Archives for March 2011

 

For most of our clients, 31 March is the end of the financial year – and time to start organising your records for the year.  Here is the process for getting your financial statements compiled this year: 

Traditionally, accountants send annual questionnaires around this time as a guide to help their clients compile complete financial records.  Last year we trialled on-line electronic questionnaires which tailored themselves to your specific business by only asking you questions that were relevant based on your answers to earlier questions.  For example if yours is a service business, you’re not going to be asked about closing stock. 

This trial was largely successful and most clients reported that it made the process simpler.  And we have made some changes to the system in response to some of the issues that arose during the trial.  So the on-line questionnaires are part of the new normal this year.  But if you’re using a dial-up internet connection, this process might be frustrating – so let us know and we’ll send you a paper based document instead. 

Once you have completed your on-line questionnaire – and we have received any supporting files and information, we’ll be in a position to start working on your end of year financial statements.  Here’s how it works at our end:

Our aim is to meet your particular deadline.  If you’d like your annual work completed within a certain timeframe or in a certain month, just let us know.  We can meet your deadline within reason whether you are thinking of selling, admitting a shareholder, if the bank needs your accounts, if you need an immediate accurate picture of your tax going forward – or if you just can’t sleep until your year end is sorted.

 

We don’t start work unless we have all the information and records needed to finish the job.  Picking up and putting down work is inefficient – and it opens up the possibility for errors.   

 

Once we have started a job, we aim to have it finished quickly and efficiently – almost certainly within the month it was started.

 

Once we have prepared draft financial statements and a draft tax position, we will typically email you a copy of the drafts and make a time to meet with you to run through the results before they are finalised.  This meeting is often where the real value is added. 

We’re looking forward to working with you in preparation of your 2011 financial statements – and of course on all the other projects that continue regardless of the annual compliance season.

We’ll be completing our review of all QC and LAQC clients over the next few weeks.  From the start of the next financial year, LAQCs will no longer be able to attribute their losses to shareholders.

The Government’s strategy behind these changes is to prevent ‘arbitrage’ – the ability for an LAQC to pass losses out to shareholders where they can be used at the shareholder’s marginal tax rate of up to 33% – while retaining any profits in the company where from 1 April they will be taxed at only 28%.

So the new legislation arising from last year’s budget announcement introduces the “Look Through Company” (LTC), which will allow allocation of the company’s losses to shareholders in proportion to their shareholding in a similar fashion as existing LAQCs.  But it also requires that profits are taxed in the hands of shareholders resulting in more equal treatment of losses and profits.

The new LTC is an option for people who currently hold loss making businesses or investments in LAQCs.  Shareholders are able to elect for their existing LAQC or newly incorporated company to become an LTC between 1 April and 30 September 2011.

Here is a brief summary of the most significant changes and implications:

• As of 1 April 2011, LAQCs will not be able to attribute losses to shareholders.
• A new tax entity, called a Look Through Company (LTC) is now created.  Profits and losses (but with some limitations) are passed on to its shareholders.  This means that losses and profits will be deducted or taxed at the shareholders’ marginal tax rate.
• Losses in LTCs will only flow through to its shareholders to the extent of the shareholder’s investment in the company (including the share of any debt guaranteed by that shareholder).
• The shareholders of an LTC will be treated as holding the assets of that LTC directly.  If they sell their shares in an LTC they will therefore be treated as disposing of their interest in the underlying company property (subject to some exceptions) and will therefore be up for any associated tax consequences.  Examples are depreciation recovered and gains on the sale of trading stock.
• If the company exits the LTC regime (which could happen unintentionally) a disposal of the company assets will be deemed to have happened and this will possibly give rise to negative tax consequences.
• LTCs will not pay income tax as all income will be attributed to shareholders and those shareholders will be responsible for their own tax.
• LTCs can only have one class of shares.

But having said all that, the above is merely a tax fiction.  An LTC retains its identity as a registered company with limited liability and therefore is still governed by the Companies Act 1993.

The options for those currently operating QCs and LAQCs include the following:

• The default option – which in most cases is unlikely to be the best option – will be to continue as a QC without the ability to attribute losses to shareholders.
• Revoking LAQC status and being taxed as an ordinary company.
• Electing to become an LTC as detailed above.
• Becoming a partnership or a sole trader. Special rules will allow this transition without a tax cost – although if property is involved there will be significant conveyancing, legal and bank costs.

