Accounting: A Digital Transformation

Accounting: A Digital Transformation

It’s 2020 and the accounting industry is experiencing a digital transformation, one which is changing the way we function. The shift from traditional accounting to implement technology has changed the way accountants’ function on a day-to-day basis in the industry. The shift has now moved to include advisory and consultancy services. Technology has helped in automating accounting procedures to an extent where accountants can now spend more time focussing on what is and isn’t working for their clients, and provide them with valuable changes to do so.

The increase in the roles and responsibilities of a modern-day accountant requires key skills, like critical thinking, analysis and decision making. Traditionally basic accounting training consisted of auditing and tax preparation.  Technology coupled with data analysis has bought about the ability for accountants to now perform forecasting analysis to help guide business owners to make better decisions.

We’re outlining some of the major technological advancements that have been made through the introduction of new digital tools and applications, over the years which have changed the way the accounting industry functions. Some of these are tools that we use at JZR to ensure more efficiency and higher productivity levels. This lets us complete our core accounting tasks, and let us provide our clients with valuable insights and recommendations.

  1. Cloud Based Accounting: Cloud accounting is the use of the internet to permanently store data and use of business applications through a remote server. At JZR we achieve this by using Xero as an accounting software tool. It’s easy to use, and lets you access data remotely, and at any time. Data is permanently stored in huge data centres, versus the traditional system of using paper, and filing. Cloud based accounting is also extremely economical and convenient, since our clients can also access the same data to stay updated, and you only pay for what you use. Xero accounting services also lets you transform data seamlessly across its different platforms, like Xero Practice Manager for example which stores every client’s data separately can be exported to Xero’s Accounting software with just the click of a button. The software lets you invoice a particular client, therefore cutting drown preparation time massively.

 

  1. Payroll Technology: Payroll technology is another sector of accounting which has changed immensely over the last decade. Innovative tools like ‘SmartPayroll’ help in massively cutting down you would spend over manually entering and registering the data. Software’s like Smart Payroll is designed to work out payroll calculations and tax deductions automatically, saving time in payroll processing and to automatically generate payslips. It also files the payroll returns mandated by the IRD electronically so that you never miss a deadline.

 

  1. File Sharing: File sharing tools like ‘Dropbox’ and ‘Google Drive’ make sharing information and documentation easy and accessible. Common work folders can be shared by team-mates and colleagues to make sure communication lines are maintained. It also makes the possibility of working remotely much more convenient since most of the data and client files are already backed up to cloud-based platform on the internet.

 

  1. Video Communication: Video communication has also enabled accountants and their clients to converse from the convenience of their own work spaces, thus making accountants more accessible to their clients and vice versa. Tools like ‘Skype’ and ‘Zoom’ enable options like screen sharing which enables users to share their desktop screens in real time, which could be really useful while analysing statistical data or for the purpose of making presentations. It also saves time by cutting down on the hassle of travel, and thus ensures accountants get more time to be productive.

 

 

  1. Other Software Tools & Applications: There are a bunch of other software applications which further contribute to simplifying the role and job of an accountant today. ‘Docusign’ is another good example of a tool that enables it users to send, sign and approve documents from anywhere and at any time. It helps significantly in reducing the amount of paperwork and clutter. Another great tool for accountants is ‘HubSpot’. ‘HubSpot’ gives accountants and its users a chance to manage marketing campaigns from a simple dashboard that is designed to be simple to use and efficient. Tools like HubSpot now allow accountants the ability to market their businesses to prospective clients by showcasing their skillset and business propositions.

 

All in all, the industry has evolved substantially over the last decade. The industry has a strong growth potential for the future, and tremendous opportunities.

To know more about how we can use the right tools to help your business grow, get in touch with by mailing us at info@jzr.co.nz or call us at +66-9-972-2236.

Written by Rowain Pereira

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Tax Changes to Support Businesses: The Temporary Loss Carry-back Scheme

Tax Changes to Support Businesses: The Temporary Loss Carry-back Scheme

What is the scheme?

Businesses that are expecting to make a loss in 2019/20 or the 2020/21 financial year will be able to estimate the loss and use it offset profits in the past year. The scheme introduces the concept of offset years, which are the pair of years affected by the carry-back. The first year is named as the taxable income year and the second as the net loss year.

Simply put, this means that they can carry their losses back a year. This will allow the IRD to refund some or all of the tax paid for the year in which the business was in profit.

Taxpayers won’t have to rush to re-estimate their provisional tax before the 7th of May. The law change makes it possible for taxpayers to re-estimate it after the date of the final instalment. This gives them more time to work out any estimated losses for the income year 2020/21

All types of taxpayers – companies, trusts and even individuals will be able to carry-back losses. The majority of individuals who are taxed through the PAYE system do not have losses, so would be unaffected by this measure, but those what operate businesses through partnerships, limited partnerships, and look through companies would be able to benefit.

