10th May 2018
New Zealand’s proposed so-called ‘Amazon Tax’ falls squarely in line with the enactment in 2016 of its ‘Netflix Tax’, as part of a modernisation effort to help adapt the country’s tax system to the realities of present-day commerce. The Amazon Tax would apply to importation of low-value goods from abroad which have previously gone untaxed.
Current estimates put the value of such untaxed imports at $533 million per year as of 2016, with an increase to $850 million likely by 2021 as the e-commerce industry continues to grow. The new law is not yet set in stone, but it is aiming for a 1st October 2019 start date. If left unchanged, non-resident suppliers that deliver more than $60,000 per year in goods to New Zealand consumers will be required to register for, and pay, GST on all low-value (<NZ$400) items shipped. Items valued at over NZ$400 will be taxed by customs, but will not be affected by the newly proposed law.
Apart from the gains in tax revenue that the new law would allow, the effort is also aimed at fixing a fairness and competition gap between brick-and-mortar stores, which have always needed to pay GST, and online retailers, which have been able to slip past ordinary taxation law. The previously enacted Netflix Tax had a similar effect in leveling the playing field for electronic goods such as music, films and e-books.
Australia will begin collecting taxes in July under a similar law, with thousands of foreign businesses soon to be forced to pay taxes on sales made via e-commerce with Australian consumers as the recipients. An estimated 150 Kiwi businesses will need to pay this 10% tax on exports to Australian consumers, ending the period of tax-free sales for them.
Inland Revenue has also entered the cryptocurrency fray, announcing that holders of Bitcoin or other alternative currencies will be required to pay any relevant taxes on them, just as though they were standard currencies. Tax rules for foreign exchange, on the other hand, are not applicable where cryptocurrency trading is concerned.
A new tax on petrol in Auckland has also been proposed by the government, which mentioned a target of 10 to 14 cents per litre to be added to current levels of taxation. The idea is not without controversy, however, particularly as ordinary consumers are likely to end up paying for the increase, either directly or through higher prices on the products they buy. Still, the Greater Wellington Regional Council has declared its intention to pass a similar increase in petrol taxation if the Auckland bill is passed, and other regions may well join in.
Other new taxes are still being debated. The new insurance tax, for example, had originally been scheduled to come into effect on 1st January 2019. A recent bill has pushed back the implementation of the new tax to 1st July 2019, giving insurers an extra 6 months to continue conducting business without factoring in the new tax.
Amid all the changes and proposed amendments to current tax law, New Zealand has been rated compliant by the OECD Global Forum for its thorough and transparent management of taxation affairs.
10th April 2018
The New Zealand Treasury has begun preparing a non-financially-focused ‘Wellbeing Budget’ for the country, according to a news release that has had some readers double-checking to make sure the information wasn’t released on April Fool’s Day, and that the primary source wasn’t The Onion or a similar satirical site. The news is indeed real, however – and moreover, it may be a welcome development for the country, depending on the implementation.
“Life is about more than money,” wrote the New Zealand Treasury in its recent annual Investment Statement. In fact, as far back as 2011, Treasury drafted an economic policy paper that blended the natural world, human living quality and the health of the society as a whole into a more holistic document. The framework has been developed further in recent years, with financial matters still being included in relation to these other variables.
It is certainly true that such efforts represent an innovation by the historically conservative Treasury, but they are not entirely unique in the world. In 1972, the king of Bhutan declared that “Gross National Happiness is more important than Gross Domestic Product,” introducing an index to measure progress. The country was able to achieve significant results towards this end, by formalising a system to weigh these non-economic attributes when deciding on policy aims.
Bhutan, however, continues to suffer from widespread poverty, and it is unlikely New Zealand will find that tradeoff appealing. Still, it is similarly hard to argue for a system that seeks economic growth at all costs, including through the sacrifice of the environment, human welfare and the social system. The New Zealand Treasury has set itself the task of finding the right balance between these often competing interests. And there is no way of finding the right balance, it says, if it does not include these other measurements in its policy deliberations.
Natural capital and human capital, as Treasury refers to them, are fairly easy to quantify. Plenty of natural and environmental statistics are already produced by independent bodies, and factoring them into policy analysis is simply a matter of proper weighting. Education, general knowledge and professional skills have also traditionally been given much attention by other institutions; Treasury’s move simply integrates them into financial analysis and prescription.
Social capital is less straightforward as a wellbeing variable, as its Treasury definition – social cohesion, trust in institutions, and cultural capital – seems more difficult to accurately measure. Still, there are surveys, crime statistics and other data sources that can point to general trends within this domain.
There is a case to be made that Treasury’s readjustment of focus is well within its proper function. It is fair to say that monetary decisions should be made with the tradeoffs in plain view. There is, indeed, more to life than GDP. Furthermore, Treasury’s strength and experience are in interpreting trends and statistics through a maze of data, which will be the very skill-set called into action here.
Still, some are unconvinced that Treasury’s new formula will find the right balance. The new analysis will measure four different sectors, and therefore must incorporate a much greater data set in which mistakes may be more commonly made. Nevertheless, it is an interesting experiment – and much of the world will be watching to see how it turns out.
27th March 2018
New Zealand’s Inland Revenue (IR) will implement a newly introduced provisional tax option for the country’s small businesses. Starting this April, many small businesses with less than $5 million turnover a year will have the new tax payment option that enables them to use a new method to pay provisional tax only when they are earning profits.
Introducing AIM to help SMBs
The launch comes with IRD’s new provisional tax method called Accounting Income Method (AIM). This method is designed particularly to ease problems concerning small businesses’ provisional tax payments, which have been a long standing pain point for New Zealand SMBs.
“At the moment businesses often have to take a stab in the dark about their projected earnings for the current year. When that’s off the mark, it can lead to either an overpayment of tax and a long wait for a refund, or an underpayment and a penalty charge” said Inland Revenue’s Deputy Commissioner for Transformation, Greg James.
What makes AIM different from the old method?
