Blog

How much to charge?

Fri, 22 Feb 2013 02:23:00 GMT

One of the most difficult decisions to make as a business owner is how much to charge for your products. There is often a reluctance to review pricing because of the fear of upsetting existing customers or due to a lack of time. However, there are a number of actions you can take to make your pricing process smoother and more robust, ensuring that your pricing is correct for you and your customers. The following framework provides practical instructions on how to review your pricing.

Refer back to your business plan to confirm how you were planning to position your products in the market, and whether your current pricing is consistent with that plan. If you don’t have a business plan, create one.
Consider what you’re trying to accomplish with your pricing. Pricing can send a direct message to your customers regarding who you are as a business and the type of products you offer. For example:
- Customers can assume, rightly or wrongly, that more expensive products are better quality than cheaper alternatives,
- Customers also tend to resist products they see as too highly priced; however, they also resist cheaply priced products because they assume they are low quality.
Consider how prices will affect demand and seek active feedback from your customers, including how they value your products.
Consider the needs of customers and the value they place on your products. This can be a major pit-fall in pricing because customers may be willing to pay more than you realise. Customers who are unhappy with pricing on the other hand will generally let a business know how they feel, or they just won’t purchase the products.
Consider your competitor’s pricing and any perceived or real difference in value provided. This is to ensure that the business is making as much as it can and also that you are not being priced out of a market.
Consult with a business advisor. They will have a wider understanding of what is happening in the marketplace and can help guide you through pricing decisions.
As a general rule you should review your pricing at least annually. This is to ensure that pricing is still consistent with industry best practice and that you are getting all that you can out of your business.

The reality is that incorrect pricing can seriously undermine business performance. In a changing business landscape customer’s ideas on value can change rapidly. Businesses therefore have to be more responsive and proactive in their pricing to ensure that products are priced appropriately.

Source: Accountants Client Newsletter, Issue 1: February 2013 - April 2013

Tax Treatment of Employee Allowances

Tue, 12 Feb 2013 21:23:00 GMT

In an effort to reduce uncertainty regarding the tax treatment of employee reimbursements and payments for meals, accommodation, communication and clothing, the IRD released an officials’ issues paper in November 2012. The IRD is seeking feedback on proposals to introduce legislation specifically pertaining to these types of expenditure.

Meals

Employee meal costs when travelling for work - tax-free if duration of travel to a given location is less than three months, otherwise taxable in full for longer trips,
Meal expenses (not during travel for work) - tax-free provided payments are not made on a regular basis or as a reward for employee services.

Accommodation

Cost of employee accommodation when travelling for work - tax-free if duration of work travel to a particular work location is less than 12 months, with a discretion for travel in excess of 12 months in exceptional circumstances - taxable in full for longer trips,
Cost of accommodation provided as part of employment, e.g. farmhouse - No change - the market value of accommodation to be treated as taxable,
Employees who work from home - No change - market value of accommodation is taxable,
Cost of accommodation (more than one permanent workplace) - Factual assessment of the principal place of work to be performed i.e. based on time spent. Accommodation payments for the second workplace may be tax-exempt,
Cost of accommodation (employees seconded overseas) - Treat as taxable up to the market value of equivalent accommodation in NZ, e.g. a similar property with the same number of bedrooms.

Communication

Payment for employee’s communication costs (including telephone and internet) - Taxable in full except where the private/work portion is able to be separately identified.

Clothing

Cost of clothing for employees - Taxable unless the clothing is necessary and peculiar to the employee's occupation e.g. uniforms, protective or specialist clothing.

On a related topic, in December 2012 the IRD released a statement (CS 12/01) that has caused some concern. The statement outlines the IRD’s view on accommodation allowances and accommodation provided to an employee on secondment when that employee continues to maintain a home in their original location. In this situation it is accepted practice for such expenditure to be treated as non-taxable to the employee. This treatment and its approval by the IRD dates back to the now expired (in 1998) Technical Rulings Manual, which included the following statement:

57.11.1.1 Exemption - Cases will arise where an employee is required to live away from his/her normal place of residence. He/she is required to maintain the normal place of residence for the family while working away from home. In these cases, there will be no benefit in respect of the accommodation supplied by the employer as the cost of maintaining the family home will offset any benefit received. The value of the accommodation supplied will not be taxed.

