to come is designed to give commercial tenants more time to catch up on overdue rent before a landlord can take steps to evict them.

Some details:

  • For the next three months, landlords can’t apply to end the tenancy for rent arrears unless the tenant is at least 60 days behind in rent.
  • Landlords will have to give 30 days notice to cancel a lease, up from the current 10 days.

The official advice for tenants that can’t pay their rent is to let their landlord know right away. Be honest about the situation and get a payment plan in place.

If you will continue to have trouble, you may be able to access financial support from the Government’s Wage Subsidy and Leave Payment scheme that is available to eligible employers and workers.

We hope to have more details on this after April 27th, but please get in touch with us if you have any questions.

The business.govt.nz website is regularly updated with the latest COVID-19 news and announcements for businesses.

Are you Worried about Cashflow?

If you’re worried about your cashflow, please don’t hesitate to get in touch with us.

We will do all we can to help you implement cash management processes and forecasting techniques to help. There are also some finance options available to you as well. Facilities may be provided quite quickly, so just ask if you need some help and we’ll work out what’s best for you. Remember, we are in this together.

We have the ability to provide you with FREE cashflow forecasting software for the next three months. Reach out to the team to talk to us about your options.

Thank You

Thank you for your continued support and patience as we work to wade through government packages, announcements and updates each week. Please get in touch if you have any questions.

We are in this together.

The process to apply for the Covid-19 Wage Subsidy is pretty straight-forward and the turn around in payment has been very quick. We initially fielded hundreds of queries about the application process and having dealt with these are now receiving queries about how to reconcile the payments. If you use MBP for you bookkeeping, rest assured, your MBP Business Support Administrator or Advisor will deal with all the details of this for you. If you are handling your bookkeeping yourself, we have set up this hand guide to help you out and answer a few of the most common questions we get asked. If you have any queries, please don’t hesitate to get in touch with the team.

What is the COVID-19 Wage Subsidy?

Understanding what the wage subsidy is, helps to inform you how it should be treated in your accounting system and in your tax returns to Inland Revenue.

For employers, the wage subsidy is a lump sum payment that helps you to pay the regular wages and salaries to your employees over the 12 week contracted period you agreed to in the declaration. As it has been defined by the government as exempt income, the income is not declarable and the associated wage and salary expense is not a deductible expense. The easiest way to think about it for employers is that the wage subsidy is a wage expense offset.

For contractors and the self-employed, it is a lump sum payment received to help ease the loss of income for you over the 12 week period outlined in the application declaration. The easiest way to think about it for self-employed people is that it is an income replacement.

Reconciling the COVID-19 Wage Subsidy in Your Accounting System

Reconciling and accounting for the wage subsidy is an simple three step process. First, you’ll need to set up some new Chart of Accounts codes to record the lump sum and the weekly income/ expense offset. Secondly, you’ll need to allocate the lump sum to the right place. Lastly, you’ll need to account for the weekly amount of the subsidy ‘earned’ or used to help you pay wages.

Setting Up New Chart of Account Codes

You’ll need at least two new account codes to nicely keep track of the subsidy and its associated income or wage expense offset. These accounts are:

  • Current Liability style account, called something like ‘COVID-19 Wage Subsidy’, No GST. For the lump sum you receive.
  • Other Income style account, ‘COVID-19 Subsidy’, No GST. For the declarable income replacement or the wage expense offset.

If you have both regular and shareholder employees, you’ll need a separate ‘other income’ style account to offset the wages of each different class of employee as the expenses are declared in separate line items of the financial statements.

For the self-employed, it’s possible that your Chart of Accounts already has an account called something like ‘Unearned Income’ as a current liability and an account called either ‘Sundry Income’ or ‘Other Income’. You can use these existing accounts if you are not confident with adding new accounts into your accounting system.

Reconciling the Lump Sum Payment Received

The lump sum should be reconciled to the current liability account. This is because you will be using the subsidy over a 12 week period that likely spans two financial years. The part that you have not yet used to help pay your staff or that you have not yet ‘earned’ as other income is a liability you’d otherwise be required to pay back to MSD if you decided to fire all your staff or shut down your self-employment business.

