Time to take stock

OPINION: With the end of the tax year fast approaching, businesses should be thinking about year-end tax planning, including, writes Murray McClennan in this week's Taxing Times.

Bad debts
Any bad debts need to be written off prior to year end to ensure a bad-debt deduction for this income year.

Fixed assets
Review your fixed asset schedule to check that all the assets still exist. If an asset has been disposed of there may be scope for a loss on sale or there could be depreciation recovered.

Repairs and maintenance
The distinction between fully deductible repairs and maintenance and non-deductible capital expenditure can be difficult to make. It may be prudent to review both categories of expenditure. As a general rule, restoring an asset to its original state is regarded as repairs and maintenance. However, there are exceptions to this general position. If in doubt, seek advice from your accountant.

Trading stock
Every year a business should undertake a valuation of trading stock. Taxpayers may use the market-selling value if less than cost. However, this must be backed up by reasonable evidence, such as the offering of goods for a period before and after-balance date. If this is not possible then valuation must be made using one of the prescribed cost-valuation methods.

Please note that livestock, shares and foreign investment funds have their own specific rules.

Imputation credit account
Every company has an Imputation Credit Account (ICA) that operates from April 1 to March 31. Each ICA should be reviewed to ensure that it either has a credit or nil balance at March 31 as a debit balance will result in a 10 per cent imputation penalty.

Any imputation credits that arose when the company tax rate was 33 per cent will be discounted to 30 per cent as at April 1, 2010. It may be prudent to pay a dividend before the end of the 2010 income year.

These and a host of other issues should be considered before balance date.

» Queenstown-based Murray McClennan is a tax director at WHK Cook Adam Ward Wilson.

- © Fairfax NZ News

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