Staples Rodway NUMBERS Spring 2016

No 39 SPRING 2016

THE PROPERTY ISSUE NEW RESIDENTIAL LVR RESTRICTIONS The unexpected consequences

CAPITAL GAINS TAX ON RENTAL PROPERTIES

LAND TAX CASE How a client saved nearly $1 million

How the Bright Line Test could impact you

DONALD TRUMP The economic inevitability

BUSINESS FAILURE The 7 signs to look out for

FOREIGN INVESTMENTS Automatic sharing of tax information is on its way

CYBER ATTACKS Top tips to avoid them

www.staplesrodway.co.nz

www.staplesrodway.co.nz NUMBERS Spring 2016 • 1

DIRECTORS AUCKLAND

David Searle

HAMILTON

Rosanna Baird (07) 834 6800

(09) 373 1128

TAURANGA

Chris Downey (07) 578 2989

HAWKES BAY

Stuart Signal

(06) 878 7004

TARANAKI

Chris Lynch

(06) 757 3155

WELLINGTON

Robert Elms

(04) 472 7919

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 2 • NUMBERS 2016 recommended thatSpring you consult your advisor before acting on this information.

No 39 SPRING 2016

IN THIS ISSUE 2 Land Tax Case a satisfying win for Staples Rodway client

4 New residential LVR restrictions The unexpected consequences

6 Capital Gains Tax on rental properties How the Bright Line Test could impact you

8 Cyber Attacks Top 10 tips to avoid imminent cyber attacks on your business

10 7 indicators of future business failure The signs to watch out for

12 Automatic tax information sharing is coming What it means for foreign investors

14 Equity crowdfunding turns 2 Snowball Effect reflects on this milestone and the way forward

16 Winners and losers The economic inevitability of Donald Trump

18 Women in Business Interview with Mai Chen

20 Staff inductions Underrated and underutilised

22 Ask an Expert New audit report formats

24 Are you prepared for retirement?

Looking beyond financial resources

26 Client Profile Lusty's Lagoon

28 Electric vehicles Drive Electric update

29 Gala dinner Gillies McIndoe Research Institute

29 Robin Brockie Retired Taranaki Director wins Queen's Service Medal

www.staplesrodway.co.nz

12 NOVEMBER 2016 32KM RUN OR WALK Individual or Relay Team of Three Enter today at staplesrodwaychallenge.nz

LAND Article by Mike Rudd STAPLES RODWAY AUCKLAND mike.rudd@staplesrodway.com

CASE A SATISFYING WIN FOR STAPLES RODWAY CLIENT Winning a July 2016 Taxation Review Authority (TRA) decision recently saved a Staples Rodway client nearly $1 million in income tax.

The taxpayer involved is a long-standing client, and the Taxation Review Authority case was presented by Staples Rodway Auckland’s Mike Rudd, a Tax Director, with the assistance of Phil Pavis, a Business Advisory Director.

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HE MATTER IN DISPUTE WAS whether the taxpayer had acquired a 10-acre property with the purpose or intention of disposing of it in the future.

Key to establishing this was determining what date the taxpayer’s intentions had to be identified.

This meant that the TRA needed to determine when the property was acquired, as the taxpayer’s intentions changed between entering into the contract and registering the title.

WHAT WERE THE FACTS? The facts in this case were quite straightforward. The taxpayer purchased a 10-acre property and house in 1996, intending to use it as her home. Circumstances

changed shortly afterwards and she decided that she would not live in the house after all and, instead, rented it out.

The taxpayer owned other property and was registered for GST in respect of those other properties because of her future intention to develop them. She decided that this section, being 10 acres and located on the outskirts of Auckland, might also be developed in the future and therefore claimed GST on it 6 months after first entering into the sale and purchase agreement. The actual change in ownership on the land title was registered with the Land Transfer Office at the later date, after her intentions had changed.

As events transpired she never developed the

1996 PURCHASED PROPERTY AND HOUSE INTENDING TO LIVE IN IT

CHANGE IN CIRCUMSTANCES LED TO RENTING THE PROPERTY OUT

CHANGE IN OWNERSHIP REGISTED WITH THE LAND TRANSFER OFFICE

6 MONTHS AFTER SALE & PURCHASE AGREEMENT CLAIMED GST AS IT MAY BE DEVELOPED LATER

NEVER DEVELOPED THE PROPERTY

2012 SOLD THE LAND WITH $3m CAPITAL GAIN

property or carried on any business of property development in her own name, although she was involved in some businesses that did carry out property development.

The property was held for 16 years, deriving rental income, but was never developed. The taxpayer sold the land in 2012.

Being well-located, and in the Auckland region, the capital gain from the sale was almost $3 million, with potential income tax at stake of nearly $1 million.

W hat date was the land acquired? When the contract was signed, when the contract became unconditional or when the change in title was registered?

When she entered into the contract did she intend to both live in the property and then, at some future point, simply sell at a profit, with or without developing first?

TACTICAL THINKING

RESULT

Staples Rodway considered there were reasonable arguments that the gain was not taxable, but the GST claim on the land and some other land-related activities related to the taxpayer, meant that the situation was not clear cut. This was especially so given 16 years had passed since purchasing the land.

The taxpayer was already subject to review by Inland Revenue who were aware of the property and were expected to take a close interest in the sale. There was tactical thinking required regarding how the gain would be treated on the taxpayer’s tax return. Based on Staples Rodway advice, given the amount at stake and the likely attitude of Inland Revenue (a prediction that turned out to be correct), it was decided that the gain would be returned as taxable income but that Staples Rodway, on behalf of the taxpayer, would issue a challenge to the tax return as filed to argue that the gain was not taxable.

Using this approach, the client was protected from the potential risk of penalties that could have applied if the gain had not been returned, and IRD assessed income tax on it.

EVERYTHING AND THE KITCHEN SINK When the dispute started, Inland Revenue argued under virtually every provision of Income Tax legislation available that the gain was taxable.

The taxpayer started the disputes process and presented arguments to the Disputes Review Unit attached to Inland Revenue head office, who agreed with the taxpayer in respect of almost all the arguments raised. However, they raised a new argument that the land was actually “purchased” only when the change in title was registered. By that point, the taxpayer had changed her intentions with the land and had shortly after told Inland Revenue she intended to develop the land in future. That is why Inland Revenue allowed her to claim the GST on the land.

THE CASE The case, heard over three days, was reduced to the following questions: www.staplesrodway.co.nz

Despite the acquisition taking place nearly 20 years before the trial date, the taxpayer presented her evidence strongly.

The judge found for the taxpayer on both points: The land was purchased at the time the contract went unconditional, not when the change in title was registered.

At the time of the contract going unconditional the judge accepted that the taxpayer intended to live in the property for an indefinite length of time. It was not enough for Inland Revenue to allege that prices would be expected to increase over time and that this proved the taxpayer’s intention.

The Judge commented: “Most people intend eventually to sell their properties and the possibility of a sale is not sufficient to satisfy the requisite purpose or intention of resale”.

The Judge also helpfully commented that knowledge of property and involvement in property deals does not mean that all property you ever own is “tainted”.

This decision provides further support for taxpayers. While there is a general perception that there is no tax on land sales, there are many situations that Inland Revenue can apply the existing complex rules in an attempt to tax gains. This case (which is currently reported as Taxation Review Authority case TRA 003/15 [2016] NZTRA 07) provides further clarity over just where the boundaries lie.

