No 27 SPRING 2013
A STAPLES RODWAY PUBLICATION
RETAIL: IN NEED OF THERAPY?
Bouncing back from online competition
THINK BEFORE YOU GIFT
When not to be overly generous to your trust
CLOUD COMPUTING Seeing the cloud through the fog
CHANGES TO THE IR10 Inland Revenue’s sharpened tool
www.staplesrodway.com www.staplesrodway.com
Staples Rodway is an independent member of Baker Tilly International
DIRECTORS AUCKLAND
Roger Thompson
(09) 309 0463
HAMILTON
Rosanna Baird
(07) 834 6800
TAURANGA
Chris Downey
(07) 578 2989
HAWKES BAY
Stuart Signal
(06) 878 7004
TARANAKI
Chris Lynch
(06) 757 3155
WELLINGTON
Robert Elms
(04) 472 7219
CHRISTCHURCH
Ross Erskine
(03) 343 0599
DISCLAIMER No liability is assumed by Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this document. It is recommended that you consult your advisor before acting on this information.
No 27 SPRING 2013
IN THIS ISSUE 2 Auckland Art Fair 3 Ant Pedersen in the fast lane The latest Canteen news 4
Confessions of a marathon addict
5
The Marketing Company: Keeping a handle on rapid growth
6
Retail: In need of therapy?
8
Think before you gift
10 A family’s legacy 12 Cloud Computing: Seeing the cloud through the fog 14 Audit Committees under the spotlight 16 French connection 18 Inland Revenue’s sharpened tool: Changes to the IR10 20 Managing ACC levies
AUCKLAND ART FAIR On 8 August 2013 Staples Rodway Auckland hosted a large number of clients and business partners at a cocktail function at Auckland’s Cloud on the Queens Wharf to enjoy New Zealand’s premier contemporary art event, the 2013 Auckland Art Fair.
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TAPLES RODWAY IS A MAJOR sponsor of the Art Fair, a biennial event that was originally developed to encourage involvement, understanding and appreciation of contemporary art in New Zealand. This fifth biennial Art Fair brought together over 30 leading galleries from both New Zealand and Australia with works by nearly 200 artists on display. Once again the Art Fair team delivered an outstanding event in a venue which is itself a work of art. Staples Rodway have really enjoyed being a sponsor of this event since 2007 and working in partnership with the Auckland Art Fair Trust, in particular Jennifer Buckley and her team. We believe this event is unique and provides an opportunity for Staples Rodway to support the Arts community in a positive way. It also gives us an Ottmar Hörl’s whimsical take on the traditional garden gnome.
Elizabeth Thomson’s ‘Flight Test’ from Page Blackie Gallery
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opportunity to invite our valued clients and business partners to enjoy an evening of good food, wine and some of the best contemporary art in the Antipodes. Auckland Managing Director Roger Thompson welcomed the guests and thanked them for both their attendance on the evening and their support for Staples Rodway. He then invited them to make their way throughout the exhibit to enjoy the art that he vary aptly described using a 3-B acronym saying it was either “Beautiful, Brilliant or Baffling”. “It was a very enjoyable evening with some amazing artwork on display. I don’t know much about modern art, but I thought that Roger’s ‘3 B’s’ summed it up nicely. Although initially it did feel like I was trapped in the baffling section for the first couple of minutes!” remarked one of our guests. The response from our guests was very positive and some even left having purchased pieces of art on display demonstrating that the appreciation of fine contemporary art is alive and well in the City of Sails.
ANT PEDERSEN IN THE FAST LANE Staples Rodway Hamilton staff member and up and coming motorsport talent Anthony Pedersen is the most successful locally-based driver in the early rounds of the V8 SuperTourers. The 25-year-old driver for top New Zealand motor racing team, International Motorsport, held second place overall on the points table after four rounds of the championship.
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RING ON THE ENDUROS,’ SAYS Ant Pedersen after another race-winning performance behind the wheel of the J.A .Russell Ltd-backed International Motorsport Ford Falcon at the final ‘sprint’ round of this year’s BNT New Zealand V8 SuperTourer Series, the Gull 250 meeting. Despite a controversial drive-through penalty call robbing him of an early lead in the final, race two winner Pedersen ended up second behind veteran Greg Murphy in the four-round sprint ‘serieswithin-a-series’ points standings and with fast-rising young Australian co-driver Chaz Mostert will form one of the strongest pairings when the teams line up at Hampton Downs for the first Enduro outing. “It’s what we’ve been working towards all year,” says the 25-year-old who is now a two-time race winner in this year’s BNT V8 SuperTourer series. “Obviously it was a tough call (the drive-through penalty) in the third race because it cost us the race and round win but there’s no doubting the pace we’ve got in the car and the momentum we have as a team at the moment.” Pedersen has worked for the Hamilton branch of Staples Rodway for the last three years, and races part-time unlike his full-time professional driving competitors, Murphy, van Gisbergen and McLaughlin. Staples Rodway has recently joined the sponsorship team of the #96 J.A. Russell Ltd Falcon, alongside the main sponsor J.A. Russell Ltd and New Zealand Herald’s Driven, Gull, Tissot and Burgerfuel. The team has had strong performances in the series so far, with Pedersen claiming his first win of the SuperTourers season at the second round of racing
held at Ruapuna Park in March. The SuperTourers return for round five at Hampton Downs on September 28. Watch this space for more news of Ant’s performance!
Staples Rodway’s own Ant Pedersen is now ranked 2nd in the V8 SuperTourers.
THE LATEST CANTEEN NEWS Article by Mary-Therese Kinsella PARTNERSHIP AND EVENTS MANAGER, CANTEEN
At CanTeen we believe that the best partnerships are the ones which touch every level of our organisation. There is no doubt that our partnership with Staples Rodway does just that. When I asked the branches how the partnership is going at a regional level rather than having to extract information I was greeted with a flurry of feedback and compliments for the staff at Staples Rodway. Here’s a snap shot of what we have been doing together around the country in the last quarter.
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N HAWKES BAY DONNA HOSSACK has been closely mentoring Hawkes Bay Committee Treasurer Michael with how to best present his financial report each month. Donna took the time to work together with Michael and the outcome is a visually exciting financial report. Michael feels so empowered by this opportunity and looks forward to sharing his new skills with the rest of the committee. Kerrie, our youth worker in Hawkes Bay, put it best when she said of our friends at Staples Rodway “We are so grateful for their support and we look forward to working together in the future”. Agreed Kerrie! CanTeen Southland Branch are just starting to engage with Staples Rodway Christchurch via the magic of Skype. The needs of the Southland branch have been identified and Whitney Richdale and Hamish Gallagher are currently working on some templates for the branch treasury reports. Well done to the teams for not letting the geographical distance stand in the way. In Taranaki everyone has (just about) recovered from the Mountain Cycle Challenge and are excited about the opportunity to utilise the creative team at Staples Rodway for a local art exhibition. Taranaki Youth Worker Lauree couldn’t be happier with the engagement of the SR Taranaki team saying… ”We love them, this year has been made all the better and more enjoyable because of the support we’ve had”.
