☐ Accounting and taxation services fee accrual

Following the Tax Review Authority (TRA) Case Y17 decision in 2008, the accounting and taxation services fees accrual for the current year should be added back in the taxation calculation. This adjustment will reverse in the subsequent year's taxation calculation when the deduction is taken.

☐ Bad debts

To claim a tax deduction for bad debts, the debt must be:

• Bad; and
• Physically written off on or before balance date

The above rules mean you must be able to support that the debt is bad (i.e., you have made reasonable efforts to collect the debt before writing it off).

☐ Companies – shareholding continuity and commonality

The ability to carry forward tax losses is subject to shareholding continuity of 49%. A same or similar business test has also been enacted that enables businesses to carry forward tax losses where they lack shareholding continuity of 49% but the underlying business continues in operation. This applies to tax losses incurred from the 2013-14 year onwards.

The ability to offset losses against the net income of other group companies requires common shareholding of 66%. The ability to carry forward imputation credits is subject to shareholding continuity of 66%.

Note these tests must always be met and not just at year-end.

If you are anticipating shareholding changes and believe you will breach continuity, forfeited losses can be minimised by accelerating income recognition and minimising deductions where possible. Also, consider the payment of a dividend or making a taxable bonus issue to use imputation credits before they are forfeited.

☐ Controlled Foreign Companies (CFCs)

Except for most shares in Australian companies, ownership of foreign shares has the potential for New Zealand tax to be payable, primarily if the foreign company derives passive income (including but not limited to interest, some dividends and royalties).

If you have an investment in a CFC, then please contact us for further advice.

☐ Cross-border transactions

Any transaction with a related party or that is part of a structured arrangement and results in a taxation mismatch is likely to be subject to hybrid mismatch rules (known as the BEPS disclosure). These are designed to cancel out the taxation advantage of such transactions and may require a disclosure to Inland Revenue. Similarly, entities that have different tax characteristics between two countries are likely to be subject to these rules.

The rules are complex, so if you have cross border transactions of this type, please contact us for further advice.

☐ Cross-border workers

New rules in relation to the treatment of cross-border workers took effect from 1 April 2023. An employee of a non-resident employer is subject to FBT and ESCT as well as PAYE in situations where the non-resident employer does not have a "sufficient presence" in New Zealand to be responsible for employee taxes. A safe harbour is available to protect a non-resident employer from penalties and interest if they have incorrectly assessed their liability to the rules, but strict conditions must be met to qualify.

Non-resident employers who have New Zealand branches and/or a taxable presence remain responsible for PAYE, FBT and ESCT, as they always have.

If you have any cross-border workers, we recommend contacting us for further information.

☐ Depreciation on commercial and industrial buildings

From the 2024-25 income year, the depreciation rate for non-residential buildings has returned to 0%.

The continuous change in the depreciation regime for commercial and industrial buildings means care must be taken, especially for taxpayers calculating deferred tax under NZ IFRS.

Care also needs to be taken with regard to residential and commercial buildings.

☐ Disaster relief

Those affected by the early 2023 North Island weather events must ensure suspended recovery income is correctly accounted for if they’ve used depreciation rollover relief to buy replacement assets this financial year. A notice of election will also need to be supplied by the due date of the income tax return outlining specific information, including the amount of suspended recovery income at the end of the year.

A Bill currently before Parliament aims to provide a standardised suite of tax relief when an emergency occurs and an Order in Council is issued. If it is enacted, this would include:

• Rollover relief with respect to revenue account property, depreciable property and amortisable land improvements
• Capped employer payments and fringe benefits, and an extended tax-free accommodation period
• Income-spreading provisions for forced livestock sales
• Turning off the bright-line test and other time-based land sale rules
• Remission of use of money interest

☐ Employee allowances

Broadly, employees are exempt from tax when they are reimbursed or provided with an allowance for work-related expenses.

For travel or relocations, employer-provided accommodation or accommodation payments will generally be exempt where the employee is temporarily working away from home for a period of up to two years (or three years in the case of capital projects). Employee meal costs or meal allowances will generally be exempt where the employee is working away from home for a period of up to three months.