AIM will help businesses stay up to date on their provisional taxes while enabling them to keep track of them more accurately. AIM can automatically calculate provisional tax based on company earnings, and can help businesses more accurately forecast their income.
What’s more, AIM will be integrated into some accounting software packages, which will enable businesses to file their taxes directly from the software. How does this work? At the end of each reporting period, the software will calculate the amount of tax a business owes based on real time analysis of expenses and cash flow. Using the software, the business owner can then file this statement of activity directly to IR.
“The beauty of AIM is that your tax payments are in line with your business cycles and if you go into loss you can collect your refund of overpaid provisional tax immediately,” Mr James also added.
Because AIM seamlessly calculates tax, it will free up time for small business owners. They’ll no longer have to waste weeks attempting to get their numbers right. Instead they can have less worry and focus on what is really important to them: growing their businesses.
Who is AIM designed for
AIM is designed for small businesses and is ideal for start-ups, new or growing businesses, and organisations with fluctuating income. GST registered businesses can use AIM to report and make tax payments through AIM monthly, while non-GST registered companies can report provision tax every other month. According to the government, AIM could be beneficial to as many as 110,000 businesses.
AIM will be included with accounting software packages from three major providers: Reckon, MYOB and Xero. To help businesses learn how to use AIM effectively, a series of webinars will be presented to more thoroughly explain its benefits and how it works.
“We think this could make life easier for tens of thousands of small businesses but now is the time to check if it suits your circumstances. We suggest they talk it over with their tax professional or software provider,” said Mr James.
16th February 2018
The treasury has recently released a statement announcing that the second half of 2017 has seen New Zealand’s government gain $600 million more tax dollars than expected. Core Crown tax revenue was $597 million ahead of expectations and amounted to $37.2 billion during this six month period.
"At this point in the year these results indicate the economy is tracking well. The Government is committed to seeing this continue and ensuring that we have sustainable growth and a fair share in prosperity for all New Zealanders," said Finance Minister Grant Robertson.
"We've seen consumer confidence improve over the past month, while businesses' confidence in their own activity has also been positive."
While government infrastructure changes, labour constraints and lower dairy prices are expected to cause economic growth to slow later this year, right now the economy is not one of New Zealand’s biggest concerns, according to the World Economic Forum’s Global Risks report for 2018.
Global concerns vs. New Zealand concerns
The World Economic Forum’s Global Risk reveals some interesting findings about the concerns of New Zealanders and people around the globe. The report is created in partnership with the Marsh and McLennan Companies (MMC) Risk Center, which polls 1000 business leaders from the global network of the World Economic Forum.
According to the report, the biggest perceived global risks of the moment are extreme weather, climate change, natural disaster, cyber attacks and data theft. How do these concerns differ from a New Zealand perspective?
New Zealand local respondents noted that the five biggest risks are now major cyber attacks, natural catastrophe, extreme weather, urban planning and asset bubbles. Considering New Zealand’s geographic situation, these concerns make sense and also are in line with larger global trends.
Economic concerns are noticeably absent from both the global and local respondents. This is a significant shift away from anxieties over the economy, which dominated concerns when the report first came into existence 13 years ago.
"When we started the report there was a focus on economic risk, around the GFC," said Wolfram Hedrich, MMC executive director at the Asia Pacific Risk Center. "Then it became a lot more varied. Geo-political risk, technological risk - like cyber - and societal risks have come more to the fore."
This difference in concerns should not be surprising. When the report first started, the global financial crisis loomed heavy on minds of people across the world and in New Zealand. With the economy running smoothly, environmental concerns are now more dominant.
Hendrich noted that most risks, outside of a disaster such as nuclear war, presented opportunities for business, which could further help strengthen the New Zealand economy.
"Shifting consumer preference means new products and new services can be offered,” said Hendrich.
How people and business owners respond to risk is key. "The need for business is to become more agile, in the decision making and risk management. At the same time we need to see a shift from protection to recovery or response, to be more agile when things happen."
31st January 2018
Sugar leads to obesity. This fact and a new study by the University of Waikato's School of Food and Nutrition are driving a renewed interest in a New Zealand sugar tax. The study has sparked a debate and has made headlines across Asia Pacific.
University of Waikato's study: What did it investigate? What were the results?
In the study, the sugar content of non-alcoholic beverages produced in New Zealand, Australia, Britain and Canada were compared.
"We compared the nutritional content, particularly focusing on the sugar content of beverages. The interesting find is that New Zealand basically has the highest sugar content across the majority of categories compared to other countries," said University of Waikato’s Dr Lynne Chepulis.
According to Chepulis, New Zealand fruit juices or sodas typically contained up to five or six teaspoons of sugar per beverage, while United Kingdom sugary drinks had up to three or four teaspoons. That means New Zealand drinks contained nearly double the amount of sugar.
Support for a New Zealand sugar tax
One organisation that backs the sugar tax is the New Zealand Dental Association. Sugar is a major cause of tooth decay, and the study clearly shows that New Zealand non-alcoholic beverages contain an excessive amount of sugar.
New Zealand Dental Association’s spokesman Dr. Rob Beaglehole said, "An end to the confusion around 'sugar per 100mls' is within our grasp. We're asking for a sugary drink icon. This would clearly let consumers know how many teaspoons of sugar are in their drink."
In addition to a sugary drink icon, Beaglehole said New Zealand schools should also enforce water-only policies.
Whether the government will take action and levy the tax is yet to be determined. When asked about a New Zealand sugar tax last October, Health Minister David Clark said he would not rule it out. “All options are on the table,” he said.
The sugar tax trend around the world
New Zealand is not the first country to consider imposing a tax on sugary beverages.
"We've seen many countries address sugary drink consumption by adding a levy on the price of sugary drinks. The UK is introducing one in April this year,” noted Dr. Rob Beaglehole.
Announced in 2016, the UK’s soon to be implemented sugar tax was designed to help reduce child obesity. The tax will raise an estimated NZ $983, which will help fund sports in primary schools across the country.