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In Christchurch, our member committee had a training day and Staples Rodway kindly offered the use of their boardroom, kitchenette and adjacent room for the day. After the meeting the committee completed the afternoon with a workshop on resilience and self-empowerment which concluded with the team breaking through a piece of plywood with their hand! The use of the office space for the training was fantastic as the Christchurch branch have limited space. Special thanks to Spencer Smith who came in on his day off to open the space for us. CanTeen pick for Stellar Staples Staffer has to be Donna Hossack in Hastings. Not only has Donna fulfilled her responsibility to CanTeen as a financial mentor, she has gone the extra mile to really get involved. Donna has been along to branch activities, is organising a coffee morning with members to discuss volunteering opportunities and is motivating the rest of the SR Hastings branch to get out on the streets during Bandanna Challenge to shake a bucket for CanTeen. Thank you Donna! You rock. If you have yet to get involved with your local CanTeen branch, we really encourage you to do so, as you can see your colleagues are not just doing a great job, they are having fun doing it. If you would like some more information about how to get involved or who to contact in your local area, please feel free to contact Mary Therese Kinsella on 09 308 5908 or at marytk@canteen.org.nz.
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CONFESSIONS OF A MARATHON ADDICT When Tracy Hickman from Staples Rodway’s Auckland office planned to run her first marathon, she thought it would be a one-off. Little did she realise that those first 42kms would take her so far!
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N APRIL 2008, I DECIDED that it was high time to cross an item off my bucket list: running a marathon. Just the one. At the tender age of 42, I realised that a planned approach was required in order to avoid injury, so I joined a group called Get Running, met a lovely bunch of fellow runners, and started my journey. After an initial running assessment, I was sent to Shoe Clinic (for a decent pair of running shoes), to a nutritionist (to gain a little weight!) and to a sport doctor (regarding a niggle in my hip). Whoever said that running is cheap?! All was going well until the sports doctor told me that she didn’t think I would ever be able to run a full marathon, and I should settle for a half. Not to be deterred, once I’ve set my mind on a goal, I can be pretty focussed! Realising that I was going to give it a go anyway, the doctor sent me away with some shoe inserts and instructions to learn Pilates (for core strength). Training went well after that, and before long November dawned and I duly completed the Auckland Marathon in 4 hours 20 minutes, with no pain and a huge smile on my face. So, list ticked….end of story? Well, no… because no-one warned me how addictive running can be! Before long the urge for a new running goal and another medal dawned, and so I entered for Paris Marathon….and then the Legend Marathon (Arthur Lydiard’s old training routes in the Waitakere hills)…and then the Sydney Marathon. As enjoyable as these races all were, I thought it was high time to do a run in my home country, with friends and family to provide support. And since the London Marathon is a huge charity fundraiser, I came up with the bright idea
of running the race wearing a 33 inch helium-filled rubber duck balloon attached to my back, whilst running for the British Lung Foundation! The BLF had been instrumental in saving my father’s life a few years ago, and although he wasn’t well enough to attend on the day, I knew he would be watching the television coverage and thought the yellow duck would stand out. Didn’t think about how it would feel being head-butted by a duck for 26 miles, but it did the trick and Dad saw me on TV. End of story? Well, no... in fact I’m not sure it’s ever going to end!
Tracy fundraised for the British Lung Foundation for her London Marathon run.
Tracy’s big smile makes it look easy while she runs a marathon in the Australian Outback.
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In July 2013, marathon number six was completed, a wonderful race in the Outback in Australia, in front of Ayers Rock. Conditions were perfect, with beautiful weather, 1oC start at 7.45am, in the mid-20’s by lunchtime, but a lovely dry heat. The soft sand was a challenge for the muscles but great for low impact on the joints. And from here, Melbourne marathon in October, Rotorua Marathon next May (the 50th event, should be a special one) and New York Marathon next November… long may the journey continue. So why do I run? Because I can! Because it provides a wonderful sense of achievement, a great reason to travel, and fosters warm and loyal friendships. It keeps me fit, relieves stress, and provides balance. If you feel inspired to give it a go, my advice would be to buy yourself some good shoes, check out your local clubs or running groups, and then enter an event to motivate you. See www.getrunning.co.nz for first-timers, and www.coolrunning.co.nz for events. But don’t forget, it is addictive!
KEEPING A HANDLE ON RAPID
GROWTH
Article by Daimon Stewart STAPLES RODWAY TARANAKI
The Marketing Company, a New Plymouth-based sales and marketing training business, is a classic case study of a business growing so fast that it’s structures were struggling to cope, putting further business success at potential risk.
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MBROSE AND JO BLOWFIELD HAD grown the business so well that in seven years they’d gone from start up to having trained more than 4,000 NZ companies in sales and marketing techniques. “They were also in the middle of a significant, large contract in Australia that was taking up a great deal of their time,” says Graeme Beals, General Manager. “They had plans to franchise the operation but were struggling with poor management information. The back office systems were also struggling, to the point that GST payments were being missed. They asked me in, originally to advise on governance and develop a new business plan, and part of that plan – when it became obvious they’d outgrown their previous supplier – was to bring in Staples Rodway.” Taranaki partner Marise James says one of the obvious early steps was to bring in much improved disciplines and reporting structures to the accounts and The Marketing Company was introduced to and trained on the Xero accounting system. “Our accounts people find the system brilliant,” says Graeme. “They were well trained by Staples Rodway and the business now has detailed, disciplined accounts available for analysis and comment. Even better, both our administration and management team can work from anywhere on that system. “We also asked Staples Rodway to use their IT system expertise to develop specifications for a back-end website that would provide franchisee information and a CRM system. That system also needed to be a learning source. The design has been successful and we’ve recruited our first 10 Client Relationship franchisees who are being trained on the system. “They can access all their account information and track their commission fee information while also accessing training tools and our customer management system.” However, Graeme says one of the most successful results of bringing in the Staples Rodway team has been the direction and guidance they provide for the business. “Marise James is part of the monthly board meetings. She and her team report quarterly to the Board on the accounts and financial position. But we get
so much more than accounting services. The systems we now have in place provide a level of analysis that foresees issues as well as quantifying just how well the business is going.” Marise James says that is the true value in applying strong systems. “I can go to The Marketing Company board meetings and not just report on what’s happened but offer advice and guidance that will help the financial performance of the business. We focus on the key business drivers; trends, forecasts and variances. “We can then work on strategies that will keep the business in its prime position in the market and the owners have more time to consider where they want to take the business, rather than being totally immersed in what’s happening on a day-to-day basis.”
RETAIL: IN NEED OF THERAPY? Article by Gareth Hoole STAPLES RODWAY AUCKLAND
More and more New Zealanders are shopping online and that’s causing some “bricks and mortar” stores to experience declining sales in this changing shopping environment. The right mindset and strategies can not just help retailers arrest this trend, but use the web to their advantage.