In contradiction to its own historical commentary, the IRD have now advised:

Where an employer provides accommodation or an accommodation allowance, the amount is taxable and subject to PAYE,
When accommodation payments have been made by the employer for expenditure incurred by the employee the amount is taxable and subject to PAYE,
Accommodation for overnight and short-term stays by an employee in another location is not taxable.

The statement has been poorly received as the IRD’s view is arguable, however due to the lack of technical analysis provided, it is difficult to confirm how the IRD has reached its view. The IRD have advised that taxpayers should make a voluntary disclosure if they have not treated amounts correctly. For this purpose the statement should be referred to as the period of reassessment, and application of interest and penalties will vary depending on the facts.

Source: Accountants Client Newsletter, Issue 1: February 2013 - April 2013

Managing the Millennials

Tue, 20 Nov 2012 23:33:00 GMT

A recent global survey highlighted some intriguing facts and issues for employers when hiring, and managing employees born between 1980 and 2000. This demographic, known as the ‘millennial’ generation, is showing they have clear preferences for how they want to be employed and managed.

Having grown up in the ‘good times’ between recessions, the millennial worker has little loyalty toward an employer and this contrasts markedly with the Baby Boomer generation and to a lesser degree with Generation X. The millennial worker will have a preference to work for more than five employers over their career and it is expected that this number of employers will only increase as current economic difficulties ease and more job opportunities become available.

Recent generations have placed increasingly greater significance on a good education, so it is not surprising that employers who provide opportunities for greater personal learning and development will fare better in attracting and retaining a millennial worker.

As you might expect, the millennial generation is the most technologically savvy generation and so they are interested in working for employers who also share their love of technology. The challenge for any employer in this respect is that a millennial worker will want to communicate using technology and this is likely to cause friction with the Baby Boomers and Generation X who generally prefer to meet for discussion.

This new generation of workers also has a strong appreciation for lifestyle, and the opportunity to relax away from work will be even more appreciated under the current economic difficulties.
Career progression within a reputable business is also high on their list of employment motivators and is surprisingly slightly more important to them than a competitive salary.

We also know that in a global economy, the opportunity to travel and work will be a strong attraction to working for an employer. This preference will continue to be a drain on New Zealand’s workforce.

Finally, the ‘millennials’ will value the opportunity to be mentored by the older generation so the challenge of managing the generation gap will continue to exist as it has done for previous generations.

In summary, here are some key points to assist employers with managing the generation newest to the workforce:
• Ensure your policies and practices enable you to communicate effectively,
• Assess the degree of flexibility that you are able to give employees in a job and align the practices of the business to match. The more flexibility you are able to offer, the better,
• Develop career plans that interest these employees in your business and focus on developing the skills the business needs in the future,
• Consider development opportunities that extend the skills of these workers, what are sometimes referred to as ‘stretch’ assignments are where individuals learn the most,
• Review the range of employment benefits on offer to attract and retain these employees,
• Provide mentoring opportunities to share the experience of older generations.

Source: Accountants Client Newsletter Issue 4: November 2012 - January 2013

433 St Asaph Street

Mon, 26 Mar 2012 11:00:00 GMT

It's been two weeks since we moved into our new offices at 433 St Asaph Street and it's great to be back in appropriate offices. In fact, we're enjoying it so much here we wanted to share a few more photos with you! Check out our facebook page to see them all.

Thank you for all the positive feedback we've received and we look forward to seeing you again soon.

Now in new premises!

Wed, 07 Mar 2012 11:00:00 GMT

Yay! It's been a long time coming, but we've finally relocated into our new premises at 433 St Asaph Street, just east of Fitzgerald Ave. We have plenty of client parking available outside the office, so we look forward to seeing you again soon!

Check out our facebook page to see some photos of our new office and our journey to get to this point.

