I HATE (company) Tax

I’m normally a great proponent of tax. It’s an important part of a functioning society with a decent health system and support available for those who need it.

But when I get hit with a massive tax bill (which I was kind of waiting for) it does get me thinking.

After my accountant had me sit down so as he could deliver the tax blow, and after I stopped gasping for air, he explained that EVERY TIME you get paid $1, put HALF of it aside for tax.

That’s a lot of money.

I’m going to split my rant in 2. I think that personal tax is pretty much at a state where everyone hates it equally (which is probably the best you can hope for).

But profit tax is where I have my issue.

The profits that Decisive Flow makes are not taken out of the business. They are left in the business to enable us to have some cashflow, some ability to work on other projects (i.e powerkiwi). This money is not lining any of our pockets, it’s going towards getting some other cool things started and will eventually go towards trips to the US to build on the export revenue we are already bringing into the country. This money is being used not just to help me, but in it’s own little way, boosting our economy.

We are tiny. The profit we make is probably what a lot of government departments spend on stuff like corporate lunches. And it hurts when so much of it leaves our account.

I’m really appreciative to have been given a grant by NZTE but it did strike me as a little odd today that the money I got from them is far less than the tax I paid, money I WOULD have spend on the same stuff anyway.

I know I’m not the only one who suffers from my tax bill, and I would hate to be the guy who has to figure it all out. However, it does seem to me that especially now there would be some benefit in significantly reducing company tax or removing it altogether until it is removed from the company by means of dividends or anything that doesn’t go towards growing it.

And I am only talking about small businesses. We could limit it to the first $50-$100,000 in profits or something and everything above that is taxed as per normal.

Is that totally selfish?

13 thoughts on “I HATE (company) Tax”

  1. Any business expenses can and should be deducted off your gross earnings, so those costs aren’t be taxed. Profits are the cash left *after* business expenses are paid, so any business trips, research costs etc are effectively pre-tax.

    But yes, tax is a bitch :/

  2. Yes totally. I knew I muddled up how I put that. What I mean is those profits will be used over the next year or so anyway to go into other stuff. I understand you can spend up large int he year they are due but would rather be practical with money than try to avoid tax. i.e if I don’t need to go to US this year, I’ll go next year, using the same money.

    I Just think that it’s nice to be able to leave a little chunk of money in the company and at this tax rate, you have to earn a LOT to have much there at all, which I would have thought means that a lot of businesses owners are in permanent worry mode about cashflow etc etc.

  3. Yeah. It’s the same argument as the current one raging about being eco-friendly “We will be eco-friendly in the long term but for now we need to save money” – The short term decision will mean long term harm.

    Upping the tax on small businesses WILL mean more struggle, which in NZ where most companies ARE small, means this short term move will have a bit impact ongoing.

  4. You are absolutely right. There should be a reward for putting your money and efforts at risk and actually creating jobs.

    I think a tax free bracket is a very good way to do that. In yesterday’s paper they mentioned that 85.000 entrepreneurs in Holland, live below the poverty level. This is exactly why.

  5. Singapore’s corporate tax rate is zero for the first 100K, then approx. 9% for profits up to 300K. I’d love to see something like this in NZ.

  6. Ray, are you being sarcastic? I feel awkward about this topic because I BELIEVE in the tax system and don’t want to skyve off my duties…

    Danny, yeah I’m not even sure if it’s a reward so much I’m talking about. I think it should be given if you keep the money in the business to grow it… Not to take out to buy fancy cars with.

    I discussed it with my flatmate who works at the IRD and i think we both came to the conclusion that people will find loopholes and make a fortune out of them, which as always ruins it for the rest of us honest types.

  7. Nat
    you need to get a new accountant!

    In a small business, the first question an accountant asks should be ‘how much profit do you want to make’, to which the answer in ‘none’!

    There are many ways to manage your profits, all of which are appropriate and legal. You should find out about them and apply them to your business the way I do to mine!

  8. To be honest, my current accountant does say that and we are working on this year’s accounts to ensure that happens.

    It’s just that I switched post that years account. I’ve probably written a million posts about how important it is to have a good accountant and that is because I learned the hard way. I think my current accountants have NO IDEA what my last accountant did. A lot of the basics just weren’t covered and I didn’t have the time/knowledge that there was anything better to do.

    However, even so. It is nice ot have money int he bank to allow you to sleep at night so I do think it’s a good idea ot make a bit of profit.

  9. Hi Nat, Great post and raises an interesting point, especially where you are investing profits back into your business to innovate and grow. That investment could qualify as R&D in which case you could claim 15% back from IRD, but only for the 08 tax year.

    Our new government has killed that R&D scheme for 2009 onwards claiming there was no evidence it was working. Funny, given that they killed it six months after it started. I am waiting to see what they replace it with, if anything.

    Its good to hear your positive view on tax, I agree it provides the foundation for our society. However there is a big difference between profit that is eventually returned to shareholders (which should be taxed) vs profit that is re-invested in the business, you should be able to minimise the tax impact of the second chunk.

  10. NAt
    Please be careful not to confuse cash-flow with profit!! That’s a VERY dangerous thing to do! The ideal position is LOTS of cash in the bank and NO profit to pay tax on! Takes a little planning, but far from impossible within the constraints of NZ tax law.

    HAppy daze

    -_-

  11. No serious, every one I know got billed. Especially if you’re on family support. We decided to cancel family support because we don’t need big bills at the end of the year. I agree TAX has its place but we could go into a whole new discussion on how that money is managed. Personally I don’t understand why they cannot calculate our liabilities month to month. http://blog.synapses.co.nz/2009/03/15/my-take-on-tax/

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