New gear counts as towards income tax, since it is assets for the society.
So the ~$2400 net profit from the 2010-2011 financial year wasn’t all cash, some of it was the value of gear purchased?
The society could make following its rules on such bans a condition of project funding. But then GMs might be unwilling to have their games funded by NZLARPS, which could mean games or campaigns not happening, to the detriment of the community as a whole.
I’m comfortable with the current situation. NZLARPS isn’t there to be the social police, or mediators, or some sort of sporting body. They’re there to bankroll games. Stepping in in this manner would be a big overstep IMHO. Leave players and GMs to sort out their own problems.
I think she means to say that it does not count towards tax, being an asset and not an operational expense. However it will contribute to the depreciation expense indirectly.
Ok well now I don’t feel so bad for running games at a loss (small as it might be).
I think she means to say that it does not count towards tax, being an asset and not an operational expense. However it will contribute to the depreciation expense indirectly.[/quote]
I think Anna may be repeating something that I’ve heard Hamish say about how assets count towards tax.
I’ve scratched my head over it a few times too - it doesn’t sound right. Depreciation sure, but not the whole asset cost.
Not only that, but if a single asset (ie. printer, or sword) is under $500, then it can be written off as an expense, rather than depreciated as an asset. So I don’t know that much of our gear pool would really be an asset, given it’s usually bought a piece at a time.
I might have the wrong end of the stick, I confess it was very late at night when Hamish and I discussed it. My understanding was that assets raise the value of the society, therefore counts towards overall income.
I will clarify with the people what know the specifics.
Okay, so you cannot deduct the full cost of purchasing fixed assets (those you will use for more than a year) from your taxable income in the year of purchase. You can, however, claim depreciation. Source here.
However, like Kara said, an exception is that low-value assets, that is, assets that cost $500 or less, are deductible in the year they are acquired or created provided they are not purchased from the same supplier at the same time as other assets to which the same depreciation rate applies (unless the entire purchase costs $500 or less) and the assets will not become part of an asset that is depreciable. Source here
It seems like much of what the society buys would fall into the exception, so should be deductible immediately. Also, it may be strategic to avoiding purchases of more than $500 from a single supplier.
Thanks for the research, Ryan. I’ll discuss it with Hamish next time we meet to do accounts.
This is also true
Without seeing the societies books I cannot say whether you do have your gear as assets. For lots of small items like the gear library it is common to account for these in a depreciation pool. Whenever you buy something you add to that pool, and depreciate it as a whole.
Note you do not have to write it off as an expense, and can capitalise costs of any value (within reason, and as long as it meets the requirement of an Asset - Loosely explained as providing an enduring or future economic benefit)
Tax is paid only on the operating profit of the society (and only after the first 1000 bucks). Buying props and the like cost cash and effect the cash position, but do not necessarily became an asset where you effectively expense it over a few years, or whether you expense it immediately.
The reason the IRD allow this is primarily to allow for the burden of maintaining depreciation schedules and fixed asset registers to be waived. If you only buy small things then the amount of depreciation would be small. Compliance costs are rather high for the benefit.
Ants - I think your point might be a bit subtle for me. Are you saying there’s more to it than either 1) calling a purchase a fixed asset (or part of a fixed asset pool) and depreciating it over several years or 2) calling the purchase a low-value asset and deducting it in the year of purchase?
Do you do something accounty for a living? I can’t remember.
Given it’s late March, is there any chance that action (e.g. purchases) right now (before April) may reduce our net income for the financial year in a way that keeps it under $1000?
I’m working on the assumption that we do our taxes as a whole society, incorporating income and costs from all the branches and the national body. As opposed to this just being an Auckland thing.
Losses are always a negative for the society’s bank balance, even taking tax into account. 
But there’s no need to feel bad about it anyhow, it happens and we live and learn.
[quote=“Ryan Paddy”]Ants - I think your point might be a bit subtle for me. Are you saying there’s more to it than either 1) calling a purchase a fixed asset (or part of a fixed asset pool) and depreciating it over several years or 2) calling the purchase a low-value asset and deducting it in the year of purchase?
Do you do something accounty for a living? I can’t remember.[/quote]
I am a Chartered Accountant, or so the stupid membership fees tell me
Basically follow this logic for buying a “Thing”
Is the thing an asset (as defined by IAS16)?
No -> Expense through the Profit and loss, goes against income, and effectiovely reduces the tax burden by 100% of the purchase cost
Yes -> Treat as an Asset
Is it a low value asset (under $500) ?
Yes -> You may Expense through the Profit and loss, goes against income, and effectiovely reduces the tax burden by 100% of the purchase cost, or Account for it as an asset
No -> You must account for it as an asset.