Dr. Chepulis also looks to the UK for a model to implement the sugar tax, "I'm a proponent of the whole sugar tax if it is passed on at the manufacturer level, and I think the UK model is evident. If you bring in a sugar tax it can actually make a significant improvement on the nutritional quality of those sugar sweetened beverages."
With all the support for tax, there are skeptics, including policy analyst Jenesa Jeram, who says there is no ground for introducing a sugar tax.
"The trend for introducing sugar taxes overseas is growing faster than the evidence base that the tax will reduce obesity. The evidence that is coming in is that manufacturers who reformulate their products face the risk of consumer backlash. Rather than jumping on the bandwagon, New Zealand should be waiting to see whether the sugar taxes overseas are actually improving health outcomes,” said Jeram.
19th December 2017
Tax cuts proposed by the National party are now being scrapped. In their place, the Labour party will roll out their Families package legislation, which will cost an estimated $5.3 billion over four years.
The package is aligned with Prime Minister Jacinda Ardern’s priority to reduce child poverty. As for the package’s benefits, they are expected to lift 88,000 children above the poverty line by providing a ‘Best Start’ payment for parents of babies, higher Accommodation Supplement changes, a ‘Winter Warmer’ grant for superannuitants and beneficiaries, and a more liberal Working for Families scheme.
While the National parties Families Income Package was originally expected to bring 50,000 children out of poverty, the Labour party made some additional changes, offering more benefits to raise that estimate by 38,000 children. To do this, the Labour party had to exchange National’s tax cuts for more liberal support in Working for Families, winter heating subsidies and new baby payments.
Details of the Family package
The package will help many people who live in poverty and are struggling to survive. The word ‘poverty’ is defined as families who live on an income of less than 50% of the median household income. However, the Families package legislation will help more than just families, benefitting five core groups of people: people with children, people with babies, low income households on accommodation supplement, superannuitants and beneficiaries, and singles and those without children.
The following are some of the core details the Family package legislation will support.
People with babies
For this group, an estimated 65,000 newborns will qualify a year. New mothers not on paid parent leave will receive a Best Start payment of $60 a week. Those who are low and middle income earners will receive the benefit until the baby reaches 3 years old.
People with children
For children under the age of 16, Working for Families payments will increase by $1056 a year. For teens 16 – 18 years old, payments will increase by $575 a year. Additionally, the Orphan’s Benefit, Foster Care Allowance and Unsupported Child’s benefit will increase $20.31 a week.
Low income households on accommodation supplement
This group will see a notable increase in Accommodation Supplement. Particularly, people who live in cities with a high cost of living will see a significant increase in this benefit change, which will go into effect April of 2018.
People without children and singles
For low income earners who make $24,000 to $48,000 a year, they will receive up to $10 a week as part of the Independent Earners’ Tax Credit.
Beneficiaries and Superannuitants
This benefit, which is projected to help an estimated one million people, will provide singles a Winter Energy Payment of $450 a year. For couples, the payment will be $700 a year. The benefit, which doesn’t need to be spent on heating, will take effect in July of 2018.
The above is a summary of the benefits provided by the Families package. To learn more about the details of the legislation, see this article by the New Zealand Herald.
23rd November 2017
Money laundering is a worldwide problem that has recently been brought into focus in New Zealand. For those who don’t know what this crime is, money laundering is when money received from illegal activities—such as theft, tax evasion, and drug trafficking among others—is passed through a legitimate business to give it the appearance that it was obtained through legal means. Essentially, it is the process of turning 'dirty money' into 'clean money'.
What is the anti-money laundering legislation (AML)?
The new laws extend the current AML/CFT and make some further changes that will affect Phase 1 businesses. The act will cover additional businesses, including lawyers, real estate agents and accountants among others. Banks, casinos and financial service providers who are part of the 'Phase 1' businesses (who’ve had to comply since 2013) will also see some additional changes.
Generally speaking, the new law changes are created to protect New Zealand companies and organisations from the $1.35 billion that is laundered through the country’s businesses each year. As such, these laws will make it increasingly difficult for criminals to profit from illegal activities, and help New Zealand maintain its positive reputation as one of the least corrupt countries in the world—continuing to give it the distinction of a good place for local and international organisations to conduct business.
The law is being implemented in two phases. Many accountants were exempt from Phase 1, which has been in effect for several years. But Phase 2 will soon be underway.
How AML affects accountants
Because criminals who launder money can exploit accountants, accountants may be affected by the anti-money laundering laws, which will come into effect on 1st October 2018. While not all accountants will be affected, those who carry out real estate or other transactions on behalf of a person, manage client funds, act as a formation agent of legal persons or arrangements, and perform other duties will be affected.
To comply with the AML act, accountants will have to do the following:
· Assign a person in their business as the AML/CFT compliance officer.
· Set up an AML/CFT compliance programme that shows how their business will detect and manage the risks of money laundering.
· Document and assess their business’s risk for money laundering.
On an ongoing basis, accountants will have to monitor their customers’ accounts for signs of terrorism financing and money laundering, report suspicious activities or transactions to the FIU, provide a Prescribed Transaction Report if a client wishes to perform a cash transaction of $10,000 or more, review their compliance programme and risk assessment, submit an annual report to the Department of Internal Affairs (DIA), and more.
The DIA will help accountants comply and offer assistance by helping them identify common money laundering red flags and understand how their services can be used by criminals to finance terrorism or launder money.
While this article provides a general overview of some of the new challenges of the AML law facing accountants, it is beyond the scope of this article to cover all aspects of the legislation. Accountancy Insurance encourages you to learn more by referencing this helpful article, which answers many common questions.
25th October 2017
New Zealand’s tax system is changing. The wheels of the Inland Revenue’s business transformation programme are already in motion. With its implementation, not only will citizens be able to pay their taxes in an easier, faster and simpler fashion, but they will also gain more confidence that they’ll receive the deductions and entitlements they deserve. As the tax system is updated for the modern era, citizens will primarily interact with Inland Revenue via digital devices.