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NCE, WHEN YOU NEEDED SOMETHING, you went to the appropriate retail store, tried out the alternatives, made your choice and took your purchase away after paying for it. Now, the trend is to try it out at the store and then go home and buy it over the Internet, usually paying substantially less than the price demanded by the retailer and often even saving on the GST. Through the advent of on-line auctions and e-shopping through sites such as Amazon the need to even go to a “bricks and mortar” retailer is often obviated and it is having an adverse effect on those who rely on traditional methods of taking their goods to market. It is believed that as much as 20% of the retailing activity in the United States is now conducted online and it is expected to rise. The growing use of smart phones has allowed consumers to be far more immediate in their buying decisions. The incidence of “e-tailing” will only grow, particularly in the face of social media and technological advances. Traditional “brick and mortar” retailers will need to recognize that trend and adapt or die. They need to acknowledge that holding a significant level of stock and waiting for the punters to come in and buy it no longer works the way it used to. Improvements to supply logistics and the ability of just-in-time delivery to bring products to the market rapidly have made on-line retail far more attractive. No longer does one have to wait weeks for the goods purchased online to be delivered, modern practices ensure delivery within days or even hours. Retailers who keep stock are faced with significant holding costs and the management of that inventory also adds to the price the traditional retail shopper is expected to pay. Given that commodity shoppers are as price conscious as they are, little wonder that the online, cheaper alternative is becoming so popular. One defensive strategy that traditional retailers have implemented is the introduction of private labels and exclusive product, available only through their retail outlets. However, this is an expensive option and it can also be very time consuming to implement effectively and develop brand recognition. Retailers must make their stores so attractive to potential customers that they become a destination for an experience they will not get by clicking a mouse and entering credit card details. It needs to be a place where they like to spend time.
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Part of that strategy is to refine customer service to a whole new level, making the customer want to be there to get that treatment that makes them feel special. Well-trained and knowledgeable staff can make all the difference to a shopping experience and while there is a cost to this, ignoring the need to train the staff can be fatal for the business. One of the reasons that I personally prefer going into a shop to buy something rather than going online is that I like advice from a trained and informed assistant rather than guessing what may be the best product for me. However, a disinterested assistant who would rather be somewhere else makes me think seriously about opting for the online alternative Another factor that retailers must embrace is effective use of the myriad of market information available to them. Find out what their customers want and give it to them, embracing technology instead of shying away from it. Facebook and the like is here to stay and the astute retailer, while still relying on getting punters into their store, should be using that social media to their best advantage. Instead of ignoring technology and the impact it is having on retailers, offer free wi-fi in-store and see what effect it has on the clientele. Technology is advancing on a daily basis and with it comes information; leveraging that information is essential for the modern retailer. They should use the available information to find a compelling angle, specialty or some point of difference that will make the in-store shopping experience preferable to browsing the net. Making waves on the social media landscape is Pinterest, now second only to Facebook and Twitter (and is set to overtake the latter), where people make others aware of goods or services by pinning information about them on an electronic pin-board. Recent research shows a growing trend of shoppers going into a store to purchase something after having seen the item pinned on Pinterest. It is creating a trend of “reverse showrooming” with consumers researching what to buy on Pinterest and then going into the physical shop to make their purchase. There is no easy solution to the dilemma facing brick and mortar retailers but to be successful in this digital age without abandoning an in-store presence they will need to strive to achieve a balance between offering an online option and reviving the traditional shopping experience.
THINK BEFORE YOU
GIFT
Article by Aman Chand STAPLES RODWAY AUCKLAND aman.chand@staplesrodway.com
Recent changes to the gifting rules for trusts mean that previous restrictions of being able to gift just $27,000 per annum no longer apply and gifts of any amount can be made without attracting duty. That makes it tempting to gift everything at once into your trust but there are numerous circumstances where this is not the best outcome.
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HE ADVANTAGES OF GIFTING RELATE mainly to protection of your estate and reduced costs. By gifting your assets to a trust now, there are fewer assets in your personal estate on your death and therefore fewer assets which could be disputed by anyone not included in your will but who believe they have an entitlement to your estate. It is usually more difficult to claim an entitlement against a trust than it is to claim against a deceased estate. Making a single, large gift now to clear the balance owed to you by your family trust also removes the need for gifting in future years and eliminates ongoing annual fees for gifting documentation. But there are a number of circumstances where gifting everything now could be a disadvantage, including loss of control over assets and important residential care matters.
BENEFIT FROM THE TRUST Once you gift all your assets to your trust, the debt owing by the trust to you will no longer exist. Therefore, it’s no longer possible for you to request repayment of the debt. If you wish to receive money from the trust, it will need to be in some other way, perhaps as a beneficiary of the trust. That means you need to protect your ability to continue to benefit from the trust should you decide to gift all your assets to the trust.
BEQUESTS If you have made specific bequests in your will it is important to ensure that there are sufficient funds in your estate to meet such bequests. If all of your personal assets have been gifted into a trust, there will be little in your estate to distribute so you may want to retain sufficient debts owing to you by the trust to meet bequests in your will.
CREDITORS If you have creditors who may be put at risk as a result of you making a gift, the Insolvency Act 2006 and Property Law Act 2007 allow your gift to be clawed back. Under the Insolvency Act, gifts made in the two years prior to bankruptcy can be clawed back and gifts in the period two and five years prior to bankruptcy can also be clawed back if you were insolvent at the time of the gift. Under the Property Law Act, any gifts that defeat creditors can also be set aside. We recommend preparing a solvency declaration, to be reviewed by your lawyer, to assist in ensuring your gifts will not be clawed back.
GIFT RECIPIENT Care is also required when making a gift by way of forgiveness of debt to ensure inadvertent tax consequences don’t occur. The recipient of the gift should only be someone for whom you have natural love and affection. The beneficiaries of the trust can fall into this category if the debt is being forgiven to a trust. If the recipient arguably falls outside that distinction then financial arrangement rules may apply which could tax future distributions from a family trust.
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RELATIONSHIP PROPERTY It is also important to check what is being gifted cannot be classified as relationship property as, under the Property (Relationships) Act 1976, any gift of relationship property without your partner’s consent can be set aside. That means is that your partner may be entitled to compensation so any gifts of relationship property must be very carefully considered and documented by your lawyer.
RESIDENTIAL CARE SUBSIDY If you or your partner requires full time care in the future, you may apply for a residential care subsidy to help with the costs of care and if the application includes an assets test, your assets may be deemed to include certain past gifts. The first asset test applies to a person who has no spouse or partner or a couple where both are in care. To qualify for the residential care subsidy you are allowed assets up to the value of $215,132. The second asset test applies to a couple where only one is in care. To qualify you can have combined assets up to the value of $117,811 (not including the value of your house and car) or $215,132 (including the value of your house and car). However those asset thresholds are adjusted on 1 July each year. Certain gifts made by you or your partner may be counted as an asset. The rules can be broadly summarised as follows: Gifts in excess of $6,000 per year made in the five years before the application will be counted as an asset (the $6,000 rule). Gifts in excess of $27,000 made prior to the above five-year period will be counted as an asset (the $27,000 rule). There is no time limit for the application of the $27,000 rule and the Ministry of Social Development is of the view that the $27,000 rule is per couple and not per person1. These residential care subsidy views or policies may also change in the future. So, if the residential care subsidy is relevant, you may wish to consider gifting at the following rates:
For a single person $6,000 per year for the anticipated five year period before the application; and $27,000 per year for the period prior to the above period
For couples $6,000 per year for the anticipated five year period before the application; and $13,500 per year for the period prior to the above period Gifting may have become easier but there remain a number of complex factors to consider before going ahead. T his view was confirmed in B v The Chief Executive of the Ministry of Social Development [2012] NZHC 3165. That is, the High Court confirmed that the $27,000 rule per couple was correct. This was inconsistent with the Ministry of Social Development’s published view. The Ministry of Social Development however updated its view that the $27,000 rule is per couple and not per person after this case.
