No 46 WINTER 2018
GO WEST What to consider when expanding into Australia
ZEFFER CIDER Brewing success in new markets
CRS, FATCA, AML, CBC? Deciphering the rules around disclosure of financial information
OVERSEAS INVESTMENT ACT How could the changes affect you?
IS THE GRASS GREEENER? Tax Freedom Day compared around the world
NZ VS AU HR Working out our differences
STATE OF THE NATION The results of our pre-Budget survey www.staplesrodway.co.nz
DIRECTORS AUCKLAND
David Searle
(09) 373 1128
HAMILTON
David Heald
(07) 834 6801
TAURANGA
Chris Downey (07) 578 2989
HAWKE'S BAY
Dave Sawers
(06) 878 7004
TARANAKI
Chris Lynch
(06) 757 3155
WELLINGTON
Robert Elms
(04) 472 7919
CHRISTCHURCH Dave McCone (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 46 WINTER 2018
IN THIS ISSUE 2 Go west Considerations for expanding into Australia
4 Zeffer Cider Brewing success in new markets
7 International disclosures of financial information A guide to CRS, FATCA, AML and CbC
10 The Overseas Investment Act is changing What you need to know
12 Tax Freedom Day Comparing New Zealand to the rest of the world
14 Working out our differences Cross-border HR considerations
16 The internationalisation of financial reporting and assurance Balancing comparability and cost
18 Business leaders pessimistic about the Budget The results of our pre-Budget survey
22 Inflation Are you ready for its return?
24 "No one gets paid more than the Queen" Pay parity in New Zealand and across the world
26 Property investors at a loss Ring fencing proposed by IRD
28 Pay tax when you want to Using tax pooling to your advantage
30 Good Neighbour Doing good, in our hood
32 Staples Rodway snapshot
2016 Network of the Year BAKER TILLY INTERNATIONAL
GO WEST! CONSIDERATIONS FOR EXPANDING YOUR BUSINESS TO AUSTRALIA
Article by Jed Eden STAPLES RODWAY TARANAKI jed.eden@staplestaranaki.co.nz
For a growing number of our clients, expanding business operations to New Zealand’s West Island, Australia, is a very tempting prospect.
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HE LARGER NUMBER OF CONSUMERS, strength of the economy in Australia, and ease of access are what tempts a large number of New Zealand businesses to expand their ventures over the ditch. As tempting as these possibilities are, there are several factors that need to be considered before taking the plunge into international business.
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CONSIDER A BUSINESS STRUCTURE WITH YOUR LONG-TERM GOALS IN MIND
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SELLER MUST BE AWARE OF GST RULES ON IMPORTING GOODS TO AUSTRALIA
As with New Zealand, there are many different structures that a business can operate through in Australia, i.e. partnership, company, trust (discretionary and unit), limited partnership, and sole trader. Each of these structures carries with it inherent pros and cons that need to be considered, i.e. tax rates and profit repatriation. It’s important to apply your thoughts to more than just the immediate short-term gain to ensure you get the most out of the business over the time you operate it. Having an upfront discussion with your Staples Rodway advisor about the short, medium and long-term plans for your business venture will be time well spent.
There has been much talk in the media recently around GST and cross-border transactions. Initially, both the Inland Revenue Department and the Australian Taxation Office (ATO) focused on services (Netflix Tax). However, the Australian Government has recently passed legislation requiring low value physical goods that are imported into Australia to be charged GST. The onus for the GST is on the seller, not the purchaser, and the seller is required to furnish a Business Activity Statement (Australian equivalent of a GST return) to the ATO and pay accordingly. There are limits, deductions, and other rules that apply to how GST is calculated in Australia, and their rules are different to New Zealand’s rules. It is vital that whoever is filing your GST return has a thorough understanding of the Australian GST rules and system to ensure your business remains compliant.
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COMPLIANCE IS VITAL AND IS DIFFERENT FOR EVERY STATE
In addition to GST, Australia has a number of other laws that your business will need to be aware of and comply with if appropriate: Capital Gains Tax, Australian Business Register requirements, Pay As You Go (Australia’s equivalent to our PAYE), Superannuation contributions, Income Tax, State and
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Federal rules around governance, stamp and other duties, and payroll tax to name a few. As well as the federal tax system for GST and income tax, each state levies other taxes and duties in varying ways at varying rates.
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NO ‘ONE SIZE FITS ALL’ APPROACH TO PROFIT REPATRIATION
One of the major concerns we see for clients wanting to conduct business in Australia is how to repatriate the profits back to New Zealand in a tax effective manner; do I use a legal structure and repatriate the profits via management fees, dividends, wages, or some other means? Do I trade as a sole trader and have the profits taxed at marginal rates? Do I use a look-through structure (such as a limited partnership) so that I can obtain a tax credit in New Zealand for Australian tax paid? Unfortunately, there is no “one size fits all” answer to this question. The need to consider the size and scope of operation in Australia, the presence of the business in Australia, the physical location of the goods or services to be sold in Australia, the long-term goals around growth, exit strategy, living arrangements, and the owners’ personal goals are often not taken fully into account. Instead, the focus can be on the short-term “I can save you $x of tax in one year” approach. Even worse are the cases of “just dip your toe in and see what happens”. This can lead to all sorts of issues around taxable presence/branch/permanent establishment issues, allocation of profits, double taxation, loss of franking credits, fines, penalties, and interest cost. These may put you off what could have been a successful venture had proper forethought been applied and the Double Tax Agreement between New Zealand and Australia considered. This list is by no means exhaustive and could be added to with labour rules, union issues, corporate compliance and property ownership concerns. There are a lot of opportunities to successfully expand an existing business into Australia, however, it should be done correctly with forethought applied to avoid any nasty surprises further down the track. Should conducting business in Australia (or any overseas jurisdiction) be your next step in growth, make sure you do your homework and speak to your Staples Rodway advisor before taking the leap. Staples Rodway liaise with Pitcher Partners, our associated Australian firm, to ensure the best outcome for our clients. We are part of the Baker Tilly International network, which has 125 independent firms in 147 locations. NUMBERS Winter 2018 • 3
BREWING SUCCESS IN NEW MARKETS Zeffer Cider, New Zealand’s biggest independent cidery, has experienced rapid growth by focussing its sales on three key markets rather than spreading itself too thin.
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EFFER, WHICH SELLS ITS UNIQUE cider in more than 300 retail outlets throughout New Zealand, is concentrating on China and Thailand as the first destinations to increase its export earnings. "We decided to target those two countries because there are clear opportunities," says Josh Townsend, Zeffer’s CEO, "Cider is a new category there, but it is received well. People are seeking premium offerings and an alternative to beer and wine, and we are aiming to be the craft cider of choice in these markets. "Also, the free trade agreements are a huge help and gives us an advantage over European suppliers." Zeffer has import and distribution partners across Thailand and China, and its cider is poured from more than 80 taps in bars in China, more than in New Zealand. Zeffer’s sales are presently 25 per cent export and 75 per cent domestic, but this mix is quickly changing with increasing exports. "Our mission is to be the leading cider brand in East Asia, and we have learnt that focused sales and marketing efforts are key to achieving this goal," says Townsend.
Josh Townsend: "Our mission is to be the leading cider brand in East Asia."