When can New Zealanders expect to see changes? The tax system overhaul has already begun. The transformation will take place in four stages, with stage one having gone live earlier this year in February 2017.
Stage one of the transformation introduced new GST online services this past February. New organisations and migrants are now able to register for a new IR number online and Inland Revenue can now recognise New Zealand Business numbers when they are contacted by citizens. These updates will make it easer for citizens to deal with Inland Revenue and also manage their taxes.
The next three of the four stages will be rolled out in the coming years, with all steps building on the last and bringing new streamlined processes into play. The changes will be gradual. And over time as new policies and improvements are introduced, the tax system will become simpler and easier for citizens to interact with. The overall goal will be to prevent tax problems and inaccuracies before they ever start. As Inland Revenue implements new technologies and refines their processes, they will get a clearer picture of individual tax situations, which will make it easier for them to help taxpayers.
With stage 2 currently underway, this step in Inland Revenue’s business transformation programme will focus on streamlining personal and business income taxes. AIM (Accounting Income Method), which will be introduced in April of 2018, will provide small businesses a fourth option to pay their provisional tax. Once fully implemented, AIM will help reduce compliance costs, provide more certainty about provisional tax, and offer a 'pay as you go' system that can be integrated into a business’s accounting software. All these changes will help businesses simplify the management of their taxes on an every day basis and save them a large amount of time.
As each new stage is rolled out, Inland Revenue is continually monitoring the process to ensure the system meets the needs of businesses, individuals, tax professionals, and all citizens. To ensure all New Zealanders can make the most of the new improvements, all people affected by the changes will be notified by Inland Revenue.
If you are a business owner or a person responsible for planning future strategies for your organisation, it is recommended to carefully review the government’s proposals for the tax system overhaul. These can be found at the website Making Tax Simpler.
29th September 2017
Early in September, David Seymour, New Zealand’s ACT Party leader urged the country to fix the tax loopholes allowed to commercial businesses run by charitable organisations. Because of their registration as charitable or not-for-profit trusts, these commercial companies have been exempted from paying income tax.
A Church behind a cereal maker
Weet-bix, a favorite breakfast cereal of New Zealanders, which is produced by Sanitarium Health and Wellbeing Company, was originally established in 1898 by the Seventh-day Adventist Church. Its main purposes back then was to produce and promote healthy foods made from plants.
As the company has grown, they have never paid income tax. The reason behind this is that, legally, all of Sanitarium’s shares are owned by the New Zealand Conference Association, a registered charitable trust created by the church. In New Zealand, the church is exempted from paying income tax due to its charitable mission.
"I don’t know what their [Sanitarium's] purpose is. They would argue they do charitable stuff to the same value as what they would have paid in tax," Mr. Seymour said following the statement from a Sanitarium Spokesperson.
The company raised the point that if its tax condition were to be reviewed, the discussion should cover all non-profit and charitable organisations, i.e. Maori trusts, unions, lobby groups, environmental groups, and sporting clubs.
Giant holding company for charity
Apart from Weet-bix, there is also Ngāi Tahu Holdings whose main interests are in tourism, fisheries, property, and forestry. The company’s sole shareholder is Ngāi Tahu Charitable Trust, which is also registered as a charitable organisation and is therefore exempted from paying income tax.
In 2016 the holding company earned $210 million in net profit. However, only $4 million was distributed to the trust. It stated that the rest of the profit was used as a reinvestment into Ngāi Tahu Holdings Corporation.
Meanwhile, Seymour noted that it was the charitable tax loophole that enables Ngāi Tahu’s Go Bus business to have an advantage when bidding for the Auckland Transport bus contract.
Spilt business from charity
While Britain fixed the same kind of charitable tax loophole in the 1920’s, the ACT Party leader wishes that New Zealand does the same.
"People should be able to get a tax exemption for donating to charity, but when you’ve got those companies that are kind of like charity, kind of like a business, then it would make sense to split them," he said. He suggested that by splitting the organisations, a commercial side can then donate to its charitable side. And the commercial side can even claim the 33.33% tax credit as usually applied to all charitable donations.
To regulate part of the issue, New Zealand has passed laws that deal with companies trying to achieve charitable status, and around 527 groups have been rejected since 2014. One opinion from Dr. Michael Gousemett, of University of Canterbury, suggested that the loophole creates an issue when there is a business competition between a for-profit company and a charitable company with income tax exemption. The latter one always has a fiscal advantage, especially if that company is already running a successful commercial business.
30th August 2017
It has been a rough year so far for Fuji Xerox group. The New Zealand subsidiary of the Japanese multinational firm has been through an accounting irregularities scandal earlier this year. The scandal, triggered by a whistleblower in 2015 according to stuff.com, lead to an investigation, which lasted several months with a shocking result of inappropriate accounting since 2011.
Fujifilm Holdings reported that it found FXNZ conducted some inappropriate accounting from 2011 to 2016 by overstating revenue by about $473 million. The issues caused shareholders to lose their equity at the parent company, worth $230m in New Zealand and $121m in Australia.
Fuji Xerox highlighted the fraud as its internal control problem and inadequacy of its management system. One of the irregularities included some lease agreements’ accounts being wrongly recorded and resulted in revenue overstatement.
“Consequently, there were many transactions where receivables could not be recovered because the copy volume did not reach the target set at the time of executing the contract and the minimum usage fee was not clearly set”, read the report. However, what was more shocking was that such actions became a constant practice.
Because of the company’s structure of incentive like commissions and bonuses, to reach sales targets, it urged employees’ emphasis on sales, which is presumed to have caused an inappropriate early sale recognition practice to continue.
Moreover, there were also problems with effectiveness of the FXNZ management team, with its managing director having concentrated authority and lack of transparency in business management process.
As the news broke, it is to both the public and employees’ dismay that the group was involved in such unprecedented issues. While MD of the New Zealand office Neil Whittaker was paid to leave, Fuji Xerox chairman Tadahito Yamamoto, along with three executives, resigned. Many senior executives also took a pay cut.