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NUMBERS Spring 2013 • 9
A FAMILY’S
LEGACY
TO THE WAIKATO
Jeanette Thomas, the only daughter of ship owner Caesar Roose, is preserving her family legacy and the role of Mercer in Waikato’s growth by opening the Mercer Art and History Museum in the town. Her family history is deeply entrenched in Mercer’s history, and the soon-to-be opened Museum is her legacy and gift to the region. Staples Rodway is ensuring Jeanette receives all the help she needs in order to bring to life Mercer’s historical past and making sure that legacy lasts.
The Mercer Art & History Museum officially opens in November, but is available for viewing by appointment before opening day.
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HE NAMES OF ROOSE SHIPPING Company and its founder Caesar Roose are inextricably linked to the growth and development of the Waikato and Waipa regions with Caesar and his company also playing influential roles in the development of Auckland and particularly the city’s western port at Onehunga. The history of Roose shipping and the Roose family centres on Mercer, a small town 50 kilometres south of Auckland. Mercer was once home to a thriving industrial centre but is now a sleepy town, bypassed by the Waikato Expressway. “I’m not a political person at all,” Jeanette Thomas utters, moments after recounting decades of battling Government, Ministers and regional councils. There were also many years of committees, boards and action groups as Jeanette recounts that she’s just a community person, with the best interests of her community at heart. It’s a community that Jeanette, the daughter of Caesar Roose, the founder of the Roose Shipping Company, has served deeply and well for many decades. She really is part of the Mercer furniture, and for all her efforts in the small-town community, is fondly referred to by local Maori as kaumatua. The Roose family, and Caesar in particular have at least two local roads named after them, as well as Roose Commerce Park. The landmark bridge across the mighty Waikato River, commonly referred to as the Mercer Bridge, is in fact named the Caesar Roose Bridge. Jeanette is typically modest, not wanting to discuss her own achievements, but delighting in sharing her father’s colourful history. However, in listening to Jeanette you realise she is also a formidable force. Jeanette’s father Caesar was born in 1886 on Tuoro Island, a 68-acre island in the middle of the Waikato River at Mercer. The island is now part of the mainland with the original channel having silted up. Caesar always maintained deep local connections, enjoying a long-standing friendship with Princess Te Puea Herangi, who would regularly ask to borrow his car when her own car inevitably broke down on the drive from Ngaruawahia. Caesar believed water was the pathway everywhere, and with very little roading in the area it was an obvious choice to transport goods in and around the Waikato. Caesar bought his first boat in 1902 to supply the Pokeno mills with flax as well as carry general goods. He built up a highly successful water transport-based business acquiring new boats to deliver anything and everything to surrounding areas and up the coast over the treacherous Waikato river mouth to Auckland. Eventually he became well-known as a New Zealand shipping magnate. Early business success enabled Caesar to build the family home on Tuoro Island in 1913 while further boat acquisitions led to the establishment of Roose Shipping Company in 1922.
SUCCESS NEVER STOPPED CAESAR DOING THINGS ‘HIS WAY’. On a European trip in 1924 he met a boat builder turned waiter while in Glasgow and brought him back to New Zealand. That Glaswegian, Tom McFadgen, and later his brother, went on to build a number of paddle steamers for the Roose Shipping Company back in Mercer. To this day, three of these steamers sit on the banks of the Waikato River as a reminder of the achievements of Roose Shipping Company. Jeanette’s father was also a determined man. When he established he was right, no one, not even Government could say no to Caesar.
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Having acquired a coalmine in 1922, Caesar refused to let the Labour Government take it over during World War II – it was the only mine to remain private throughout wartime. He asked the Government how they could ensure he received the necessary supply of coal required for his ships - and the answer wasn’t good enough for Caesar to relinquish control. A local grass roots campaign was aimed at the Government to stop the acquisition with Roose winning, according to Jeanette, purely on the basis that he was a “people person”. That was not the only time Roose went head-to-head with the Government. In 1947, restrictions on taking currency out of the country made it difficult for Roose to purchase an old navy ship in Pearl Harbour. The “After 5pm” doctors visit to get the urgent small pox shot and a mad dash on a Pan-Am flight (where gaining a day was the only way Roose could make the tender) meant the ship was coming to New Zealand. What remained was the small matter of how to pay for it. Permission was gained by signing an agreement with Sir Walter Nash, the then finance minister, to transport all the hardwood railway sleepers from Australia, on the LST (Rawhiti 111) that the NZ Railways required. This was great for NZ as accidents were frequent on the NZ railways after the war because of disrepair. Railway sleepers could not be replaced easily because of shortage of ships after the war and Roose used this to his advantage. The LST carried 30,000 sleepers per trip and used forklifts to load and unload on to trucks inside the hull meaning a quick turnaround. The trucks would then drive off through the open bow doors. Roose had won, yet again. The new ship from Pearl Harbour became the Rawhiti III and was eventually sold to the Peruvian Navy in 1951 during the infamous ’51 waterfront strike. Jeanette has many stories that require a book to capture, but to help preserve that family history she has established the Mercer Art and History Museum complete with many photographs taken by her father. In the early 1900s, he was one of the few people in Mercer to have a camera, and it was through photography – taught to him by a local teacher – that he raised the initial funds to buy his first boat. Caesar amassed a large number of historical images and Jeanette has worked tirelessly with dedicated local historians and quality framers to tell Mercer’s story in pictures. A historical estate in the centre of Mercer (that Jeanette was alerted to only because the real estate agent was marketing it incorrectly as being part of her family Estate) is the collection’s new location. The old house has been substantially renovated, established as a Charitable Trust through Chapman Tripp, with accounts managed by Staples Rodway. Working closely with the Staples Rodway team (Jeanette says she “couldn’t imagine anyone better” than Sharon Norman to deal with the Trust) the museum is now ready for launch. Sharon also has a close interest in Jeanette’s work, as the two share a love of rowing. Jeanette helped establish the Mercer Rowing Club in 1954 and Sharon’s eldest daughter rows for Takapuna Grammar School and competes at the annual Mercer Regatta. For Jeanette, how the Trust’s accounts are operated is vital to the success of the Museum and to ensuring its longevity. Sharon says Staples Rodway’s holistic approach to Charitable Trust compliance, GST, employment contracts, Inland Revenue issues, and funding structures combined with Jeanette’s pure dedication to the project will ensure the Museum’s longevity.
