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Will the tax man knock on your door?

The New Zealand tax system is based on 'voluntary compliance'.

This loosely means that taxpayers and their advisors will do their best to take correct tax positions and Inland Revenue Department (IRD) will accept those tax positions as presented.

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There's no getting away from tax

There's no getting away from tax if you're self-employed. As much as I hate clicking on that "Pay Tax" button on my internet banking, it's just got to be done! 

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Did you know that the average age of business owners in New Zealand is around 58 years old? Unless they're going to work until they die (thanks BNZ, great commercial!) this means there's going to be huge numbers of businesses coming up for sale in the next 10 years or so. 

If you're thinking of selling, you're going to be one of many so make sure you prepare well. These are a few of the things you should be doing before you sell.

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How to handle issues with the IRD

 

The IRD can be a scary bunch even if you don't get offside with them, so it's best to be wary of how you talk to them and handle any issues that arise. As many have found, the consequences of getting your tax obligations wrong can deplete your wallet considerably, perhaps even leading to bankruptcy and financial ruin.

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Many successful small businesses get big without even realising they are no longer a small business. The most important thing is to recognise and accept that you are now bigger and can no longer run the business the way you used to. Then, and only then, can you take the necessary actions to manage your growth:

Seek help

Many small business owners are great at their own trade, service line or profession but just haven't had any experience in running a bigger business or managing staff or finances. If that's the case, it's necessary to face this head-on by seeking help from experts in the areas where you are lacking. This may include a great accountant who is prepared to help beyond tax and accounting, a practical lawyer, employment specialist or a really useful business coach. Yes, this will cost money, but it's better that than the consequences of getting it wrong or experiencing total business failure.

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Which business structure should I choose?

This is a perennial question indeed and one which should take account of the following factors:

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Payroll – Making it Work

Most small businesses struggle to cope with payroll processing. Whether you have 1 or 100 employees, it is has to be 100% correct as nothing can undermine an employee's confidence more than if their pay or leave has been incorrectly calculated. As with all areas of business, you need a system to follow:

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Is your activity a business or hobby?

Albert makes (and sells) wooden toys from his home. He is running a business. Jill also makes (and sells) wooden toys from her home - but she does it as a hobby. This article explains the approach used by Inland Revenue (and the courts) when they are deciding if an activity is a business or a hobby.

It's important to be able to tell the difference. If you're running a business, your income is taxable and your business expenses are deductible. But if it's a hobby, you don't pay tax on your income and your expenses are not deductible. The "business or hobby" issue can be complex. This article gives you general information only. Each case must be decided on the facts, so if you have any questions about your own situation, please contact your tax advisor or Inland Revenue.

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We have seen many clients work very hard only to lose some or all of their savings.  And they're not stupid people, quite the contrary.

Keeping your wealth can be a challenge.  You need to think about how to do this.  Also, think about why the mistakes have been made. Greed? Bad advice? Putting all their eggs in one basket? Collapse of the share market?

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