A Fuji Xerox NZ spokesman said that the company would continue to lead the market with strong support from the shareholders and ensured its top priority on regaining trust from all stakeholders.
In July, Fuji Xerox president and representative director Hiroshi Kurihara and other top executives travelled to Auckland in efforts to rebuild trust and underline commitment to the New Zealand market. The company also hosted a communication meeting internally with staff from across the country in which they were introduced to many standard practices in order to comply with its mother company.
As lessons learned, the appropriate practices for contracts to resolve such issues were addressed, including more standardized practices in accounting and finance functions, more accurate performance evaluation and incentive schemes, and the reorganization of lease business function. The staff also learned about good practices of corporate compliance which could help strengthen corporate governance and audit functions. A new risk management framework, whistleblower systems, and measures were implemented as well to enhance the company’s performance.
Kurihara said that the scandal brought a great shock that risks losing trust from its customers, especially the NZ government. Thus, it is the company’s urgent mission to emphasise the importance of compliance to employees and that revenue and profits are not everything. And to regain the once spoiled good reputation, everyone in the company needs to take a strong action in a fair manner.
16th June 2017
Inland Revenue’s (IR) restructuring could have implications for audits, enquiries, investigations and reviews in the future. IR announced a year ago plans to cut 1500 employees from its workforce in an attempt to modernise and streamline its own efforts. The period of restructuring has been planned to begin in the months following necessary staff consultations, which have now begun.
The cuts represent up to 30% of the IR workforce, and a more efficient system will need to be in place in order to pick up the slack. While IR maintains that “the proposed new structure is all about bringing Inland Revenue closer to customers,” the Otago Daily Times reports that the new iteration of the IR will be characterised by “less human interaction, clearer and simpler digital services and tax transactions through accounting software.”
In Australia a recent and widely criticised ‘robo-debt’ mishap was as a result of automated processing efforts of Centrelink, a government department, and the Australian Taxation Office (ATO). Once Centrelink declarations were matched with tax returns, more than 20,000 letters were sent to individuals with perceived discrepancies in relation to their government benefits declarations. At least 20 per cent of the letter recipients were later found to owe nothing. Whilst the issued correspondence was questionable, the onus rested on individuals to allocate time and resources to clear any perceived wrong doing. Alas, the recent robo-debt saga has not diminished the ATO’s plans to charge full steam ahead in targeting taxpayers. When it comes to automated data matching, it appears that the ATO will pursue utilising these capabilities, and would likely focus on a broader range of taxpayers in the future. IR’s technological advancements appear to be heading down the same path of automation, thus IR could anticipate similar results should measures not be put in place.
IR will certainly face a challenge under its forthcoming system as it will need to deal with thousands of discrepancies within tax statements each year – some of them innocent, some not. Similar to Australia’s robo-debt saga, the onus remains on taxpayers, and their accountants in some circumstances, to correct the perceived discrepancy.
For more information on audit activity occurring in New Zealand contact the Accountancy Insurance team on 0800 001 299.
10th March 2017
Growth in New Zealand’s economy has been experiencing a slowdown in recent months, with Statistics New Zealand reporting a 0.4% rate of growth in the fourth quarter of 2016. That number is lower than previous predictions of 0.7% growth for the same period, and represents the country’s slowest rate of economic growth since the start of 2015.
At the same time, previous estimates for growth were also quietly downgraded, from 1.1% down to 0.8% for the third quarter of 2016. These numbers put New Zealand’s annual economic growth rate at 2.7%, only slightly ahead of the country’s annual population growth of 2%.
That population growth, spurred on in large part by foreigners coming to live in the country, has complex effects for New Zealand as a whole. In some respects, new residents are most welcome; for example, a recent governmental study concluded that just 725 foreign students in the Taranaki area contributed a total of $20 million to the regional economy, once living costs and tuition were factored in.
A surprisingly strong influx of tourists also boosted the country’s total revenue significantly last year, but externalities such as environmental degradation have been a very real consequence of the increased numbers of visitors. A strain on infrastructure has also been noticeable throughout the country as a result of its international popularity.
In most countries, environmental costs are simply a byproduct of economic growth, and recently the Organisation for Economic Co-operation and Development released a report urging New Zealand to accelerate its transition to a greener economy.
The international business world, however, is moving forward to new opportunities in all areas. Apple has just opened a new office in Wellington, with an aim toward developing ‘augmented reality’ technology for worldwide use in a new generation of wearable hardware. The company has already hired specialists in AR and special effects, in an effort to entertain and inform consumers by seamlessly overlaying computer-generated effects onto real-world objects.
Exciting as this technology may be, and beneficial to the employment market, New Zealand may not experience the full potential benefit of Apple’s investment. Apple has recently been singled out within the country for paying zero tax on profits of $4.2 billion within New Zealand over the last 10 years – a sobering check on local enthusiasm for a prestigious company building a new office in the capital city. The hundreds of millions in cleverly-but-legally-avoided tax obligations could have put New Zealand on better economic footing, particularly in regard to the infrastructure shortfall it has experienced of late.
Fortunately, New Zealand has other victories to celebrate in the international business ecosystem. Among them are the country’s start-up companies, which have put up a strong showing compared to their counterparts overseas. According to a recent business survey, New Zealand’s start-ups have the highest percentage of overseas customers out of all 50 nations that participated in the research. This ability to build a successful international business model is no doubt a consequence of the country’s small domestic market, but it bodes well for future growth.
That ability to ‘go global’, combined with New Zealand start-ups’ high overall ranking in corporate interest surveys, has helped attract international investors that can provide funding opportunities for increased expansion. Rather than waiting for foreign visitors and corporations to light the way toward New Zealand’s future, all indications show that home-grown talent is also highly willing and very much up to the task.