NUMBERS Spring 2013 • 11
CLOUD COMPUTING SEEING THE CLOUD THROUGH THE FOG Article by Mark Kingsford BUSINESS OUTSOURCING & Rob McEwan BUSINESS COMPUTING SERVICES
Cloud computing is a hot topic at present with more talk about businesses “moving to the cloud” or share prices continuing to increase for certain “cloud software vendors”. Here’s a simple guide to working your way through the fog and gain an understandable insight into cloud computing and the possible opportunities and risks for your business.
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LOUD COMPUTING REFERS TO THE arrangement where all, or part, of an organisation’s hardware, software or data resides on technology infrastructure housed outside its office.
HARDWARE
NON-CLOUD: Typically a business will have a number of different servers which connect individual computers, allow tasks (such as email, web and file storage) to be undertaken and act as a store of data. Traditionally, a business has housed these servers in a racked server room and need to hire or engage resource to manage the deployment. Initial capital outlay is relatively high and scale is typified by step changes arising from additional hardware purchase.
CLOUD: In a cloud deployment of hardware, the servers no longer reside within the business. They may still be owned by the business but housed in a purpose built data centre (private cloud) usually with an agreement in place for maintenance. Alternatively a business may ‘rent’ space on servers with a monthly fee covering usage and maintenance. Such deployments are often called Infrastructure as a Service (IaaS). In these examples, initial capital outlay is relatively low and the configuration is very scalable.
What this means for your business Traditional non-cloud server systems are designed to cope with peak load required in your business with hardware provisioned to cope with that load. This means you pay for computing resources which can be idle for up to 90% of the time. The emergence of large data centres and cloud infrastructure means you now have businesses with the sole purpose of managing data. With this scale, focus and greater spread of peak loading requirements, the cost to consumers is decreasing. Given the lower upfront capital cost and the lower in-house maintenance resource requirement it is expected 60% of US server workloads will be virtualised by 2014 - up from 12% in 2008 (Gartner) - while global cloud traffic is experiencing compound annual growth rates of 66% (Cisco). This frees up internal IT resource to focus on external IT requirements, helping IT deliver better goods or services to the client.
SOFTWARE
NON-CLOUD: Non cloud software packages are typified by shrink wrapped software usually distributed by way of retail channels. Whilst on-line downloads have become more prevalent the key distinguishing factor is that the software application resides on the server or hard drive of the business.
CLOUD: Cloud software applications are accessed by way of the internet. You don’t ‘own’ the software instead you are effectively granted a licence (payable monthly) to use it. The application and the data resides in data centres owned, or leased, by the software vendor. Such deployments are often called Software as a Service (SaaS).
patches, seamless behind-the-scenes upgrades, and all on the same version. This has seen rapid growth in cloud software providers. It has also seen the emergence of niche software products which cater to specific business needs. Previously the cost to such narrow markets was prohibitive but now these barriers have been removed. Think of the number of apps available on your smartphone – there is something for every task. Cloud applications are generally easy to integrate meaning you can create modular compositions of software as required to suit your business. Cloud software results in cheaper, function rich software. Functionality, which was once the domain of the big boys with the Enterprise Resource Planner (ERP) systems, is now available to the middle and lower end of the market. The inherent flexibility of these businesses also assist in creating very capable smaller firms taking on niche markets.
OPPORTUNITIES TO BUSINESS A move to the cloud may bring cost savings from lower capital cost of hardware and software. This is usually not a huge amount over the life of a business or the assets in question but does significantly reduce the capital required for a start-up or rapidly growing business. Scalability of storage capacity and user numbers is also of huge benefit to business. Staff (and customers) can generally obtain access anywhere at anytime (subject to internet connection). Software suites can be deployed quickly and there is generally less maintenance of your IT hardware and software. Cloud computing enables (but does not guarantee) scalability, flexibility and innovation often with a greater focus back on core business fundamentals.
RISKS TO CONSIDER AND MITIGATE A move to the cloud has its own risks which need to be understood, considered and mitigated where necessary. That mitigation needs to take place on agreement of the contract to move into the cloud – not when a problem occurs! With a move to the cloud you become dependent on the infrastructure provider and / or software provider, so you can cede some control. You should have robust Service Level Agreement (SLA) but there remains a lack of real visibility over the effectiveness of the measures within the SLA for disaster recovery or back-up until you really need them – and by then it is too late. You could take action against the provider but, if they are not around anymore you could be left out of pocket - and out of business. Therefore, it is important to understand exactly what measures are in place and be comfortable with the provider and their future viability. Larger data centres will also be a bigger target for any cyber-attack. Your data could be the innocent victim. Where your data is kept is also important to understand from data sovereignty, government access and legal jurisdiction perspectives. Finally, before you go into the cloud you’ve got to know how you would get out. Portability and access to your data in the event of a dispute or vendor closure are paramount. You can outsource the IT but you can’t outsource the risk mitigation planning!
HOW WE CAN HELP Staples Rodway has real depth of knowledge of accounting and business systems. Talk to us and we can bring in the right person to bring you up to speed, review your current configuration,help you mitigate the risks and realise the opportunities. Staples Rodway will help you see the cloud through the fog.
What this means for your business Cloud software vendors can now get their product into market at a lower cost to a global customer base. The software is easy and cheap to maintain – no
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NUMBERS Spring 2013 • 13
AUDIT COMMITTEES
UNDER THE SPOTLIGHT Article by Jackie Russell-Green NATIONAL TECHNICAL MANAGER jackie.russell-green@staplesrodway.com
The demands of an ever-changing business environment emphasise the importance of good corporate governance. For those companies that are subject to audit, either because of a legislative requirement or because of the value placed on the assurance provided by the audit process, one of the most important corporate governance structures is the audit committee. For other entities, such as not-for-profits, that are subject to audit, the audit committee also forms an important component of the governance environment. National Technical Manager, Jackie Russell-Green, examines the role of the audit committee and some of the matters that a well-functioning audit committee will address.
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HY HAVE AN AUDIT COMMITTEE? Although, as I mentioned in a recent Numbers article (“Directors’ duties under the spotlight”), each director is responsible for all board decisions, there are several board responsibilities that will only be performed to the required standard if they receive the focused attention of board members with suitable expertise. One particularly important area is financial reporting and the associated audit process. Putting in place an adequately resourced audit committee with the appropriate level of autonomy is the most effective way to make sure that financial reporting and audit receive the expert attention they require.
