Monday, 11 January 2016

How to handle GST on second-hand goods

Buying second-hand goods for your business can help keep costs down because they are usually cheaper than new goods. At this time of year, you might be able to pick up some good bargains from other businesses as they take advantage of summer sales to upgrade their own equipment.

The good news is that if you're GST-registered, you can claim a GST credit on second-hand goods bought in New Zealand for your business – even if the seller isn't registered for GST.

That's really handy if you, for example, buy a second-hand wheelbarrow from your neighbour to use in your gardening business, or pick up a second-hand printer in an online auction to use in your graphic design business.'s Tax and finance section explains all about GST, including how and when to register for GST.

It's pretty obvious that new goods are not considered second-hand when it comes to GST.
But certain other goods also can't be considered second-hand when it comes to GST, including:
  • livestock
  • goods supplied under a lease or rental
  • primary produce
  • goods made with fine metals – platinum, gold or silver.
Otherwise, it's considered second-hand if it's been used and paid for by someone else, and was in New Zealand when you bought it.

It doesn't matter which accounting method you use, you can only claim GST on what you paid for the goods .

As with all things tax-related, it's important to keep good records, even if you pay cash at your uncle's garage sale.

The Inland Revenue website has a full guide to GST, but here is a brief case study to show you how to calculate it.


Fiona bought a second-hand shelving unit to use in her gift shop. She bought it from the white elephant stall at her local school fair and paid $85 for it.

To calculate the GST she used the formula:
Purchase price × 3 ÷ 23 = GST credit that can be claimed
$85 × 3 ÷ 23 = $11.08

You won't get a tax invoice when you buy from someone who isn't registered for GST – just like Fiona didn't get one from the fair – and no GST will be charged. To claim the credit for GST purposes, you'll need to record the following information:
  • the name and address of the person or business you bought it from
  • the date of the purchase
  • a description of the goods
  • the quantity of the goods
  • the price paid.
If you buy from a person or business that you have an association with, the GST credit is calculated differently. Check Inland Revenue's guide to find out more about associated persons
You'll also need to keep details of the transaction if you're going to make a claim for income tax purposes.

Original Article

Tuesday, 17 November 2015

Technology and your accountant could be the difference between success and failure

Want to succeed as a small business owner? Have a mentor or an accountant. 

Xero's recent Make or Break? report shows that asking for help from mentors and advisors, and having a good relationship with your accountant, means you have a leg up. The research was timed to coincide with Global Entrepreneurship Week which kicks-off today.

Surveying 2,000 small business owners across the US and the UK, we found that those owners who collaborate with an accountant or bookkeeper, 42% of survivors describe that relationship as "excellent," compared to 27% of those whose company failed.

This statistic shows just how important accountants are to the ongoing success of the small businesses they serve.

Those who succeed also invest in technology for increased productivity in finance. It was also found that they dedicate funds to marketing and customer service. Nearly six in 10 survivors (58%) use software to manage their finances vs. a marginal 14% of failures. Plus just shy of a third (31%) allocate resources to improving customer service, versus 20% of those in the failed camp.

Of those owners who listed a business issue as a reason for failure, a whopping 65% blamed financial problems like cashflow or access to capital. It highlights just how important the relationship between a small business and their accountant is. Their livelihood actually depends on it.

The Xero effect

Lifting survival rates and helping small businesses thrive is our business. The Make or Break? report found US and UK businesses that use Xero are markedly more likely to succeed. In the US, 95% of Xero customers survive their first year vs. 79% for the average. In the UK 97% of Xero customers make it that far compared to an average rate of 91%.

The pattern becomes even more distinct over longer timeframes. At the five-year point, 85% of Xero customers in the US are still up and running, while the industry average is 50%. In the UK the difference is greater still, with 88% of Xero customers operating after five years, compared to an industry average of just 41%.

With technology automating many of the admin tasks which previously sucked up accountant's time, they're able to act more like an advisor to their customers.

The flexibility provided by cloud-based software coupled with mobile is transforming how accountants help their customers. It's also eliminating a lot of the guess work, especially when it comes to forecasting.

