Preparing for Year End & Maximising your tax efficiency
There are specific tax related tasks that you need to be considering when approaching the end of your financial year. The timing of certain expenditure when applied correctly can result in tax efficiencies. These include:
Repairs and Maintenance.
If carried out before year end, then the amount will be deductible in the current year.
The total cost of a service contract is deductible if it has less than three months to run at balance date and costs less than $23,000 for a full year.
If purchasing a fixed asset and there is a warranty or service contract, ensure the warranty or service contract is separately identified, as these are deductible.
Stationery
Prepaid stationery is deductible when purchased. If re-stocking is about to occur a month or two after balance date, consider moving forward to current financial year.
Travel and Accommodation
Advance bookings for business related travel and hotel or motel accommodation are deductible provided it is not more than six months in advance and does not exceed $14,000.
Subscriptions
Newspapers, journals and periodicals are deductible without adding back unexpired amounts. Association memberships are tax deductible provided they extend no more than 12 months after balance date and the subscription does not exceed $6,000.
Insurance
Insurance premiums are deductible provided they are not prepaid for more than 12 months and the total amount of such expenditure incurred in the income year in respect of the contract does not exceed $12,000.
Advertising
If the period of the advertising relates to no more than six months after balance date and the advance portion is less than $14,000, then it is fully deductible in the current year.
Rent
Prepaid rent is deductible provided it is not prepaid for more than six months and the amount prepaid is less than $26,000.
Consumables
Consumables used in conjunction with but not forming part of the final product can be deducted in the year of purchase, provided total stocks at year end do not exceed $58,000.
Rates
Rates that have been invoiced on or before balance date are fully deductible.
Leave Provisions/Bonuses
Amounts owing at balance date for holiday pay and long service leave is only deductible if paid out within 63 days of year end. If you want to pay staff bonuses relating to the 2024 year, they must be paid with 63 days of the business’s tax balance date to be claimable for that year.
Bad Debts
Debtors that turn bad are deductible, but only in the year that they are written off. Bad debts must be written off before balance date. Therefore, review all debtor balances before the end of your financial year and decide if there are any that should be written off.
Other Items to Consider at Balance Date:
Stock and Work in Progress
You must count and value your trading stock and work in progress as at balance date, unless it is less than $10,000 and your sales are less than $1.3 million. Keep your stock sheets to show Inland Revenue if they ask for them.
Dispose of obsolete stock now as it must be valued at its cost, unless you can prove it has a lower market price.
Fixed assets and depreciation
Depreciation is claimed monthly i.e. for each month the asset is used or available for use in the business. Depreciation can be claimed for the entire month even if the asset is not purchased until the end of the month.
Assets costing less than $1,000 (excl GST) can be expensed rather than capitalised to fixed assets.
If you are contemplating disposing of an asset (sale or scrap) at a loss, consider doing it before year end. If you are contemplating disposing of an asset for more than its book value, consider doing it after year end to defer deprecation recovered.
Higher Income & Income Tax
If your income is significantly higher than the previous year you should consider a voluntary provisional tax payment before your last instalment is due. Please contact us before balance date to discuss what your options are to minimise IRD interest.