FROM A WINERY TO A CIDERY Winemaker Sam Whitmore and his partner Hannah Bower founded Zeffer after travelling around Europe and noticing the increasing popularity of cider, with its different styles and flavour. They returned home to Matakana and converted their winery into a cidery. Zeffer, which produces nine varieties of cider, supplies the two main supermarket chains Foodstuffs and Progressive Enterprises in New Zealand. The cider is stocked by speciality stores such as Farro Fresh Food and Moore Wilson’s and is supplied to many leading bars and restaurants. As the orders grew, so did the demand for more production space. Zeffer moved to a bigger cidery in Silverdale, north of Auckland, in 2013 and then in mid-2017 relocated its production to Hawke’s Bay to be closer to its supply of fresh apples. It is maintaining a sales and marketing office in Auckland. When Zeffer moved to the Hawke’s Bay, they started working with Philip Pinckney from Staples Rodway Hawke’s Bay, who is one of a small number of Wine Verifiers. There are many similarities between wine and cider, including food safety and traceability processes. “Staples Rodway has been a font of local knowledge, they have been great for helping us to improve our export business’ systems and processes,” says Townsend. Zeffer is leasing the Fernhill Crossroads Winery (now cidery), which was bought by an investment group from Yealands. The cidery, with a new bottling room, has a production capacity of more than 2 million litres a year, and the Zeffer team has replaced the grapevines on the property with 1500 cider apple trees. Zeffer already has a ready supply from nearby apple growers, and it saves on the cost of transporting the crushed apples to Auckland. www.staplesrodway.co.nz
"We make a unique range of ciders – from the classic style to innovative new age – and we use the juice from freshlycrushed apples," says Townsend. Zeffer’s varieties are: Red Apple, Crisp Apple, Hopped Infused, Alcoholic Real Ginger Beer, Two Point Five Low Alcohol, Apple Crumble Infused, Slack Ma Girdle, Cidre Demi-Sec and Methode.
WINNING AWARDS AND GROWING STAFF Since it started in 2009, Zeffer has won more than 50 awards, including a Brewers Guild of New Zealand and New Zealand Cider Awards trophy wins in 2016 and 2017. Its Cidre DemiSec variety was the only cider to take out one of the 10 trophy titles at the 2017 International Brewing & Cider Awards announced in London. These are considered the Oscars of the global brewing and cider industry, and the tasting panel of 45 sampled more than 1,100 beer and ciders from 21 countries. Zeffer has grown its staff to eight including two part-time and it hires up to six casual workers during the busy production season. "This is a really exciting time for the business, the most exciting since I joined the team (in 2010)," says Townsend. "We have done a lot of hard yards, and we have persevered through some tough years. We now have a real opportunity in exporting." Zeffer is talking with one of the major supermarket and liquor store chains in Australia and hopes to supply its cider to more than 300 stores there during 2018. A contract this size will go a long way to meeting Zeffer’s goal of increasing export revenue to more than 50 per cent of total sales by 2020. (cntd over) NUMBERS Winter 2018 • 5
HOW ATEED HELPED Zeffer has support from New Zealand Trade and Enterprise’s International Growth Fund to accelerate its exports overseas, which is focused on growing China more quickly. Auckland Tourism, Events and Economic Development (ATEED) has facilitated three NZTE Capability Development vouchers for Zeffer under the Regional Business Partner Network programme: In 2012 a voucher worth $3,200 to develop a capital raising plan In 2013 a voucher worth $4,500 for a business strategy programme More recently, a voucher worth $5,000 towards developing a domestic brand strategy "I’m a firm believer that you’ve got to put yourself out there and network with the support organisations," says Townsend. "Until you do, you have no idea of the extent of support they can offer. They can provide a huge amount of resource. "In the case of ATEED and NZTE, you build strong relationships with your case managers, and they are upfront about the areas you can improve in. That’s important," he says. Zeffer has taken onboard all the advice and support, and increased production to 500,000 litres of cider (in 2017) – a far cry from the initial production of 3,000 litres for the Matakana Farmers Market in 2009.
6 • NUMBERS Winter 2018
Zeffer Cider is being poured from more than 80 taps in bars in China.
GOING PUBLIC Zeffer have just opened a public share offer via Snowball Effect to raise NZ$1.8 million in funding, based on a pre-investment valuation of NZ$8.26 million. Funds will be dedicated to helping the company further grow its footprint in the domestic market, as well as deliver on three clear strategic opportunities in order to sustainably grow to become an NZ$10 million+ revenue company by 2021. The raise is open until June 30. If you would like to talk to Staples Rodway about wine verification, you can contact Philip Pinckney in our Hawke’s Bay office on 06 878 7004 or ppinckney@stapleshb.co.nz.
INTERNATIONAL DISCLOSURES OF FINANCIAL INFORMATION You may have heard recent news of various international regimes requiring the disclosure of financial information. Media recently reported that some bank account holders that did not provide full information in a timely manner have had their accounts frozen.
Article by Mike Rudd STAPLES RODWAY AUCKLAND mike.rudd@staplesrodway.co.nz
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HESE RULES ARE LIKELY TO affect anyone in New Zealand who has an “overseas connection” such as being tax resident in an overseas country or the US, being US citizens or holding a US Green Card. There are also a number of other disclosure regimes that can affect New Zealand businesses, and in some rare cases, a trust with managed investments may have its own separate reporting requirement. Some key regimes and acronyms that you may hear from your bank or other financial institution include:
COMMON REPORTING STANDARDS (CRS) CRS requires a report to be submitted by all entities with a reporting obligation. Effectively, this means that all entities need to check whether they have reporting requirements under CRS. The vast majority will not have reporting obligations. There are three steps to determine whether an entity has a reporting obligation under CRS: i. Is the entity a Financial Institution (FI)? ii. Is the FI a New Zealand Financial Institution (NZFI)? iii. Is the NZFI a Reporting NZFI? An entity that answers yes to all the above will be a Reporting New Zealand Financial Institution. If the answer for any of the above is no, then the entity will be classified as a non-financial entity (NFE) and does not have reporting requirements. If all interest holders (e.g. beneficiaries) are New Zealand tax resident, then there will also be no reporting obligation. Is the entity a Financial Institution? Any entity can fall under the definition of a financial institution (e.g. companies, partnerships, unit trusts, trusts). Individuals are not defined as an entity, so will not have to report under CRS. There are four different classes of financial institution: Depository Institution, Specified Insurance Company, Custodial Institution and Investment Entity. Managed Investment Entity An entity is a Managed Investment Entity where it meets both elements of this test: a) It derives 50% of its income from investing, reinvesting or trading in financial assets (shares, bonds, debentures, money); and b) It is managed by another financial institution where the manager has discretionary authority over the assets allocated to them. Is the entity a New Zealand Financial Institution? A financial institution (excluding a trust) will be a New Zealand Financial Institution (NZFI) if it is a New Zealand tax resident or has a New Zealand branch. A trust will be an NZFI where one or more trustees are New Zealand tax residents, under New Zealand law. 8 • NUMBERS Winter 2018
Is the Entity a Reporting New Zealand Financial Institution? An entity is a Reporting NZFI unless it falls within the definition of a Non-Reporting NZFI. The only relevant exclusion in most cases is where a trust has a trustee that is a Financial Institution which has agreed to carry out CRS compliance on behalf of the Trust. CRS Reporting Reporting NZFIs are required to submit CRS via MyIR on Inland Revenue’s website. An entity simply registers for CRS and submits a number of prescribed forms to complete the report. If there are no foreign account holders, then a nil report is required. A reporting NZFI must report three main categories of information on foreign account holders, along with its identifier to Inland Revenue by 30 June 2018. Identity information: name, address, jurisdiction(s) of residence, tax identification number(s), and date of birth (where applicable). Financial Account Information: Account balance/value as at the end of the reporting period or the closure of the account. Additional information is reported based on the type of account being reported on. Other Information: A list of accounts where the residency of an account holder is unable to be determined. CRS Penalties There are steep penalties for non-compliance so check with your Staples Rodway advisor if in any doubt about your obligations.
CRS EXAMPLES A Family Trust owns a rental property (the majority asset that is managed by a third party) and derives rental income from it. Not a Financial Institution (real property is not including the definition of a financial asset), so no reporting requirement. A Family Trust owns a rental property and a share portfolio managed by a financial institution provider of discretionary investment management services. More than 50% of income is earned from the share portfolio. It is a Financial Institution under the Investment Entity class, as it derives more than 50% of its income from financial assets, and is managed by another Financial Institution. The family trust will have a reporting obligation if there are foreign account holders.
