How to prepare for your year-end accounting
Angela Hodges • 5 March 2024
As the end of the financial year approaches, you may be wondering what you need to do to get your Xero accounts ready for us. Here are some tips and tasks to help you streamline the process and avoid any delays or errors.
During the year
- Keep your Xero file reconciled and tidy.
- Attach invoices to transactions, this can save a lot of time when it comes to preparing your financial statements.
Before 31 March
- Review your Fixed Asset Register and write off any assets that are no longer in use or have been disposed of.
- Identify any bad debts that are unlikely to be recovered and write them off in Xero.
- Consider declaring dividends.
- Conduct a stock take on 31 March and update your inventory records in Xero accordingly.
After balance date
- Issue any invoices for work done or goods sold before 31 March and record them in Xero.
- If you have received any payments in advance for services that will be delivered after 31 March, let your accountant know so they can adjust your income accordingly.
- Reconcile your bank feeds in Xero up to 31 March and make sure they match your bank statements for all your bank accounts and loans.
- Accrue any interest on loans that is due but not paid as at 31 March, or ask your accountant for help if you are not sure how to do this.
- Complete and file your March GST and PAYE returns as soon as possible and record them in Xero.
Create a folder in your Xero account named ‘2024 Accounts Information’ and upload the following documents
- PDF bank statement showing the balance on 31 March 2024 for all your bank accounts and loans.
- Copy of loan statements for the full year ended 31 March 2024.
- Any new loans or finance arrangements, including Convertible Notes – please include a copy of the agreements.
- Any shareholder changes, please include a copy of the agreements.
- If you received any grants during the year, please include a copy of the agreements or grant documentation.
- Any major transactions, such as acquisitions, disposals, investments, etc. – please include relevant documents.
- Copies of any ACC invoices.
- Copies of any insurance invoices.
Confirm or advise us of the following information:
- Please provide details of any transactions that you were unsure of how to record in Xero during the year, including the invoice.
- Confirm that all travel expenses are business related, or advise if there are any personal expenses that need to be adjusted.
- Advise if there were any related party transactions during the year, such as sales or purchases with associated companies or shareholders, salaries paid to directors or shareholders, etc.
- Confirm that all accounts receivable and accounts payable balances are correct as at 31 March, or advise if there are any errors or disputes that need to be resolved.
- Advise if there were any transactions outside of your Xero file, such as personal payments for business expenses or vice versa, cash transactions, etc.
- Advise if there are any capital commitments, contingent liabilities or major events after balance date that may affect your financial position or performance.
By following these steps, you will make it easier for us to prepare your financial statements and tax returns, and ensure that they are accurate and compliant. If you have any questions or need any assistance, please contact us.
*This publication contains generic information only. NZ Tax Desk Ltd is not responsible for any loss sustained by anyone relying on the contents of this publication. We recommend you obtain specific taxation advice for your circumstances.
The Deadline is Approaching for FY25 General Approval Applications
The end of the Work Related Vehicle FBT Exemption.
If your business is carrying out research and development (R&D) work, you may be eligible to receive a cash payment from Inland Revenue— however there is limited time to act if you want to claim this for FY24.
Among the biggest winners from the Government’s proposed Foreign Investment Fund (FIF) reforms are likely to be US citizens living in New Zealand. The proposed Revenue Account Method, which is set to take effect from 1 April 2025, offers significant relief from the sometimes harsh and often unfair outcomes created when the US and NZ tax systems collide. The Double Tax Problem for US Citizens Unlike most countries, the United States taxes individuals based on citizenship, not residency. This means that US citizens remain fully taxable by the IRS no matter where in the world they live. When they become New Zealand tax residents, they are subject to NZ’s FIF rules – which tax unrealised gains each year. The problem is that these deemed gains are not recognised by the US tax system, which only taxes actual income or realised gains. This mismatch creates a common scenario where a US citizen in NZ pays tax to New Zealand on phantom FIF income (including unrealised capital gains) but then pays US tax again when the investment is eventually sold – with no US tax credit for the NZ tax already paid. The result is real, permanent double taxation. How the Revenue Account Method Helps The proposed Revenue Account Method addresses these challenges by bringing New Zealand’s tax treatment of FIF investments more in line with the US tax system, as it only taxes: Tax is only triggered when dividends are received or capital gains are realised, allowing US citizens to align taxable events across both jurisdictions. Capital gains are only partially taxed in NZ (70%), and foreign tax credits may be available in the US when realisation occurs (US tax advice will be required). For example, under current rules, FIF income is often calculated using the Fair Dividend Rate (FDR) method – which taxes 5% of the opening value of most foreign shares annually, even if no income is actually received. While this is straightforward from a compliance perspective, it does not align well with US capital gains tax rules, which only tax gains when they are realised. This mismatch can lead to several problems: Double taxation : US citizens in New Zealand can be taxed on notional income under the FIF regime that doesn’t correspond to any US tax liability, meaning no foreign tax credit is available in the US. Compliance complexity : The requirement to use different tax bases (realisation for US purposes, deemed accrual/unrealised gains in NZ) creates extra complexity for reporting and record-keeping. Cash flow issues : As no cash is received under FDR (and potentially CV), taxpayers may be forced to fund NZ tax from other sources or liquidate investments earlier than intended. For US citizens holding private equity, start-up shares, or unlisted interests acquired prior to NZ tax residency, this new method could make a substantial difference. It removes the need to fund NZ tax liabilities out of pocket for income never actually received. The new Revenue Account Method should be especially attractive to US citizens holding equity in start-ups, employee share schemes, or private investment vehicles, where growth potential is high but cash flow is minimal. However, it is important to remember that ultimately this method will still tax capital gains on these offshore investments, as well as taxing dividends. The Revenue Account Method should not be a default go-to for new residents, as some taxpayers may have more favourable outcomes with the existing FIF methods. See our more detailed article on the new Revenue Account Method here. Planning Tips for US Citizens and Advisors If you or your clients are US citizens becoming NZ tax residents, consider the following planning steps: Document asset values on entry : For investments eligible for the Revenue Account Method, the cost base will be the value at the time NZ tax residence begins. A formal valuation may be required to substantiate this. Review eligibility : Confirm that the taxpayer became fully tax resident in NZ on or after 1 April 2024 and that investments were acquired before residency (or pursuant to pre-residency arrangements). Coordinate with US tax advisors : Cross-border alignment is key. A coordinated strategy that considers both US and NZ tax consequences will reduce surprises and improve outcomes. Contact us to discuss how these changes could affect your US-NZ tax position. Disclaimer: The information provided in this article is general in nature and does not constitute personalised tax advice. You should consult with a qualified tax adviser familiar with both US and NZ tax systems before making any decisions based on this content.