(primary source: http://www.stuff.co.nz/business/90495020/nz-economy-records-weakest-growth-since-start-of-2015)
5th April 2017
Finance Minister Steven Joyce and Revenue Minister Judith Collins, when calling for a crackdown on multinational companies that avoid tax obligations in New Zealand, estimated that the country was losing $300 million per year in uncollected taxes. That number was based on a review of surveys, tax returns and investigations compiled by Inland Revenue, related to companies operating within New Zealand.
Other studies have put the figure even higher – suggesting that $500 million, $700 million or even $1 billion of tax revenue per year is being lost due to base erosion and profit shifting (BEPS). Total losses from BEPS are notoriously difficult to calculate by their very nature, but estimates have put the annual global tax losses due to BEPS at roughly US$500 billion.
In its simplest form, BEPS refers to the practice of companies transferring profits internally, out of high-tax-base jurisdictions and into regions where few or no tax obligations apply. Through such accounting practices, companies are able to do significant business in areas with nominally high tax rates, generating profits whose associated tax requirements are circumvented as a result of bookkeeping practices that exploit internal company trading rules, thereby allowing the profits to be reported as existing in an offshore location.
One commonly cited effect of such accounting practices is that the countries near the bottom of the world’s income and development indices are often the ones to suffer most from the loss of taxable income.
Along with other countries, notably Australia, New Zealand is beginning to make positive and proactive efforts to counteract the losses from BEPS by strengthening and enforcing tax reporting requirements, particularly among international companies. This effort relies on lessons learned from investigations of the BEPS phenomenon, as well as New Zealand’s adoption of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS.
The long-term effect of this renewed interest in stopping BEPS-related losses is unknown, but increasing political pressure suggests that closing tax loopholes such as these will remain a priority for the government for some time to come.
New Zealand has also instituted new requirements for disclosure in areas not directly related to BEPS. Foreign trusts with New Zealand-resident trustees will now see increased reporting requirements, including obligatory registration with Inland Revenue, filing of annual disclosure returns, and payment of fees associated with registration and filing.
Another change involves GST rules on services connected with land. GST will now apply to services "intended to enable or assist a change in the physical condition, or ownership or other legal status" of New Zealand land. The rule is aimed at professional services, supplied to non-residents outside of New Zealand, but which nevertheless pertain to land in the country.
23rd February 2017
Whatever New Zealand’s weather may bring from one day to the next, the forecast is indeed sunny for the economy as a whole. Proposed rule changes on tax collection, together with necessary adjustments to compensate for a slight decrease in overseas demand due to China’s economic slowdown, are a few areas to watch in an overall sunny outlook for New Zealand’s economic future.
Other potential areas of concern include the peaking of the housing market, debt within the dairy sector, as well as a potential global shift toward protectionism in the wake of victories for Brexit and Donald Trump. It is significant that these phenomena, together with noteworthy elections slated to take place in the Netherlands and France in upcoming months, represent a potential challenge to all the world’s economies.
With its fundamentals so securely in place, however, New Zealand seems especially well positioned to meet whatever difficulties may be on the horizon. The Asia Pacific Small Business Survey 2016, commissioned by CPA Australia, features widespread praise for New Zealand and represents its strongest ever performance.
According to the survey, 71% of NZ respondents expect their businesses to grow in 2017 – a much higher figure than other developed nations such as Singapore, Hong Kong and Australia. Moreover, nearly 20% of NZ businesses reported hiring new employees over the past year, compared to half that number in Australia.
New Zealand also performed better than all other countries surveyed in terms of the ease of small businesses securing external finance. The survey suggested optimism across the board within the world of small businesses, leading the chief executive Alex Malley of CPA Australia to laud NZ’s “rock-star economy”.
For larger businesses, the outlook is still strong for future performance, although the maturity of the established economy limits room for growth. The country’s recent booms in both tourism and population growth have spurred the construction industry forward, among other sectors.
At the same time, there appears to be room for the country to take fuller advantage of its role in international business. Revenue Minister Judith Collins has recently stated that foreign multinational companies operating in New Zealand have exploited tax loopholes, costing the government as much as $300 million in lost tax revenue. Facebook, Google and Apple have been singled out for criticism for recording their New Zealand profits in low-tax jurisdictions (or offshore), thereby sidestepping tax obligations through creative accounting methods.
Various fixes for such issues are under discussion within New Zealand, with many concerned that plugging the holes too effectively could drive some businesses away entirely. At the same time, others complain that the government is missing out on a necessary additional amendment that would require multinationals that sell their products within New Zealand to register for GST.
These issues and many others are likely to see debate over the coming months, and their resolution will certainly have their effect on the country’s economy. While addressing them, however, attention must also be paid to events taking place overseas, where fluctuating markets and economies can strengthen the ramifications from a potential move toward protectionism among the world’s larger markets.
To some degree, New Zealand’s economy will always be exposed to overseas events. For the time being, though, by all appearances the country is doing a fine job of managing the factors that it does control.
(primary source: http://www.scoop.co.nz/stories/BU1702/S00890/nz-small-business-underpin-rockstar-economy.htm)
25th January 2017
The world looked very different a year ago. The UK was holding together well, having escaped (albeit narrowly) a Scottish referendum proposing its own independence. The US seemed certain to settle into a Hillary Clinton presidency, despite blips on the radar coming from Bernie Sanders as well as a particularly unconventional challenger in the Republican Party. Europe was managing internal discontent from the cries of southern nations like Greece and Spain, as well as the strain from Middle Eastern immigrants and refugees.
The TPP, TTIP and TiSA seemed to be likely bets, at last standardising trade relations between the major powers in addition to several rising economies. As with the other issues mentioned above, the cracks were papered over and soon the world’s attention moved away. Elsewhere, several Middle Eastern hotspots were in conflict (as they remain today), but Western nations had largely withdrawn and seemed unlikely to return. Times weren’t perfect, but to many people they seemed well within the bounds of what is normal and manageable.
Since then, it has been a rather interesting 12 months. Ballot victories for Brexit and Trump have fractured longstanding international relationships, and are likely to kill off some or all of the abovementioned trade agreements. The political futures of the US, UK, and other countries like France (where the economically protectionist right-wing National Front Party, headed by Marine Le Pen, leads preliminary polling for April’s election), have exacerbated rifts within institutions such as the EU – creating sore spots that groups like ISIS have sought to further inflame.