FATCA EXAMPLE A Family Trust settled by an American (while New Zealand tax resident) owns a rental property and a share portfolio managed by a financial institution provider of discretionary investment management services. It is a Financial Institution under the Investment Entity class, as it derives income from financial assets, and is managed by another Financial Institution. It is likely the managing Financial Institution will have met the FATCA compliance requirements already.
FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA) This regime has been around for three years, so should be familiar to anyone affected. FATCA requires all entities with a reporting obligation to submit a report on US persons that hold an account with them. However, there is nothing to report on if the investments are less than US$50,000. The test for a reporting entity under FATCA is very similar to CRS, but there are nuances that generally widen the tests under FATCA.
GENERAL DATA PROTECTION RULES (GDPR) ANTI-MONEY LAUNDERING (AML) The Anti-money laundering rules have an overlap with the above and have become a regular feature of the banking system. Essentially, these rules are designed to identify the true beneficial owners of funds in the banking system and ensure that the source and destination of the relevant funds are legal. While the information required to meet these requirements is similar to the other reporting requirements mentioned above, they are separate regimes.
COUNTRY-BY-COUNTRY (CbC) REPORTING CbC was established by the OECD to address the issues of base erosion and profit shifting (BEPS). Inland Revenue has contacted New Zealand-headquartered corporate groups that are required to file CbC reports, being those entities with a global turnover of over NZ$1.3 billion that have their headquarters in New Zealand. Those groups have been provided with the required templates and guidance notes for the collection of information. If you act for a subsidiary of a large global corporation, you may be required to provide information about the New Zealand subsidiary to meet the global reporting requirement. Staples Rodway can assist with compiling the relevant New Zealand information if required, but no information goes directly from the New Zealand entity to Inland Revenue. Inland Revenue is expected to receive CbC information from the tax authorities of the countries where the worldwide headquarters are located. This provides a remarkable degree of transparency about the tax affairs of large multi-national groups between tax authorities. None of the information will be publicly available. www.staplesrodway.co.nz
Some New Zealand businesses may be affected by the recently introduced GDPR rules. GDPR was introduced to ensure the personal data of European Union (EU) residents are protected to a minimum standard. GDPR also imposes obligations on the user or processor of personal data. GDPR is imposed on anyone who sells goods or services or monitors the behavior of a person who resides in the EU. Effectively this means, all New Zealand businesses (whether online or not) are required to comply with GDPR if they hold or acquire personal data relating to an EU resident. Anyone who passively or actively collects personal data of a person who resides in the EU is required to obtain active consent in order to share it or use it. GDPR introduces four rights for the subject of the data (Breach Notification, Right to Access, Right to be Forgotten, and Data Portability), and two requirements to entities who hold personal data of EU residents (Privacy by Design, and Data Protection Officers). GDPR also applies to a physical copy of the information (i.e. a data subject asserts the Right to be Forgotten if the digital data is destroyed but a physical copy remains, then technically the entity is in breach of GDPR.). Staples Rodway are aware of these rules but are not specialists. We recommend you seek professional advice if you have any concerns about your requirements with this new regime.
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THE OVERSEAS INVESTMENT ACT IS CHANGING WHAT DO YOU NEED TO KNOW?
Article by Tracy Hickman STAPLES RODWAY AUCKLAND tracy.hickman@staplesrodway.co.nz
There are significant changes proposed to the Overseas Investment Act 2005 which will have far-reaching effects. We look at how the proposed changes may affect you. WHAT IS THE OVERSEAS INVESTMENT ACT (THE ACT)? Foreign investment forms a significant part of our economy and brings benefits to New Zealand. The Act aims to balance the privilege of owning sensitive assets in New Zealand against facilitating the flow of overseas investment to the country. It does this by requiring overseas investments in sensitive assets, before being made, to meet criteria for consent and imposing conditions on those overseas investments.
WHAT ARE SENSITIVE ASSETS AND WHO REQUIRES CONSENT? The Act applies to the acquisition by 'overseas persons' of sensitive assets, which is essentially, Sensitive Land, Significant Business Assets, and Fishing Quota. An individual will be an overseas person if they are neither a New Zealand citizen nor ordinarily resident in New Zealand. A company will be an overseas person if it is incorporated outside New Zealand or is 25 per cent or more owned or controlled by an overseas person. Late last year, the Overseas Investment Amendment Bill (the Bill) was introduced, proposing a raft of changes to the Act. The Bill proposes to make all residential land sensitive for the purpose of the Act, effectively banning anyone who is not a New Zealand citizen or resident from purchasing residential land. Under the proposed changes, an overseas investor will be required to apply for consent to acquire residential land, and in general terms, they will only be able to acquire residential land, if: they hold an appropriate visa and can show they have committed to reside in New Zealand (provided, among other requirements, they sell the land upon ceasing to occupy the land); they develop the land and add to New Zealand’s housing supply (provided, among other requirements, the land is sold once the development of the land has been undertaken); or they demonstrate 'benefit' to New Zealand (provided again the land is sold once the development of the land has been undertaken).
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These requirements would make it very difficult for overseas persons acquire residential land going forward. The Bill also proposes to bring forestry rights and other profits-à-prendre (which enable a person to take something from land owned by another) within the definition of sensitive land. However, in relation to forestry transactions, the changes are intended to make the process easier for overseas investors in the forestry sector.
WHY IS THE ACT CHANGING? The Government says the changes relating to residential land are designed to stop foreign speculators buying houses which would otherwise be available for New Zealanders. It is an attempt to make housing more affordable (on the assumption that foreign buyers are driving up prices).
WHO IS AFFECTED BY THE CHANGES? The changes will affect you if, for example, you are, or are 'associated' with, or represent, an overseas person looking to acquire residential land. The Bill proposes conveyancing practitioners acting on residential transactions providing a certificate that the transaction will not breach the Act. There is likely to be a greater emphasis on enforcement than at present, with broad sanctions for those facilitating or assisting with transactions in breach of the Act and significant penalties imposed for non-compliance.
WHEN WILL THE CHANGES TAKE EFFECT? The Bill is currently working its way through Parliament. The date for the Select Committee to report to Parliament on the Bill has recently been extended to 21 June 2018, with the changes proposed expected to be enforced later this year. Any residential land acquired by overseas persons prior to the enactment of the Bill will not be affected. If you have any questions regarding the impact of the proposed changes to the Overseas Investment Act, please feel free to contact Tracy Hickman on tracy.hickman@staplesrodway.co.nz, or your usual advisor. NUMBERS Winter 2018 • 11
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FREEDOM DAY Tax Freedom Day marks the hypothetical day that New Zealanders stop working to pay the nation’s tax bill and start working for themselves. It is calculated on the basis that the country’s tax bill for the year must be paid first. Only after the tax is paid do those earning the income get to keep it. This year, Tax Freedom Day was forecast to fall on 7 May, two days later than last year. The government’s increased take from individual taxes and GST is primarily the cause, which appears to be attributable to “bracket creep”, a general increase in incomes and accordingly an increase in spending. It is also likely that an increase in the cost of living is being reflected in the increase in the GST take.
Article by Mike Rudd STAPLES RODWAY AUCKLAND mike.rudd@staplesrodway.co.nz We see Tax Freedom Day as being useful to help advance debate on New Zealand’s tax system. It provides a handy comparison of New Zealand’s tax impost compared with our trading partners in much the same way as the Economist’s “Big Mac Index” is used to compare purchasing power parity. The following table demonstrates New Zealand’s Tax Freedom Day (as calculated by Staples Rodway) compared with other OECD countries, as calculated by various organisations globally, ranked earliest to latest.
