March 2023 - Bay of Plenty Business News

10 BAY OF PLENTY BUSINESS NEWS March 2023
When the proverbial hits the fan
FRANCHISING
> BY NATHAN BONNEY
Nathan Bonney is a director of Iridium Partners. He can be
reached at nathan@iridium.net.nz or 0275-393-022
Just when business was
thinking the worst of
the economic impacts
of Covid were behind us, we
are reminded by flooding in
Auckland and the significant
impact of Cyclone Gabrielle
that there are always risks
involved in business, and
unfortunately these are sometimes
unforeseen and completely
unrelated to the trials of
business-as-usual.
It re-enforces how essential
it is for businesses to have
asset and business interruption
insurance, and business continuity
plans covering every
aspect of the business from
supply chain, human resources
and, depending on the business,
even stretching to utilities
provision.
For businesses operating
within a franchise structure,
there are some additional considerations
for when the proverbial
hits the fan.
It is critical to understand
the obligations in your franchise
agreement, starting with
fee structures; some systems
generate fees or royalties
based on turnover, whilst some
have a flat or minimum base
It [Cyclone Gabrielle] re-enforces how
essential it is for businesses to have asset
and business interruption insurance, and
business continuity plans covering every
aspect of the business from supply chain,
human resources and, depending on
the business, even stretching to utilities
provision.
fee. Whilst the former is tied
directly to revenue, the latter is
independent, so what happens
if you are not generating any
revenue?
The flat fee issue raised
its head during Covid and
lockdowns, and responses
from franchisors varied
considerably.
I would suggest it’s now
taken into consideration by
many franchisors, franchisees
and their professional advisors,
and is certainly something
that should be discussed and
covered before entering into a
franchise agreement.
Some franchise agreements
also have what are called minimum
performance standards.
These are designed to ensure
franchisees grow and focus on
their business.
In effect this means if a
business is underperforming
the franchisee risks being in
breach of their franchise agreement.
But what happens if
external factors hamper business
performance? Will these
clauses be evoked and how
will they be managed?
You should understand any
restraints from the franchise
agreement on supply chain
and approved suppliers and the
impact of interruptions on your
franchised business.
Finally, should the worst
occur, and you need to exit
the franchise, you should
understand the termination
provisions of the franchise
agreement.
Luckily, the above considerations
will usually be
addressed and understood
through due diligence before
entering a franchise agreement,
and furthermore there
are a number of advantages of
being part of a franchise when
the proverbial hits the fan.
First and foremost, as a franchisee,
you are not alone. You
have the support of the franchisor
and in many cases, the support
of other franchisees. They
may have experience in the
situation you find yourself, and
have pre-prepared contingency
plans ready to go.
Whilst it’s good to know
that you’re not alone, access to
additional external resources
can be huge.
After the Christchurch
earthquake we witnessed
incredible support within franchise
systems ranging from
franchisees and franchisors
physically getting stuck in
and assisting with cleaning,
clearing and getting back to
business, loaning stock, assets
and even staff, through to franchisors
providing additional
financial support in the form
of fee holidays and re-directing
marketing spend to rebuild
sales.
Most franchise systems are
likely to have intrinsic supply
chain and cost advantages
including insurance, supply
chain robustness, and the
marketing power and reach to
assist with rebuilding business
levels.
Year-end tax
considerations
TAXATION
> BY ANDREA SCATCHARD
Andrea Scatchard is a Tax Partner at Deloitte, based in the Bay of
Plenty. She can be contacted on ascatchard@deloitte.co.nz
As we are fast approaching the end of
the 2023 tax year, there are some key
developments that need to be actioned before
31 March (for those with a standard balance
date) along with some standard year-end
tax issues to consider and some recent
developments that you should also bear in
mind as you work through your year end.
Bad debts
Do you have receivables
that are not likely to be
paid? Make sure these
bad debts are properly written
off in your accounts before
year-end so that they can be
deductible.
Imputation credit account
Your imputation credit account
must have a credit balance at
31 March. This applies to all
taxpayers, regardless of balance
date. A debit balance will
result in a penalty so it is wise
to pay careful attention to this
especially if you have paid out
imputed dividends, received
tax refunds or have a loss of
shareholder continuity.
Depreciation
Check your fixed asset register:
are you using the correct
depreciation rates? Remember
to depreciate new assets from
the beginning of the month
of acquisition, not just from
the date of purchase. On the
other hand, if you have pooled
assets, these can be depreciated
for the full year of purchase.
If you are writing off
assets, make sure they have
been disposed of by year-end.
Low value assets
Remember that assets that cost
less than $1,000 can be immediately
deducted, rather than
depreciated, as long as you
didn’t buy more than one of
the item on the same day from
the same supplier.
Trading stock
Have you considered reviewing
your trading stock valuation?
A stocktake should be
done at balance date, and any
trading stock that is obsolete
may be able to be re-valued.
You must be able to substantiate
valuations that are below
cost.
Losses – forfeited if
continuity breach
If you are expecting to carry
forward tax losses and your
company has had a change
in shareholding during the
year, you may want to check
whether the shareholder continuity
and business continuity
rules have been breached.
A breach of both can result
in all of your tax losses being
forfeited.
Fourth quarter FBT returns
31 March also marks the end
of the FBT year, regardless of
your financial balance date.
The March quarter (or annual)
FBT returns are due to be filed
by 31 May 2023.
This presents an opportunity
to use the various alternate
rate options to reduce the
FBT payable from the standard
63.93% rate.
GST mixed use taxable
and non-taxable supplies
If you are GST registered and
have assets that are used to
make both GST taxable and
GST exempt supplies, you
may need to make an annual
change of use adjustment in
the GST return period that
includes your balance date.
GST invoicing changes
from 1 April 2023
Gone are the days of GST tax
invoices (kind of). I remind
you that from 1 April 2023, the
current requirements for tax
invoices are being relaxed.
It will no longer be necessary
to hold a valid tax invoice
to claim an input tax deduction
and details of what you need
to provide your customers in
relation to sales are changing.
You don’t need to change
your existing practices, but
you may find that you get different
looking documents from
your suppliers for purchases
you make.
UOMI rate increase
IR use of money interest rates
have shot up recently, currently
sitting at 9.21% for
underpayments of tax. If we
see further rises in the OCR,
we can expect that the IR rate
may also increase further.
This high interest rate
makes it much more attractive
to make use of tax pooling to
minimise your overall interest
cost. If you have provisional
or terminal tax payments to
make, and do not already use
tax pooling, I urge you to look
into this.
The tax pooling process not
only minimises your interest
cost, it can also provide the
flexibility to make your tax
payments at times that suit
your own cashflow patterns.
Navigating all of the tax
rules and obligations can be
a nuisance for people who
understandably just want to
focus on running their business.
If you have questions or
would like help managing your
end of year tax affairs, please
seek advice from your tax
accountant or adviser.