The subtleties in these rules present both opportunities and pitfalls to employers. Therefore, we recommend you contact us if you are considering providing accommodation or paying a meal allowance to your employees. 

☐ Employee remuneration provisions

Employers have the choice of either treating all accrued employee remuneration (e.g., bonuses, holiday pay and long service leave) as not deductible in the current year or treating amounts of accrued employee remuneration paid in the 63 days following balance date as deductible in the current year.

We note accrued bonuses paid out within 63 days of balance date may not be tax deductible if there is no evidence a commitment was made to pay the bonus on or before balance date.

Redundancy payments must be paid by year-end for the employer to be able to claim a deduction. That is, the 63-day rule does not apply.

☐ Entertainment

A GST adjustment for non-deductible entertainment must be included as an output tax adjustment in the GST return that covers the earlier of either the date the return of income is filed or the date the return of income is due. This expense must be added back for income tax purposes.

There is an opportunity available whereby it may not be necessary to make the GST output adjustment. Please contact us if you are interested in finding out more about this.

☐ Fixed assets

Review the fixed asset register to ensure the assets exist and to identify assets that are no longer used to claim a deduction for the remaining adjusted tax value of the asset.

Assets can be written off if they are no longer used but have not been disposed of, provided:

• The asset is no longer used by you in your business or to produce income; and
• Neither you nor an associated person intends to use the asset in a business or in the future to derive gross income; and
• The cost of disposing of the asset would be more than any proceeds from disposing of the asset; and
• The asset is neither a building nor an asset being depreciated using the pooling method.

Assets costing $1,000 or less qualify for an immediate deduction. This is provided:

• They do not form part of some other asset; and
• They are not purchased from the same supplier at the same time as another asset, and the total is more than their relevant threshold.

☐ Foreign Investment Funds (FIFs)

There are several available methods to calculate the tax position of interests held in FIFs (for instance, shares held in overseas companies, with the exception of some Australian shares). Where a FIF has been held, a change in calculation method may be desirable to improve your tax position. In some cases, it may be necessary to make an election before year-end to be able to use the best method.

If you have FIF investment, please contact us for further advice.

☐ Foreign superannuation schemes

Generally, lump sum distributions from foreign superannuation schemes are included as taxable income using either the schedule or the formula methods. Typically, the longer a taxpayer has been in New Zealand, the higher the amount of the lump sum distribution will be taxable income.

Payments of regular amounts from non-state foreign superannuation are usually subject to tax.

We recommend you contact us for further advice as individual circumstances do vary.

☐ Fringe Benefit Tax (FBT)

The end of the year is a good time to check whether you’ve overlooked any fringe benefits that have been provided to employees.

The fourth quarter FBT return is different to the other FBT returns. An alternate rate calculation is either compulsory (for those who used the alternate rate during the year) or optional (for those who used the single rate). With the new top tax rate band, it may be worth considering a full attribution calculation to minimise FBT.

A pooled alternate rate option is available where the taxable value of all fringe benefits for the employee is $13,400 or less and the cash pay of the employee is $160,000 or less. In this situation, a single rate of 49.25% can be applied throughout the year.

A close company calculation option is also available where motor vehicles available for private use are provided to a shareholder-employee. A close company can make an election for up to two shareholder-employees in the income year in which they purchase the motor vehicle or first start using it for business. The effect is no FBT is payable, but income tax deductions and GST inputs related to private use are denied.

From 1 April 2023, employer-subsidised public transport fares and self- and low-powered vehicles provided by employers may be exempt from FBT. There are salary sacrifice opportunities for employers to assist employees acquiring bicycles, e-bikes and scooters to commute. Contact us for further details.

We can assist in the preparation of FBT returns (including full attribution calculations), the filing of "close company calculation option" elections and calculations, and general FBT matters if required.

☐ Goods and Services Tax (GST)

As part of your year-end procedures, you should undertake a reconciliation between the entity’s GST return and the balance of the GST account in its financial statements. This can provide a useful warning about any discrepancies and provide an opportunity to rectify any issues. Also, this reconciliation is generally requested by Inland Revenue as part of their audit procedures.