A HAPPY CLIENT Inland Revenue will not be appealing the decision. Needless to say the client is delighted with the win, and the fact this brings an end to the matter which has been underway since 2013. Even better is the peace of mind knowing that the courts have signed off on the gain from the sale being tax free.

This reinforces the benefit of taking professional advice from experienced advisors such as Staples Rodway. In this case the claim of GST on the land and statements made to Inland Revenue at the time the claim was made meant this was a difficult case. A careful review of the facts and application of the rules resulted in a great outcome for the taxpayer.

NUMBERS Spring 2016 • 3

UNEXPECTED CONSEQUENCES OF NEW RESIDENTIAL LVR RESTRICTIONS Article by Tony Maginness STAPLES RODWAY AUCKLAND tony.maginness@staplesrodway.com

Tony Maginness explains the potential impact of the new residential LVR restrictions on New Zealand businesses and what you can do to find alternative forms of funding.

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F YOU ARE STARTING A business or trying to grow an existing business, you almost certainly will need money to acquire necessary assets and for working capital.

This money can come from many different sources, roughly speaking, it comes in the form of debt, equity, and occasionally, government grants.

The type of and amount of funding that you use will depend upon a number of factors, including the type of busi4 • NUMBERS Spring 2016

ness, your personal financial position, business risk and shareholder return requirements.

However, ultimately one of the most popular forms of business funding is a bank loan secured over the family home. This is simply because residential property is seen as a comparatively low risk security and because mortgage rates are significantly lower than other forms of finance.

CONCERNS OVER THE HOUSING BOOM AND LVR RESTRICTIONS The Auckland housing market has doubled in the last 5 years. This has been great news for New Zealand businesses because it has allowed them to borrow a lot more money from the banks at very low interest rates.

The Reserve Bank of New Zealand has, however, become increasingly concerned over what it views as an overheated housing market and the risk it posses to the stability of the financial system. This has led to new Loan to Value Ratio (LVR) restrictions being put in place to cool the property market.

The LVR is a measure of how much a bank is willing to lend against a mortgaged property compared to the value of that property. The new LVR restrictions will mean property investors will need a minimum of 40% deposit and the lender may be willing to lend up to 60% of the value of that property or portfolio of properties.

The amount banks are allowed to lend varies depending on the location of the property and its intended purpose. The LVR restrictions are likely to cause banks to tighten up their lending and LVR limits on all types of lending where residential property is used as security.

Notably, business loans secured against property have more strict requirements than home mortgages. The tougher lending restrictions will focus banks attention to what security they hold. If your business is not generating profits and the LVR is high your bank may ask you to immediately pay off the full amount of the loan, something that is unlikely to happen with a home mortgage.

in some way connected to property. For example construction firms are required to put up a contract bond (a surety bond issued by a bank to guarantee satisfactory completion of a project by a contractor). Big projects require multi-million dollar bonds and banks require property as collateral security to provide these bonds. Without construction bonds, many projects don’t get off the ground.

The Christchurch rebuild and the Auckland property boom have meant a disproportionate number of people are employed in the construction industry. If construction slows down suddenly the New Zealand economy could be in trouble and unemployment will increase.

If there is a fall in domestic and commercial property prices the lending restrictions to businesses will be further tightened and immediate repayment of overdrafts may be required. This could crimp lending to strong companies and undermine economic growth in the process. The New Zealand economy, by world standards, is relatively strong right now, but things can change very fast as lending restrictions kick in and liquidity tightens up.

If your business relies on property to support your overdraft it’s prudent to look at other forms of funding as a backstop to support your business, as lending restrictions may limit how much you can borrow against your house to fund your business in the future.

ALTERNATIVE FORMS OF FUNDING

The Reserve Bank was hoping the new LVR restrictions (which most banks have already adopted) would act like a “tap on the brakes” and take some of the heat out of the property market so they could continue to reduce interest rates and bring the NZ Dollar down. But those who watch “The Block” could see the market hasn’t slowed down at all - quite the opposite, it looked like it has accelerated away again!

In a further effort to slow the housing market, the Reserve Bank has signaled it is going to tighten limits on how much banks can lend to people. This may involve ‘debt to income ratio’ restriction. Regulators around the world have a track record of reacting too late and being too heavy handed, which can cause a market to crash, rather than slow. Regulatory overkill could be the pin that finally pricks the property bubble if harsh debt to income ratios are introduced.

Businesses don’t have to be solely reliant upon bank loans secured by property as their only form of business financing.

For example, a business can use fixed assets such as plant and vehicles.

We have also noticed an increase in the use of invoice financing. This is where a business receives a cash advance from a lender which is secured against a sales invoice or customer purchase order. This meets a useful need as many businesses increasingly operate without any material fixed assets, or solely with assets of poor security value (e.g. computer equipment).

Second Tier Lenders - there are still a number of finance companies operating in New Zealand that are not captured by the new lending restrictions. They charge a higher interest rate but they can offer more flexibility.

There are also investors out there who are looking to purchase a stake in new and existing businesses. There are different methods of introducing a new investor, including through a share sale or joint venture. Existing sales and profitability helps, but investors are also interested in growth and business turnaround opportunities.

THE FLOW ON EFFECT TO BUSINESS LOANS

RECOMMENDATIONS

This could be bad news for the economy as a large number of small to medium sized businesses could be effected. If debt to income ratios are introduced, banks will restrict lending to owners of businesses that can’t clearly demonstrate they can service their mortgage and don’t have adequate security under tighter Reserve Bank restrictions.

The exposure of New Zealand banking systems to residential mortgages is very high by international standards which should give business pause for thought. Nearly everything is

We recommend that businesses review their existing capital structures and pay back debt where possible. This may at one level reduce the amount of interest that you pay while increasing your profitability. It may also provide you with the necessary reserves if the proverbial hits the fan. Be prepared!

CONTINUING PROPERTY GROWTH & ADDITIONAL TOOLS

www.staplesrodway.co.nz

For further advice on business refinancing, workouts and restructuring please contact Tony Maginness at tony. maginness@staplesrodway.com.

NUMBERS Spring 2016 • 5

CAPITAL GAINS TAX ON

RENTAL PROPERTIES

Article by Roger Shackelford STAPLES RODWAY WELLINGTON roger.shackelford@stapleswellington.co.nz

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In its attempt to slow down the runaway property market, the National Government’s first official foray into a capital gains tax on land became law back in October 2015. Even 10 months on, some unsuspecting property owners are finding themselves unexpectedly caught by the new rules.

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ALLED THE BRIGHT LINE TEST, the new legislation sought to essentially tax the sale of investment properties sold within two years of acquisition. Main homes are exempt, as are main family homes owned by trusts (subject to a few other minor requirements being met).

You would think that so recently after being enacted, the legislation would hardly have had any application, but you’d be wrong. We have been inundated with queries from our clients who, because of the booming property market, are inadvertently getting caught by these new rules.

Conceptually, we have no problem with a tax arising from short term property holds. If you are turning over investment properties but not doing so with the frequency to be deemed a ‘dealer’, then requiring owners to commit to holding property for at least two years to avoid income tax makes some sense to us.

The problem with the new Bright Line rules is they are not particularly sophisticated, so they are catching unsuspecting Kiwis.

A case in point we came across a few weeks ago involved a woman who had acquired a rental property some 20 years ago. 10 years ago she married and it was her intention that her husband acquired half of her assets, and she, half of his. The ownership of the rental property remained in the wife’s name on the basis that the husband essentially owned half of it by operation of the relationship property legislation. In February this year the couple finally got around to tidying up the ownership of their assets and together with other matrimonial assets, half of the rental property was correctly transferred to the husband. This was formally recorded on the title.