Sometimes small business owners just need a little help from their number-orientated friends.

Working with a mentor

Running a small business can be a lonely job. Having access to a friendly ear to brainstorm strategy or get advice can go a long way towards ensuring the future stability and viability of your company.

Xero's research also revealed that a third of successful entrepreneurs have reached out to a mentor or advisor compared to just 14% of respondents who ran businesses that had to shutter.

Read the full Make or Break? report.

The post Technology and your accountant could be the difference between success and failure appeared first on Xero Blog.

Friday, 6 November 2015

Fringe benefit tax: Private use of vehicles

Is your employee about to use a work vehicle for their Christmas holiday road trip? Such a perk is known as a fringe benefit – and is taxed.

Businesses often provide perks for employees in addition to their salary or wages. One example is having a vehicle available for private use by employees.

The most important point to remember is you’ll have to pay FBT, whether or not your employees actually use the vehicle. Just having the vehicle available for their private use makes it a fringe benefit. You will need to register with Inland Revenue for FBT and file FBT returns.

What is ‘private use’?

Private use includes travel by an employee from or to their home, and any other travel that involves a personal or domestic element.

If you’re a sole trader or partner in a partnership and you use a business vehicle privately, you don’t have to pay FBT. But you will need to account for the private use by making an adjustment in your income tax and GST returns. Use a logbook to keep track of your business use.

Keep records

If you allow private use of a work vehicle by an employee, you must keep records that:
  • identify the vehicle, including make, model and registration
  • support the market value or cost price
  • show how you’ve calculated the liable and exempt days, with supporting documents for any exempt days
  • keep copies of any private use restriction (usually a letter or notice to the employee)
  • show how any employees’ contributions for each quarter were calculated, with supporting documents.

Employee contribution

If the employee pays towards having the fringe benefit, that amount is deducted from the benefit received when working out its taxable value. And it must be recorded as income for both GST and income tax purposes. 


Michael’s employer gives him unlimited use of a company vehicle. He decides to visit his relatives in Taupo for Christmas. The petrol costs $170 for the trip and he pays for this himself.
He gives the receipt to his employer, as it’s needed to work out the taxable value of the benefit. His employer can’t claim the GST on the petrol or include the amount as an expense against income.
When working out the taxable value of the benefit, Michael’s contribution, ie the petrol money, is deducted. If Michael’s employer reimburses him in full for the $170, that amount will not be deducted.


These can apply when the employee stores a work-related vehicle at home but isn’t allowed to use it privately.

Not all business vehicles are work-related vehicles for FBT purposes. To qualify the vehicle will generally have to be a ute, van or a truck that isn’t principally designed to carry passengers.

To qualify for work-related vehicle FBT exemptions you have to meet four requirements. Check Inland Revenue’s  Fringe benefit guide (IR409) for details.

Partial exemption

If you let an employee use the vehicle on certain days, such as Saturdays, Sundays and statutory holidays you may be entitled to a partial rather than a full exemption from FBT. This means you only pay FBT for the days the vehicle is available for private use.

Daily exemption

Even if an employee can privately use a vehicle, it may still be exempt from FBT on certain days due to:
  • emergency calls
  • out-of-town travel
  • unavailability of the vehicle, eg when it’s being repaired.
For more information on FBT rates, calculating FBT and completing FBT returns, read Inland Revenue’s  Fringe benefit tax guide (IR409).

Article first appeared on the website.

Holiday pay and entitlements: How to calculate

The holiday season is a chance to relax with family and friends. Take the time to calculate and pay your staff what they’re entitled to, and everyone will have a merry Christmas.

Public holidays, annual closedowns, different pay rates – there are many considerations in the run-up to Christmas apart from buying presents.

Employees are entitled to a paid day off on a public holiday if it would otherwise be a working day.
Many businesses have an annual closedown over the Christmas period, when staff have to take time off, even if they don’t have any annual leave.

If public holidays fall inside your annual closedown period, you must pay employees for them if they're on days they’d usually work.