If there are unreconciled differences, we recommend a GST review be performed to identify possible system issues.

New rules regarding GST apportionments took effect from 1 April 2023. GST-registered businesses can now elect to treat mainly private or exempt-use assets as if they only had private or exempt use. A full GST input tax deduction may be claimed where items are acquired for $10,000 or less and principally for business purposes.

Since 1 April 2024, those providing "listed services" (e.g., short-stay accommodation, ride-sharing and food delivery) through online marketplaces have been required to collect and return GST. For suppliers who are not GST registered, a flat-rate credit scheme is available to help minimise compliance costs. 

☐ GST tax invoice rules 

GST invoicing rules changed in 2023. These changes do not supersede the previous rules regarding tax invoices and if your business has continued to use the previous rules then they will still comply with legislation. However, instead of providing a tax invoice, a business can provide “taxable supply information”. The following would need to be supplied as part of taxable supply information:

• The GST trade name and GST number of the supplier
• Buyer’s details, including either the address, phone number, email, trading name, business number or website (for taxable supplies greater than $1,000).
• The date of the time of supply
• A description of the goods or services supplied
• The consideration for the supply
• The GST charged for the supply.

Other invoicing processes can be used. For example, taxable supply information can be provided from a seller to a customer using an automated direct exchange software, such as, e-invoicing or an email.

You no longer need to keep a single document (such as a tax invoice, credit note or debit note) that holds all the supply information. Transaction records, accounting systems and contractual documents could include all that’s needed to support the figures in your GST returns.

Taxable supply information will not need to be issued if the amount charged is under $200.

☐ Imputation Credit Account (ICA)

Your company's imputation year is from 1 April 2024 to 31 March 2025. Please ensure the ICA is not in debit on 31 March 2025. A debit ICA balance at 31 March 2025 will incur a penalty of 10%.

☐ Individual taxes

After 1 April, Inland Revenue will automatically issue pre-populated income tax returns. Where the individual confirms or Inland Revenue is satisfied the information is correct, a refund or tax bill will be automatically calculated. Due to the risk of error, it would be useful to have any pre-populated income tax returns reviewed by us prior to confirmation.

☐ Inter-company charges

We recommend a review of inter-company charges be conducted to ensure documentation is in place to support any deductions and minimise any potential income tax or GST risk.

☐ Mixed-use assets

The tax treatment of real estate (mainly holiday homes), watercraft (with a purchase price of more than $50,000) and aircraft (with a purchase price of more than $50,000) where the asset is used for both private use and income-earning use and is unused for 62 days or more per year is subject to the mixed-use asset rules. Under the rules, certain losses will be quarantined, and a deduction may only be claimed when the asset derives positive net income.

If the gross income from the mixed-use asset is less than $4,000 per annum, or if you would otherwise have quarantined deductions, the ability exists to opt out from the mixed-use asset regime for that year. This means that income is not subject to tax, but also that no deductions can be claimed. This concession does not apply to close companies.

The mixed-use asset apportionment and adjustment rules relating to GST were repealed from 1 April 2024. For periods starting from that date, the mixed-use assets rule no longer applies to short-stay accommodation, boats and aircraft. This repeal applies only to GST; the income tax rules remain unchanged.

If you are GST registered, GST apportionment continues to apply to your mixed-use assets. However, GST input tax deductions and adjustments must now be calculated using the general GST apportionment rules that apply to other assets. Complex interest deductibility rules exist in instances where mixed-use assets are held in companies, as well as additional quarantining rules.

If you own mixed-use assets, we recommend contacting us to discuss your options.

☐ Payments to non-resident contractors

Non-resident contractors tax (NRCT) may apply if payments are made to non-residents for services performed in New Zealand. There are exemptions available in specific circumstances. From 1 April 2024, payers will have a 60-day grace period to meet or correct their NRCT obligations and certificates of exemption may have retrospective effect. Please contact us if you require further information.