Between February and June 2016 house prices in Wellington skyrocketed. The couple received an unsolicited offer for the rental property at twice what they thought it was worth. The property was duly sold in July. Even though the husband and wife had owned the property for at least ten years, unfortunately the husband’s half failed the Bright Line Test and was therefore taxable. This was because he had only legally acquired it in February 2016, and it had been sold within two years of that date.

A ridiculous and nonsense result you will agree? We certainly do. However, the reading of the black letter of the law www.staplesrodway.co.nz

meant the husband had acquired the house after 1 October 2015 (tick), and it had been sold within two years of acquisition (tick). The trick is, if you are thinking about selling any property other than your main home, take advice.

What’s more, the property doesn’t even have to exist before it can be taxable under these new quasi capital gains tax rules.

Another unsuspecting couple bought a new home in a residential apartment ‘off the plans’ in December last year. The property was to be their main home and it is expected to be completed in December this year at a cost of $570,000. For the purposes of the Bright Line rules, where property is bought off the plans, the two year time frame starts ticking from the time the sale and purchase agreement is entered into.

The apartment complex development is now fully sold, and whilst the property is only half built, our couple received an offer of $770,000 to take them out of the contract, and accepted it.

At the time they entered into the contract, the couple had no intention to sell it, however, for the Bright Line exemption to apply, the property must have been “used predominately for most of the time…………….as their main home”. That was obviously impossible as it wasn’t even built at that point. The couple’s main home during the period of construction was their rented house in the city. So, in this case, the couple need to find income tax on the $200,000 profit earned.

Possibly a ridiculous and unintended result from the simple application of the legislation.

The purpose of these new capital gains rules is to combat those who buy and sell investment properties for a profit and, to us, that’s fair enough. The new Bright Line Test was clearly introduced to find a simpler way to apply the often complex land taxing provisions - property acquired for the purpose of sale is a hard one for IRD to win; and arguing that a person is carrying on the business of dealing in land can be even more difficult.

The simple message is; don’t sell any property other than your main home that you have lived in for at least half the time you have owned it, without first talking with a Staples Rodway Tax Adviser.

NUMBERS Spring 2016 • 7

TOP TIPS TO AVOID IMMINENT

CYBER ATTACKS WITHIN YOUR BUSINESS

Article by Rob McEwan IT DIRECTOR, STAPLES RODWAY TARANAKI rob.mcewan@staplestaranaki.co.nz

No matter what type of business you’re in, security within your IT system is crucial to maintain your reputation and avoid any major information breaches within your organisation.

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S SUGGESTED BY JOHN KEY at New Zealand’s first Cybersecurity Summit in Auckland in May, Cyber attacks are on the rise.

Highly organised criminals are increasingly targeting businesses and other organisations through ransomware that exploits security vulnerabilities in computers. These criminals then hold the business up for ransom in order to restore their

computer files. Local businesses are being targeted with some having paid the ransom to recover their data.

The level of these ‘fees’ has increased dramatically over recent years.

In response to this report and the growing need for New Zealand businesses to improve their cyber security, here are my tips to avoid the potential damage faced by many businesses.

Staples Rodway’s IT department has launched a cost-effective service that businesses can utilise to help avoid any imminent cyber attacks. The process involves a firewall demo unit being installed behind a business’s current firewall for a week in order to create a risk and threat analysis report. The firewall will collect a set of data which will be analysed to determine the cybersecurity risk profile and the recommendations to reduce the risk.

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DON’T OPERATE YOUR COMPUTER AS AN ‘ADMINISTRATOR’ The number one reason for not running as an administrator is to limit your exposure to malware. As an administrator, every program you run has unlimited access to your computer. If malware is able to take hold through one of those programs it is equally able to access all parts of your computer or potentially your network.

UPDATE YOUR SOFTWARE, PATCHES AND UPDATES AS SOON AS THEY COME OUT Not just Windows, but all third party products. It is widely recognised that as soon as patches are released hackers reverse engineer the patches to identify the problems that are being addressed. They then immediately set about writing exploit code that will attack un-patched computers. The quicker you can apply patches following their release, the less likely you will be exposed to these hackers. Also keep in mind that it’s not just Microsoft patches that need to be applied but patches for all products you have installed on your computer.

REMOVE SOFTWARE THAT YOU DON'T NEED The rule of thumb is that if you don’t need it, it shouldn’t be installed. The more applications you can remove from your PC the smaller the footprint for exploitation becomes. As mentioned above all third party applications must be updated to maintain a secure computer. But if you don’t need to use the software; removing it means you no longer have to maintain it.

INSTALL A REPUTABLE ANTI-MALWARE (MALICIOUS SOFTWARE) SOLUTION AND USE ITS ADVANCED FEATURES We often find people spending a significant amount of money on antivirus software, installing it, but not configuring it to provide the protection that it is capable of. Make sure you have a good quality antivirus solution that has a robust reputation in the market and it has been installed correctly and configured to provide you with the best protection possible against modern malware threats.

BACKUP YOUR COMPUTER The ultimate protection against a malware infection is your ability to completely restore your system from a backup. As a rule of thumb data should not be considered backed up until there are three copies, two of which are backups of the first, and one of those backups must be off-site.

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INDICATORS OF FUTURE BUSINESS FAILURE Article by Jared Booth STAPLES RODWAY AUCKLAND jared.booth@staplesrodway.com

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WNING AND OPERATING A BUSINESS is fun, but also stressful. The fun part is controlling your destiny, doing what you enjoy, and ultimately having the ability to create your own reward. Perhaps you may be the next Sam Morgan (Trade Me) or Karen Walker (fashion).

The stress arises when you begin to question whether you are making the right decisions. Sometimes you wonder how long the good times will last or even whether you have enough cash to trade in six months’ time.

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FAILURE TO MARKET The basis of a business is sales. Operators need to exist on the front line and in front of current and potential clients and get new business. Don’t sit in the office with a cup of tea and wait for it to appear.

If there is no market, you either have the opportunity to create one (think iPads, for example), and if you can’t, you’re in the wrong industry.

SO WHAT DO YOU HAVE TO BE STRESSED ABOUT? The risk of business failure is high, and most failures are not in the headlines like Mainzeal or Dick Smith. A 2014 New Zealand government report stated that approximately only 25% of owner operated enterprises were still operating after 10 years, and 50% of those enterprises with 10 to 19 employees.

Statistics are, however, historical statistics, and understanding the reasons behind failure can increase the chance of long term success.

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FAILURE TO ADAPT TO A CHANGING MARKET Operators need to be aware and adapt to both incremental and rapid changes in technology, regulation and society, which impact upon their clients and markets. For example, the Internet has changed the way we communicate and advertise, and meant that print advertising is not always the best option anymore. The Yellow Pages and Borders are examples of businesses that failed to understand this in time.

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FAILURE TO UNDERSTAND THE NUMBERS (AND MAKE A PROFIT) Business operators need to maintain relevant and accurate accounting records, and to use them.

This is not just for tax. They need to understand whether the business and each individual project is making a real profit, and they need to budget for the future. You might, for example, have a $5,000,000 housing construction contract, but what is your margin on each house, what are your fixed costs, and what is the impact of a delay in obtaining Council consent?

FAILURE TO HAVE A LEADER AND A TEAM A manager is there to lead, but the manager is ultimately reliant upon a team of people around them. One cannot work without the other. Failures here lead to a lack of direction, a breakdown in communication, mistakes, and the inability to make key decisions in a timely fashion or at all.