Change can bring difficult times, but it can also bring opportunity. Particularly in an environment with no clear modern precedent, it is worth paying close attention to every utterance about trade deals (Prime Minister Bill English, for example, has vowed to press forward with Trans-Pacific Partnership negotiations even though US President Trump has already turned his back on it), new national policies and international alliances, as well as what seems to have been entirely left out of too many planning sessions around the world lately: Public opinion.
Whether the future brings a version of the TPP or the RCEP (Regional Comprehensive Economic Partnership) is yet to be determined, but the former trade agreement includes the US and 4 other countries in the Americas, while the latter excludes those but includes India, China and South Korea. Perhaps no deal will fill the void, and it is even conceivable that the next large-scale political disruption in Europe will break apart the Eurozone entirely.
Whatever the case, the ripple effects from recent earthquakes will continue to be felt in New Zealand, as the nature of trade relationships abroad will dictate the environment in which the country will produce goods for itself, as well as import and export other goods.
A company’s entire business strategy can (and often should) change depending on whether it has a comparative advantage in the Eurozone or in China – or whether its competitors from those areas will have a competitive advantage over it in New Zealand. These are the types of economic conditions that are still very much up in the air, and since they are as yet undetermined, national and business leaders may be open to certain amounts of persuasion by those who present their message well.
13th December 2016
Finance Minister Bill English was sworn in as New Zealand’s 39th Prime Minister on 12 December, 2016. English found his way to the highest office in the land after his party, the majority National Party, voted him in at a special Caucus meeting.
English’s appointment came on the heels of John Key’s announcement that he intended on stepping down as prime minister. The decision, made just a week before English’s selection, came as a shock as Key was enjoying the height of his popularity.
In his final address to Parliament as Prime Minister Mr Key said that he enjoyed the attention but was looking forward to stepping away from the limelight.
I think I’ve fed off the public energy, the enthusiasm that’s often been displayed towards me, he said.
And I think truthfully I’m the kind of person that likes to be liked and most people are, but I’m particularly of that sort of nature so it’s suited me, he continued.
Mr English vowed to continue developing Mr Key’s legacy. He said he would seek to build on the international recognition earned by John Key for New Zealand’s increasingly distinctive place in the global community as a successful economy open to trade, open to investment, and immigration.
Many expected the appointment to go to English who turned out to be the only candidate for the job. English announced Social Housing Minister Paula Bennett as his deputy prime minister while minister of economic development, Steven Joyce, would replace him as finance minister. More cabinet changes are expected in the next few weeks.
As finance minister, English, 54, moved to privatise numerous state-owned energy companies along with Air New Zealand. He cut personal and corporate tax rates whist increasing the goods and services tax. In 2013 English voted against a same-sex marriage bill that eventually passed. As prime minister, English stated that he thought differently about the issue now and did not see gay marriage as a threat to anyone else’s marriage. He has also said that he would not pursue his own agenda as prime minister.
In 2003 Mr English oversaw a landslide defeat for the National Party at the hands of the Labour Party. He now is in charge of a robust New Zealand economy which Moody’s recently said it expected to remain one of the fastest growing of the triple-A economies.
23rd November 2016
Auckland’s new mayor Phil Goff has suggested a $5 bed tax on each night a traveller stays at a hotel in Auckland. The aim is to keep rate rises to last year’s 2.5% and the levy could raise $30 million in revenue to be applied to tourism advertising and building attractions for tourists. The city council will decide next year.
Mr Goff, just two months after being elected, stated that ratepayer funding, the city’s old system of attracting travellers and providing financial support for major events, was not sustainable as the ratepayers had bore the burden of the city’s growth for too long.
Hotels, guesthouses, hostels, and other accommodation providers can expect their rates to rise, but can easily recover costs through the levy, the mayor said. He added that providers will see the benefits of the tax without paying the levy.
The onus of the levy will fall squarely on the visitor. According to the mayor, a traveller spending a night at a four or five-star hotel in Auckland paying between $280 and $380 will have to pay an additional $6 to $10.
The proposal shares the responsibility the ratepayers once had to worry about themselves by spreading it more fairly across all of those who benefit from living and doing business in Auckland, the mayor said. If passed the proposal would allow Goff’s Auckland Council living wage for more than 3,000 city and council employees promise to pick up steam. The higher wages would cost $9 million annually and would be phased in over a number of years. An additional contribution of $500,000 could also be made to support programs for Auckland’s homeless. These two measures are set to be considered, along with the bed tax, in the council next year.
However, the bed tax would present the biggest change in Mr Goff’s first budget as mayor. He had hoped the government would sign off on a regional fuel tax, but it looks unlikely to happen.
Prime Minister John Key said all of New Zealand should consider the levy as much of the country suffers from similar problems Auckland does. According to Mr Key, he expected a report from a working group that was doing research on the cost of tourism infrastructure.
The prime minister said that if Auckland was going to do something in terms of ‘that sort of mechanism,’ then it should be done nationally and not only locally. Auckland may have some tourism issues, given so many people flow into Auckland, but the reality is so does Queenstown, so does Taupo, so does the rest of the North Island, the prime minister said.
16th September 2016
A recent survey conducted by the New Zealand Herald revealed that a whopping 75% of Kiwi business leaders believe the world’s largest multi-nationals—Google, Apple, and Facebook, for example—don’t pay an adequate amount of tax globally. Roughly two-thirds of the same executives surveyed think these companies’ tax avoidance could have negative effects on the New Zealand tax system while a meagre 16% said they believed the government is doing enough to thwart the issue.
The survey comes on the heels of the European Union (EU) concluding that Apple funnelled its international revenues through a loophole in Ireland. The EU imposed a NZ$20 billion retrospective tax bill on Apple and sent alarms through several other countries where the popular American electronics maker does business, including New Zealand. The action also was an indication of the tax strategies of large multi-national business. When all is said and done, Apple could owe Ireland up to about NZ$30.7 billion in back taxes and interest.
