The tax year end is fast approaching. Carl Seymour, Senior Manager, KPMG Business Advisory, looks at some of the important aspects companies need to consider before the end of this tax year.
With 31 March representing the tax year end for the majority of taxpayers it is time once again to consider end of year matters and to tidy up your accounts in anticipation of the financial year end.
March 31 is in some cases a crucial date for getting certain things done and the date is quickly approaching.
Imputation credit account and dividends:
Companies have until 31 March 2010 to distribute imputation credits that arose based on the old company tax rate of 33 per cent. From 1 April 2010 imputation credits to be distributed are limited to the equivalent of 30 per cent, in line with the current company tax rate. Any imputation credits at 33 per cent not distributed prior to 31 March 2010 will result in forfeit of credits of 3 per cent.
Irrespective of your balance date, you also need to ensure that your ICA balance is not in debit at 31 March. If an ICA has a debit balance at 31 March, further income tax, equal to the debit balance, must be paid together with a 10 per cent penalty. A voluntary payment prior to 31 March sufficient to clear the negative balance can avoid the penalty tax.
Loss offsets and subvention payments:
Payments in respect of loss offset and subvention payments recorded in group companies 2009 income tax returns must be made by 31 March 2010. In order for a subvention payment to be effective for tax purposes, the physical payment must be made by 31 March of the following year.
In some cases the tax return is completed to include the effect of the subvention payment. However the actual payment is not made by the deadline. The effect of this non-payment is that the subvention is deemed not to have occurred.
To claim a tax deduction for a bad debt you need to ensure that the debt is physically written off your debtors ledger prior to year end. There should also be evidence that you have taken reasonable steps to try and recover the debt prior to writing it off.
Fixed asset registers should be reviewed for accuracy. Assets can be written off if they meet the following criteria:
• The asset is no longer in use by the business; and
• The business does not intend to use the asset in the future; and
• The cost of disposing of the asset is more than its disposal value.
Details of any fixed asset purchases or sales which have occurred during the year should also be recorded in the fixed asset register. The repairs and maintenance expense account should be reviewed to identify any purchases which should be capitalised as a fixed asset rather than being expensed.
These are expenses that have been paid for in the current year, but relate in part to the next financial year. Under current tax rules certain prepaid expenses can be claimed in the current year.
Any amounts owing to employees at year end, such as holiday pay, long service leave or bonus payments, are deductible in the current year as long as they are paid within 63 days of balance date. You should consider the timing of bonus and other employee payments if applicable.
Some entertainment expenditure is only 50 per cent tax deductible. So it's important that you identify and narrate why and how the expense was incurred to ensure that it's correctly treated.
A GST adjustment must also be made in respect of the non-deductible amount.
Trading stock (excluding livestock) on hand at year end must be valued at the lower of cost or realisable value. General provisions for obsolete stock or stock write downs are not allowed as tax deductions. Therefore, prior to year end it is important to perform a stock take and ensure all obsolete stock is physically disposed of, or written down to its net realisable value.
Taxpayers with a turnover of less than $1.3m during the year can value their closing stock at the opening stock value, as long as the closing stock can be reasonably estimated to be worth less than $10,000.
Fringe Benefit Tax reminder:
31 May 2010 is the due date for filing and paying 4th quarter FBT returns. The election to use the multi rate FBT rate is made when filing the 4th quarter FBT returns and paying at the FBT rate elected.
In our experience, many clients do not use the multi rate rules because of the perceived complexity. However, we are often able to gain FBT savings by using the multi rate provisions.
There are quite a number of other issues that need consideration before the financial year end. So it's vital that you start preparing now!