Standard late payment use of money interest would apply if the loss carry-back is overestimated. Ownership continuity, grouping, and imputation rules would also apply.

The proposed measure is intended to be temporary with the government planning to develop a permanent loss carry-back which will be applicable from FY22.

We’ve outlined the scheme through some examples below to further help you understand how it works. 

Example 1

ABC Architects is an architectural firm based in Christchurch. The business has been performing well in the last two years, but because most of its current projects are on-going (under construction), its work has dropped off due to restrictions being imposed on account of the COVID-19 pandemic. For the 2019/20 year the business is predicting its taxable income to be $5.6 million. However due to the losses that the business will incur on account of the restrictions being imposed and having no future projects in the pipeline, the business anticipates that for the 2020/21 year it will make a loss of $3.2 million.

ABC decides to carry back the anticipated loss to the 2019/20 year where the business paid a provisional tax of $1.2 million over the first two instalment dates for the 2019/20 income year and would be due to pay another $368,000 on May 7th, 2020. The firm re-estimates its provisional tax for the year, to take account for the carry-back loss which means its taxable income will be only $2.4 million ($5.6 million – $3.2 million), with the tax liability on that only being $672,000 ($2.4 million x 28%). The refund that ABC architects will receive is $528,000 ($1.2 million – $672,000) which will help provide it with funds to meet its ongoing costs.

Example 2

Jack & Austin own Model Figures Limited (MFL), a company that makes model spacecraft. They’ve had a good year up until 31st March 2020 overall, however performed really poorly in March since their customer base mainly comprises of overseas visitors. Given the current travel restrictions imposed on account of the COVID-19 pandemic, Jack and Austin do not see their businesses’ financial position recovering unless they get their online sales running or travel restrictions get lifted.

They estimate that in spite of cost cutting MFL will still make a probable loss to 31st March 2020 of at least $120,000. In the 2019/20 income year MFL used the standard method to pay provisional tax. Two instalments of $24,000 were paid on the 28th of August 2019, and the 15th of January, 2020. Jack and Austin have calculated that pre-COVID, MFL was estimated to make taxable income of $267,000, with tax payable on that amounting to $74,460, and hence they final instalment of provisional tax which amounted to $26,760 would be payable on the 7th of May, 2020.

The decide to carry-back the anticipated loss from the 2020/21 income year to the 2019/20 income year. This will give them a revised taxable income of $147,000 ($267,000 – $120,000) with a tax liability of $41,160. At the third instalment they decide to estimates MFL’s tax liability at $41,160 via myIR. This means that they would be no payment required for the third instalment, and Inland Revenue will refund MFL for an amount of $6,480 ($48,000 – $41,160).

However, by October 2020 Jack and Austin realise that the business is doing far worse than they anticipated and the expected loss is now calculated to be $170,000. While preparing MFL’s 2019/20 income tax return they reflect an increased loss in the return and hence receive an additional refund of $14,000 while filing.

When completing the 2020/21 tax return for MFL, Jack and Austin realise that the loss for the 2020/21 year will only be $110,000 given the quick recovery of the tourist industry in the first quarter of the 2021 calendar year. They complete the filing process for 2020/21, and amend the 2019/20 return for MFL. The reduce loss will now mean that the MFL has a taxable income of $157,000 ($267,000 – $110,000) and a tax liability of $43,960 in 2019/20. Since MFL has only paid a tax of $27,160, they will have a tax payable of $16,800 (which will be $5,600 at each instalment date). It will need to pay use-of-money interest on this amount over the three provisional tax instalment dates.

 

If you have any queries regarding the following, please feel free to get in touch with us on info@jzr.co.nz or call us on +64-9-972-2236.

Written by Rowain Pereira

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Govt. Announces Small Business Cash-flow Scheme

Govt. Announces Small Business Cash-flow Scheme

The government has announced a plan to provide interest free loans for a year to small businesses which have been impacted by the COVID-19 to help support their cash-flow needs and fixed costs as well.

The scheme will provide an assistance of up to $100,000 to firms employing 50 or fewer full time employees. The scheme was introduced by the government to address the needs of small and medium sized businesses which wasn’t being met by the banks in question.

The scheme will provide $10,000 to every firm, and an additional $1800 per equivalent full-time employee. To further encourage businesses the loans will be interest free if they’re paid back within a year. If the loan amount cannot be repaid within a year, then a 3% interest fee will be charged for a maximum period of five years. Repayments are not required for the first two years.

