Timely to talk tax

There's nothing sexy about tax, save a refund. Unfortunately, many miss out on just that because tax tends to evoke more dread than interest. AMANDA MORRALL talks to the authors of a new book who are hoping to turn Kiwis on to it.

Tax hawks are likely have May 20 circled in red on the calendar this year with National poised to bring in major changes in the Budget.

GST looks set to rise, personal tax rates will be adjusted, rules around residential property are expected to be revised . . . all good reason to pay tax closer attention this year. But even if these legislative changes do not come to pass, the taxman is not going anywhere.

And that - according Martz Witty, co- author of Smart Money - is reason to care year-round about tax.

"We went to great lengths with the book to keep it principle oriented because the principles aren't changing, the tax rates are," says Witty, of the touted tax restructuring.

Smart Money: How to structure your New Zealand business or investments and pay less tax is a user-friendly book that aims to explicate and educate on tax issues that can impact in big and small ways.

The subtitle may not do much to sex up the subject but the promise of paying less tax might get some pulses racing, or at least that is the authors' hopes.

The book, which can be read whole or by chapter, is dense with information on how to minimise the tax burden and maximise tax efficiencies. It includes an A to Z compendium of possible deductions as well as a companion website that can be referred to for changes to tax rates and rules.

Witty, who describes a tax audit as "fun", and conducts three-hour tax seminars that reportedly leave participants with sore tummies from laughing "too hard", believes tax is only as dry - and draining financially - as you make it. In his work as a business coach and part-time chartered accountant, he encourages a no tax stones left unturned approach that aims to lift enthusiasm and bottomlines.

The fundamental rule of making something tax deductible is that you had to incur the expense while trying to earn income, he discloses.

"As long as you don't break that rule, you won't be on the wrong side of the law. At its core level, that is what the law comes down to."

The home office, for example, rates as one of most overlooked and underutilised deductibles, he says.

Another is where private money has been put into a business at the same time that an owner is sitting on a larger home mortgage, he adds. "What a lot of people don't know is that they can restructure that. So, if the company borrowed against the family home to repay the current account, a portion of the interest on the former loan could be deductible."

Call it a case of "creative compliance". Witty does, labelling it as such in the book's introductory chapter on "lessons in tax".

"I certainly concur that we should pay tax, I just don't want to pay a dollar more than I have to," he explains of his philosophy.

New Zealand may have one of the simplest tax systems in world in terms of the ease of paying (the World Bank ranked it No 2 in 2008) but that doesn't necessarily make it any less painful when it comes to parting with one's hard earned cash, adds co-author Sheryl Sutherland, a financial adviser in Christchurch.

Sutherland refuses to sugar coat the banality of it but says those who invest the time and effort will reap the rewards.

"It's stuff we have to know, unfortunately," she says with her signature dry delivery.

One might expect the potential of paying less tax would send Kiwis in droves to the Inland Revenue website in search of allowances and deductibles but, in the authors' experience, precious few do.

Witty believes the gross indifference is part and parcel of an overall lack of business acumen in the entrepreneurial sector here.

"We are a Do-It-Yourself nation but people just don't do the learning. They do the finding out. It really is quite a concern. As a part-time chartered accountant, it amazes me how many people come in and say: 'Oh, I've been in business for three to five years and I need to get advice'. And they're getting advice that they should have got before they went into business and how they are still in business is a miracle, to be blunt."

Witty says many small and medium-size business owners in New Zealand excel at their trade or skill but often to the detriment of the financial side.

"These people are good at building widgets and making cars and being plumbers or whatever but they are not good at paperwork, it is not in their psyche or training."

To fill in the knowledge gaps, Smart Money raises and relates tax issues to business structures, family and trading trusts, investments and audits and irregularities.

Witty tackles the accounting and legal strategies, while Sutherland covers off the investment side, including: "how shares and managed funds are taxed, PIEs (personal investment entities) and FDR (fair dividend rates) and business succession".

Witty describes it as an entry-level book but one that will also speak to those who already have a grasp of the basics.

"It won't be suitable for your Bob Jones and John Keys but it is still relevant to a large segment of the population. Roughly 68 per cent of New Zealand businesses have five or fewer employees, so it is relevant to them, which is the lion's share of small businesses.

"There are a squillion books out there for people who are already doing a good job and want to take it up a notch but I didn't see a gap there. I saw the gap for ma and pa with a bit of money; perhaps one has been made redundant or they're looking to go into business on their own, or using their redundancy payout to better their future, or looking at retirement."

At the same time, Sutherland says the book is general enough that new entrants to the workforce with only a KiwiSaver account to their name will find value in it.

Education for education's sake but also for the sake of being able to challenge one's financial adviser or tax accountant, she maintains.

"It's having enough basic knowledge to know what to ask your adviser.

"That's exceedingly important because if you don't know what to ask you don't get the advice that is appropriate for your situation."

Good Living has two copies of Smart Money to give away: To enter your name in a draw to win, send an email to Amanda.Morrall@press.co.nz with the subject line: Smart Money

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