MAR 18
APR 18
MAY 18
JUN 18
JUL 18
HOW DOES NZ COMPARE? Cyprus
March 29
Australia
April 16
Malta
April 18
United States
April 19
Ireland
April 30
New Zealand
May 7
Bulgaria
May 18
Denmark
June 1
Luxembourg
June 4
Spain & Estonia
June 8
Canada & Slovenia
June 9
United Kingdom
June 12
Croatia & Lithuania
June 13
Poland
June 14
Portugal
June 15
Czech Republic & Latvia
June 19
Netherlands & Slovakia
June 20
Finland & Sweden
June 22
Romania
June 23
Italy
July 2
Greece
July 7
Germany
July 11
Hungary
July 17
Austria
July 19
Belgium
July 27
France
July 29
WORKING OUT OUR DIFFERENCES Article by Chris Wright, Anika Scholz & Kate Julian STAPLES RODWAY AUCKLAND chris.wright@staplesrodway.co.nz anika.scholz@staplesrodway.co.nz kate.julian@staplesrodway.co.nz
With the number of Australian based companies entering or operating in New Zealand, it is surprising how little is written about the human resources and employment relations implications of this, particularly in the small to medium business space.
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E ARE SEEING MORE AUSTRALIAN businesses either establishing a small footprint in New Zealand to “test the water”, coming into New Zealand following an acquisition or alternatively making decisions to sell direct, rather than rely on a New Zealand distributor. So, what are the human capital elements that Australian companies need to consider and where do the key differences lie? Essentially there are two key factors: Getting to know the employment relations environment differences that exist between the two countries The philosophical approach to take toward employment conditions of employees in New Zealand compared to employees in Australia
WHAT’S DIFFERENT IN NEW ZEALAND? The first question Australian companies need to ask is: “what don’t we know about New Zealand employment law?”. This question arises regularly from companies who are well versed in operating across borders and dealing with legal differences yet it is surprising how often this fundamental question is not asked when it comes to their Kiwi cousins. It is not unusual to see Australian employment agreements used in New Zealand that do not meet some of our fundamental requirements around employment protection provisions, dispute resolution procedures, payment for public holidays and so forth. The table below illustrates where differences in employment law can emerge. Australian companies entering or operating in New Zealand should take advice from New Zealand based advisers before entering into employment agreements, to ensure they start on the right foot.
SAME OR DIFFERENT AS AUSTRALIA? Australian companies need to consider the philosophical approach to take regarding employees in New Zealand. At a macro level, we see two choices being made: a decision to ensure consistency between their Australian and New Zealand employees by applying the same employment conditions (e.g. superannuation, restraints of trade, car allowances and leave); or making a conscious decision on having New Zealand employees’ conditions reflect the New Zealand market. The most frequent choice is to “harmonise” conditions, which sounds relatively easy but can, in fact, be quite complex. Australian employment agreements and policies simply transplanted into New Zealand can be wrong in law, can incur unnecessary costs for the Australian owner, and can leave New Zealand employees confused with policy decisions. At the end of the day, neither choice is right or wrong, as both have their advantages, but it is important to do this thinking up front to avoid problems. As in most areas of business, any Australian entity entering or operating within New Zealand should never assume anything even though, to all intents and purposes, we might look and sound the same. Due diligence and getting the right advice is fundamental to success. For further advice regarding cross-border human resources considerations, please contact our team of HR Consultants: Chris Wright (chris.wright@staplesrodway.co.nz), Staples Rodway Auckland; Andrea Stevenson (astevenson@stapleshb.co.nz), Staples Rodway Hawke’s Bay; or Julie Rowlands (julierowlands@ staplestaranaki.co.nz), Staples Rodway Taranaki.
AREAS OF POTENTIAL DIFFERENCE FOR NEW ZEALAND AND AUSTRALIAN EMPLOYERS � � � � � �
Sick and bereavement leave Minimum wage Requirements for consultation Hours of work Restraints of trade Redundancy compensation
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� Paid parental leave � Wage protection requirements � Car allowances � Long service leave � Fixed term agreement requirements
� Availability provisions � Superannuation � Employment protection provisions � Probation and trial periods � Resolution of employment relationship problems
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THE INTERNATIONALISATION OF FINANCIAL REPORTING AND ASSURANCE BALANCING COMPARABILITY AND COST New Zealand has successfully held its own on the international sports field since what seems like the beginning of time. How do our New Zealand companies compete in the international business arena? Are we providing transparent, understandable financial information to potential investors and other stakeholders? And are we comparing apples with oranges?
Article by Nicola Hankinson & Aniela Tkacz NATIONAL TECHNICAL MANAGERS nicola.hankinson@stapleswellington.co.nz aniela.tkacz@staplesrodway.co.nz
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N THIS ARTICLE WE OUTLINE the current reporting and assurance requirements for New Zealand entities. We then consider how these 'stack up' with those adopted by our counterparts and consider whether this allows us to compare our financial performance with our competitors. For our large For-Profit entities, financial statements are prepared in accordance with New Zealand International Financial Reporting Standards (IFRS) and assured (“audited”) in accordance with international standards of auditing. IFRS has been adopted as the financial reporting standard of choice across the world so comparing the business performance of these entities is pretty straight-forward. The New Zealand Accounting Standards Board (NZASB) adopts IFRS unless there is a “compelling reason” to change the standard to be a better fit for the New Zealand regulatory environment. The “compelling reason” test was established to ensure the standards we use are relevant and to foster confidence in New Zealand financial reporting on the international scale. However, for an estimated 97% of our For-Profit entities, the Small to Medium Entities (SMEs), (commonly referred to as the backbone of our economy) preparation of financial reports in accordance with IFRS is not required. Chartered Accountants ANZ have developed an optional special purpose reporting framework that can be used to prepare financial statements for SMEs. However, as the use of this framework is optional, and the framework is not as prescriptive as IFRS, comparability between SMEs can be difficult, both within New Zealand and throughout the world. Large public sector entities in New Zealand apply International Public Sector Accounting Standards (IPSAS) when preparing their financial reports. However, take-up of these standards is relatively low, and while the New Zealand public sector uses these standards, our next-door neighbours, Australia, do not. So, at the moment, we can only compare our public sector performance with the public sector in Canada, South Africa and a handful of other countries. For Not-For-Profit (NFP) entities, international financial reporting standards have not yet been developed. Using our “number 8 wire” mentality, New Zealand has led the way in developing NFP standards and recently introduced a set of domestic financial reporting standards for our 30,000 registered charities. So, for these entities, you can compare your charity’s performance against other charities within New Zealand – not yet with other charities across the world. Comparability is enhanced for smaller charities (those in Tier 3 and 4) where performance reporting is required in addition www.staplesrodway.co.nz
to the customary financial statements. This means that you can better understand WHAT these entities are doing, and a little bit about HOW and WHY as well as how much it costs. Performance reporting is required for larger registered charities (those in Tier 1 and 2) from 2021. For NFPs performance information is arguably the most relevant information stakeholders want to see to compare entities against each other, and to determine which ones they wish to fund or become involved with in some way. International comparability does not seem to be such a big driver for NFPs. This may leave you wondering - what is the benefit of reporting under an international framework? It’s 2018, and global trade and enterprise underpins our economy – from investors to customers, or even to sporting conquests, New Zealand business has both a national and international audience. IFRS is a common language that enables comparability internationally and provides a framework that fosters well informed strategic and investment decisions. Are our SMEs being left behind? The good news is that recent changes to the optional special purpose framework include an option to ‘opt up’ to relevant IFRS. If you are an SME with complex financial arrangements or sizeable investment properties, you can adopt the relevant IFRS and provide more comparable information to your stakeholders. The other good news is that the optional special purpose framework itself is based on standards developed by the IFRS Foundation, so may be more widely used throughout the world. For financial reporting, an entity’s size is used to establish which standards you need to apply when preparing your financial reports. Size is determined based on assets and revenue for the previous two reporting periods, measured based on IFRS. So, if you are close to ‘large’, it is important to consider whether you have measured your assets and revenue appropriately and, as such, whether you are reporting under the correct framework. You may also wish to consider whether you should voluntarily adopt IFRS. You may find that the benefits of greater comparability and the ability to communicate complex accounting issues to your stakeholders exceed the compliance costs involved in adopting these standards. Perhaps this will give you access to a greater pool of finance or enhance your businesses credibility on the world stage. If you are unsure of which reporting framework best meets your business and stakeholders' needs and your legal requirements, come and have a chat with one of the team at Staples Rodway. We can’t, however, promise to improve your sporting performance… although never say never, we would certainly try. NUMBERS Winter 2018 • 17
BUSINESS LEADERS PESSIMISTIC ABOUT THE BUDGET
Article by Kaison Chang STAPLES RODWAY AUCKLAND kaison.chang@staplesrodway.co.nz
Staples Rodway recently published the results of our first annual budget survey carried out in early May 2018, where you, our clients shared your views on the 2018 budget. We are pleased to let you know that the results of this survey made it all the way to Parliament and were included in two questions during the oral questions to ministers. For the 500 clients that answered this survey, thank you for taking the time out of your busy schedules, your voices have been heard. For those who did not see the results, please read the following article. We also asked what you thought after the Budget was published and our Post-Budget Survey results were virtually unchanged.
