Financial Year-End Tax Planning: Tax Planning Strategies for New Zealand Businesses

As the end of the financial year approaches in New Zealand, it’s crucial for businesses to implement effective tax planning strategies. At Business Like NZ Ltd, we understand that navigating year-end tax considerations can be challenging. This comprehensive guide outlines key areas to focus on before March 31st to optimize your tax position and ensure compliance.

Understanding Contract Retentions

Have you recently invoiced for work that includes retentions not payable until next financial year? It’s important to clarify when these amounts become taxable income.

Retention payments are typically taxable in the year they become receivable, not when they’re actually received. If your contract states retentions are payable this tax year, they’ll be considered taxable income for 2024-25, regardless of when the money hits your account.

Unsure about the timing of your retention payments? Contact our team at Business Like NZ Ltd for personalized advice tailored to your specific situation.

Managing Employee-Related Expenses

Holiday Pay and Other Employee Benefits

Proper management of employee-related expenses can significantly impact your year-end tax position. You can claim deductions for:

• Holiday pay
• Bonuses
• Redundancy payments
• Long service leave

The key requirement is that you must have committed to these payments by your balance date and actually pay them within 63 days after year-end.

Ensuring Correct Holiday Pay Calculations

Accurate holiday pay calculations are essential not only for tax purposes but also for maintaining good employee relations. Errors can lead to time-consuming corrections and potential compliance issues.

For detailed guidance on holiday pay calculations, visit the Employment NZ website which offers comprehensive resources to help you meet your obligations as an employer.

Leveraging Credit Notes and Expenses

Use of Credit Notes

Take a moment to review any credit notes issued to customers after your balance date. See if there are any cases where these can be applied to the current tax year, potentially reducing your taxable income for 2024-25.

This strategy requires proper documentation, so ensure all credit notes are properly recorded in your accounting system.

Prepaying Expenses

Consider prepaying certain expenses before March 31st to bring forward deductions. Common items that can be prepaid include:

• Stationery supplies
• Postage
• Courier charges
• Small business subscriptions

This approach allows you to claim deductions sooner rather than later, potentially reducing your current year tax liability.

Managing Debtors and Bad Debts

Before the financial year ends, conduct a thorough review of your accounts receivable. Identify any outstanding debts that are unlikely to be paid and may qualify as bad debts.

To claim bad debts as a deduction, you must:

1. Write them off in your accounting system before March 31st
2. Have evidence showing you’ve taken reasonable steps to recover the amounts
3. Maintain clear documentation of your decision-making process

This proactive approach ensures you don’t pay tax on income you’ll never receive.

Addressing Fixed Assets and Tax Losses

Writing Off Unused Assets

If your business has assets that are no longer being used, you may be able to write them off for tax purposes. This could include obsolete equipment, outdated technology, or damaged items that aren’t worth repairing.

A year-end review of your fixed asset register could identify valuable write-off opportunities.

Managing Tax Losses

If your business is facing a loss in the current financial year or has tax losses from previous years, several strategies may be available:

• Loss carryforwards
• Loss offset elections
• Subvention payments

These mechanisms can help manage your tax position across multiple years or related entities. Contact us at Business Like NZ Ltd as soon as possible to discuss your specific circumstances and the best approach for your business.

Additional Tax Planning Strategies to Consider

Repairs and Maintenance

Consider completing any planned repairs or maintenance before year-end to secure deductions in the current tax year. This category can include:

• Physical repairs to business premises
• Equipment maintenance
• Software development and improvement costs

Timing these expenditures strategically can improve your immediate tax position.

Corporate Governance Matters

Dividends and Imputation Credits

Review all dividend payments made during the year before March 31st. Remember that imputation credit accounts must not have a debit balance at year-end, or penalties may apply.

Learn about imputation credits in our article: Dividends and Imputation Credits

Also, take time to review potential deemed dividends, such as overdrawn shareholder current accounts where no interest has been charged. These situations can create unexpected tax liabilities if not properly managed.

Inventory Management

Effective inventory management before year-end can have significant tax implications:

• Consider disposing of obsolete stock before March 31st
• Alternatively, write down stock to its net realizable value (the lesser of cost or market value)

Small businesses may qualify for simplified inventory rules. If your stock is worth less than $10,000 and your annual turnover is under $1.3 million, you won’t need to account for stock movements for tax purposes.

Claiming Home Office Space

If you work from home, you can claim a portion of your mortgage interest payments, rent, rates, utilities bills and insurance.

You’ll need to provide information on how many square metres your home covers, and what percentage of that space is used for work. Keep in mind if it has changed since last year. If you’re a tradie who uses garage space, you can claim that, too.

Learn more about home office claims in our article: Home Office Tax Deductions in NZ: A Complete Guide for Self-Employed Kiwis

Fringe Benefit Tax (FBT) Considerations

The March quarter FBT return is the final quarterly return for the tax year and typically requires a comprehensive wash-up calculation. Review all FBT items and consider potential exemptions that might apply to your business.

Proper FBT planning can identify opportunities for legitimate reductions in your FBT liability.

At Business Like NZ Ltd, we’re committed to helping Auckland business owners navigate these year-end tax considerations efficiently. Implementing proactive tax planning strategies before March 31st can result in significant savings and ensure you meet all compliance requirements.

Contact our team today for personalized advice tailored to your business needs.