FARMINGSPRING 2014

HighlightsOn-Farm Minimum Wage ComplianceFarming Health and Safety PlanningManaging the Fluctuating Payout

Level 2, Como House, 51 Tancred Street, Hokitika 7810, P.O. Box 325, Hokitika 7842Phone: 03 755 8866 n Fax: 03 755 8910 n Email: team@cuffs.co.nz n www.cuffs.co.nz

As I am writing this the global dairy trade has just shown another price decline of 7.3%. Westpac have reduced their forecast payout to $4.80 - $5.30 and ANZ has cut its forecast to $4.85. Westland may

fair better as Skim Milk Powder only dropped 2.7% and Casein by 1.4% in the current auction, whereas the exchange rate has fallen by 6.5% in the last month.

The average payout has been around $6.20 over the last five to seven years. If you can get a payout that is a dollar over the average payout you must realise you can get a dollar under the average. This should now be considered normal and you should be planning for this to occur, particularly as we are finding a low payout year now follows a high payout year, due to market forces. The lesson here is that if you get a payout above $6.20 you need to be putting aside the additional amount to cover the payout below $6.20. See our article on managing a fluctuating payout for more information.

There has also been an increasing emphasis on health and safety on the farm. We recently held a seminar at Kokatahi on this. A follow-up session actually creating a plan is being organised by a group of farmers, ACC and ourselves. Please read the article we have included on this and, if you need to upgrade your systems and would like to attend the workshop to prepare your plan, please contact us.

The other topical issue is the question around minimum wages paid to farm workers over the Spring. Check out this article to see if you are compliant with this and contact us to see how your employment agreement can be varied to become compliant.

Peter

AgFest 2014Thanks to everyone who visited our tent at Agfest, it was another very successful event. Congratulations to Peter McDonnell – winner of our $500 cash prize. Pete donated $100 of his winnings to the Cancer Society. Our duck shooting competition was very popular. Congratulations to our winner, Jem Pupich, who will no doubt be enjoying playing with his new toy, the remote controlled helicopter, that was the prize.

Jem Pupich, winner of the Cuffy Duck Shooting compeition.

Peter McDonnell, our $500 cashprize winner.

Standoff:Sue Teen and Wayne Nolan.

üBusiness structuring adviceüAccounting package supply, install and trainingüGST trainingüTaxes sortedüACC sorted

PLEASE NOTE:Only applicable to those in their first year of business

AGRI-Start-up Plan$1,000 ($250 per quarter)

AGRI-Basics Planfrom $250 p/m

AGRI-Boost Planfrom $450 p/m

AGRI-High Performance Plan

from $700 p/m

For those getting into farming self

employment for the first time. This covers everything needed to get your accounting

up and running.

For the smaller farming operations

who want to do some of the work

themselves, but want it to be simple.

For farmers wanting to do minimal

bookwork themselves and looking to

boost their financial performance.

For farmers looking for maximum

performance from their farm and wanting to make real progress towards their goals.

üSupply of bank data for cashbooküAnnual financial statements and tax returns including checking of IRD tax assessments and statements and acting as an intermediary between you and IRDüAnnual financial KPI reportüBi-annual review of your book keeping to keep you on tracküOn-farm visitüFree Quarterly NewslettersüFree accounting software and support help desküFree phone or email support

All the AGRI-Basics services plus:üPreparing GST returns for youüPreparing an annual budget in conjunction with your other farm professionalsüBi Monthly reporting of actual v budgetüDairybase Farm BenchmarkingüAnnual Tax reviewüManaging your ACC cover and premium invoices

All the AGRI-Boost services plus:ü2 monthly KPI dashboard reportingüAnnual strategic planning session üTwo ½ day farm visits with us and your farm consultant included as part of the plan üAnnual interest rate strategy meeting with banker

Level 2, Como House, 51 Tancred Street, Hokitika 7810• PO Box 325, Hokitika 7842• Phone 03 755 8866 • Fax 03 755 8910 • Email team@cuffs.co.nz

All plans include free phone and email support, so you can contact us for all those little queries without fear of receiving a bill...