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BALANCED BUDGET, MANDATORY KIWISAVER contributions, and an overhaul of the tax system were the key items on Kiwi businesses’ wish list heading into this year’s Budget. We released our inaugural Business Confidence Survey of almost 500 business leaders, which featured respondents from a range of sectors across New Zealand.
HOW IS THE GOVERNMENT PERFORMING WHEN IT COMES TO MANAGING THE BROADER NEW ZEALAND ECONOMY? Not sure
Poorly/very poorly
Well/very well
THE BUDGET & ECONOMY The survey found more than half of respondents believed the forthcoming Budget would have a negative impact on the economy and that the government’s performance around the economy to date has been poor.
WHAT EFFECT DO YOU THINK THIS YEAR’S BUDGET WILL HAVE? Not sure
Very negative
Negative
Neutral
Positive
Very positive
You personally
Your business
The New Zealand economy
BALANCING THE BOOKS The biggest priority was balancing the books, with more than 88% agreeing that it was very important or somewhat important for the government to avoid taking on further debt to stimulate the economy. This indicated that if the Budget had not reassured businesses that the government wouldn’t be adding to Crown debt, business confidence would fall further.
HOW IMPORTANT IS IT FOR THE GOVERNMENT TO BALANCE THE BUDGET? Very important
More than half of respondents (55%) across New Zealand’s business community believed New Zealand’s economy would decline over the next year. Almost half (48%) rated the government very poorly on its economic management so far, with fewer than a third (32%) thinking it had done well or very well. www.staplesrodway.co.nz
Somewhat important Not so important Not at all important
NUMBERS Winter 2018 • 19
RANK THE FOLLOWING ISSUES IN ORDER OF HOW MUCH OF A DIFFERENCE THEY’D MAKE TO YOUR BUSINESS.
Simplify the tax system and cut red tape for business Invest in infrastructure (i.e. rail, ports, roads etc) Reduce personal tax rates Reduce company tax rates Invest in research and development systems Invest in science, technology, and math education Encourage the immigration of highly skilled workers Reduce barriers to international investment
WHAT'S IMPORTANT TO BUSINESS LEADERS? The top-ranked items on business leaders’ shopping list for this year’s Budget were a simplified tax system with less red tape, chosen as the number one thing the government could do to create a better business environment. This was followed by a wish for greater investment in infrastructure such as ports, road and rail, and a reduction in the personal tax rate. It’s interesting how strong the sentiment is towards a change in our tax laws. While we always have room for improvement, in comparison with many of our closest trading partners we have one of the more simple and robust business environments in the world. This comes as no surprise though, as it reflects the sentiment that we saw at the SME Leap Summit earlier this year, where small and medium businesses told us that they were looking for an easier way to do business. While a simpler business environment is also important to businesses with turnover above five million, they placed greater importance on improving infrastructure.
Auckland
NZ-wide
International tax laws are too restrictive; instead, the government should do more to encourage foreign investment in NZ Rest of NZ
FOREIGN INVESTMENT Sharp divisions arose between Auckland and the rest of the country on restricting foreign investment. Over 44% of Aucklanders felt the government should do more to encourage foreign investment, while only 26% of people outside Auckland 20 • NUMBERS Winter 2018
There were also stark differences between New Zealand and Australia when the results were compared with Staples Rodway’s Baker Tilly associate across the ditch, Pitcher Partners. While only 32% of New Zealanders felt our government was managing the economy well, 55% of Australians felt the same about theirs. And while 55% of Kiwi business leaders believed economic growth would decrease following the Budget, only six per cent of Australians had a negative outlook.
STAPLES RODWAY RESULTS VS OUR BAKER TILLY ASSOCIATE IN AUSTRALIA, PITCHER PARTNERS Expect economic growth to decrease
55+32
26+74N 32 +68S 44+56G
NZ VS AUSTRALIA
Managing the economy well/very well
WHICH STATEMENT BEST DESCRIBES NEW ZEALAND’S TAX LAWS FOR INTERNATIONAL COMPANIES?
International tax laws should be stricter as international companies are disproportionately advantaged compared to NZ’s businesses
believed the same. Encouraging immigration and reducing barriers to foreign investment were not a priority for respondents, with only four per cent seeing these as the top priority.
6%
55%
57+26 55+19 55+6 65+18
1 2 3 4 5 6 7 8
55%
32%
Australia New Zealand
Do you think this year’s budget will have a negative impact?
26%
19%
18%
57%
55%
65%
You personally
Your business
The economy
SUPERANNUATION When asked about superannuation, more than 80% of respondents agreed that KiwiSaver contributions should be compulsory for all Kiwis. Nearly 70% disagreed with means testing for superannuitants. There was less consensus on raising the age of superannuation, with 59% believing it should rise from age 65 and almost a quarter (24%) strongly opposed.
need to be addressed in the Budget. This was stronger in Auckland where businesses are struggling to attract good employees because of the cost of living. There seems to be an increased understanding that social issues ultimately impact on the productivity of businesses.
AUCKLANDERS MORE LIKELY TO ANTICIPATE ECONOMIC INDICATORS TO DECREASE COMPARED TO THE REST OF NZ Expect overall decreases
HOW MUCH DO YOU AGREEE WITH THE FOLLOWING STATEMENTS ABOUT SUPERANNUATION? Strongly disagree
Somewhat disagree
Rest of NZ
16%
Auckland
52+44
21%
Strongly agree
Somewhat agree
21+16
Not sure
Expect overall increases
44%
52%
Superannuation should be means tested
The age for superannuation should increase
KiwiSaver contributions should be compulsory
KEY ECONOMIC INDICATORS Despite the pessimism, dairy and housing prices were expected to remain stable, and exports were expected to increase. It’s also notable that while many believed they or their businesses would be negatively affected by the Budget, just 10% of respondents felt the impact would be very significant. Business leaders saw housing and poverty as issues which
Given that the government has assured voters it intends to take a sensible approach to spending, even those businesses with somewhat negative views may find the post-Budget environment rosier than expected, provided the government keeps its assurances. The full results are available here: www.staplesrodway.co.nz/pre-budget-survey-2018-insights
WHAT DO YOU EXPECT THE FOLLOWING ECONOMIC INDICATORS TO DO OVER THE NEXT YEAR?
Increase a lot Increase a little Stay about the same Decrease a little Decrease a lot Not sure
House prices
Exports
www.staplesrodway.co.nz
Dairy prices
Job security
NZ economic growth
Consumer confidence
International investments
Business confidence
NUMBERS Winter 2018 • 21
ARE YOU READY FOR THE RETURN OF
INFLATION?
Last year the Reserve Bank of New Zealand (RBNZ) started talking about the return of inflation to the 1% - 3% mandated range. After a decade of barely 1% inflation, how do we prepare for its inevitable rise?