The Pike River disaster is an unfortunate example.

FAILURE TO MAINTAIN ADEQUATE CAPITAL A business may be profitable, but if it has inadequate working capital, it ultimately has no future. There needs to be sufficient capital to cover day to day operations and the completion of projects, until sales receipts are received.

It also needs to be sufficient to cover you when a project goes wrong.

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FAILURE TO MANAGE RISK Businesses are subject to a variety of risks, including foreign exchange movements, supplier failure, and employee fraud. There are, however, tools and processes available to reduce the likelihood of, and the impact of, adverse events.

Foreign exchange options reduce, for example, risks arising from foreign exchange movements when exporting overseas.

FAILURE TO ADMIT A PROBLEM You can have the best business plan, and implement it in accordance with the plan.

However, sometimes the market simply isn’t ready. Business involves taking a risk, and occasionally failing. When it doesn’t work out, the trick is not to procrastinate and keep your head in the sand, but to change and move on. Too often have we seen operators lose their house to fund a failing business.

FAILURE BEFORE SUCCESS All businesses will face challenges at some stage in their life cycle, whether arising from internal pressures, external events or economic conditions.

Failure is not a sin. The New Zealand economy relies upon people taking a risk and setting up new businesses every day.

Indeed, in some countries, having a failure on your resume is viewed as a virtue. The risk of business failure can, however, be reduced.

If you are concerned about the health of your business, please contact one of our business recovery specialists.

AUTOMATIC TAX INFORMATION SHARING IS COMING INVE

STME

NTS

Article by Mike Rudd STAPLES RODWAY AUCKLAND mike.rudd@staplesrodway.com

Important changes are coming in the world of international investment, and will affect individuals, trusts and companies who hold investments in countries outside their place of tax residence.

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F YOU HOLD INVESTMENTS IN a foreign country you should be aware of changes coming up that will increase the information available to Inland Revenue about those investments.

If you are a non-resident who holds investments in New Zealand financial institutions, you should be aware that more information about those investments is likely to be made available to the tax authorities in your country of tax residence.

These new rules involve the Automatic Exchange of Financial Account Information (AEOI) between tax authorities throughout the world and will be effective over the next two years, and on-going.

WHAT IS HAPPENING IN NEW ZEALAND?

WHAT IS HAPPENING GLOBALLY?

WHEN IS IT EFFECTIVE FROM?

Most (but not all) countries tax individuals and related trusts based on where they are tax resident, and will tax their income from sources anywhere in the world.

Tax authorities around the world are making no secret of their displeasure at their tax residents hiding money offshore and not declaring it. There has been on-going negotiations over the last 15 years as OECD members have made agreements between themselves and put pressure on “tax haven” countries to provide information when requested.

The issue for tax authorities is that, under most information sharing agreements, they had to lodge formal requests for information on specific taxpayers with other tax authorities to gather that information. This requires some existing knowledge for tax authorities and is a potentially wasteful and time-consuming process.

The much greater willingness of tax authorities to cooperate, together with digital information gathering tools enables the collating and analysis of information much more effectively and efficiently, which will result in much greater cooperation in the future.

The US broke ground in this respect with their disclosure rules. These generally applied only to US citizens or residents who held investments in non-US financial institutions (including New Zealand). Under FATCA regulations, which have been in place since 1 July 2014, those financial institutions had to provide information on US-related investors to Inland Revenue. Inland Revenue would then provide that information to the US tax authorities.

Greatly expanding the scope of those FATCA regulations, over 100 countries (including most of the countries New Zealand does business with) will be implementing these new AEOI rules between each other in a co-ordinated and relatively consistent way. To simplify the processing further for financial institutions gathering the information and providing it to tax authorities, countries have agreed that information will be provided under a Common Reporting Standard (CRS). However, no one knows exactly how the new rules will work in practice. www.staplesrodway.co.nz

Inland Revenue published guidelines for financial institutions in July, setting out their requirements under both AEOI and the CRS. From 1 July 2017, New Zealand financial institutions will need to review the accounts held or (in some cases) controlled by non-residents and collect and report that information to Inland Revenue. Financial institutions will be requesting information from their account holders where they believe there is an international connection or, most likely, from all their clients.

Where required, Inland Revenue will then share that information with other tax jurisdictions in the specific countries.

Going forward, financial institutions will report financial information on affected accounts (i.e. those held or controlled by non-residents) on a tax year basis. The first year will be a part year from 1 July 2017 to 31 March 2018. The reporting deadline will be 30 June each year.

The jurisdictions Inland Revenue will share information with are, as noted, most of the countries that New Zealand does business with. Each country has agreed to implement the rules from either 2017 or 2018, but individual application dates vary from country to country. Further countries are signing up to AEOI all of the time.

For instance, the following dates apply for these countries to start providing information to Inland Revenue: UK from 2017 France from 2017 Japan from 2018 China from 2018 Australia from 2018 Singapore from 2018

RECOMMENDATIONS Although the exact operation of these new rules is uncertain, the sensible assumption should be that there will be much more transparency around international investments between tax authorities.

If you are a non-resident holding investments in New Zealand, we recommend you review these to ensure correct compliance with both New Zealand and your overseas jurisdiction.

For New Zealanders with investments held in foreign countries, we recommend you take advice to ensure you comply with New Zealand requirements and, if necessary, make voluntary disclosures to Inland Revenue.

Part of the review should include confirming your tax residence status and whether any protection available under double tax treaties may be available to you.

Contact your Staples Rodway tax advisor for further information.

NUMBERS Spring 2016 • 13

EQUITY CROWDFUNDING TURNS New Zealand’s equity crowdfunding market turned two years old in August 2016.

We ask Josh Daniell, cofounder of leading provider Snowball Effect, to describe how the market has evolved so far, and where he sees it going in future.

A SNAPSHOT OF 24 MONTHS OF SNOWBALL EFFECT'S EQUITY CROWDFUNDING

24 10,124 784 $10k SUCCESSFULLY FUNDED COMPANIES

INVESTORS

HIGH NET WORTH OR WHOLESALE INVESTORS

AVERAGE INVESTMENT SIZE (EXCLUDING RIGHTS ISSUES)

Q: Can you start by giving us a brief overview of the New Zealand market?

A: New Zealand adopted relatively liberal equity crowdfunding regulations in 2014. The regulations allow for each company to raise up to $2m from retail investors in any 12 month period through a registered marketplace. The key change in the regulations was to remove the requirement for a regulated “product disclosure statement” when offering shares to retail investors.

This change drastically reduced the cost of making a public offer, and therefore opened up the wider equity capital market to cash-hungry early stage growth companies. $30m has been raised by such companies in the 24 months since the first offer was launched in August 2014 (over $20m through Snowball). For context, the angel groups in NZ collectively invest around $50m per year including matched funding from New Zealand Venture Investment Fund.

Each of the providers has developed in different ways.

Snowball describes itself as an online marketplace which simplifies access to a range of investment opportunities.

We don't provide financial or investment advice. We provide vetted deal flow so investors have an easy channel to invest in a range of interesting growth companies. Around 90% of offers have been successful in our marketplace to date. The average raise size is around $1m. The average investment is around $10,000. We want to make the capital market work much more efficiently for growth companies, and we want to provide investors with a simple way to gain exposure to interesting investment opportunities – facilitating the flow of national savings into wealth-creating assets.

In the first 2 years we've amassed an audience of over 10,000 investors who we reach via email. Most of these investors are Kiwis. Some are ex-pats. A few are international investors. Most hear about us through traditional media and word of mouth.