We'd also like to make a special mention to the team at Redpaths. Thank you for hosting us through the turmoil of the past year. We are truly grateful for all of your help and understanding during this time.

Natural Disaster Insurance Excesses Increase

Mon, 23 Jan 2012 11:00:00 GMT

An unfortunate, but expected consequence of the recent Canterbury earthquakes has seen the dramatic increase in insurance excesses for natural disasters. Previously excesses were based on a percentage of the loss, subject to a minimum dollar amount. On renewal, many clients are now faced with natural disaster excesses of $100,000 plus.

While you may be unable to reduce this excess we urge you to fully read your renewal documents and be aware of any potential exposure.

Source: Searells Business Improvement & Chartered Accountants

Premise Update

Tue, 17 Jan 2012 11:00:00 GMT

Happy new year! We hope you managed to have an enjoyable break - despite the shaky start. As a result of these earthquakes that hit Christchurch on 23rd December our temporary premises at 314 St Asaph Street have been compromised and we have had to relocate again into temporary premises. For the next 5 to 6 weeks we will be operating from 55 Ferry Road, upstairs in the Redpath's Electrical Boardroom. Our office hours and all other contact details remain the same.

The good news is that we a secured a premise in late 2011 and we have now fast tracked the refurbishment and are aiming to be up and running by late February - we will update you on this closer to the time!

Seasons Greetings from Searells

Wed, 21 Dec 2011 11:00:00 GMT

Merry Christmas and a Happy New Year!

The Searell’s Team wishes you and your families a wonderful Christmas and safe and happy holidays!

Our offices will be closed from 5pm on Friday, 23rd December, and will be open again with our standard office hours from Friday, 13th January 2012.

Should you have an urgent enquiry during this period, please contact Glenn Morris on 0274 500 831, or Sharon Wedlock on 0274 476 233.

Alternatively, you can leave a message on our answer phone or email us at searells@searells.co.nz and we will have the appropriate team member contact you when we re-open.

We look forward to working together in 2012.

Seasons Greetings,
The Team at Searells

Rental Properties in the Red Zone and Depreciation Issues

Tue, 23 Aug 2011 12:00:00 GMT

If you have a rental property in the red zone and you accept the Government’s offer, it is deemed to be a sale of your rental property. If you have claimed depreciation on the building and/or chattels, and you sell the property for more or for less than the current book value, then you may have a tax issue.

For example, a husband and wife have owned a rental property for the last 7 years, it is in the Red Zone and they are going to take the Government’s offer. The value of the house (only) was originally $141,000 and the depreciation claimed to date is $32,000 and the book value is now $109,000. If the Government’s offer differs from the book value, then there is a depreciation tax issue that needs to be dealt with.

The Government are currently reviewing the ‘timing’ of depreciation recovery rules on the sale of buildings due to the earthquake. For example, if you purchase another residential rental property you may be able to transfer the depreciation claimed to the new property.

There are a number of issues surrounding rental or commercial properties in the Red Zone and there is no ‘one rule fits all’. If you would like to discuss your situation please contact us.

Source: Searells Business Improvement & Chartered Accountants

4th September Claim Deadline Approaching

Fri, 19 Aug 2011 03:13:00 GMT

We are coming up to the 1st anniversary of the day that changed our feelings about Earthquakes – 4 September 2010 was the beginning of a difficult year for us in Christchurch. If you have business interruption insurance, and suffered damage from this earthquake, time is fast running out for your claim.

While your claim may not necessarily need to be filed before 4 September 2011 (although we would thoroughly recommend it!), any increased costs of working that may be covered under the policy will expire on 4 September 2011 if you have a 12 month indemnity period. Now is the time to incur these costs but make sure the costs are dated prior to 4 September if they relate to the 4 September Earthquake to avoid complication with your claim.

Source: Searells Business Improvement and Chartered Accountants

Claiming Tax Credits on Donations

Wed, 10 Aug 2011 21:34:00 GMT

Inland Revenue has published a "Revenue Alert" highlighting their concerns that some people are claiming tax credits for "donations" where there may not have been a true gift of money to a charity.