This Christmas season two public holidays – Boxing Day and January 2 – fall on a Saturday, so this has implications for employees.

For staff who don’t work weekends, the first workday after these dates will be treated as their public holidays – so they won’t have to work on Monday 28 December 2015 and Monday 4 January 2016.
If your employees usually work weekends, then there are two options:
  • They can get the Saturdays as paid days off.
  • If they work on those Saturdays, you must pay them time and a half and allow them to take a paid day off later. Read about days in lieu in’s Holidays and leave section.

Less than a year employed?

If you have an employee who has been in the job for less than 12 months, they still have to take time off during an annual shutdown.

Here’s what you should do for these new employees:
  • Step 1. Pay them 8% of their gross salary earned up to the shutdown start date, less any annual leave already taken.
  • Step 2. Change the date they become entitled to annual leave to one year on from the start of the shutdown.
  • Step 3. Let them take paid annual leave in advance (you both have to agree to this).
  • Step 4. Don’t forget to allow for paid public holidays if these fall on a day they usually work.
You must give employees 14 days’ notice of the closedown.


With the right systems in place, you shouldn’t have too much trouble working out what to pay your employees when they take leave. It’s important to:
  • Keep all time and wage records up to date and accurate.
  • Understand what your employees are entitled to – especially those who work irregular or part-time hours.
Get your calculations right by using the holiday pay tool on the Ministry of Business, Innovation and Employment’s website.

Public holidays over Christmas 2015/New Year 2016

  • Friday 25 December – Christmas Day
  • Saturday 26 December or Monday 28 December – Boxing Day
  • Friday 1 January – New Year's Day
  • Saturday 2 January or Monday 4 January – Day after New Year's Day
There’s more information on leave during an annual closedown on, and also information on public holidays, including transferring days.

Article first appeared on the website.

Tax on Christmas parties and presents

It’s coming up to that time of year when you might be planning a staff Christmas party. It's great for morale and a chance to mark the end of the year. But what are the tax considerations?

You may be able to claim as business expenses events such as Christmas functions or giving gifts to employees.

However, you may not be able to claim all of the costs, and they may also be subject to fringe benefit tax (FBT). FBT is a tax paid on benefits that workers receive as a result of their employment.

You may be able to claim 50% of your party expenses in your GST and income tax returns if the expenses are related to your business. But there’s also a significant private element.
Party expenses you can claim 50% of can include:
  • venue hire
  • food and drink
  • entertainment
You can generally claim 100% of the cost of gifts, such as food baskets or event tickets, as a business expense. But you may need to pay FBT on such gifts.

If you provide other types of goodies, like accommodation in a holiday home, use of a corporate yacht or lunch at a restaurant, then these come under entertainment expenses – and are 50% deductible as long as they’re business expenses.

Business entertainment rules are outlined in the Inland Revenue’s Entertainment expenses guide (IR268).

If you give your employees some sort of entertainment – like a voucher to use at any time – you may need to pay FBT.

There are detailed  rules about FBT, including for entertainment expenses. There are some thresholds, so you may not always have to pay FBT if you only provide minimal fringe benefits. Check Inland Revenue’s  Fringe benefit guide (IR409) to be sure.

If you provide Christmas food and drinks at a local venue, the cost is not subject to FBT – because employees can’t choose when and where to enjoy the benefit. However, the rules for entertainment expenses will apply. Inland Revenue’s  Entertainment expenses guide (IR268) will help.

If you give employees vouchers for entertainment, meals or gifts and the employee can choose when or where to enjoy the benefit – and you’re not giving the benefit as a necessary part of their work duties – then these are subject to FBT.

Check out’s new tax and finance section for more on FBT.

Charity at Christmas

Are you thinking about some Christmas charity? You can deduct 100% of the cost of entertainment you give to the general public for charitable purposes. For example, if your company donates food for a Christmas party at a children’s hospital, that expense is 100% deductible.

And if you or an employee plans to use a business vehicle for a private trip over the festive period, check to see if you have to pay FBT on this benefit.

Article first appeared on the website.