Q: How have the funding options evolved over the first 2 years?

A: The NZ market started with public offers to retail investors through the new equity crowdfunding regulations. We knew we’d have to expand our offering to serve a broader part of the market, and the capital raising options have now evolved to include the following: PUBLIC OFFERS: An offer which is available to all Kiwi investors, and is publicly visible.

PRIVATE OFFERS: An offer which is restricted to an audience selected by the issuing company, and is not publicly visible. The company can still make the offer to retail investors without a regulated product disclosure statement.

WHOLESALE INVESTOR OFFERS: An offer which is available

only to people who meet the “wholesale investor” criteria.

Wholesale investors are investors that are legally able to invest in any type of security on offer. This is an important aspect to our offering as it enables us to facilitate a wider range of deals (such as offers of instruments like convertible notes, raises of more than $2m, and private brokering).

RIGHTS ISSUES: Online facilitation of rights issues, including taking care of electronic signing of legal documents, payment collection, verification of wholesale investors, and anti-money laundering obligations.

We’re really happy with how the market has developed over the first 2 years. In terms of successful capital raising, Snowball is already the best performing national online private equity marketplace in the world (on a per capita basis). There’s a long way to go before we make the impact that we want to make, but it’s been a great start.

Q: How do you see the market developing over the next 12 months?

A: We see significant opportunity to facilitate private broking of relevant deals with wholesale investors. We’ve just started work in this area, and our involvement can help with preparing a teaser, preparing an information memorandum, or seeking a cornerstone investor.

One key point to mention is a secondary market.

Investors in early stage companies want to understand a company’s longer term exit or liquidity intentions. While investors generally don’t expect immediate liquidity, we know that they value the ability to sell shares from time to time. If investors have some form of liquidity, they’re more likely to invest.

We’ve developed a secondary market concept specifically for private growth companies. The company releases a “trading report” which is immediately followed by a maximum 4 week trading period. These trading periods can be facilitated one or more times per year for each company. Short trading windows are useful to concentrate buyers and sellers into the market at a point in time to maximise liquidity. And it means far less hassle for the company as there is no continuous disclosure. We intend to launch this secondary market when demand from investors builds up to an appropriate level.

Q: What’s your motivation behind Snowball Effect?

A: We’re driven by the significant positive economic impact we can make by building a thriving marketplace to connect growth companies with the capital they need.

Along the way we hope to develop the general financial literacy of the New Zealand public, and bring far more meaning, excitement, and engagement to investing.

466 60 23 45 18 86 $10K+ INVESTMENTS

$50K+ INVESTMENTS

$100K+ INVESTMENTS

AVERAGE INVESTOR AGE

YOUNGEST INVESTOR

OLDEST INVESTOR

THE ECONOMIC INEVITABILITY OF

DONALD TRUMP It’s not that long ago that the statement, “The presumptive Republican presidential nominee, Donald Trump”, would have been greeted with laughter or that quintessential Kiwi response, "yeah right"! But here we are with Donald Trump in fact the Republican presidential nominee.

There has been a lot of theorising as to why this could happen and why it has happened. In this article we share Lombard Street Research’s paper, “The Economic Inevitability of Donald Trump”.

Article by Richard Batley LOMBARD STREET RESEARCH Perception7 / Shutterstock.com

16 • NUMBERS Spring 2016

T

HE GLOBAL FINANCIAL CRISIS WASN’T just a financial market event, it was a structural break in the pattern of global growth. For most of the post-war period the global economy grew at a comfortable, reflationary pace as ever-higher US household leverage monetarily accommodated all the positive supply shocks the world threw at it. Policymakers’ ultimate nightmare, a 1930s-style global debt deflation, was avoided.

In hindsight, it couldn’t last; the imbalances ultimately became unmanageable. By the 1970s the fixed exchange rates intended to bring stability to the system had to be jettisoned and the global economy that was first imagined at Bretton Woods in July 1944 finally expired in or around September 2008. The deleveraging of the US household sector that followed has been beneficial to the US economy but has wrought havoc elsewhere. Nine of the 10 largest Asian economies are experiencing deflation; China, the world’s second-largest economy, has been forced down its own path of rapid debt accumulation in order to keep output volumes growing.

As investors we tend to think of the imbalances of this growth model in capital flow terms – What is the global savings rate? What impact is it having on real rates? etc.

However, to manufacturing sector workers in the US, the corresponding trade deficit is felt directly in income, wealth and jobs. Since the start of the final, most unstable phase of the post-war growth model triggered by the Asian Financial Crisis in 1997-98, the second-lowest 20% of US households by income have lost 53% of their net wealth in real terms.

2013

LOWER-MIDDLE CLASS BEARS THE BRUNT OF GLOBAL IMBALANCES Net wealth by income percentile (in 2013 $)

1998

SOURCE: Federal Reserve Survey of Consumer Finances

1998 2013

1998 2013

1998 2013

LOWEST 20%

SECOND LOWEST 20%

MIDDLE 20%

TOP 10%

FROM FINANCIAL CRISIS TO POLITICAL CRISIS Just as the capital flow imbalances generated by the post-war model ultimately produced a generational financial crisis, so the resultant wealth and income imbalances have now led to a moment of extreme political anxiety. The populism evident in many countries can be best understood as the decline of political settlements that attended the old stable, reflationary growth. This decline has taken different forms. In Europe we see the increased popularity of anti-immigration politicians; www.staplesrodway.co.nz

the UK electorate is questioning its relationship with that flagship institution of post-war stability, the European Union; and in the US one of the main political parties has been subject to a hostile takeover by a candidate with an explicitly mercantilist economic policy.

‘TRUMPIAN NEO-MERCANTILISM’ Equating trade with “winning” and “losing”, as Donald Trump frequently does, is meaningless nonsense at a macroeconomic level. But at a micro level, to those Americans exposed to a gaping trade deficit in manufactured goods via low wage growth and plummeting net worth, it does indeed feel like “losing”. ‘Trumpian neo-mercantilism’ (I’m guessing that phrase won’t catch on) is therefore a socialised version of the original theory: a need to run surpluses not in order to stockpile gold, as was the case in the sixteenth century mercantilist exposition, but in order to stockpile jobs. It is the same mercantilist policy, with precisely the same objective, that Beijing has been engaged in for the last two decades.

If eliminating the deficit in trade volumes becomes the objective of US policy and a large portion of the deficit is with China, the US economy will have to behave more like China’s.

And, unsurprisingly, this is what Donald Trump proposes, including measures such as government control of corporations’ investment decisions and tariffs to protect domestic industries. But Trump is a function of an economic and social reality that has been decades in the making, not the cause of it. To paraphrase Voltaire, if he did not exist it would be necessary to invent him.

A RETURN TO POLITICAL FORM The political fallout from the end of the post-war growth model is probably just starting. However, as with the persistent, reflationary growth of the post-war period, it is the political stability of recent decades that is the anomaly, not the new, unstable populism. During the deflation of the late nineteenth century, the two-party system in the US was severely called into question, while the historical precedents of the UK turning its back on a troubled, volatile Europe and “choosing the open sea” (or at least attempting to) are too numerous to mention.

AND WITH IT THE RETURN OF POLITICAL RISK Like, I suspect, many of Lombard Street Research’s readers, the formative period of my investment career was the early years of the twenty-first century. We learnt that political risk, except perhaps in a few unfortunate emerging markets, was safely separate from investment risk. Those days have now passed. They are sadly missed.