WHAT IS THE AUDIT COMMITTEE’S KEY ROLE? The audit committee’s top priority is overseeing financial reporting and the internal controls associated with the financial reporting process. This involves: Determining whether management controls in relation to financial reporting are adequate. All financial processes, including ordering and paying for goods, paying staff, invoicing and receiving revenue from sales, taking out debt, raising capital and preparing financial statements rely on systems and processes. If these systems and processes are well designed and functioning as intended, they will help to reduce the likelihood of common problems arising. The sorts of problems that are common in financial management and reporting systems include over-payment, under-payment or late payment of suppliers, slow or absent invoicing of clients, not securing debt financing on the best possible terms, inaccurate financial reporting and, sadly, all too frequently, fraud. It is the responsibility of the audit committee to make sure that the financial management and reporting systems that management has put in place are fit for purpose and operating as intended. Reviewing the appropriateness of management judgements and estimates. Although a lot of financial reporting is relatively straightforward,
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there are a number of circumstances in which management will make judgements and estimates that impact on the financial statements. For example, fair value measurements (particularly for items where there is not an active market), impairment and the allocation of the purchase price in a business combination all require estimation, while decisions such as the classification of financial instruments require judgement. Where management is making estimates or applying its judgement, the audit committee must be satisfied that, based on all available information, the estimate or judgement is reasonable and justified. Ensuring that adequate accounting records are maintained. Reviewing the financial statements and being satisfied that they “tell the story” of the business. A well put together set of financial statements allows users of those financial statements to gain an understanding of what the business does and of the financial performance and position of that business. It also allows informed investors to examine the key areas where judgement has been applied in the preparation of the financial statements and form a view on whether those judgments are consistent with their expectations. Preparing for upcoming accounting changes. New Zealand equivalents to International Financial Reporting Standards change frequently and entities that report under these standards must understand upcoming changes in sufficient time to ensure that systems and processes are able to capture the required information in the appropriate form. Overseeing the audit process. This involves communicating with the auditor throughout the audit process (from audit planning all the way through to the issue of the audit opinion) and ensuring that the auditor has access to the information he or she requires. The audit committee will also be responsible for signing the letter of representation to the auditor and for overseeing the implementation of improvements suggested in the auditor’s management letter.
WHAT ELSE DOES THE AUDIT COMMITTEE DO? Overseeing financial reporting and the internal controls associated with the financial reporting process is the audit committee’s most important function. However, there are a number of other functions that audit committees frequently undertake: Assisting with the development of budgets, monitoring progress against budget and alerting the board to potential opportunities (for example, businesses that have successfully weathered the recent market downturn may have sufficient cash resources to consider strategic acquisitions, particularly in a market in which expectations of future economic growth have frequently not been factored into selling prices). Understanding the major capital investments that will be required and examining the most appropriate mixture of funding for such investments. Maintaining an up to date understanding of the regulatory environment in which the business operates and of likely changes to regulatory requirements. Many businesses face complex regulatory requirements, which, if not met, can severely impact their ability to undertake business. Understanding the tax risks faced by the business (particularly when operating in multiple jurisdictions) and ensuring that management has put in place appropriate policies and processes to manage those risks (for example, any business that transacts with an overseas domiciled related party must ensure that it has an appropriate transfer pricing policy in place). Understanding the broader risks faced by the business and ensuring that the business has processes in place to manage those risks (including adequate insurance coverage and business continuity plans).
WHO SHOULD BE ON THE AUDIT COMMITTEE? As the audit committee’s primary functions concern financial reporting, members of the audit committee must have good levels of financial literacy. However, it is also important that members of the audit committee have a good understanding of risk and, perhaps most importantly, an understanding of the business and the industry in which it operates, a willingness to ask questions and the ability to think independently and objectively.
CONCLUDING THOUGHTS If an entity is subject to audit, a well-functioning audit committee will ensure that the audit process is as smooth as possible and, most importantly, that the business derives the maximum possible value from the audit process. Good audit committees are about much more than just the financial statements though – they are integral to the smooth functioning of the business and to ensuring that key business risks are identified and effectively managed.
A WELL-FUNCTIONING AUDIT COMMITTEE WILL: Oversee the financial reporting and audit process. Have a broad understanding of the risk environment in which the business operates and help to make sure that those risks are effectively managed. Assist in the development of budgets, monitoring performance against budget, identifying strategic opportunities and identifying appropriate funding to enable the growth of the business. Audit committee members should have good levels of financial literacy, a good understanding of risk and the ability to think independently and objectively.
FRENCH CONNECTION
Article by Lee Harris STAPLES RODWAY AUCKLAND
Owning property and living in France is not all red wine and baguettes for New Zealanders. An understanding of French tax laws is important before you commit a property faux pas.
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HE OWNERSHIP OF FRENCH PROPERTY triggers a range of financial obligations. Purchasing a villa in France or simply spending a regular period of time in France can have further reaching tax implications than many New Zealanders imagine. Both events have the potential to render a person a French tax resident, in the event of which the French tax authorities would be able to include the French tax resident’s worldwide income in their revenue net. Although New Zealand and France have a double tax agreement that takes into consideration tax already paid on income, there are numerous other tax considerations. It comes as a surprise to many New Zealanders that they cannot leave French real estate completely to their spouse/ partner on death, and that French forced heirship rules require that the largest percentage is left to children. The purchase of French Real Estate will be subject to French forced heirship rules irrespective of tax residence. In fact, forced heirship rules are usual for countries that have a civil law system, including those in continental Europe. Different ownership structures can be considered to minimise the effect of forced heirship rules, but cross-border tax advice is essential whenever foreign property is purchased in order to be aware of the full impact. If a person becomes a French tax resident, their entire worldwide assets and income will become subject to French taxes, including wealth tax, capital gains tax and gift duties. In addition, inheritance tax is payable upon death, and forced heirship rules may extend to worldwide assets, with the potential to claw back historical transactions to regularise the permitted percentages to heirs that have previously been made. There are a number of differences to be aware of when purchasing property in France. For example, French law allows for a “usufruit” between spouses (which essentially means “use of the fruits/ right to use”), which at first view has similarities to the Common Law “life interest”, but in fact is quite different. Another difference is that the purchase of real estate in France is managed by a Notary, who does not provide tax or cross-border advice, but who acts as the impartial legal professional for the transaction, acting for both the seller and the buyer. International initiatives and conventions enable overseas authorities to pursue their tax residents in an ever increasing attempt to increase their revenue base. Recent initiatives by the French authorities have far reaching implications, with one of the most severe being the reporting obligations on trustees whenever a trust has a “French Connection”. This connection will occur whenever the trust owns French situated property or rights, or when the settlor (i.e. the person who established/ constituted the trust) or any of the trust’s beneficiaries is a French tax resident. On 15 June each year, trusts that have a connection to France are required to have filed an annual declaration with the French authorities. This requirement applies in respect of trusts created either by Trust Instrument between living persons or following death (e.g. a life interest under a will). This was an obligation introduced last year, but due to New Zealand’s recent execution of an Assistance in Tax Matters Convention, it is imperative that any obligations are identified as the French authorities will be able to access information held relative to trusts and to require the NZ Government to assist with the collection of taxes and fines in New Zealand. Failure to meet the annual 15 June deadline and to pay any tax due results in an automatic penalty of 5% calculated on the total value of assets, rights or products capitalised or held on trust. This obligation applies to the administrator of the trust, who is generally viewed as being the trustee, as well as the settlor or deemed settlor. The penalty is in addition to any tax that may be payable. If the obligation was also not met previously, a further 5% penalty is payable with the potential for additional penalties to be imposed for each instance of non-disclosure where there is a French tax resident involved and/ or if the initial constitution of the trust has not been disclosed. If you have an association with a trust and if you have purchased property in France using a property owning entity (e.g. a Société Civile Immobilière (“SCI”)) or if you or another person involved in the trust structure is spending a reasonable amount of time in France in any given year, it is extremely important that you contact your manager in the first instance so that we can assess whether
