Tips and tricks to save you thousands

9th May 2013

Interest Rates (again)

I discuss interest rates with most clients and it is amazing how much you can save by asking.  Whether you are a business person, rental owner or just have a personal home loan, you need to review your loans and interest rates.  Here are a few recent examples of good deals that I have seen:

- Business borrowing not secured by buildings at 6.49% through BNZ.
- Finance Company writing of over $10,000!  A client couldn’t quite refinance away from a Finance Company that was costing over 10% interest to a main stream bank, so as they were slightly short of equity, they asked the Finance Company to accept  $10,000 to $20,000 less than the whole loan amount, and the Finance Company accepted.
- I have a loan come up with Westpac in June, and the standard 1 year rate is 5.19%.  I asked for a better rate by email, and got a phone call back yesterday offering 4.89% for 1 year.
- I have recently fixed a Sovereign loan for 6% for 5 years.  We have had a couple of clients manage 5.79% through Westpac recently, but lots more getting 5.99% for 5 years through a variety of banks.
- 4.99% advertised with SBS for 6 months, 1 year or 2 years.

We have recently helped a client save $13,076 per year in interest, just by fixing some loans over different periods from 1 to 5 years.  This also gives them some long term interest rate protection!

6 ways to improve business profit by 56%

Often when business isn’t going well, we try to make a large change in one problem area.  A large change can be very hard to successfully implement, plus can be time consuming and costly.

Another way is to make small changes over 6 different areas.  If you can get a 5% improvement in each of the following areas, then this increases your net profit by 56%!

- Number of quotes
- Conversion rate
- Average $ spend per customer
- Average number of transactions per year per customer
- Costs of goods sold (ie 5% discount from key supplier)
- Other expenses

The key is initially recording and knowing what these figures are, and then improving on them.  A 10% improvement gives a 129% increase in net profit.

If you are interested in simple ways to grow your business profits, email me at ross@coombesmith.co.nz and I will send you some further information on this.

Rearranging Personal Debt

In some cases we can borrow in your business or rental entity, and then use this money to repay personal debt.  This normally gives us an added tax deduction that can amount to thousands.  For example, we recently moved $183,000 from personal to business, this has $10,065 interest at 5.5% which saves $3,321 per year in tax at the 33% tax rate.

In some cases rearranging personal debt can incur costs, so it is important to consider the costs vs the benefits.  In the case above the cost was a $250 loan application fee.  But for other restructures it can add up to thousands in tax on building depreciation recovered, legal fees and/or Company formations.

Chattels Depreciation

I met with a new potential client recently who had obtained Valuit chattel valuations on a number of properties, costing over $1,000 in valuation fees.  This should have given the client over $10,000 of benefit over the last 5 years.  But unfortunately, their old accountant never included the chattels depreciation as a tax deduction!  Depreciation is a funny expense, in that once you have made a decision to not claim chattels depreciation, you can’t then go back and amend those past years.  So this client has lost that tax benefit forever!  This shows the benefit that can be obtained by using a property accountant!

GST on rental income if trading properties

We have recently taken on a client whose old accountant has returned GST on rental income for the last 6 years.  The client owes or has paid around $12,000 in GST per year, totalling $70,000 approximately over the 6 years.

If you are trading properties and registered for GST, you should not be returning GST on rental income!  For properties purchased before 1/4/11 it is best practice to use Lundy adjustments.  For the client above, using the Lundy adjustments reduced the GST adjustment down to approximately $2,000 per year or $12,000 for the 6 years.  Overall we hope to save at least $50,000 and are in the process of reassessing the old GST returns with IRD.  Again, if you are involved in property transactions, it is essential that you use a specialist property accountant who is fully aware of property tips and tricks.

If the property was purchased after 1/4/11, new rules have come in that generally require more GST to be paid back to IRD.  But the first adjustment required is not until 31/3 of the year after.  For example, if you purchased a section, built a house in May 2013 and tried to sell it, then couldn’t so rented it out, the first adjustment period would be for May 2013 to 31/3/15, with the GST adjustment due in the 31/3/15 period.

Free Insulation

Waikato DHB is offering free home insulation until 31/5/13 in certain cases.  There are 5 main criteria (below) that you need to meet.  The link to the application form is also below:

- Live in/own a home built before 2000 (within 30km of Hamilton City)
- Be a Community Services Card holder (the primary tenant or owner must be the card holder)
- Have children under the age of 16 years living in the home (or frequently staying)
- The home is not a Housing NZ (Housing Corp) home
- Landlord approval has been granted

The link to the application form is http://www.waikatodhb.govt.nz/file/fileid/46637

“Coombe Smith are property accountants and property experts in Hamilton, who help the Waikato property community and are proud to have property clients throughout New Zealand and the World. Do you need a property accountant to help with your rental properties?”