Some of the issues we’re considering during these reviews are these:  If the company owns assets of any sort, how long do you intend to own them?  Do you intend to introduce other shareholders in the future – or to transfer shares into your trust at any point?  Does the company’s activity generate losses?  How long might these losses continue – particularly given the changes to depreciation rules?  What is your actual economic investment in the LAQC and how might this change in the future?

Depending on our recommendations after reviewing your QC or LAQC, we may make use of the transitional rules and tax concessions which will enable us to transition QCs and LAQCs across to an LTC, a partnership, a limited partnership or a sole trader.    We will need to file election documentation with IRD for all LAQCs that are to become LTCs, as well as give written notice to IRD for any LAQCs that choose to transition to another entity type.

For those LAQCs where the recommendation is to transition to another entity type rather than become an LTC, there will be administrative tasks and potentially restructuring and legal costs and issues such as:

• Ensuring that current finance terms are not adversely affected
• Transferring commercial contracts and banking arrangements to the new entity
• The legal transfer of businesses/assets to the new entity with its associated legal costs
• The transfer of employment agreements across to the new entity
• Potentially a raft of Inland Revenue registrations and deregistrations
• Transfer of all insurance covers
• Informing suppliers of the new entity so that you hold valid tax invoices
• Deciding whether the LAQC should be liquidated, or registered as a non-active company, or left as a shell company

Unfortunately this is not as simple as just transferring all of our QC and LAQC clients across to the LTC regime as this would create real tax disadvantages for some.  And nor is doing nothing likely to be the best option for all clients.  If you have any queries or concerns, do contact us.

 

Elevate CA are growing, and we’re looking for just the right accountant to join our team.     

 

Who are Elevate CA? 

We are new, we are different and we are growing fast.   We are small enough to be nimble – and we are willing to take a risk to try innovative ways to deliver better value and service to our clients.   We are a relaxed team – but highly focussed on providing fantastic value and service to our clients.  And we’re a very long way from the traditional accounting “factory”.   

We embrace innovation and change as a positive rather than avoiding it as a threat to “the way things are done around here”.  We have up-to-the-minute IT, we are marketing focussed, and are always looking for opportunities to connect our business clients with each other.

We are members of the NZ Institute of Chartered Accountants – and if you’re completing PCEI or PCEII, we have a registered mentor on the team.  

 

Who we’re looking for? 

We need a person who is up to speed in the industry right now.  You’ll need to have been employed as an accountant in an NZ Chartered Accounting business for at least the past three years.  And equally important is the attitude to thrive in the unique way we operate.

If you can tick those boxes – and if you like what you see on this website, please read on.  This could be a great opportunity for you.

A partial accounting qualification – and knowledge of the “Accountants Office” software would be a real advantage.  But  we know that we can’t have everything, so if your CV is missing either of those, it won’t necessarily be a deal killer. 

 

The position 

This is a full time position based in our CBD Whangarei office, with plenty of client contact.  Here’s what you’ll be doing: 

1. preparation of financial statements and tax returns from source documents;

2. playing a key role in managing our relationship with clients, other professionals and the IRD. 

 

While the focus of this position will always be producing outstanding results for our clients, we pull together as a team to do what is required – so this will not be a role defined strictly by the letter of a job description.    

 

Taking it further 

If you’re the person we have described here, we’d very much like to hear from you.   Here’s how to grab hold of this opportunity:

 

1.  If you have been employed as an accountant in an NZ Chartered Accounting business for at least the past three years – and you like what you see on this website, proceed straight to step two without delay!

2.  Email your CV to goingUP@elevateCA.co.nz before 15 April.  We want to know about your CA experience, where you’re working right now, the kind of work you’re doing – and any questions you may have.  You can count on our complete confidentiality. 

3.  We will move quickly.  You’ll hear from us straight away to acknowledge receipt of your CV – and to arrange interviews where applicable.   

4.  Start date will be to suit – and you’ll be very busy from day one! 

 

Thank you for taking an interest in joining the Elevate CA team!