%
Article by Wayne Powell STAPLES RODWAY ASSET MANAGEMENT wayne.powell@sraminvest.co.nz
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OR MORE THAN A DECADE prices have been ground down by the enormous size and reach of Asian, in particular, Chinese, manufacturing giants. For many years China and Asia exported deflation to the western world as the price of consumer goods plummeted because of their vast manufacturing capability. This downward pressure on prices was also aided by Central Banks holding interest rates at historic lows, to aid recovery from the impact of the Global Financial Crisis (GFC) in 2008. So how do we prepare for the return of inflation? While the Government and the RBNZ may have a targeted range of 1% 3%, we need to remember that these things do not always go to plan, and the upper limit can be breached. Many people will remember the double-digit inflation that was rampant in the 70’s and 80’s. Inflation is a two-prong attack on prices, not only does the base price of the item rise but so does the amount of tax (GST) that is payable. Hence, one of the reasons governments are generally in favour of having a degree of inflation in their economy is that it increases the tax take. Inflation is especially important to consider when planning for retirement because of the corrosive effect that rising inflation can have on some types of assets. Basically, the interest rate being offered is the price of money, i.e. if you have a mortgage and are paying 4.85% interest on your mortgage, that is the price of the money that you have borrowed. One of the main factors that determine the price of money is inflation. The RBNZ defines inflation as, “When average prices throughout the economy go up, that’s inflation.” Inflation is a concern for people on a fixed income as they generally do not have the ability to increase their income to compensate for the increasing cost of living. People on a fixed income tend to seek “safer investments” for any funds that they may have available for investment. Traditionally, the so-called “safer investments” are those which pay interest, such as bank deposits, but they have no ability to provide www.staplesrodway.co.nz
any capital growth. A vicious spiral can be created as investors require more income to maintain their standard of living, but the net return (after tax) isn’t keeping up with inflation, so some of the capital needs to be withdrawn. This means that there is now a smaller capital base to provide income and the spiral spins faster. Volatility of the returns from some types of assets, shares and property, can be very disconcerting for retirees and people on a fixed income, but this needs to be balanced against the alternative, gradually depreciating cash investments. Real assets, which have the potential for capital growth, tend to do well during times of rising or high inflation but the returns are not linear like cash. As well as shares and property, investors have traditionally held gold as a hedge against inflation, but there are some factors to consider before racing out to buy gold, including the fact it doesn’t produce any income (interest), it normally incurs a storage cost, and the price can be very volatile. As inflation returns to our economy and those of the countries that we trade with, prices will start increasing. One item that has a big impact on prices is the price of oil, as the majority of consumable items are transported at some stage. When evaluating any investment, we will need to start asking whether it produces a real return after tax and inflation. Not all investments will produce a real return, but it is still necessary to maintain a fully diversified investment portfolio that contains all asset classes. We still need some cash investments as it is very difficult to buy the weekly groceries with a safe full of gold bars. Staples Rodway Asset Management is a boutique investment advisory service that specialises in providing personalised and impartial investment solutions for individuals and trusts. To arrange a no-obligation appointment with an adviser phone 0508 220 022 or email enquiries@sraminvest.co.nz.
NUMBERS Winter 2018 • 23
"NO ONE GETS PAID MORE THAN THE QUEEN"
PAY PARITY IN NEW ZEALAND AND ACROSS THE WORLD
Article by Julie Rowlands STAPLES RODWAY TARANAKI HR julie.rowlands@staplestaranaki.co.nz
When it was revealed that British actress Elizabeth Foy, who won a Golden Globe for her portrayal of Queen Elizabeth II in The Crown, was paid less than her male counterpart, Matt Smith, the producers of the Netflix show scrambled to rectify the anomaly after a barrage of public outrage. "No one gets paid more than the Queen" they announced, but in a world where even a queen has to fight for equal pay, what progress are we making to close the gender pay gap?
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HIS YEAR ON 1 JANUARY Iceland was the first country to make it illegal to pay women less than men. Equal pay policies are now mandatory for companies – both private and public sector – with 25 or more employees. Companies that cannot show that they provide equal pay will be subject to fines. The new law is significant because it does not require the female employee to prove that the employer discriminated against her; rather, the company has the burden to prove that its pay practices are fair. Here in New Zealand, we are making some strides to address the gaps in pay equity, but we still have a very long way to go, particularly if we choose to listen to some of the male commentators that dominate our entertainment industry and airwaves. One of the most significant moves was the Care and Support Workers pay equity settlement in April, which was historic as it directly addressed the past undervaluation of care and support work. It meant hefty pay increases in three government-funded service sectors which employ mainly women on low rates: aged residential care, home support, and disability services. As is often the case with change, the campaign was driven by a sole individual, primary litigant, rest home caregiver Kristine Bartlett. Since July 2017 when the new scale was brought in, 55,000 care and support workers have received pay rises of between 15% and 50%. The deal will cost the Government more than $500 million a year when fully implemented in five years. Another recent achievement was when Andy Martin, chief executive of New Zealand Football announced that "No matter who you are, whatever gender, when you pull on a New Zealand football shirt you're entitled to the same treatment and respect no matter what.” New Zealand Football (NZF) and the New Zealand Professional Footballers' Association (NZPFA) recently announced a new three-year agreement had been reached which grants equality in four key areas for the All Whites and Football Ferns. They are: www.staplesrodway.co.nz
pay parity; equal prize money; equal rights for image use; and parity with travel while representing New Zealand. Most importantly, this was done not to be trailblazers for other codes, but because it is the right thing to do. Employment New Zealand clearly states that an employee’s pay, conditions, experiences in the workplace and access to jobs at all levels of their workplace should not be affected by their gender. Those in private, public, and non-profit sectors need to be paying attention and taking action. Some of the actions they could take include: 1. Care enough to address pay equity and take care to ensure that there is equal footing for the men and women in your organisation. 2. Establish a review process to identify whether your organisation’s pay and rewards and participation in job types and levels are affected by gender. 3. Assess the impact of gender on the pay and participation of women, analysing quantitative HR and payroll data. 4. Carry out a robust job evaluation – a systematic analytical process to work out the size of each job relative to others, ignoring what sex predominately performs the work. 5. Don’t be left to apologise after – get it right at the start. Because there is a growing significant emphasis on pay equity issues at the local, national and international levels, employers should be encouraged to review their compensation structure and begin the process of conducting remediation, where necessary. Unfortunately, at the current rate of progress, it is estimated that it will take up to 217 years to close the global economic gender gap. In reality, the lack of pay equity is a systemic problem that needs to be tackled by new and bold methods. Every business in New Zealand can choose to act now. Paying a woman significantly less for doing the same job as her male counterpart just doesn’t make sense. NUMBERS Winter 2018 • 25
PROPERTY INVESTORS AT A LOSS RING FENCING PROPOSED BY IRD
Article by Roger Shackleford STAPLES RODWAY WELLINGTON roger.shackleford@stapleswellington.co.nz
It’s now official. The government is actively moving against property speculators and investors.
