At this time of year we always get questions from business owners about their holiday payroll obligations.

Many Kiwi businesses – like Elevate CA – close for a period over Christmas.  And for many others, this is their busiest season very much open for business.  Either way, here are the answers in a nutshell to the questions we’re frequently asked:

If your business closes over Christmas, you must give your team at least fourteen days’ notice of the days they won’t be required to work;

Payment of holiday pay should technically be in one lump sum at the beginning of the annual leave – unless the employment agreement says something different.  In practice, many businesses simply continue to pay their team on their regular pay days over the holiday period – but remember your employees are within their rights to have their holiday pay in one lump sum up front.

Generally, entitlement to annual leave doesn’t arise      until after twelve months of continuous employment.  But many employees allow annual leave to      be taken in advance of this entitlement – and where the business closes for      a period, it is a requirement that you pay holiday pay in advance of      entitlement;  

If you don’t      close your business, remember that employees are entitled to take at least      two weeks of their annual leave in a continuous period at some time of the      year;

In      general, holiday pay is calculated at the higher of the employee’s      ordinary pay when the leave is taken and the employee’s average earnings for      the twelve months preceding the leave.       Your payroll software should calculate this accurately;

There are      four statutory holidays over the Christmas / New Year period.  Where one or more of these falls on a      day an employee would normally work, this will be a paid public holiday.

Remember      that annual leave lives forever.       Some business owners have been under the misconception that their      team must use their annual leave – or lose it.  This is not the case, regardless of what      a particular employment agreement might say.

If you’re closing down over Christmas, here’s hoping you have a safe and enjoyable break.  And if you’re remaining open, I hope you make some hay while the sun shines!

Another year is drawing to a close.  It’s safe to say for most clients 2013 has been a better year than the previous few.  By and large, businesses have been hiring and catching up on capital expenditure, which of course flows through to the economy in general – and further lubricates the wheels of commerce.

In most cases sales are strengthening and gross profits are holding up.  Interest rates are still low – and there is little or no upward pressure on business lease costs.  But despite over 6% unemployment, many clients are reporting difficulties in finding quality staff.  Exporters are battling the high dollar – but of course the many businesses who are net importers are not complaining.  And the dairy and forestry industries are insulated from the high dollar to a certain extent by high commodity prices.  Those sectors are creating opportunities for the many downstream businesses that supply them with goods and services.

On the downside, there are still some difficult industries where an upturn is no-where to be seen – as anyone in stand-alone retail or who leases property to retailers will confirm.  Cash surpluses are still generally reinvested or used to strengthen business and personal balance sheets rather than for retail therapy.  Some industries have fallen flat over the past couple of years due to technology, changes in government funding or online competition rather than economic downturn – and they will never be the same again regardless of any recovery.  Many costs are structurally higher than they have ever been – for example insurance, local authority compliance and energy, so increased profits are by no means a sure thing as sales firm.

We have seen more new ventures in 2013 – and several of these have hit the ground running and are already gaining good traction.  The appetite for calculated business risk is stronger than we have seen for several years.  In general, the story for 2013 has been quietly optimistic for those businesses that have remained relevant – with more expected for 2014.

Here at Elevate CA, a busy year with a good amount of new work and three new accountants joining the team.  When our clients are optimistic, this generally means new and interesting work for us – and that is what has been happening this year.  What gives us a buzz here at Elevate CA is being part of our clients’ success stories – and there have been more of those in 2013, so plenty of work satisfaction for us.

We are excited by what 2014 will bring!

There are new rules for mixed use assets.

A mixed use asset is one used for both private and earning income – and which is also unused for at least 62 days in any tax year.  This includes holiday homes, boats and aircraft.

Although the rules have not yet been enacted by parliament, they will be backdated for most taxpayers to 1 April 2013 for holiday homes – and will come into effect from 1 April 2014 for boats and aircraft.

In general, the new rules work like this:

Let’s say you have a holiday home which is used privately for 100 nights per year and is rented for 50 nights through Book-a-Bach.  It is unused for the remaining 215 days per year.

The income received from the 50 nights of rental is taxable – as it has always been.  But the changes relate to the deductibility of expenses.

Under the old rules, expenses were tax deductible except the portion relating to the 100 nights of private use.  Therefore 265 nights ÷ 365 nights = 72.6% of the expenses were deductible.

Under the new rules, only the proportion of rented nights compared to total nights of use will be tax deductible.  So 50 nights ÷ 150 nights = only 33% of the expenses will now be deductible.

For almost all mixed use assets, this will mean a reduction in tax deductions.  Last year’s budget indicated these changes would increase the tax take by around $109 million over the next four years.

The new rules have many provisos and exceptions.  Some that will be commonly applied are these:

1. The rules don’t apply to long term residential property rentals, business assets where the private use is minor – or to a home office where the expense is claimed on the basis of floor area;

2. Boats and aircraft are excluded from the new rules if their original market value when purchased was less than $50,000.

3. Private use has a rather broad meaning.  It includes use by you, your family or associated people.  Even if you receive market rent from family or associated people, the use is still private.  And if you receive less than 80% of market rent from a non-associated person, that use is also private;

4. If income is less than 2% of the value of the asset, you cannot claim any loss in the current year – it carries forward to the next financial year but is ring-fenced so it can only be used to offset income from that asset;

5. If income is less than $4,000 for the tax year, you can keep the income and the expenses out of your tax return. 

The new rules have many complexities, which are impossible to cover off in under 500 words.  Make sure you get proper advice from your accountant that takes into account your own individual circumstances before taking a tax position in relation to mixed use assets.