Article by Lombard Street Research, an independent UK based economic commentator and investment advisory firm that predicted the global financial crisis. Reprinted with permission. The views expressed are not necessarily those of Staples Rodway or its employees.

NUMBERS Spring 2016 • 17

MAI CHEN

Mai Chen is the Managing Partner in the law firm Chen Palmer, and is one of New Zealand's top lawyers, particularly in the field of public law. We sat down with her to talk discrimination, diversity and the difficulties of balancing her demanding work and busy life.

Interview by Nicola Hoogenboom & Annette Azuma STAPLES RODWAY WOMEN IN BUSINESS www.staplesrodway.co.nz/wib

Q: Why did you become a lawyer in public law?

A: My family had come to New Zealand and I had experienced discrimination at an early age, so I became interested in power, who had it, how you could regulate it and how the state could intervene. I came into public law through an interest in discrimination and human rights, which was fine as an academic, but once you enter private practice, you don’t do that much human rights and discrimination work, unless of course you specialise in employment. We do specialise in employment law, but the reality is that most of my career for the last 30 years has been focussed on advising business on all sorts of regulation and law reform, judicial review, and government inquiries.

Q: Have you found more discrimination as a woman or in terms of diversity?

A: That’s what I’m working on right now, the Diversity Matrix: What Diversity means in the 21st Century, which follows the Superdiversity Stocktake. The Stocktake was very successful, with over 100,000 downloads of the report. It is clear that there is a big gap and I think that a business needs to be applying a superdiversity framework to its clients and their needs and to staff and their needs. And of course the two are symbiotic, if you’ve got clients who need cultural understanding and the ability to be communicated with in different languages, it’s equally important that you’ve got staff capable of meeting those cultural and language needs. The real issue is that New Zealand is changing demographically and ethnically and, in Auckland in particular, it has already transformed, so coming up here to live has been very important for understanding that.

The Diversity Matrix is about the fact that we tend to look at single issues, like gender or ethnicity, but actually there is a compounding effect for people like me, because I am a coloured woman. So if you look at all of the statistics, for example pay equity, you’ll find that coloured women are right at the bottom.

The pecking order in terms of who is paid the most to least is white men, white women, coloured men and then coloured women. So we all come as packages. People suffer discrimination because of combinations of disability, age, sexuality, nationality, culture, ethnicity and religion, and other grounds. I would like to refresh the vision of diversity in the 21st century. I think we need to have a different approach to diversity.

Q: How do you think New Zealand is doing in terms of diversity?

A: I think New Zealand is doing alright, but the trouble is that we fell into superdiversity more by chance than by design.

Now we need to be more deliberate about ensuring we maximise the benefits and minimise the challenges. Instead of just seeing it as a human rights issue, which it is, or an ethnicity issue, which it is, or a gender issue, which it is, we need to see it as an issue affecting our economy and affecting the success and growth of business and talent. Not an hour ago, I was in a room with marketers, who were trying to get their heads around marketing to a completely ethnically different client base. In New Zealand your client base has changed and so you need to change with it. What do these New Zealanders need?

What do they want? How do you best service them? How are their expectations different because they come from very different countries? In Auckland at the moment, 44% percent of www.staplesrodway.co.nz

the population were not born here. What implications does that have for recruitment? I would have thought fundamental.

Q: What difficulties have you faced along the way?

A: Being a woman has its difficulties, but it’s been compounded by also being Chinese. I have found being Chinese a lot more difficult because you are so visually different. A lot of people think that I have spent my life trying to be different, but I’ve just spent my life being me. Sometimes people have said that “you don’t toe the line” and I just say, “well tell me where the line is and I’d happily toe it”. It is just that when you come from somewhere very different you don’t have the same perspective, you’re not trying to be difficult, it’s just that you see things differently.

Q: What do you feel would help aspiring female lawyers?

A: I think that success is the same for everybody. I am an Adjunct Professor at the Auckland School of Law and run a Top Practioners Series. We had Lady Deborah Chambers QC speaking recently and I asked her, “what are the characteristics of a great lawyer?”. She said that you need to be tough, you need to endure, you need to know how to fight in the trenches, you need to work hard, you need to be courageous, and you need not to be afraid of fighting back. Law is a difficult profession and if you don’t have those characteristics, then you’ll find it hard to succeed. Obviously if you encounter a few more barriers, whether it’s sexism or racism or both, it doesn’t help, but you just have to wake up in the morning, put on your suit, go to work, and do your best.

Q: Do you find it easier now that you’ve made your name and people look up to you?

A: I’m still subject to the same slings and arrows as everyone else. If you cut me, you will find that I still bleed the same way.

It isn’t easy, doing what I do. The work I do is often last resort, other lawyers have a go, if it doesn’t work, it turns up on my desk. I get a lot of requests to help people and it is hard to meet the need, but I try my best.

Q: Do you enjoy what you are doing?

A: I think I am used to very challenging work. I think that because of my background and because of the fact that from the age of 6 when we immigrated to NZ, nothing was easy, I have a high tolerance for difficult work. It is difficult for a woman, because if you’re a tough lawyer, they say “she’s a bitch”. But you say to yourself, if I was a tough male lawyer, would I get the same treatment? Well look, at the end of the day I don’t think about gender or race. The mark of a great lawyer is that you can “sail in all weathers.” Regardless of what happens, you’ve just got to make the best of it. Clients only come to you if it’s “jam-sidedown”, if they had been able to fix the problem themselves, they would have.

Law is interesting and balance is hard to achieve with the rest of your life. The difficulty is that quite often my load is one difficult thing after another. And as managing partner of the firm, people arrive in your office when there is a crisis. There are days when everyone is in your office yelling at each other. So yesterday, for example, I just decided to go to yoga. I thought that was just the best way of saying to myself “I’m doing something for you Mai”. So I did. I went to Yoga and I had a good night sleep.

NUMBERS Spring 2016 • 19

Q: How do you maintain a good work/life balance?

A: You are involved in three marriages in your life, the first to your work, and my marriage to my work is pretty healthy.

Then you have a marriage to your partner and to your family. I am spending a lot more time there. I have just celebrated my 30th wedding anniversary. There are some things in life that give you the greatest happiness and you realise that you don’t spend as much time there as you should. At the end of the day, when I die, my clients will be a bit upset, then they will go and find another lawyer. My staff will be a bit upset, but then they’ll go and work for somebody else. But actually my family will be very upset, and they give me the greatest joy.

And the third marriage, is to yourself. Now, I’ve never had a marriage to myself because that was the one you skimped on. If you had to stay up late to spend time with your husband and family and to finish your legal work, you did that, you skimped on exercise or sleep. I never ate properly because meals are one area where you can save a lot of time. And often when I work very hard I forget to eat, which is extremely good for my figure!

The reality is that over time, you realise that you need to have all 3 marriages in good working order, because otherwise you just burn out. I am spending more time on self-care than ever before.

Q: What are your proudest moments?

A: I was very proud celebrating my 30th wedding anniversary, I’m very proud of the fact that my family has made a good contribution to our adopted country. I am very proud of the fact that I love my family and we get on very well. I am proud of the fact that I do a lot of pro bono work and that it’s been successful and good for New Zealand. When I got top 10 finalist at New Zealander of the Year, twice, I was proud of that.

Q: Who do you look up to?

A: I derive inspiration from everybody. We have to energise ourselves, I have to derive inspiration every day. I try to do one thing for myself every day. Tomorrow it is a walk with my husband. Today it is visiting my favourite dressmaker.