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the trust is affected and/ or your tax residence will be affected. Any investments that are located in France will also trigger reporting obligations (e.g. shares in an investment portfolio). New Zealand permanent residence or citizenship does not mean that you can ignore these obligations as there are various factors whereby a person can become fiscally liable in France. For example, two of the various factors to be considered are as follows: Does a person spend most of their time in France in any 12 month period (when compared to other countries in which they spend the remainder of their time)? If a person’s main home of residence is in France, they may be resident for tax purposes in France, irrespective of whether they have retained a property in New Zealand. If there are homes available in both New Zealand and France, there are various factors that need to be taken into consideration to ascertain in which country a person is fiscally resident. If another structure has been used to purchase French situated property, you should not presume that these obligations do not apply. For example, if the shareholder of the SCI is the trustee of the trust, the shares are trust assets and there will be an automatic reporting and tax obligation for the trust. The trustees are required to advise the French authorities of the trust’s essential terms upon constitution of the trust. Any alterations to these terms, additions to the trust fund, distributions from the trust fund etc, result in a modification declaration needing to be provided within one month of any such event. The annual declaration due on 15 June is additional to these obligations. Essentially, the French authorities are now “looking through” international “trust” type structures to impose French tax obligations whenever there are certain connections with France. If there is either a settlor or beneficiary in a trust who is fiscally resident in France, or if there is any trust asset/ right or capitalised product situated in France, the French tax authorities will use the declaration to ensure that the appropriate information is entered into their system. For example, if the settlor or beneficiary is fiscally resident in France, such person/s will probably also need to file an annual income declaration, subject to the terms of any international agreements. If a settlor is deceased, the beneficiary will be treated by the French authorities as the resulting settlor. If the beneficiary is fiscally resident in France, and even if the beneficiary does not receive any distributions from the trust, the trust assets will be included in the beneficiary’s ISF (Wealth tax) annual assessment. Accounts for the trust need to have been prepared as at 1 January 2013 and 1 January 2012 and submitted with the declarations. Particular care should be taken in respect of the accounts, as there is currently some discrepancy between the net values currently included in the ISF assessment and the gross market values requested to be detailed in the trust declaration. We strongly recommend that any change to trust structures that should be implemented as a result of the obligations is made as soon as possible It may, for example, be desirable to transfer any French situated assets to a separate trust, particularly where there is a possibility that a settlor or beneficiary will be spending a reasonable amount of time in France. If any French situated property is transferred to a trust, the annual declaration will still be required, but it would be limited to the French situs asset provided that there is no French resident settlor or beneficiary. Another option may be to remove any French tax resident beneficiary from the trust. If the trust has not been disclosed to the French authorities, a regularisation of the matter will be an option to consider. As part of the Baker Tilly network, we have connections with French English speaking lawyers who will be able to advise on the available options and enter into negotiations with the French authorities. This article cannot be construed to be legal advice and a complete review of the trust’s and/ or your circumstances should be conducted to ascertain whether you have reporting obligations and/ or should obtain specialist advice. If you need specialist advice, our Trust Administration manager, Mrs Lee Harris, is French speaking and can assist with any communication with a French tax specialist.
NUMBERS Spring 2013 • 17
Article by Jodi Johnston STAPLES RODWAY AUCKLAND
The new IR10 makes it much easier for Inland Revenue to identify taxpayers of interest to them and continues recent trends where Inland Revenue has become far more sophisticated and selective about which taxpayers and groups of taxpayers it subjects to risk reviews and audits.
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HE OLD IR10 FORM COULD be submitted with any tax returns which include income from business activities and covered the activities of companies, trusts, individuals and partnerships. It was commonly known as the accounts information form but is now the financial statements summary and can be the bane of any tax return process. Having gone to substantial effort to ensure that they have calculated the correct amount of tax, the business (or more likely, their tax agent) replicates a set of financial statements for Inland Revenue and adjusts them for tax, all while trying to understand the form which can be unclear Many taxpayers simply give up trying to prepare the form and send a set of financial statements, often the same set sent to the Companies Office. But in the 2013 tax year, Inland Revenue has changed the structure of the IR10, for the first time since it was introduced in 1991. The primary intention behind the change is to transform what was an unloved and under used form into something that is easier for taxpayers to prepare. However, a more pragmatic intention for the tax collectors is that it makes statistics gathering much easier. Statistics are incredibly important to Inland Revenue as taxpayer that deviates from the mean can be a target for risk review and audit activity. Therefore anything that enables Inland Revenue to get more useable statistics has the potential to result in further exposure to the taxpayer. This becomes obvious when you look at the changes to the IR10.
SOME OF THE MAJOR CHANGES The changes to the IR10 are the best signal of the areas Inland Revenue are interested in and areas where taxpayers need to tread carefully. Fundamentally, the IR10 is now a summary of financial statements. There is no longer a need to include tax adjusted amounts as there is a single box showing tax adjustments. This allows Inland Revenue to determine abnormally high levels of tax adjustments (especially tax adjustments that result in taxable income being less than net profit before tax) and allocate risk review and audit resources accordingly. Four areas of specific expenditure have been removed from the IR10 - entertainment, fringe benefit tax, travel and accommodation and vehicle expenditure (excluding depreciation). These areas may have been of interest to Inland Revenue back in 1991 when the form was introduced, but audit pickings for Inland Revenue in these areas are thin. Two areas of expenditure that are now included in the IR10 are accounting depreciation and amortisation and related-party remuneration.
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Given the success of Inland Revenue in the Penny and Hooper case (this probably needs a brief explanation for those that don’t know the precedent), it does not take an expert to realise that Inland Revenue remain very interested in related-party remuneration. Inland Revenue has defined related-party remuneration as including salaries and wages to owners, management fees and director’s fees to related individuals. While the large scale changes are few, some minor changes give reasons for concern. For instance, capital gain on disposal of fixed assets is now untaxed realised gains/receipts. This will make it much easier for Inland Revenue to identify amounts that have been untaxed (such as lease inducement payments made prior to 31 March 2013). Another example is legal expenses which is now professional and consulting fees. Overall, this means that taxpayers who have significant sums in these areas will expose themselves to the danger of a risk review or audit at some stage following the filing of the IR10. This will particularly be the case where there appears to be no corresponding tax adjustment.
THE RISKS Following the upgrade to Inland Revenue’s computer systems, it will have the ability to take the statistical data provided by the IR10 and analyse this to determine risk review and audit targets. Inland Revenue was provided with additional funding for this upgrade in the budget and there is an expectation that millions of previously unrecovered tax dollars will flow into government coffers as a result of this expenditure That level of expectation is an incentive for Inland Revenue to more effectively use its available tools. You might think that filing financial statements would be the ideal solution, however, Inland Revenue generally takes the financial statements provided and converts them into an IR10 form. Then all it takes is a data processing clerk at Inland Revenue to include a figure in one particular box incorrectly, and all manner of red flags will be raised. The IR10 can no longer be treated lightly by taxpayers. A minor discrepancy in your IR10 has the potential to trigger Inland Revenue system algorithms and you risk a review, or an audit. You can’t rely any more on simply filing financial statements. The only solution is to have an IR10 correctly prepared and it is for that reason Staples Rodway is encouraging our clients, who have previously just filed financial statements, to file an IR10 for 2013 and beyond. If you wish to discuss this please contact your usual Staples Rodway advisor.