☐ Payroll

All employers with PAYE and ESCT of $50,000 or more per annum need to file employer information returns electronically within two days of payday. Payments need to be made every month or twice a month depending on the size of the employer.

☐ Prepaid expenditure

Certain prepayments can be claimed as a tax deduction provided they are expensed for financial reporting purposes. Please contact us if you would like further details.

☐ Provisional tax

The final instalment of 2025 provisional tax for 31 March balance-date taxpayers is due for payment on 7 May 2025. If the standard uplift method has been used for the first and second instalments, and no estimate has been lodged at any instalment, use of money interest (UOMI) is charged on deemed underpayments of provisional tax with reference to actual residual income tax (RIT) only where actual RIT is greater than $60,000.

If actual RIT is less than $60,000 and the standard uplift method has been used and paid in all instalments, then no UOMI applies until the terminal tax due date (7 April 2026 in most cases).

UOMI will generally apply from the first instalment if you or any related entity has either used the estimate method for provisional tax or not paid provisional tax on time using the standard uplift method. UOMI can also apply from the first instalment in the first year of business. If this situation applies, you may wish to consider making use of a tax-pooling intermediary, such as Tax Traders.

Your advisor can help you prepare a draft tax calculation to help determine whether you should make a voluntary payment above the amount due under the standard uplift method. Additionally, they can discuss the advantages and disadvantages of using a tax-pooling intermediary.

☐ Provisions for warranties and other expenses

Provisions for warranties and other expenses are generally non-deductible. However, in accordance with the Privy Council decision in Mitsubishi Motors, it is possible to obtain deductions for provisions in limited circumstances, if appropriate records are held.

☐ Purchase price allocation rules

Specific rules apply when allocating the purchase price when assets with different tax treatments are purchased together. Under the rules, it is recommended that the buyer and seller agree on how the sale proceeds should be allocated between taxable, depreciable and non-taxable assets, and that this agreement is documented. This provides certainty between buyer and seller, and the Commissioner can only seek to reallocate the purchase price if it does not reflect market value.

In situations where the buyer and seller do not agree to the amounts allocated and the purchase price exceeds $1 million (or residential land including buildings and chattels exceeding $7.5 million), the seller may determine the amounts to be allocated and notify the buyer within three months of settlement. If the seller does not do this within the three-month timeframe, then within six months of settlement the buyer may determine the amount to be allocated and notify the seller and Inland Revenue of the allocation. In all situations the amounts allocated cannot be less than the market value of the assets.

In situations where the seller and buyer have not made a notification, Inland Revenue may allocate the values, in which case the buyer may be denied a tax deduction until the following year’s tax return.

☐ Research and development tax credit

A research and development tax credit of 15% is available to taxpayers who engage in eligible research and development activities and incur eligible expenditure. The credit is refundable in some circumstances. If you think your business may engage in research and development eligible for this tax credit, please contact your advisor. It would also pay to have systems in place to track expenditure in order to maximise the level of credit available.

☐ Residential property bright-line test

Where residential property sold on or after 1 July 2024 is held for two years or less, it may be subject to the "bright-line test" with any profits on sale subject to income tax. There is an exemption for the family home in most circumstances. There is also an exemption for many related party transfers, but these are subject to a complex set of rules.

For properties sold before 1 July 2024, earlier five- or 10-year bright-line periods might be applicable to tax sale proceeds. We recommend seeking advice first as the rules are complex and the consequences can be significant.

☐ Residential rental property loss ring-fencing and interest deductibility

Losses on residential rental properties are only able to be offset against income derived from them, either from rental income or income arising from application of the “bright-line test”.

From 1 October 2021, there were limitations on the amount of interest able to be claimed as an expense with respect of residential rental properties, and from 1 April 2024, you can claim 80% of the interest incurred for funds borrowed for residential property. This is regardless of when the property was acquired or when the loan was drawn down.

From 1 April 2025 you will be able to claim 100% of the interest incurred on residential rentals.