Take a look and select what plan suits you best. Our plans are flexible so we can even modify the plan just for you! Add payroll from just $75 p/m.

WE HAVE THREE GREAT SERVICE PLANS AND A START-UP PLAN TO GET YOUR ACCOUNTING AND FINANCIAL PERFORMANCE SORTED.

OUR MOST POPULAR

PLAN

Minimum Wage Order Amendment - What does it mean for Farmers?

Farm Service Plans

ACC Reforms - How will this effect you?Following the Pike River tragedy, major changes are being proposed for workplace health and safety, through a new Bill to be enacted in April 2015. The changes will tighten up Health and Safety practices in the workplace. Not only will you be required to have systems in place, you will be required to be actively undertaking proper Health and Safety management in the day-to-day running of your business and be able to demonstrate this. Employees are to be regularly involved in Health and Safety management. This will be required to be documented, for example, in records from staff meetings. Protection equipment is likely to be more prescribed so actual types of equipment, for example helmets, headphones or eye protection, will be required to be used.

Having just completed an excellent ACC seminar as part of our Business Management and Growth programme we have prepared and uploaded a paper on ACC to our website that we recommend clients read. This concisely covers:• What ACC covers and what it doesn’t• The Cover Options and Cuffs recommendations• How to reduce your ACC levies• Tips on ACC

At Cuffs we are finding many clients are receiving (and paying) incorrect invoices. The most extreme case was an overpayment of $8,000. This may seem hard to imagine but ACC invoices are very confusing and, with multiple ACC invoices if ACC incorrectly invoice you, it can be hard to pick up. Due to the number of discrepancies and costs of these to clients we are now providing an additional service of managing client’s ACC. This involves all ACC related information coming directly to us where we will review the invoices and ensure they are correct, advise you immediately of payments due and ensure you are on the right classifications and plan option.

If you would like peace of mind with your ACC financial responsibilities and want to ensure you are not paying too much, please call or email us to set this service up for you.

At Cuffs we are updating our own ACC health and safety planning in conjunction with ACC. We will put our Health and Safety Plans on our website to assist other businesses. There are also some great templates & resources on www.worksafe.govt.nz and on www.acc.govt.nz

In practice many farmers have employment agreements with their employees which average wages out throughout the year enabling staff to have certainty about their income. i.e. a salary. This seasonal averaging was never legal, which was confirmed by a recent legal case. The legal position was that a person had to receive at least the minimum wage rate for every hour they worked in a week.

Following the court decision, the government amended the minimum wage order to allow a new fortnightly minimum of $1,140 for adult employees and $912 for starting-out workers and trainees. This effectively allows fortnightly averaging. i.e. if an adult worker works 50 hours in one week and 30 hours in the second week, then you are within the law as long as their salary is at least $1,140 for the fortnight.

The legislation reminds employers that every employee must be paid at least the minimum wage for every hour they work. As work hours on the farm can vary considerably over the busy periods of calving to the quieter winter months, it is still possible to run afoul of the law and you need to record your staffs hours of work and monitor that they are getting at least the minimum wage.

An example of this would be an employee on $35,000 p.a. or $1,346 per fortnight. Based on the current minimum wage of $14.25 per hour, if they do more than 94 hours for the fortnight and you don’t increase their salary for that fortnight to at least $14.25 per hour for the number of hours they have worked, then you will be in breach of the law.

If you think that you could have an issue here or would like assistance to ensure your employment agreements and payment practices are correct please contact us.

Following the ACC seminar held in Kokatahi, a group of farmers are coming together at the Kokatahi Hall on 23 October to develop their Health and Safety Plans. Cathy Blincoe, Injury Prevention Consultant and Workplace Safety Management Practices Auditor from ACC, will also be attending. This will assist in determining the health and safety practices on your farms and enable you to gain the 10% ACC Workplace discounts. If you are interested in attending, please email jackie@cuffs.co.nz or phone Jackie on 03 755 5500. Alternatively, you can contact Helen Cook on 03 755 7847 or email camelbackfarm@xtra.co.nz.