Q: Do you have any style tips for women who want to be successful in Law? A: Clients expect you to look nice and I’ve decided that looking nice is important to how you feel. I think it is important to dress for yourself. Because when you feel good, you are better at advising people. I am wearing less jewellery than I was, but buying more signature pieces of clothing. I don’t buy a lot, but I buy stuff that I love and I wear it a lot. I have a beautiful tanzanite ring that I wear every day. I figure if I wear it every day, it only works out to $5 a day! I have an Apple watch now. It is marvellous. It tells me everything that I need to know and with it, I don’t need a PA. This morning I had 45 minutes to run the dog, make sure my son had his lunch, feed the dog, shower, dress and get out the door to take Jack to school in time for band practice. So I need a lot of outfits that look good with no effort. If you put on a black dress, you can grab a great jacket and you’re away.

Just make sure you’ve got matching jewellery.

Visit www.staplesrodway.co.nz/wib for the full interview.

20 • NUMBERS Spring 2016

STAFF INDUCTIONS UNDERRATED AND UNDERUTILISED With any new hire, most organisations want a new employee to ‘hit the ground running’ and more often than not, due to work demands, the induction process (aka ‘on-boarding’) is ad hoc, under-rated and underprepared. As a result, new employees can be poorly armed for success in their new role.

W

ITH AN INADEQUATE INDUCTION COMES the risk that the new employee is not thoroughly informed about all aspects of the role, the company, how things are done, or on more crucial policies and processes. Joining a new workplace is daunting at the best of times, let alone when no structure is provided.

PREVENTION IS OFTEN THE BEST CURE Sadly, businesses are prepared to spend significant time and energy (and recruiter’s fees) finding the right person, but little time in making sure that person is happy and is getting the most out of them when they start work.

Undertaking a robust induction process can be a means for avoiding performance related issues or issues of conduct. As HR consultants often we are brought in to assist with staff performance issues that could have been addressed if expectations had been clearly established at the outset of the employment relationship. Simply relying on the employment agreement and a job description is not enough.

Induction is your opportunity to set out clear parameters and requirements and let the employee know “how we do things around here”. It can seem time consuming, but from a long term perspective it is the most cost effective method of employee management you can embrace. By allowing time for new employees to receive a thorough induction, you’ll ultimately save time, resources and money by reducing future performance-related matters. You’ll also spend less time and money on finding replacements.

Article by Andrea Stevenson and Rebecca Marshall HR CONSULTANTS, STAPLES RODWAY HAWKES BAY astevenson@stapleshb.co.nz • rmarshall@stapleshb.co.nz

SO WHAT DO WE DO? Induction doesn't have to be a formal process and will vary between workplaces. It does however need to be properly planned, and consistently delivered to ensure that all new employees are treated fairly and receive the same information. Having a checklist helps ensure that all areas are covered. Not only does it start the employee off with the right information to ensure maximum productivity as quickly as possible, but it also fulfils your legal obligations to train new employees in safe work practices.

An induction programme can vary from one day, to one week, or staggered across months. Having ‘check-ins’ while the employee is getting established in their role is also invaluable in establishing what is going well, not well, and what support might be needed. These don’t need to be in-depth sessions, but they establish a relationship of communication and help to enable the employee to succeed in their role.

So what are some key areas to include in an induction checklist? The following is a good start: � An introduction to the company/department and its organisational structure � The layout of the establishment, depending on the building size and structure � The terms and conditions of employment � Relevant people policies, such as training and promotion � Health and safety � The company rules/guidelines and procedures

� A rrangements for your new employee’s involvement in their business area/team � Employee benefits and facilities

HEALTH AND SAFETY Incorporating a thorough health and safety induction will help you meet your obligations under the recently introduced Health and Safety at Work Act 2015. If your policy and induction do not reflect the new legislation, then this is a timely prompt to look at what you are doing here.

PULLING IT ALL TOGETHER When talking with our clients, a natural progression from the content of their induction process typically flows through to company guidelines, policies and procedures.

Ask yourself if these are documented or if it is taken for granted that people ‘just know’. Considering what needs to be documented to ensure a consistent message is being delivered is important. If there are protocols that are specific and important to your business, be it defining appropriate social media use at work or addressing dress code, they need to be communicated.

It’s all about the old adage “begin with the end in mind”. We encourage you to utilise this valuable time at the beginning of the employment relationship to establish norms and parameters and take a conscious approach to aid your new employee to become fully operational and integrated into your organisation.

If you would like some guidance on how you can improve the on-boarding/induction of your new employees, please contact our team of HR Consultants: Andrea Stevenson, Staples Rodway Hawkes Bay, astevenson@stapleshb.co.nz; Chris Wright, Staples Rodway Auckland, chris.wright@staplesrodway.com; Julie Rowlands, Staples Rodway Taranaki, julierowlands@staplestaranaki.co.nz; or Norma Blackett, Staples Rodway Tauranga, norma.blackett@staplestga.co.nz.

ASK AN EXPERT In our new regular feature we answer readers' questions on any area in the world of finance, accounting, audit, tax, and other business-related areas.

This issue’s question is in relation to upcoming changes to audit reports.

Take advantage of our expertise and send your question to questions@staplesrodway.com and one of our specialists may answer it in a forthcoming issue of NUMBERS.

I do the accounting for a credit union and we are not listed. I’ve heard that the format of the audit report is going to change at the end of the year for some entities. Can you please let me know what these changes are?

Answer from Nigel de Frere, Audit Director, Staples Rodway Auckland

T

HE INTERNATIONAL AUDITING AND ASSURANCE Standards Board (“the IAASB”) has made a number of changes to the structure and content of audit reports. These changes have been brought about by the issue of a new International Standard on Auditing (“ISA”) and the revision of a number of existing ISAs. The new and revised ISAs have been ‘New Zealandised’ and are effective for audits of financial statements for periods ending on or after 15 December 2016.

Early adoption is permitted.

The most obvious change in audit reports issued under the new standards will be their content and length. While current audit reports run to between one and a half and two pages, the new reports are likely to at least double in length.

1. KEY AUDIT MATTERS The single most significant and potentially controversial change will be the inclusion of what the standard describes as ‘Key Audit Matters (KAMs)’. The audit report will be required to identify key audit matters, and, for each key audit matter, state why the matter was one of most significance to the audit, explain how the matter was addressed in the audit and reference any related disclosures in the financial statements.

Key audit matters are defined as those matters that, in the auditor’s professional judgement, were of most significance in the audit of the financial statements of the current period.

www.staplesrodway.co.nz

2. GOING CONCERN

?

The primary changes in relation to going concern matters are: The provision of new guidance to support the auditor’s evaluation of disclosures when a material uncertainty exists A new requirement for the auditor to evaluate the adequacy of disclosures in “close call” situations Where there are material uncertainties in relation to going concern, the audit report shall highlight the existence of those uncertainties and either draw attention to those uncertainties through disclosure, or, if the disclosures are inadequate, a modified opinion as the first section of the auditor’s report A new requirement for the auditor’s report to include descriptions of the responsibilities of the auditor and management in relation to going concern

3. OTHER CHANGES Other amendments include: Placement of the audit opinion at the beginning of the report Key explanation of the auditor’s responsibilities and independence The engagement partner’s name on the report (rather than just the firm) Note: The above is general advice only and should not be relied upon as specific circumstances can vary. Please contact your Staples Rodway advisor for specific advice.

NUMBERS Spring 2016 • 23

ARE YOU PREPARED FOR

RETIREMENT?

