This is why a business owner should seek the advice of a suitably qualified accountant who is experienced in taxation and business advice. A proactive accountant is more likely to provide this advice than a compliance accountant. The compliance accountant's role is more likely to involve complying with tax laws, rather than optimising tax situations. The compliance accountant's mind is so attuned to complying with tax laws that they often do not see the opportunities for optimising a client's tax position.

Once the business owner has been convinced that it is in their interests to register for GST or VAT, the next question is for what filing period to opt? The more regular a filing period, the sooner the GST or VAT refunds will improve the business cash flow. So they may decide to opt for monthly or two-monthly GST or VAT returns. There will be an administration or accounting cost that needs to be weighed against the benefit of a quicker cash flow.

The income tax refund is an annual event that cannot be changed, except for where the business owner is leaving the country before the end of the tax year and applies to have a tax return processed sooner. There will be extra forms to complete and information to provide, and it usually means that the business is closing down. Even that income tax return should be lodged as early as possible after the tax year ends, rather than being left to be filed with other taxpaying business owners, so the income tax refund is received soon rather than later.

Tax and Tax Information - Income Tax "> Tax and Tax Information

 

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Tax and Tax Information * Income Tax

How To Turn Business Losses Into Cash Flow   
Chris Raynal

By Christopher Raynal
www.masteraccountants.co.nz

You have permission to publish this article electronically or in print, free of charge, as long as the bylines are included. A courtesy copy of your publication would be appreciated.

When the typical new business operator starts a business, they concentrate on making the business succeed. That is necessary but not the only thing that a business operator should concentrate on. A business depends on cash flow to exist and grow, so business operators would do their business a good turn by looking at sources of cash flow provided by the Government.

We are talking about the taxation authorities such as Inland Revenue Department in New Zealand (IRD), the Australian Taxation Office in Australia (ATO) and Inland Revenue in the United Kingdom and the Inland Revenue Service in the USA (IRS). All of these taxation administrations, along with those in Canada and South Africa for example, have both income tax and goods and services tax (GST) or value added tax (VAT) that present opportunities for refunds when a business' expenses exceed its income in the early stages of its life.

Initially, the start-up capital may come from savings, family and friends and salaried employment. The last source of finance - salaried income - means that the business operator still works full-time for a salary and part-time on their business. This presents particular opportunities to receive extra cash flow to fund the growth of the business - from value-added taxes and income tax refunds.

It should be noted that even where the business owner does not have other salaried (tax paid) income, they might have a husband or wife who does have salaried income. If they become a partner in a partnership conducting the business, or a shareholder in a Loss Attributing Qualifying Company (LAQC) in New Zealand only, then they can share in the business losses and receive income tax refunds.

In Australia, there was an ATO income tax ruling (IT 2218) that allowed a partner to receive a salary - as long as the partnership agreement recorded it in writing - and this presented an opportunity to maximize the loss for one partner (the salaried partner), thereby maximizing the income tax refund. That income tax ruling was withdrawn on 22nd May 2002. Australia has no LAQC equivalent entity. However, there is nothing preventing a partnership agreement specifying a partnership split other than 50/50, so that one partner can receive more of the loss than the other. It would be prudent for the partnership agreement to record the reasons for the ratio used.

So, how does it work? Most businesses start off making losses, and small businesses and home-based businesses are not exempt from this. The total revenue or income is usually low. It is often below the thresholds where the business has to register for GST or VAT, so that the business owner may be tempted to not register for GST or VAT, thereby saving on administration (in filing the returns) or accounting costs.

If the business owner contacts their local taxation authority, they will be correctly advised of the income thresholds for registration and the decision will be left to them to make. It would not be appropriate for a taxation officer to advise the business owner on how to manage their taxation affairs, and there is a case of the Privy Council (UK) that confirms the Inland Revenue cannot tell a business owner how to run their business. It is certainly not obligatory on the taxation authority to advise a business owner on a course of action that would contravene their charter of "protecting the revenue" of the State.

This is why a business owner should seek the advice of a suitably qualified accountant who is experienced in taxation and business advice. A proactive accountant is more likely to provide this advice than a compliance accountant. The compliance accountant's role is more likely to involve complying with tax laws, rather than optimising tax situations. The compliance accountant's mind is so attuned to complying with tax laws that they often do not see the opportunities for optimising a client's tax position.

Once the business owner has been convinced that it is in their interests to register for GST or VAT, the next question is for what filing period to opt? The more regular a filing period, the sooner the GST or VAT refunds will improve the business cash flow. So they may decide to opt for monthly or two-monthly GST or VAT returns. There will be an administration or accounting cost that needs to be weighed against the benefit of a quicker cash flow.

The income tax refund is an annual event that cannot be changed, except for where the business owner is leaving the country before the end of the tax year and applies to have a tax return processed sooner. There will be extra forms to complete and information to provide, and it usually means that the business is closing down. Even that income tax return should be lodged as early as possible after the tax year ends, rather than being left to be filed with other taxpaying business owners, so the income tax refund is received soon rather than later.

Article to continue below----------------------------------------------

NARUC Asks For Clarification On Broadband Grant Tax Status (Broadcasting And Cable)
Association says money should be tax...

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Article to continue below----------------------------------------------

New York Mayor Bloomberg Presses For Tax On Soda (Reuters Via Yahoo! News)
New York City Mayor Michael Bloomberg urged state legislators to levy a tax on soda, saying the money raised would help plug the state's shortfalls in health care and education funding.
N.Y.âs Paterson Shuns Wall Street Stock Transfer Tax (Update2) (BusinessWeek)
New York Governor David Paterson, facing at least a $9 billion budget deficit, rejected a call for a stock transfer tax on Wall Street.

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Christopher Raynal is the Director of Master Accountants Group Limited, a tax and management consultancy based in Auckland, New Zealand. The practice specializes in rental properties, wrap mortgages, small business development and asset protection structures. The website can be accessed at www.masteraccountants.co.nz for further articles of interest.

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Index of Articles about Taxes

What Other Authors say about Taxes

Find the Right Service to Prepare Your Taxes by Don Kransteuber

It is possible to save money on your tax preparation fees by doing some advance preparation of your own. Make sure that you organize your paperwork and receipts to save time and ensure nothing is missed....

Use Tax Credits To Help Finance Your College Education by P. Nash

Students are always on the lookout for ways to help pay or offset the cost of their tuition. There are various government grants and scholarships available to you if you qualify. But what if you don't...

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<p>Now consider your credit card. Most credit cards carry an interest rate of anywhere from twelve to twenty-one percent. If you owe taxes that you can't pay, you probably have a higher interest...

Gambling Income and Expenses - Taxes by Richard A. Chapo

Hit a big one? With more and more gambling establishments, keep in mind the IRS requires people to report all gambling winnings as income on their tax return.Gambling income includes, but is not limited...

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<p>In fact many of these people had no intention of retiring and used these generous packages to move into second careers. They did not retire at all until much later, in their sixties. Nowadays,...

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