Please note this is open to all farmers, you don’t have to be a client of Cuffs to participate.

Accounting Setupfor Farm BusinessesPeter’s presentation Accounting Setup for Farm Businesses from the seminar we held in conjunction with ANZ earlier in the year was recorded and is now on our website under our farming section.

If you are looking at moving up to purchasing a farm, this video contains the key information and great tips to guide your planning and is well worth viewing.

If you require further information contact Peter at the office.

Farmers Develop Health andSafety PlansWe have developed four farm plans

that are becoming very popular with clients. The benefit of going on a farming plan is that you are able to purchase the level of support you require, you know exactly what to expect from us and the annual accounting fee is known.

If you are interested in considering moving to a plan please have a look at these on our website under the Farming section, determine what you think might be best for you and give Peter a call to discuss the options.

ACC representatives Rachael Fraine and Cathy Blincoe present to local farmers at Cuffs Health and Safety Planning seminar.

STRATEGIES

New Zealand Dairy Industry Awards 2015Cuffs are again proud to support these awards as a Tier One sponsor. We encourage all dairy farmers across the West Coast to consider entering.The categories are: Sharemilker/Equity Farmer of the Year • Farm Manager of the Year • Dairy Trainee of the YearImportant Dates: Entries Open 20 Octover 2014. Early Bird Entries Close: 10 November 2014. Entries Close: 30 November 2014. Awards Dinner: Monday 23 March 2015 at Shantytown.

for a Fluctuating Payout

For further information and to enter, go to:www.dairyindustryawards.co.nz

This is an expanded article from one I wrote recently for the West Coast Farming Times.

In June last year I wrote a similar article as the payout was climbing. This year we are in the reverse, which proves my point that we need to learn how to live with a volatile payout. I have heard recently commentary about the seven year cycle, but I think the digital age has had an impact on dairy commodity prices and there appears to only be a 3 year cycle. Highs in 2007/08, 3 years later in 2010/11, 3 years later in 2013/14.

Over the last seven years the payout has averaged $6.14 (not including the 2013/14 season). This means any payout above that has to be treated as above average, with farmers needing to give thought as to whether they should be banking some of this to get through a below average year.

See the table above which highlights the volatility. Given recent drops in commodity prices, the drop in 2015 could be more pronounced and I am currently budgeting at $5.30 after retentions for Westland farmers with downside risk to this at present. I’d also be surprised if Fonterra’s isn’t downgraded.

Note that this is still better than both 2007 and 2009.My next point is that a payout with a five in front of it must be expected at least as often as one with a seven so we need to plan for this and have some fat in the system to deal with it.

I have suggested several strategies for dealing with a fluctuating payout. These include:

• 1. Using a flexi facility to put aside some funds in a high payout year. There is a video on the farming section of our website on this. However, essentially when the payout is over 50c above

the average you pay down flexible debt. So if the 2013/14 payout is $7.20, this would be $1.06 over the average and you should pay 56c off flexible debt. Then with the 14/15 payout looking around $5.30 I would draw down the 56c again, making your cashflow more even.

• 2. Undertaking maintenance in a high payout year and deferring non-essential maintenance in a low payout year.

• 3. The use of Income Equalisation Schemes and Fertiliser Deferrals is a strategy that will work for some farmers to smooth out tax and will ultimately lessen total tax. For a low payout year we can look to defer claiming some fertiliser and then claim it in a higher payout year, thus smoothing our taxes. As tax rates are progressive this can help lower taxes over the years. The opposite can be done with Income Equalisation deposits in the high payout year, reducing tax in that year and then being brought back in a low payout year. These strategies don’t work for all circumstances, so make sure you have an experienced farm accountant advising you.

• 4. Keeping hire purchases at a level that you can manage the payments in the low payout year.