Accounting for the Use of the Wage Subsidy

For employers, you’ll need to journal the amount of the wage subsidy you are using each week to help you pay your staff across from the current liability and into the wage offset account set up as an other income style of account. For example, if your weekly payroll for all staff is $4,675.00, debit the current liability by that amount and credit the other income account by that same amount. You do not need to consume the subsidy evenly over 12 weeks. You simply need to commit to your best efforts to keep all the staff you claimed for employed for at least 12 weeks. That may mean that you can use the subsidy to cover a highly paid pool of staff for 6 weeks or a lower paid pool of staff for 13 or more weeks. It all depends on the make-up of your staff pool and the needs of your business.

For the self employed, you’ll need to set up a recurring journal to allocate the weekly amount of the subsidy that you have ‘earned’ as replacement income. This will just be a simple process of setting up a recurring journal that Debits the current liability account you’ve created and Credits the other income account for the weekly amount of either 585.80 or 350.00 depending on which level of subsidy you claimed. Remember that these journals should have no GST but that the income is taxable to you once it hits that other income account. This is why its important to declare it with these weekly journals rather than in a single lump sum.

This process helps to establish an audit trail that will show any MSD auditor when you used the subsidy and just what you used it for.

Paying Your Staff with the Wage Subsidy

The wage subsidy does not change any employment law or alter your contracts with your staff.

Your staff should be paid as normal, or paid as you have agreed in writing with them to be paid, during the lock-down and beyond. If you need to agree updated terms of employment with your employees, reach out to the team at MBP. Our team of HR advisors can advise you on your options, draft the appropriate documentation and help you to communicate with your employees.

The wage subsidy simply provides you with the cash you need to keep paying your staff normally while your business activity is constrained due to COVID-19. If you wouldn’t change your payroll processes for using an overdraft to pay your employees, you wouldn’t change it for any other form of funding, like the subsidy.

The only time that the COVID-19 Wage Subsidy should be referenced in your payroll system or on your employee’s payslips is if you have no choice but to pay your employees nothing but the amount of the wage subsidy. In circumstances where a business can not afford to pay their staff at all, they are able to claim the subsidy and pay their staff by passing on the value of the subsidy and nothing more. In this instance, the employee is not being paid regular earnings and so adjustments to payroll will need to be made. Many cloud-based payroll systems have rolled out new default pay items to their systems to make this process easier. However, some have done a better job of it than others. Please double check everything and if you are in doubt, reach out to the team at MBP for some help.

Potential Implications of Taking Short-cuts

A lot of people doing their own bookkeeping (and even some lazy bookkeepers) may be tempted to take shortcuts and not reconcile and account for the subsidy correctly. This may seem harmless at first but can have a lot of unintended consequences.

For employers, receiving the lump sum in a single tax year when the subsidy period covers two tax years will throw off your payroll reconciliation. It will artificially lower your wage expense in one year and inflate your declared out of pocket cost in another. This has potential implications for your tax position as well as your ability to get financing in future.

For the self-employed, declaring the lump sum in a single tax year instead of spreading it over the full 12 week time-frame may inflate your taxable earning more than necessary in one year. This could have a considerable impact on things like Working for Families Tax Credits. So there is a chance that by incorrectly declaring the subsidy you could be losing thousands in additional tax credits.

Is the COVID-19 Wage Subsidy Taxable Income?

There is a lot of talk about the COVID-19 Wage Subsidy being non-taxable. However, this can be confusing and misleading unless you understand the subtle differences between things like non-taxable, excluded and exempt income.

GST on the Wage Subsidy

The COVID-19 Wage Subsidy is exempt from GST.

Make sure there is no GST on any of the codes you’ve created to record the subsidy.

Income Tax on the Wage Subsidy

The COVID-19 Wage subsidy is taxable in the hand of the end recipient.

For employers, this means that the subsidy is taxable in the hand of the employees you pay using the subsidy funding (through their regular PAYE deductions).

For the self-employed, as you are the end recipient, the subsidy is declarable as income for you and will inflate your taxable profit. Ensuring that you properly follow the reconciliation process above will make sure you don’t over declare your income in any tax year covered by the subsidy.

If you have any other queries or would like to discuss any specific query with the wage subsidy, reach out to the team at MBP. You can book a free 30 minute slot to discuss any issue have here.

 

This advice is general in nature and should not be relied on as a recommendation. Every situation is unique and requires tailored advice. Get in touch for a free consultation by clicking here, emailing mailbox@mbponline.co.nz or call us free on 0800 86 85 86.