The eligibility criteria for this scheme is similar to the Wage Subsidy Scheme. In addition to this businesses will also have to declare that they are a viable business, and that the money from the scheme will be used to core business operating costs, and will have to enter into a legally binding loan contract.

Inland Revenue will administer the payments and repayments of this scheme to provide immediate support to businesses that have been adversely impacted. Applications for the scheme will be open from May12th, and businesses will apply for the loan payment through myIR.

More information on the loan, including the eligibility criteria and a calculator to determine how much a business can borrow/ qualify for will be available in the upcoming days.

Keep watching this space to know more about the scheme, and if you have any issues or queries, feel free to get in touch with us at info@jzr.co.nz or call us at +64-9-972-2236

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Further Tax Changes to Help SMEs

Further Tax Changes to Help SMEs

There’s no doubt that the recent pandemic has had a huge impact on small and medium sized businesses in New Zealand. In addition to the tax changes that were previously announced, today the Government has introduced a few more tax measures that aim to help businesses through this rough period.

We have outlined below the three key tax changes that will be relevant to small and medium sized businesses.

 

Changes to Tax Loss Continuity Rules

Previously, any accumulated tax losses were forfeited if shareholder continuity of at least 49% was not maintained when there is a change in the shareholding of a company. This significantly impacted on the amount of tax losses available to be used by companies after trying to raise capital. Start-up companies with high growth and high capital raising requirements were particularly affected by this.

The introduction of a ‘same or similar business’ test, means a business could carry forward losses. To meet the test, the business must continue in the same or a similar way it did before ownership changed. This test is modelled on Australia’s rules.

Some companies will be looking to raise capital to keep afloat now and to recover in the future. Raising capital may result in a change to the existing shareholder structure. Relaxing the rules will ensure companies in this position could carry losses forward to offset income when they return to profit.

A bill will be introduced in the second half of 2020 after consultation with tax advisors, and will apply for the 2020-21 and later income years.

An example:

A start up firm XYZ, that offers microphone and webcam software has been incurring large losses in the recent years. However, it now intends on scaling up massively given that more people are working from home and using video conferencing.

Despite having a promising early-development software, banks are unwilling to lend to XYZ without it having a firm revenue base. After approaching several investors, another video conferencing company ABC has agreed to invest several millions into XYZ for a 75% stake in the business. While XYZ does want to accept the investment, the company is wary of losing the value of its losses, which would be extinguished under the current shareholder continuity test. The governments new ‘same or similar business’ test ensures that XYZ can take on new investors without losing it losses because its business will be of the same or similar nature as the business it was operating as while incurring those losses.

Given this, the price that XYZ will now stand to receive for the 75% equity stake will be higher as the ability to carry forward losses makes the business more valuable to its investors

 

A tax loss carry-back scheme

A tax loss carry back mechanism will enable a firm to offset a loss in a particular tax year against a profit in a previous year, and receive a refund for the tax paid in a previous profitable year. The proposed mechanism seeks to provide cash to firms that make a loss in the next income year.

A temporary mechanism will be included in a bill introduced in the week of the 27th of April. Between now and then Inland Revenue will be undertaking targeted consultation with tax advisors to make the law and administrative guidance as clear as possible.

An example:

Steven’s Hospitality Limited has had a profitable year for the year ended 31 March 2020. It has not yet finalised its tax return, but it is expected to return $2m net income. Its final provisional tax payment for the expected $2 million income is coming up on May 7, where it expects to pay $250,000 in tax (it has already paid $310,000 in early provisional tax instalments).

Since the outbreak of COVID-19 the organisation has ceased operations, with no clear information on when they would be allowed to resume operations. The staff working for the organisation are still be paid (supported by the Wage Subsidy scheme). It seems that this year, the organisation will inevitably make a loss in the financial year ending 31st March, 2021. In early May, the directors meet with their chartered accountants in order to forecast certain scenarios. The scenarios anticipated in the forecast, indicate that the organisation will make a loss of $1.5 million for the year ended 31st March, 2021, although some scenarios indicate a greater loss of $2 million.

Anticipating that it will face ‘use-of-money-interest’ charges if the organisation over-estimates its loss, they decide to carry-back the more certain loss of $1.5 million to the 2019/2020 financial year, and re-estimate its income for that year to $500,000 (down from the $2 million). Since the Steven’s Hospitality Limited has already paid $310,000 in tax, it pays nothing on May 7th, and instead receives a refund of $170,000 for its earlier provisional tax payment.

Simply put, the Company returns $500,000 of income and pays $140,000 tax receiving back its earlier payments as refunds.