• 5. Complete a budget so you know whether you will have a cash surplus or deficit and can plan accordingly. The budget can also be useful for working out what your tax obligations will be and paying your provisional tax accordingly. The standard option for provisional tax is to pay it based on your previous year’s earnings. Obviously you don’t want to do that if the previous year is a high payout year and the current one is a low payout year. Overpaying your tax sucks up cashflow!

• 6. Review your loan repayments and act early to request a change to interest only if your budget shows you need to.

The common theme through all of this is planning. We need to plan for a low payout to follow a high one. I think many farmers are being more cautious and there wasn’t a rash of new spending with the 13/14 payout, so I think the majority are starting to get how volatile the payout is.

Finally take a cautious approach as the really high payouts seem to be followed by a low payout.

I have a video and an informative paper with some more in depth detail on dealing with payout fluctuations on the farming section of the website. I suggest you watch the video, read the paper and then think about how this might apply to you. Give me a ring if you need any assistance. Even if you aren’t a client I am happy to help.

IMPORTANT: This is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. Our newsletter is issued as a helpful guide to clients

and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

OfficeIn & Out of the

Another year of top presentations has concluded. If you missed these, check out the Free Stuff tab on our website for handouts. We are preparing summary papers on these and will post them on our website and on our Facebook page shortly.

In April Nitin joined our team, below is a brief profile. While he admits he has found the Coast a little cold, we have given him a warm welcome and enjoy the occasional curry he brings to work.

A BIG welcome to Nitin Thakral Business Management and Growth Seminars

“I was born and brought up in India. After marrying Meenakshi we moved to New Zealand in 2011 where I undertook further study in Hamilton to become an accountant. I was keen to move from the city to a smaller town so this prompted me to apply for the job at Cuffs. In my spare time I like to watch cricket, travel and cook.”

Cuffs Celebrating 20 yearsMany thanks to all who joined us to celebrate our 20th Anniversary. What a great night out! The Casino Night was something a little different amd we had excellent feedback.

Cuffs on FacebookLike or Share our page at cuffsaccountants before Friday 31 October and go

in the draw to win one of two dinner vouchers. We will be regularly posting useful information and happenings on our page.

Refer a FriendWith the expansion of our business and two new staff we welcome new clients. We encourage existing clients to refer friends and colleagues to Cuffs. Further, if they become clients, we will say ‘thank you’ with a $100 voucher that can be redeemed at the business of your choice listed on the card below.

Congratulations to Linda Sweney who was the best gambler on the night. Linda is our receptionist and it was probably the practice she got in the real Las Vegas casinos while on holiday in the USA in April that helped her win. The evening raised $3,185 for the Cancer Society. A big thank you to everyone who donated prizes and participated in the auction.

Peter presents the $3,185 raised from the Casino Evening Auction to Cancer Society representatives Jenny Kenning and Chris Cuff.

Making payments to IRD - What’s changed?IRD are changing some of your options to make payments to them as of 1 October 2014.

Paying at WestpacIf you’re used to paying your tax through Westpac, you won’t be able to pay by cheque any more or drop off returns and forms. You will still be able to pay through Westpac by:• cash and Eftpos payments• online banking• credit/debit cards• international money transfers

Posting cheques and returns - get the timing rightYou can still post cheque payments and returns direct to IRD. However, from 1 October all cheques must reach IRD on or before the due date to avoid interest and late payment penalties. Until now, it’s been enough that the postmark shows you posted the cheque on or before the due date but not anymore. Online paymentsIRD is encouraging taxpayers to make all their payments online. You can file your returns and make payments online, up to and including the due date. If you haven’t done this before but want to start, we can walk you through it.

Parental leaveOn 1 July, the rates for paid parental leave increased. If you’re self-employed or an employee and eligible for paid parental leave, you may receive up to a maximum of $504.10 a week before tax. If you’re self-employed and make a loss or earn less than the minimum wage, and work at least 10 hours a week, the payment is $142.50 each week before tax (equivalent to 10 hours each week at the current minimum wage rate).

If you’d like a fact sheet on your obligations as an employer or on paid parental leave for self-employed people, please contact us.