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HE LATEST IS A WHITE Paper from the Policy Team at IRD which is seeking to ‘ring fence’ losses from rental properties to ensure that we can no longer use those rental losses to reduce our “other” taxable income (wages, salaries, business income), and in turn, reduce our tax payable. The rental losses won’t be forfeited; however, they will simply carry forward, so they can be offset against future rental profits. Arguably, this is just a timing issue, but for some property investors, cash flow is going to be significantly impacted. IRD has been saying for years that where an investor suffers some sort of real economic cost, i.e. it hit their back pocket then, to that extent, as long as an amount was ordinarily tax-deductible, they should be entitled to deduct that for tax purposes. The thing about rental property losses these days is that with the removal of the depreciation deduction anyone incurring a loss on their rental property has probably had to pay for that loss themselves by either borrowing more or using their own funds. In other words, the rental loss is a cash loss, and so the investor has suffered a real economic cost. If the government pushes through their proposed changes, there will be no relief until your rental property makes a profit. Most investment decisions are not driven off the back of tax savings. However, these proposals will mean that property investors will need to fund losses themselves until the properties start turning a profit. IRD’s position is that under a ‘portfolio’ basis investors will be able to offset losses from one rental property against rental income from other properties and thereby calculate the overall profit or loss across all of their portfolio. So at least investors are not going to have to wait until a particular rental property makes a profit before they can offset any losses - that's something positive at least. Don’t think you can set up clever structures using trusts, companies, or partnerships to circumvent these rules. Trusts www.staplesrodway.co.nz
don’t work anyway because trust losses cannot be distributed to beneficiaries, so they are quarantined until the trust has taxable income. If you borrow money to invest in a company or a partnership that is ‘land rich’ (over 50% of their assets are residential properties) your capital investment will be deemed to be “interest”, and so if there has been no return on the investment, the interest will essentially result in a loss for your company or partnership, which under the proposals will be ring fenced! Clever. Needless to say, the proposal doesn’t apply to a main home, properties owned as part of a land related business (they are taxable on sale anyway) or any properties which are subject to those mixed use asset rules, like the bach which is used privately and rented out occasionally. It’s probably fair enough that middle New Zealand has been guilty of focusing too heavily on property rather than investing in productive businesses, but the removal of the depreciation deduction for building structures a few years back largely remedied the problem as it removed those from the market who genuinely couldn’t afford to self-fund their rental portfolios. These proposals go too far in our opinion. If these proposals do eventually find their way to the statute books, the expectation is that they will apply from the beginning of the 2020 tax year. So, for most of us with a 31 March balance date, this means from 1 April 2019. However, IRD has also suggested that these rules be phased in over two or three years. Submissions to the White Paper closed on 11 May but do keep an eye out for some draft legislation as we believe this is a done deal. For those interested in understanding more about the IRD position, the White Paper (which is an easy read) can be found at taxpolicy.ird.govt.nz/publications/2018-ip-ring-fencing-losses/ overview or contact your usual Staples Rodway tax advisor. NUMBERS Winter 2018 • 27
USING TAX POOLING TO YOUR ADVANTAGE PAY TAX WHEN YOU WANT TO
Tax pooling is a great tool that provides taxpayers with greater flexibility around provisional and terminal tax payments, and the dates they are paid. Significant IRD late payment penalties and use of money interest can be mitigated via tax pooling, while interest rates earned on deposits into the pool are currently greater than rates at the IRD, and, in some cases, the banks.
Article by Brad Garner & Matt Washer STAPLES RODWAY TAURANGA brad.garner@staplestga.co.nz matthew.washer@staplestga.co.nz
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OT ONLY ARE TAX POOL funds available for income tax, but amounts due from reassessments of other tax types such as GST, PAYE, FBT and DWT can be paid using this facility. Note that for these other tax types tax pooling can only be used for reassessments (for example, reassessments that arise from a voluntary disclosure). Even with the recent changes to the provisional tax rules and the introduction of the AIM method, tax pooling remains an important tax planning tool.
THE BASIC MECHANICS T axpayers pay their income taxes together into a pool of funds held by a registered tax pooling agent at the IRD (there are currently six tax pooling agents that are approved by the IRD). Those that have underpaid (or not paid at all) their taxes can purchase credits to pay their tax at required dates, using overpayments that others have paid into the pool that are available at the dates required.
T he tax pooling agent charges or pays interest to taxpayers, depending on if they are an under-payer or over-payer. Currently, the credit interest rate is higher than the IRD’s for overpayments, and the debit interest rate lower for underpayments.
DEFERRING TAX BEYOND THE DUE DATE As the due date approaches, if you can answer yes to any of these questions, then tax pooling could be an effective way to finance your income taxes: Are you short on cash to cover your tax bill? Do you receive most of your income at one point in the year rather than consistently throughout the year? Is there uncertainty around your tax bill or could your taxable income be significantly different to the prior year? Do you need your funds to help grow your business and pay for working capital such as stock, creditors or wages in the short term? Do you need your funds to purchase assets or repay more expensive debt in the short term? Has an investment opportunity come up that would make better use of your funds? Have you simply missed a tax payment by mistake? There are time limitations in place as to when you can buy tax. You can buy overdue income tax up to around 70 days after your terminal tax date. For example, a taxpayer with a 31 March balance date can buy overdue tax as late as mid-June (assuming they have an extension of time and therefore a 7th April terminal tax date). For reassessments, this timeframe is shorter.
SO HOW DOES BUYING TAX WORK? Let’s assume a taxpayer has a 7th April terminal tax date and hasn’t paid any of their 2017 taxes including provisional taxes that were due in August 2016, January 2017 and May 2017 and terminal tax that was due on 7th April 2018. If they were to pay IRD direct, they would incur late payment penalties and use of money interest with IRD. Using a tax pooling agent, the taxpayer can buy taxes at the appropriate dates as late as mid-June 2018. The purchased tax will be applied at the IRD at the dates it was due, therefore resulting in no late payment penalties and no use of money interest charged by IRD. There will be interest charged by the tax pooling agent (interest rates start from around 4.70% compared to the IRD’s current rate of 8.22%). The taxpayer is only liable for interest between the tax due date/tax purchase date and the date the funds are paid to the tax pooling agent. In this case, the payment of provisional tax that was due in August 2016 has been delayed by nearly 22 months. The taxpayer has held onto their funds for a lot longer than if they paid direct to the IRD on the due dates, without incurring significant penalties, and with less interest.
www.staplesrodway.co.nz
WHAT ABOUT DEPOSITING TAX INTO THE POOL? H ave you ever paid tax to the IRD and wanted to get it out again shortly after? Do you find it too tempting to spend the money you have saved towards your taxes on something else? Would you prefer to earn interest at higher rates than the IRD rates when you pay tax early?
FLEXIBILITY TO DRAWDOWN ON TAX ALREADY PAID Deposits into the tax pool can be drawn upon at any time (usually taking 2-4 days and subject to providing AML documentation). Conversely, tax paid directly to the IRD usually can’t be refunded until the tax return for that year has been filed. For example, if a taxpayer has paid provisional tax to the IRD, and then later in the year profits turn out far lower than expected, the tax already paid can be difficult to get refunded. If these funds were deposited into the tax pool, the taxpayer could withdraw any overpaid tax and potentially use those funds more efficiently in their business.
SAVING FOR YOUR TAXES IS EASIER WITH TAX POOLING Making deposits into the tax pool can be an effective way of saving towards your tax liability. Some find it difficult to save for taxes, leaving tax as more of an afterthought. Others find it too easy to use the money they had saved for tax towards other business activities (or sometimes private activities). Putting funds on deposit in the tax pool takes those funds out of your bank account, making it slightly more difficult to spend the money elsewhere. As they say, out of sight, out of mind and yet they can still be withdrawn if needed.
EARN INTEREST ON DEPOSITS If your tax payments are in excess of your ultimate tax liability, a higher rate of interest can be earned on the overpaid tax sitting in the tax pool (currently around 3.40% compared with the IRD rate of 1.02% or nothing until your third provisional payment if following the Uplift Method). The tax and interest can be paid back out to a nominated bank account or credited against the following tax year.
WHERE TO FROM HERE? Tax pooling is a useful tool for many reasons and can ease uncertainty and stress, and add flexibility to cash flows around the tax due dates. There are a number of tax pooling agents, and Staples Rodway has a good relationship with all of them and can identify the best one to suit your needs at the time. If you’d like more information, or if you’d like to use tax pooling, contact your usual Staples Rodway accountant. Please note that this is intended as a general guide only and should not be a substitute for taking advice for your specific circumstances. NUMBERS Winter 2018 • 29
DOING GOOD, IN OUR HOOD! GOOD NEIGHBOUR
Good Neighbour Charitable Trust is a Tauranga charity that provides practical opportunities for people to support one another so that lives and neighbourhoods are transformed. There are three unique arms to the charity, and in total, they estimate they have contributed over 11,250 hours to the community.
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UR STAPLES RODWAY TAURANGA OFFICE has been actively involved in supporting Good Neighbour from the outset with accounting services and advice, to assist the work that Good Neighbour are doing in our region and the positive impact on our community.