Accounting for the thing as an asset means a few things. One, you need to add it to a fixed asset register, which basically is a list with the opening book value (purchase cost), accumulated depreciation, depreciation rate, and closing book value. These either contain each item individually (common for big things that have separate destinctive benefit, like the trailer), or in pools. The gear in my opinion is probably an asset pool in that it certainly meets the definition of asset, but has many small parts that add to the asset as a whole. You woulodnt want to account for every piece of gear individually. That would be daft, however you could lump them all together, assuming they all depreciate at the same rate, have the same attributes, and form part of a larger whole.
Accounting for an asset works like this
You buy it (purchase price), and using the IRD guidelines figure what is an appropriate depreciation rate. You add the asset to the balance sheet (Debit the asset, credit the bank). At the end of the year you (depending on Depreciation method, but lets use Straight line) calculate how much the asset has depreciated by. That particular amount is expensed and the asset is reduced in carrying value by the same amount. An easy way to understand this is you are expensing it over multiple periods as opposed to the period of purchase.
Here is an example
Non pool Asset
Purchase price $100
Depreciation rate - Useable for 4 years then will have no economic value - Depreciation rate = 25%
Start Year one - buy asset $100. Balance sheet increases assets by $100, decreases bank by $100
End year one - Calculate depreciation expense - 100*0.25 = $25
Asset value end of year 1 = 100-25=$75
Depreciation expense = $25
Asset Value end of year 2 = 100-50=$50
Depreciation expense = $25
And so on until the asset reaches 0 and is written off the books
So how does this stack up with low value assets and expenses? Assume $200 income for each year.
Current year profit = Income less Expenses
Under Asset example - 200-25=$175 each year
Under low value asset or expense - 200-100=$100 first year, $200 each year following
Note they all end up with the same amount of profit,
Most business want to capitalise and spread the cost out over many periods, although trying to expense everything to minimise tax is an option (although not a very good one). The society is different seeing as you have an incentive to firstly make a profit and assure you are a going concern, but dont want to make too much profit that the tax man takes vital funds from the community.
In that you should look to purchase small value assets and expense. The burden of keeping asset registers are a little much for the society in my opinion and given the nature of the operation, probably unnecessary. For every asset you buy over $500 you will need to account for it as an asset, but for everything else just expense it.
Does that make it clear as mud?
[quote=“Ants”]The society is different seeing as you have an incentive to firstly make a profit and assure you are a going concern, but dont want to make too much profit that the tax man takes vital funds from the community.
In that you should look to purchase small value assets and expense. The burden of keeping asset registers are a little much for the society in my opinion and given the nature of the operation, probably unnecessary. For every asset you buy over $500 you will need to account for it as an asset, but for everything else just expense it.
Does that make it clear as mud?[/quote]
Crystal, thanks.
So we should try to make purchases that qualify as low-value assets, then count them as expenses. This also means that if our net income for the financial year is over $1000, then purchasing low-value assets (under $500 per purchase) in March to increase our expenses until we’re under $1000 in net income makes sense? If we don’t want community funds to go to tax, that is.
Of course that’s assuming there is gear we actually need, not just spending for the sake of it. Also, that would require that we know roughly what our financial position is in March.
I think when Anna said that new gear “counts towards” income tax, she was meaning what you’ve said about fixed assets that aren’t low-value: that they can’t be counted as an expense - she was right, it was just the wording that may have confused. By that logic, there’s no point in buying gear to try to reduce net income to under $1000, which was the point she was making in reply to Jared suggesting we buy gear.
However, the low-value asset rule that Kara pointed out is an exception to this, and it’s one that’s very relevant to the society. It will be good to hear if this is being used in our accounting - and there may be some urgency, given we’re on the cusp of the end of the financial year. Also, if we haven’t filed last year’s tax return yet then that too could be reconsidered in light of this, and we may not owe the tax we think we do. It looks a bit like the rule about low-value assets changed in around 2005?, so it might be new to some folks.
Forgive brevity, phone posting.
The Nzlarps financial year ends 1st September.
Plenty of consumables to spend on, can always use more make up.
Cool.
Right. Also, stuff like costume and props will generally fall into the low-value asset category so it can be expensed, and nice costume pieces get a lot of use. When making purchases from Paddywhack (or other larp retailers) keeping each purchase under $500 will mean it can be expensed too.
I’d make another push for a pavilion, but chances are that wouldn’t be low-value.
If the society is making enough that we have to worry about tax, it’s an overall good sign, though. 
Although - if we are making a profit over $1k, then getting paid for storage could come back as a legitimate option.
Yeah as I pointed out at the last Auckland meeting, if you end up paying for storage that is an expense that will bring the society back under the 1k mark
Also note you must be consistent. No buying stuff and expensing it because you got wiggle room, then changing to capitalising because you have reached your quaota. You must be consistent and given the nature of NZLarps I would guess you do that mostly anyway (expense everything)