Allowing Inland Revenue to change due dates

The Government also proposes giving Inland Revenue discretion to temporarily change dates, timeframes and procedural requirements, such as tax return filing dates, and provisional and terminal tax dates. This provision will only apply to businesses and individuals affected by COVID-19.

The IRD will publish further guidance in the coming weeks after targeted consultation with tax advisors.

 

We hope this article has been helpful to you to understand the new proposed tax changes. If you have any queries regarding the above, or would like to find out how these tax changes will impact your business, you can reach out to us at info@jzr.co.nz or call us on 09-9722236.

 

Written by Rowain Pereira

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Economic Relief Packages Released by the New Zealand Government in Response to COVID-19

Economic Relief Packages Released by the New Zealand Government in Response to COVID-19

The New Zealand government has worked hard towards releasing certain economic packages to help businesses in and around New Zealand to sustain themselves and to help in balancing the economic distress and the financial strain the country is currently experiencing as a result of the COVID-19 outbreak.

We’re outlining the three key relief packages released by the government to help the country deal with the outbreak economically and financially.

Wage Subsidy Scheme

The Wage Subsidy Scheme was introduced by the government shortly before the country entered a lockdown. The scheme was introduced with the agenda to supports employers and their staff to maintain an employment connection and ensure an income for affected employees, even if the employee is unable to actually work any hours.

The subsidy is $585.80 per week for a full-time employee (20 hours or more) or $350 per week for a part time employee (less than 20 hours).

The payment issued by the government will be made as a lumpsum, covering a period of twelve (12) weeks. This essentially means that employers will receive a payment of $7,029.60 for a full-time employee and $4200 for a part time employee.

Businesses that opt in for the wage subsidy scheme are required to note that anyone accessing the scheme must still undertake to pay their employees at least 80% of the pre-COVID income. In case that is not possible in cases where certain businesses have had no activity whatsoever during the shutdown period, must still pay the entire wage subsidy amount to each affected worker. Businesses must also undertake to retain employees during the period of the wage subsidy. In addition to this, the previous separate sick leave payment scheme has also been folded into the wage subsidy scheme.

To know more details regarding the eligibility criteria head on over to, click here.

It is also important to read the declaration before signing up for the wage subsidy scheme and ensure that you match the right criteria, since signing the declaration without meeting the eligibility criteria may have criminal implications.

To learn how to apply for the wage subsidy scheme, click here.

 

Mortgage Holiday Scheme

The mortgage holiday scheme was introduced by finance minister Grant Robertson in collaboration with New Zealand banks, who agreed to give their customers a six-month holiday from paying both the principal and interest on their mortgages, since most kiwis have their income affected by the COVID-19 outbreak.

However, people who opt for the six-month mortgage holiday will add their pending interest during the six-month scheme to the principal amount on their mortgage, which would end up increasing their loan amounts, or extending the period of repayment on these mortgages. It is important to note that the scheme only defers the payments, and that payments be paid once the scheme ends.

It is also to be noted that different banks will have approaches to implementing the scheme, and will have a different assessment criteria for every customer who approaches them based on their suitability.

It is hence prudent for every person, availing of the scheme to note what the terms and conditions that are being offered by the bank while implementing the scheme for one of their customers.

These are the list of banks which are working with the government on the holiday mortgage scheme:

  • ANZ Bank
  • ASB Bank
  • Westpac
  • BNZ

 

Business Finance Guarantee Loan Scheme

This $6.25 billion dollar scheme leverages the crowns financial strength, allowing banks to lend in order to ease the financial stress on solvent firms affected by the COVID-19 pandemic.

The scheme seeks to provide short-term credit to cushion the financial distress caused by the pandemic. Banks will continue using their own lending criteria when lending to SMBs/ SMEs, and will not be dictated by the government.

The scheme will include a limit of $500,000 per loan and will apply to firms with a turnover of between $250,000 and $80 million per annum. The loans will be for a maximum of three years and expected to be provided by the banks at competitive, transparent rates. The scheme is also only available to financially solvent firms (i.e. firms whose assets are greater than their liabilities).

The Government will also underwrite 80% of individual bank loans to SMEs, with banks stated to underwrite the balance 20% of it. This means that in the event of a loan default, the government will bear 80% of the losses that come with it, while banks will bear the other 20%.

 

These are some of key measures which have currently been undertaken by the government to help in the economic fight against COVID-19. We’ll be updating this blog space as and when updates are made on any of the above schemes and will detail the proceedings so you can be informed.

 

For any queries regarding the above schemes, or information regarding their application procedures, you can get in touch by emailing us your queries on info@jzr.co.nz or call us on +64-9-972-2236, and we’ll respond to you as soon as we can.

 

 

 

 

 

Written by Rowain Pereira

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