The arrangements that have come to their attention involve smaller, locally-based charities, and typically involve a payment being made in the expectation that the donor would receive something in return.

Any payment of over $5 to a charity can potentially qualify for a donations tax credit if it is a gift. To be a gift it must:

Be made voluntarily;
Provide a material benefit to the recipient without imposing a countervailing detriment;
Be for no consideration; and
Provide no material benefit or advantage to the giver in return.

You may wish to read Inland Revenue's "Revenue Alert", to be sure that your charity is complying with tax laws, and (if your charity is also a donee organisation) that your donors are able to claim tax credits when they make donations or gifts.

Full information can be found by clicking here. For more information about donee organisations, see: www.ird.govt.nz/non-profit/np-donee/

Article from: The Charities Commission

EQC and Rental Property Cover

Wed, 10 Aug 2011 02:31:00 GMT

If you have you changed your residential rental property into a commercial rental property, you may need to read this!

As reported on Campbell Live Leonie Guley flew out of Christchurch to start a new life with her husband in Perth. But with her departure Leonie leaves behind a significant issue that needs urgent clarification by the powers that be:

Are residential property owners in Christchurch still covered by EQC when commercial tenants move into their homes?

The answer could be worth millions of dollars and impact on hundreds of Christchurch residential property owners.

Leonie recently got new tenants displaced by the earthquake, they use her rental property as a base for their marketing business - but that has resulted in the cancellation of her EQC cover and her house insurance.

Reporter John Sellwood caught with Leonie before she left the country. Click here to watch the interview.

Source: www.3news.co.nz

The Abolition of Gift Duty - what does it mean for you?

Thu, 28 Jul 2011 04:49:00 GMT

The government is intending to abolish gift duty from 1 October 2011. The abolition of gift duty is an opportunity to restructure family interests where there is a valid commercial or succession planning reason for doing so. However, careful consideration needs to be given before fully gifting off any asset as there may be long term ramifications you have not thought of, for example:

• Loss of control of the assets – if they are gifted to a trust they are under the control of the trustees
• Trust administration needs to be correct to avoid the trust being challenged as a sham
• Gifts are likely to be challenged where they have been made to avoid creditors, former partners, for tax avoidance etc
• There may be tax consequences such as depreciation recovery.

Opportunities certainly exist for many with the abolition of gift duty however, as with anything, individual circumstances need to be considered and suggest we review your situation in conjunction with your lawyer because there is no one answer fits all as to whether all of your assets should be gifted. In the meantime we recommend you continue with any gifting programmes until your particular requirements have been determined.

Written by Searells, Business Improvement and Chartered Accounting, July 2011.

Why our monetary policy may tighten sooner

Thu, 14 Jul 2011 22:37:00 GMT

This week we have learnt that the NZ economy grew twice as fast as thought during the March quarter and 0.5% during the December quarter rather than 0.2%. We’ve also seen strengthening data for house sales and prices, a firm lift in spending using debit and credit cards, still high sentiment in our monthly BNZ Confidence Survey with the tone of comments tending to improve, and clear evidence of first home buyers entering the real estate market with pricing perceptions turning upward.

Unsurprisingly then with this news set against a backdrop of growing signs of slowing in Australia, continuing bad news about debt and credit ratings in Europe, and worries about the US getting so bad more printing of money is being contemplated, the NZD has shot up. Today it traded above US 85 cents, near 52.5 pence, and an eight month high against the Aussie dollar. While in the short term high volatility is likely, the trend is likely to remain up for an extended period of time, especially once monetary policy is tightened from December and now possibly as early as September.

Source: BNZ Weekly Overview, Tony Alexander, Chief Economist

Development costs of unsuccessful software soon to be deductible.

Mon, 27 Jun 2011 00:38:00 GMT

The Minister of Revenue has announced that businesses will be allowed a deduction for the development costs of unsuccessful software.

The amendment confirming the deductibility of expenditure on unsuccessful software will be included in legislation intended to be introduced in September 2011. The amendment will be backdated to ensure that expenditure incurred during this year will be deductible.

Source: The Tax Tips Team - Pricewaterhouse Coopers