Note that the residential rental property loss ring-fencing rules have not changed – that is, where residential rental properties incur losses, these can only be offset against income derived from those properties.

☐ Residential withholding tax (RWT) on dividends

The RWT rate on dividends generally remains at 33%, with no upward change to account for the 39% top personal and trust tax rate. This means any dividends with imputation credits attached at 28% will generally require a deduction of 5% RWT. This RWT is payable by the 20th of the month following the date of the dividend. However, no RWT is deductible when the recipient is a company, at the election of the payer.

Dividend recipients at the top personal tax rate and trustee rate of 39% will need to pay top-up tax. This may also result in some recipients being subject to provisional tax rules.

When a dividend is paid, detailed information must be disclosed to Inland Revenue. The information required is available here.

☐ Shareholder salaries

In light of the Penny and Hooper decision it is important to ensure that commercially realistic salaries are paid to any shareholder-employees in closely held businesses. Inland Revenue is paying close attention in this area and have queried taxpayers who they consider to not be paying commercially realistic salaries. Please contact us if you need further help in this area.

☐ Thin capitalisation regime

The regime applies if a New Zealand company is owned or controlled by non-residents, or where a New Zealand-owned company owns foreign-controlled companies. We recommend you confirm whether your company is subject to the thin capitalisation regime and, if so, whether its debt level exceeds the applicable safe harbour level. For foreign-controlled companies, the safe harbour applies if interest-bearing debt does not exceed 60% of the value of assets. The thin capitalisation calculation excludes “non-debt liabilities” from assets. It may be possible to undertake financial restructuring prior to balance date to maximise interest deductions.

There are also BEPS disclosure requirements when a company’s New Zealand group debt percentage for thin capitalisation purposes exceeds 40% or higher during the year.

Due to the complexity of the rules, the disclosure requirements and the likelihood of interest deductions being denied, we recommend that you contact us for a review of your company’s thin capitalisation position.

☐ Trading stock valuation

Various valuation options are available to you depending on annual turnover and the valuation method used for financial reporting purposes.

In general terms, trading stock, including work in progress, is valued at either cost, using a cost valuation method, or market selling value when this is lower than cost.

The cost valuation methods include cost, or where permitted, replacement price; or discounted selling price.

To claim a deduction for obsolete or slow-moving stock, it should be physically disposed of on or before 31 March 2025 or valued at market selling value if lower than cost.

☐ Transfer pricing

With the increase in transfer pricing audit activity, we recommend any dealings with offshore related parties be formally documented to support the arm’s length nature of the prices applied.

The onus of proof for transfer pricing matters has also shifted to the taxpayer and Inland Revenue has the power to investigate the past seven years in relation to transfer pricing instead of the usual four years, provided notice of a tax audit or investigation is given within the usual four years.

☐ Trusts and trust distributions

For trusts on a tax agent’s list, with an extension of time for filing, the distribution date may be the earlier of the date on which the trust income tax return is filed or the date by which the trust tax return is due to be filed. Distributions of current year income by this date allow the income to be taxed in the hands of the beneficiary, rather than in the hands of the trustees.

If the Trust Deed contains a clause requiring the distributions to be made within six months of balance date, this can override the above.

Trusts are subject to detailed disclosure requirements if they have assessable income. This includes the requirement to prepare a statement of profit or loss and a statement of financial position. In addition, the Trust’s income tax return will include disclosures relating to settlements, details of those who hold power of appointment and further details around beneficiary distributions.

Starting from 1 April 2024, trusts earning $10,000 or more in a tax year are now taxed at a 39% rate. If earnings fall below this threshold, a 33% rate applies. Certain other circumstances may also result in the 33% rate applying. Please contact us for more details.

☐ Withholding tax on interest

If an interest expense on intercompany loans is booked via a journal entry, then this triggers an obligation to pay resident withholding tax (RWT) or non-resident withholding tax (NRWT) to Inland Revenue by the 20th of the month following the date of the journal entry.

The above checklist is of a general nature only and does not take specific needs or circumstances into account. We would be pleased to provide further information on any of the issues highlighted in the checklist.