A Welcome Boost for Migrants and Returning Kiwis
Act Now: Help Your Clients Remove Properties from the GST Net Before the Deadline
As tax advisors, we know there has long been contention around the tax treatment of loyalty points and rewards. We have seen numerous times how large these benefits can actually be. It’s an issue that has largely been overlooked, and something that clients have certainly not wanted to know about.
As accountants, you're often confronted with specific scenarios regarding Fringe Benefit Tax (FBT) and Goods and Services Tax (GST). Below are answers to some common questions.
How Upcoming Tax Changes Could Streamline Reporting for Short-Stay Accommodation Providers
The Inland Revenue has recently released a new draft Interpretation Statement, PUB 0040: Income tax – overdrawn shareholder loan account balances . This statement is currently open for consultation until 2 August 2024. Family-owned small businesses often operate through close companies. Given the significant control shareholders have over these companies, it is common for them to withdraw company funds for personal use. These amounts are commonly transacted through the Shareholder Current Account. The issue is when these Shareholder Current Accounts become overdrawn. In practice, the reasoning behind an overdrawn Shareholder Current Account can often be the sale of a capital asset and the withdrawal of those funds by the shareholder (without declaring a dividend). Unfortunately, we also commonly see this when a company, or the shareholders, are struggling financially. In this context it is perhaps timely, given the struggles businesses have been going through, for the Inland Revenue to issue a reminder about the potential tax issues these overdrawn Shareholder Current Accounts can present. Understanding Shareholder Loan Accounts and Their Tax Implications Firstly, the Inland Revenue refers to a Shareholder Loan Account. In practice, this is often a Shareholder Current Account, thus I have used the terminology interchangeably. Shareholder Current Accounts are generally informal arrangements between close companies and their shareholders, documenting any advances made between the two. When a shareholder withdraws more money from the company than they have advanced, the account becomes overdrawn, leading to several potential tax issues. The following tax issues apply equally to a Shareholder Loan balance, where the shareholder owes the company funds. Tax Issues Arising from Overdrawn Shareholder Loan Accounts 1. Dividend Income: If a shareholder pays no or low interest on an overdrawn loan account, dividend income may arise. For this reason, the company will generally charge the shareholders interest on the overdrawn shareholder current account. 2. Fringe Benefit Tax (FBT): Shareholder-employees who pay no or low interest on their overdrawn accounts may face FBT liabilities. 3. Interest Income: Companies charging interest on overdrawn accounts generate interest income. This interest will be taxable income to the company and may be non-deductible to the shareholder (discussed further below). 4. Resident Withholding Tax (RWT): Companies can claim a tax credit for RWT withheld from interest payable. The credit is claimable in the year the interest is derived, provided the RWT has been paid to Inland Revenue. 5. Interest Deductibility: Interest paid by shareholders on overdrawn accounts is typically not deductible as it often funds private expenditure. However, if the borrowed money is used for income-earning activities or businesses, a deduction may be available, subject to documentation and general limitations. 6. Withholding and Reporting Requirements: Shareholders paying RWT may have obligations to deduct RWT on interest paid to the company on the balance of the current account (or loan). 7. Debt Forgiveness: If a shareholder is relieved of their obligation to repay an overdrawn loan balance, this typically results in taxable debt remission income for the shareholder. For this reason, the company cannot simply forgive the loan or overdrawn balance. Importantly, the company should never be wound up with the shareholders owing the company funds, as this could also trigger taxable debt remission income. Beyond the scope of the Interpretation Statement, there are additional potential tax issues to consider with Shareholder Current Accounts: 8. Salary: If the shareholder is taking regular drawings to meet their living costs, there is support for the Inland Revenue to reconstitute these drawings as taxable salary or personal services income in some circumstances. This is particularly where the company has not paid the shareholder a reasonable market salary or met the personal services or attribution rules. 9. Documentation: There is caselaw in which loan repayments have been reconstituted as taxable income to the shareholder, however those are extreme examples involving an absence of documentation. It is always important to document all loans to the company. Any transactions between the company and the shareholder should include clear narrations e.g. on the bank transfer. Take care in those narrations, if something is labelled “salary”, chances are the IRD would argue it should be taxed as such. Understanding these tax implications is crucial for both companies and shareholders to ensure compliance and optimize their tax positions. *This publication contains generic information only. NZ Tax Desk Ltd is not responsible for any loss sustained by anyone relying on the contents of this publication. We recommend you obtain specific taxation advice for your circumstances.