An inquest by the same newspaper in March into tax evasion of offshore companies with subsidiaries in New Zealand revealed that 20 multi-national corporations with a combined revenue of around NZ$10 billion paid less than NZ$2 million in corporate income tax. The investigation looked at over 100 multi-national corporations.
Internationally New Zealand sits slightly behind the curve in implementing multi-national tax reform. Just a few months ago, Australia began cracking down on multi-national profit-shifting meaning the companies were actively searching and transferring revenue to tax havens within the country known as ‘lower tax jurisdictions’. The country has implemented a ‘Google tax’ on all shifted profit in response. In 2015, the Australian Tax Office (ATO) received an additional A$1 billion in tax revenue by aggressively going after companies suspected of profit-shifting on a large scale. There were 30 companies in all ranging from the pharmaceutical, energy, and technology industries. The United Kingdom (UK) requires all large corporations to publicly disclose their comprehensive tax strategies.
It should be noted, the executives pointed out, that public outrage over this issue was not entirely founded and that while the unlawful tax practices of a few ‘bad apples’ understandably put a bad taste in the public’s mouth, they are not indicative of how all multi-nationals conduct business. Some experts believe that the notion of overarching distrust New Zealand society has that the wealthy don’t pay their fair share isn’t at all accurate.
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5th July 2016
On 23rd June, 2016 the citizens of the United Kingdom (UK) voted to exit the European Union (EU). What is now commonly referred to as ‘Brexit’ sent reverberations through the entire world leaving many with questions as to how this monumental decision would affect economies and political structures throughout the land. Still today, questions linger about how things will play out for the United Kingdom (UK), the European Union (EU), and their respective and collective trade partners.
With Brexit affecting nearly every global economy perhaps no other countries will feel the second-hand effects than the Commonwealth countries, including New Zealand. While the short-term effects have thankfully been limited, the outlook further down the road is considerably foggier. Here are some of the ways Brexit may impact the Kiwi economy.
Although much is unclear now, not even two months since the vote, it’s certain that the vote resulting in the UK’s European Union departure will ripple to every corner of the world. One of the immediate effects of Brexit, as predicted, was the fall of the value of the pound along with the UK markets. The pound reached about a 40 year low prompting the Bank of England to intervene in an effort to stem the tide. This brought on a drop in investor confidence and large withdrawals of money. Another negative for the UK’s exit is that although Britons will ostensibly get to choose what’s best for their country without interference from the European Union, they must now renegotiate and rewrite all of their trade agreements and contracts with trade partner countries. Not only that, but the UK will inevitably trade with some EU countries again, meaning that some of the autonomy they’ve won through Brexit will be lost in the trade negotiations.
Although Britain and New Zealand are on opposite sides of the earth, the two economies have a strong and historic bond. Take for instance the livestock—mainly beef and lamb—the UK receives via export from New Zealand. Previously, these exports were subject to EU rules and regulations, but now, Britain must regulate the goods they import themselves. This could lead to complications in getting New Zealand beef and lamb into the supermarket. Another impact Brexit is having in New Zealand is the rise of the dollar to the pound. As mentioned above, the pound took a serious hit after Brexit as confidence fell and uncertainty set in. The rising dollar hasn’t helped Kiwi exports and the volatility in the markets could make the dollar more expensive to buy, discouraging investors and tourists alike. This may allow banks to charge higher interest rates on loans as the cost of dealing in dollars increases. With the dollar on the rise, look for cheap UK tour packages to start popping up here and there as more and more Kiwis take that dream UK vacation.
21st June 2016
Here at Accountancy Insurance our main task as the industry leader in providing sound, comprehensive coverage for individuals and businesses facing an audit is to do just that. Beyond that we feel it is important to keep our clients updated on the latest news and trends happening in the world of accounting. We strive to present current events affecting tax and accounting in New Zealand as a way to make a confident, more-informed client.
On May 03, 2016, New Zealand’s Minister of Revenue Michael Woodhouse introduced a new tax bill in parliament. The bill, entitled Taxation (Annual Rates for 2016-17, Closely Held Companies and Remedial Matters) Bill aims to change some of the more technical aspects of New Zealand’s tax system. The bill currently sits in parliament where it awaits review and consideration of a Parliamentary Select Committee. Here are a few of the new changes the bill introduces.
One of the changes the bill proposes are reforms to the taxation of closely held companies. At present, the Look-Through Company (LTC) rule structure allows a business to operate as a company, but when it comes to tax matters, the business is ‘looked-through’ and the owner or owners are taxed as individuals. The bill would put restrictions on who can operate as a look-through owner, adjust the calculations needed on converting to a look-though, and limit the amount of foreign capital a look-through company with half or more foreign ownership can derive whilst keeping their look-through status.
The bill would also introduce strict changes to the definition of an associated person in an effort to catch those who plan on evading tax payment of non-resident withholding tax (NRWT). Under the new regulations the borrower and lender would be associated when a joint venture or private equity structure controls the New Zealand based borrower, a third party foreign lender is used as a lending intermediary, or an off-shore part of a New Zealand company borrows money and lends it to the company based in New Zealand.
Another proposed change would expand the non-resident withholding tax (NRWT) to cover non-resident financial arrangement income (NRFAI). Currently a borrower can claim an interest deduction upfront while any NRWT responsibility might not come until later. Inland Revenue thinks this makes the possibility of avoidance higher. Under the new rules, NRFAI rules would also include NRWT and the corresponding interest expense would be deductible to the party borrowing in New Zealand.
The bill would also suggest changes affecting New Zealand’s income tax law, aircraft overhaul expenses, and loss grouping and imputation credits. The bill will undergo an assiduous, line-by-line examination and analysis. Taxpayers are urged to research the bill and submit enquiries to the Select Committee about anything pertaining to its measures. If passed, the bill’s new rules will come into effect beginning 1 April 2017.