FOOD RESCUE Good Neighbour collects food from twelve supermarkets that is good enough to eat, but not good enough to sell, and redistributes it to over 55 local charities and organisations. They have two chiller trucks and a team of 130 volunteers that collect, sort and repackage the food to tailor it to the specific needs of each charity. Good Neighbour’s Food Rescue is specifically designed to respond to the challenge of sustainability by minimising food waste and inspiring and engaging with a wide range of individuals, companies and charities. It provides a much-needed food resource to be used for good in our community. Currently, they are processing about two tons a day and are projecting over 450 tons of food will be repurposed this year, diverting food from waste and landfill. This has huge sustainability benefits for suppliers, local authority, as well as the immediate benefit for receiving families, charities and organisations. Good Neighbour uses the media to engage the next generation with Food Rescue’s objectives. The ability to help other charitable organisations achieve their goals by helping keep food costs down enables improved service levels for their recipients, enriching our community as a whole.
NEIGHBOURHOOD PROJECTS The Neighbourhood Projects arm of the Charity organises a wide range of projects for people in need. This includes backyard clean-ups, removal of household rubbish, lawn mowing services, small house moves, fruit picking, and delivering firewood. They have delivered over 281 cubic meters of firewood to families in need, creating warmer dryer homes to help families stay healthy over winter, and work with the local fire brigade who install free smoke alarms into every house, so everyone can have a safe night’s sleep. These deliveries help keep the cost of power down. To achieve all of this they work closely with local businesses whose staff volunteer, so that together along with community volunteers they build strong relationships and better serve our community. Over 90 community projects were completed in 2017. www.staplesrodway.co.nz
COMMUNITY GARDENS Good Neighbour currently have two community gardens with 70 beds in total. The aim of the gardens is to create a hub in the community and for gardeners to learn sustainable practices to grow their own fresh produce. They have regular workshops on different topics and have a propagating tunnel so that their gardeners can grow their own seedlings. Community gardens are recognised worldwide as a great way to grow food, improve health, meet people and cultivate vibrant communities. The gardens have been developed largely by sponsorship, and the individual plots are then rented out to the community. Good Neighbour have supported many local services and schools to develop their own community gardens and new ones are popping up all the time.
THE HERE AND NOW Exciting things just keep happening with Good Neighbour, with the go-ahead given to develop a commercial kitchen on their premises. Good Neighbour Kitchen (GNK) could be underway this year after plans are approved and funding raised. The Board has approved plans for stage one, which will reduce food waste even further. This is done by using food unable to be given out to create products to give or sell. Their goal is to build a strong volunteer team to mentor and educate the community and teach charities how to prepare food for themselves. They plan on offering a catering service to provide a sustainable arm to the work Food Rescue does and at the same time provide education, build self-esteem and work with the community to break the cycle of poverty and waste. Staples Rodway Tauranga has been a proud supporter of Good Neighbour from the beginning and helping with the great work they do in and for the community is something we are delighted to be part of.
If you would like to get involved by donating products, services or finances to this exciting new project you can contact office@goodneighbour.co.nz. They would love to partner with local businesses for the Good Neighbour Kitchen.
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AUCKLAND ART FAIR Auckland Art Fair was recently held at The Cloud in Auckland, running from May 23-27. As a long-time supporter of The Art Fair, Staples Rodway was again a major event partner. As a key sponsor, Staples Rodway held a special event where clients could mix and mingle, while enjoying a private viewing of the art on display. The fair hosted galleries and exhibitions from far further afield than previous years, with handpicked exhibitions from as far away as Jakarta, Santiago and Tokyo. Favourites on the day included pieces from Jack Trolove and Lisa Reihana.
LEFT: Peter Goodfellow and Staples Rodway's Phil Pavis contemplate NZ artist Lisa Reihana's 'In Pursuit of Venus' collection BELOW: Jack Trolove's striking portraits
At Staples Rodway, it's our people that set us apart. Take a look at what our team has been up to lately.
MARATHON DES SABLES In April, Tracy Hickman, Corporate Advisory Director in our Auckland office, completed the Marathon Des Sables, a 250km ultra-marathon race in the Western Sahara Desert, Morocco. It's known as the toughest footrace on earth: six marathons in five days over sand dunes and mountains, carrying a 10kg backpack with food for the week, water and a sleeping bag. The temperatures ranged from 50°C during the day to freezing at night, housed in traditional open-sided bivouacs. Tracy endured sandstorms, saw poisonous spiders and scorpions, and was on her feet for almost 24 hours during the longest stage, which was 86km.
PINK RIBBON BREAKFAST For the past two years, Staples Rodway’s Hawke’s Bay and Auckland offices have hosted Pink Ribbon Breakfasts for clients and staff, in support of The New Zealand Breast Cancer Foundation (NZBCF). With breast cancer accounting for more than 600 deaths across New Zealand every year, we take pride in enabling NZBCF to fund research projects to improve the survivorship of breast cancer. Collectively we raised over $2,500.
WOMEN INFLUENCING WOMEN – HAWKE’S BAY At the Hawke’s Bay’s Women Influencing Women breakfast we welcomed our client Coralie White (pictured right) from Suzelle Lingerie to speak to the group about her involvement with women recovering from breast cancer. Coralie is an independent specialist fitter of breast forms and said that the most rewarding part of her business is helping her clients to feel normal again. We are pleased to have clients like Coralie who share our firm’s values of “People are Important”. Hosting events like these allows our team to exhibit some of our other core values of “Having Fun”, “Going the Extra Mile” and “Being Community Minded”. Our staff self-catered for our breakfast, which enabled all funds to be donated to the Foundation. We also had two gifts donated to us, which we raffled and were pleased to be able to donate just over $950. If you are interested in attending any future Women Influencing Women events this year, please contact Roz Scott, rscott@stapleshb.co.nz or 06 878 7004.
AUCKLAND At our Auckland office, we welcomed Debra Leutenegger, a registered nurse from NZBCF who gave a technical presentation to over 50 attendees. She provided insight into self-checks and outlined the growing number of men developing breast cancer. Of course, we didn’t forget the sweet stuff either. It was an absolute delight to raffle an incredible 2-tier cake donated by ‘Nanna Pauleys Kitchen’ (pictured left) and an amazing basket of goodies, put together by our marketing team. Between donations from attendees, raffle sales and merchandise sales, the Auckland office raised over $1700 in donations from generous staff and clients.
RIGHT (L-R): Tracy Hickman, Claire Dilks, Debra Leutenegger and Annette Azuma
www.staplesrodway.co.nz
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AUCKLAND Level 9, 45 Queen St PO Box 3899 Auckland 1140 Phone 64 9 309 0463 Fax 64 9 309 4544 enquiries@staplesrodway.com
WAIKATO 4th Floor, BNZ Building 354 Victoria Street PO Box 9159 Hamilton 3240 Phone 64 7 834 6800 Fax 64 7 838 2881 staples@srw.co.nz
TAURANGA Level 1, 247 Cameron Road PO Box 743 Tauranga 3140 Phone 64 7 578 2989 Fax 64 7 577 6030 info@staplestga.co.nz
HAWKE'S BAY Cnr. Hastings and Eastbourne Streets PO Box 46 Hastings 4156 Phone 64 6 878 7004 Fax 64 6 876 0078 info@stapleshb.co.nz
NEW PLYMOUTH 109–113 Powderham Street PO Box 146 New Plymouth 4340 Phone 64 6 757 3155 Fax 64 6 757 5081 newp@staplestaranaki.co.nz
STRATFORD 78 Miranda Street PO Box 82 Stratford 4352 Phone 64 6 765 6949 Fax 64 6 765 8342 stfd@staplestaranaki.co.nz
WELLINGTON Level 6, 95 Customhouse Quay PO Box 1208 Wellington 6140 Phone 64 4 472 7919 Fax 64 4 473 4720 info@stapleswellington.co.nz
CHRISTCHURCH Level 2, Tavendale Centre 329 Durham Street North PO Box 8039 Christchurch 8440 Phone 64 3 343 0599 Fax 64 3 348 0186 info@srchch.co.nz
www.staplesrodway.co.nz