INLAND REVENUE’S SHARPENED TOOL CHANGES TO THE IR10
MANAGING ACC LEVIES Article by Julie Brockelbank STAPLES RODWAY HAWKES BAY jbrockelbank@stapleshb.co.nz
ACC levies are like tax, no-one wants to pay too much! Julie Brockelbank, a tax specialist in our Hawkes bay office examines some of the common pitfalls.
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FTEN BUSINESSES DO PAY MORE ACC than they need to or should. So how can you ensure you aren’t paying too much for your ACC premium while also optimising your benefits should you need to claim compensation?
BUSINESS INDUSTRY DESCRIPTION The simple first check is to ensure you are paying the correct rate for your business. ACC uses business industry descriptions to classify a business by its main activity. These classification units (CUs) are a group of businesses with a similar risk of workplace injury. Each CU has an ACC levy rate for workplace injury cover and residual claims. If your business is engaged in more than one activity you must select the CU with the highest levy rate, unless you are eligible to use multiple classifications.
The multiple classification rules: If you have multiple business activities that are separately identifiable you may be eligible to use different rates which could therefore reduce the cost of your levies. But, you must have distinct and independent activities: Each activity must provide a service to an external customer. Any one activity must be able to continue if all the others cease to exist. Your accounting records need to show the separate management and operation of each activity: Accounts must mirror your organisational structure to demonstrate separate management. All income and expense items should be attributed to the activity at source (reallocation on a percentage or share basis is usually unsatisfactory) Your records must contain all relevant income and expenses, including overheads. There must be records showing the earnings of employees separately for each activity: Separate activities cannot exist if all staff are shared. Separate payroll systems are not required. Your wage records may be kept on a central system. For employees engaged in two or more activities, you can ignore any activity that provides less than 5% of an employee’s earnings.
DISCOUNTS AVAILABLE There are several discounts available to help reduce the levies you pay and Staples Rodway’s team can assist with the necessary paperwork.
Workplace Safety Discount On 1 April 2013 a workplace safety discount of 10% was made available to all industries. This was previously limited to Agriculture, Construction, Fishing, Forestry, Motor Trades, Road Transport and Waste industries. To be eligible you need to be self employed or classified as a small employer. A small employer has an annual payroll of less than $537,001 and 10 or fewer full time equivalent employees. Using good health and safety management practices also helps you and your employees avoid injuries and avoid the costs and inconvenience of staff absences and lost productivity.
ACC Fleet Safety Incentive Programme From 1 July 2013 business with heavy vehicle fleets can apply for discounts under the Fleet Safety Incentive Programme. Fleet operators who invest in workplace health and safety, and work with employees to reduce the number and severity of on-road crashes and workplace injuries are eligible. Fleet operators need to complete an application and undergo an ACC audit. Once accepted into the programme fleet performance reviews are undertaken annually through a mix of self-assessment, phone audits and full audits.
ACC Partnership Programme The ACC Partnership Programme is suitable for large employers whose levies exceed $250,000 per year and employers can reduce their ACC levies by up to 90 percent by taking responsibility for employees’ work injury claims.
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SELF EMPLOYED AND SHAREHOLDER EMPLOYEES Coverplus Extra This is an agreed value policy based on a levy that is appropriate to your personal needs. The minimum cover available for the 2013/2014 year is $22,464. This cover option is beneficial in the following situations: When you have other insurances in place that provide assistance for personal accidents or illness. When you have other sources of income such as passive investments that mean that you don’t require the income if you are unable to work. For businesses where the profit varies from year to year (e.g. farmers) The premium is slightly higher than the standard option but has the following advantages: The classification relates to your actual activity, rather the wider business activity. As an agreed value policy, payment is automatic. There is no requirement to provide detailed business information when making a claim to ACC.
Mixed Earnings The maximum level payable for any individual in the 2013/2014 year is $116,089. If you receive income from various sources you may be paying more than the maximum. For example you receive wages of $85,000 on which your employer pays ACC levies and you also receive a shareholder salary of $100,000. When ACC invoices your company for the shareholders salary they would be notified of your situation to adjust the levies for both sources of income - otherwise you pay levies on a total of $185,000 rather than the maximum of $116,089.
Shareholder Employees If shareholders are paid wages during the year the company pays ACC levies on these wages along with other employees as part of the Employer levies. These are charged based on the company’s classification code. It is common for shareholders to receive non-source deducted salaries at the end of the year, once the financial statements have been prepared. The company pays ACC levies on these separately and manages this expense by considering utilising Coverplus extra for Shareholders that do not receive any PAYE income. As explained in detail above, this cover can be at an agreed level and, depending on circumstances, may be based on the shareholders activity rather than the company’s business activity.
Passive Income ACC levies are payable on all income that is not of a passive nature with recent case law clarifying the definition of “passive income”. ACC Levies are payable on all income where there has been “physical or mental exertion” performed. Examples of Passive Income: Rental income from a property managed by a third party. Investment income when the portfolio is managed by an investment advisor. Examples of Liable Income: Rental income where you don’t have a property manager - preparing a lease agreement or chasing up rental payments involves “mental exertion”. Investment income derived from investments that you actively manage as this involves “mental exertion”.
ACC TimeOut levies With ACC TimeOut, you receive compensation for lost earnings if you are injured while on an extended unpaid break from work. ACC TimeOut cover can be purchased in monthly blocks up to three months. For cover greater than three months, it is purchased in three-monthly blocks up to 24 months. The levy is based on individual circumstances, taking a number of factors into consideration.
NUMBERS Spring 2013 • 21
AUCKLAND Level 9, 45 Queen St PO Box 3899 Auckland 1140, New Zealand Phone 64 9 309 0463 Fax 64 9 309 4544 enquiries@staplesrodway.com
HAMILTON 4th Floor, BNZ Building 354 Victoria Street PO Box 9159 Hamilton 3240, New Zealand Phone 64 7 834 6800 Fax 64 7 838 2881 staples@staplesham.co.nz
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HAWKES BAY Cnr. Hastings and Eastbourne Streets PO Box 46 Hastings 4156, New Zealand Phone 64 6 878 7004 Fax 64 6 878 0078 postmaster@stapleshb.co.nz
NEW PLYMOUTH 109-113 Powderham Street PO Box 146 New Plymouth 4340, New Zealand Phone 64 6 757 3155 Fax 64 6 757 5081 newp@staplestaranaki.co.nz
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CHRISTCHURCH AMI House 314 Riccarton Road, PO Box 8039 Christchurch 8440, New Zealand Phone 64 3 343 0599 Fax 64 3 348 0186 chc@staplesrodway.com www.staplesrodway.com