As 2025 continues to speed on by, another tax year (for standard March 31 balance dates) is quickly drawing to a close and there are some key tax issues to consider as you work through your year-end preparation.
Bad debts
Are your debtors unlikely to pay? Unrecoverable debts can only be treated as deductible bad debts if they have been fully written off in your accounts before year’s end.
Imputation credit account
What is the balance of your imputation credit account? A company’s imputation credit account must have a nil or credit balance on March 31, regardless of financial balance date.
A debit balance at this time will result in penalties. It’s a good idea to carefully monitor this, especially if imputed dividends have been paid out, tax refunds have been received, or there has been a loss of shareholder continuity.
Depreciation
Have you checked your fixed asset register to ensure the correct Inland Revenue tax depreciation rates are used?
New assets should be depreciated from the beginning of the month of acquisition, rather than from the date of purchase.
Pooled assets can be depreciated from the start of the year of acquisition and, if you are writing off assets, make sure they are disposed of by the end of the year.
The ability to claim tax depreciation on commercial and industrial buildings was removed, effective from April 1 2024 for March 31 balance date taxpayers. Have you checked your fixed asset register and has it been updated to take this into account?
Low value assets
Purchased low value assets during the year? Most assets that cost less than $1000 are considered low value assets. These can be immediately deducted rather than depreciated.
There is a catch, however – multiple low value assets purchased at the same time and from the same supplier must have a combined cost of less than $1000 to utilise the immediate deduction.
Trading stock
Have you done a stocktake? A stocktake should be performed at balance date and obsolete trading stock may be able to be valued at its market selling value, where this is lower than cost and you can substantiate the valuation.
Tax losses
Do you have losses to carry forward? Be aware of the shareholder continuity rules and business continuity rules if there have been shareholder changes during the year. A breach of both can result in tax losses being forfeited.
Provisional tax payments
With the Inland Revenue use of money interest rate currently at 10.88 per cent on outstanding tax payments, it may be prudent to use tax pooling to reduce the effective rate of interest. Tax pooling can also provide the flexibility to make tax payments at times that suit your own cashflow patterns.
Fourth quarter FBT returns
March 31 is also the end of the FBT (Fringe Benefit Tax) year regardless of your financial balance date. Annual FBT returns and returns for the March quarter are due to be filed by May 31, 2025.
This is an opportunity to use the various alternate rate options available to reduce FBT payable from the standard 63.93% rate. If you are using your own spreadsheet to apply the alternate rate calculation, bear in mind that the formula has changed from 2024.
Year end is a busy time and navigating all of the tax rules and obligations can be a nuisance for people who, understandably, just want to focus on running their businesses. If you have questions or would like help managing end of year tax affairs, reduce your stress by talking to a tax professional.