In the Winter 2016 issue of NUMBERS we covered the topic, “Setting a Retirement Spending Policy”. Now, in association with Associate Professor Joanne Earl and her team at Flinders University in Australia, we look to expand the requirements for successful retirement beyond purely financial considerations. Associate Professor Joanne Earl and her team have developed the concept of a “Retirement Resource Inventory”. In this article we present a summary of Professor Earl’s findings and, if you are curious, we provide a link to enable you to obtain the full report.

H

AVE YOU EVER WONDERED WHY some people seem to better adjust to retirement, but others do not? Or that people’s levels of adjustment during retirement seem to fluctuate? Firstly, it might be worthwhile explaining what is meant by being adjusted to retirement. In research conducted by Associate Professor Joanne Earl and her research team, the types of questions asked to determine if someone is adjusted, include whether people enjoy being retired, are busy, do not miss the stimulation or discipline that work provided, and feel respected. Questions also address matched expectations and adjustments to living standards.

According to research, about one third of retirees fail to adapt to the changes in circumstances that retirement demands. A lack of adjustment or a fluctuation in adjustment might be partly explained by the resources accumulated and accessed during retirement. A researcher in America, Mo Wang developed a theory known as the dynamic theory of resources. According to the theory, adjustment in retirement is determined by 6 key “pools” of resources: financial, health, social, motivational, cognitive, and emotional.

and knowledge, processing information quickly, and being able to solve problems and to make good decisions. On-going and realistic goal setting in retirement is as important as preplanning for retirement and these are included in motivational resources along with increasing effort in the face of difficulty, fighting to reach goals – even when things seem hopeless, adapting to changes in circumstances, and finding a new approach when things do not go as planned.

Mo Wang proposed that, as resources in each of these pools fluctuate, so does adjustment. In order to test Mo’s theory Associate Professor Earl’s research team developed a measure known as the Retirement Resources Inventory. The development was funded by a research grant provided by National Seniors Australia and was published in the international publication “Journal of Vocational Behaviour”. Her team discovered that not only do the resource pools help to explain retirement adjustment but that some “pools” are more important than others. Finance and health count most, then social followed by emotional, motivational and cognitive. The old saying your “health is your wealth” is not too far from the truth.

THE 6 KEY RESOURCE POOLS FOR RETIREMENT

FINANCIAL

HEALTH

SOCIAL

Financial resources includes covering costs of family living expenses, personal savings, investments, and superannuation. Health includes having good overall health, an absence of major physical illnesses or mental disorders, as well as having enough energy to carry out daily activities or activities of interest. Social resources include having friends to interact with regularly, easy access to family members, knowing people from a variety of sources, and having informational, emotional and tangible support from others (e.g. meals, chores, repairs, transport).

Emotional resources include demonstrating positive emotions (i.e. being interested, alert, inspired), being aware of one’s own and other’s emotions, having a sense of control, and feeling like you are a person of worth. Cognitive resources include remembering where things are, recalling events from the past, meanings and spelling of words, learning new skills

MOTIVATIONAL

COGNITIVE

EMOTIONAL

This is because of the important inter-relationship between health and finances – continuing to work or transition to parttime work is dependent on good health while poor health can drain financial resources.

Associate Professor Earl has partnered with National Seniors Australia to develop an automatically scored version of the retirement resources inventory as well as a series of online training modules addressing each of the different resource areas.

Staples Rodway Asset Management is a boutique investment advisory service that specialises in providing personalised and impartial investment solutions for individuals and trusts. The team of four qualified advisers is very experienced in assisting retirees and pre-retirees develop investment plans that meet their objectives. Please contact our advisers on 0508 220 022 or enquiries@sraminvest.co.nz

For more details about the retirement quiz you can download a copy by registering at nationalseniors.com.au/beinformed/research/publications/retirement-quiz or for access to an automated version of the quiz contact Kerry Broodryk, Corporate Membership Executive at National Seniors Australia at k.broodryk@nationalseniors.com.au

www.staplesrodway.co.nz

NUMBERS Spring 2016 • 25

LUSTY'S LAGOON MAKING A SPLASH Staples Rodway Waikato’s client, Lake Taupo Holiday Resort, has increased their guest nights by nearly triple the industry average since December 2015. We find out how they did it.

L

LOYD AND TRISH LUSTY OF Lake Taupo Holiday Resort (LTHR) had a vision when they bought their holiday park “Create the best holiday park in New Zealand”. Simple, but no less challenging.

In 1996 they took on the challenge of a 12 unit Holiday Park on the outskirts of Taupo. They knew they needed something iconic and to offer more than accommodation. They needed to be a destination in their own right.

Push forward 20 years to 2016 and they are standing alongside the Prime Minister of New Zealand, John Key, at the official opening ceremony of New Zealand’s largest privately held pool complex ‘Lusty’s Lagoon’.

a gigantic outdoor LED screen. The pool was constructed in partnership with ecoSprings and uses a patented, high quality Italian resin never before used in New Zealand.

The pool holds one million litres of water and is thermally heated to 35 degrees year round.

Lusty’s Lagoon not only looks good, it is a technical, thermal masterpiece in action.

THE BUSINESS CHALLENGES LTHR operates within a complex environment with the following key business challenges: Occupancy fluctuations; seasonal, weekly Length of stay; transit guests travelling through NZ only staying one night Competition variety; Holiday parks to motels and holiday homes Occupancy: LTHR averages occupancy above 80% in January but the rest of the year occupancy shifts between 80% on weekends and well below that mid-week. These extreme fluctuations put pressure on LTHR through staff planning, facilities management and business confidence.

Length of stay: The majority of guests to LTHR are leisure based (families, couples, individuals) and on average stay less than 2 nights. This represents a challenge when delivering value and visitor experience as the guests do not use or experience the facilities and activities available.

Competition: Because of the wide range of accommodation options LTHR offer - from motel units to non-powered camp sites - they find themselves competing with multiple sectors of the accommodation industry; Holiday parks, camping grounds, motels, hotels, AirBnB, bed & breakfast, DOC campgrounds and freedom camping.

ULTIMATE CHALLENGE: UNIQUE VALUE PROPOSITION The individual challenges of occupancy, length of stay and competition all come down to one key challenge, creating a unique value proposition (UVP). They identified that a year round ‘iconic feature’ at the resort would position LTHR as a destination within a destination. Potential guests would have a unique reason to stay longer, spend more and return to LTHR.

THE CREATION OF LUSTY’S LAGOON Two years, and more than $2million later, they have a 790m2 thermally heated lagoon boasting New Zealand’s first swim up bar and café with a full restaurant kitchen, a swim in cave, and

www.staplesrodway.co.nz

The pool holds 1 million litres of water

HAS LUSTY’S LAGOON DELIVERED? The first guest was invited in to Lusty’s Lagoon in late December 2015. Since that date Lloyd and Trish have reported an increase in guest nights of nearly triple the overall industry increase for the same period. But most impressive is the results shown in the continued increase in occupancy during low and shoulder seasons. Even more important to ongoing profitability is the increase in occupancy during the week.

Revenue has increased Guest nights have increased Average stay has increased Occupancy has increased Seasonality impact is reduced When asking Trish and Lloyd how they feel about the project the response is mixed; “It was nerve-wracking, stressful and challenging” but the end result? “It has blown us away, given us everything we wanted and more. It’s fantastic – we have never seen so many happy visitors come through our doors outside of the main season. Even campervans are coming when we would normally get none!"

The project also highlighted the importance of a good cashflow forecasting model to help Trish and Lloyd with their decision making in the business. “It’s been great working with Staples Rodway to improve on our cashflow reporting. It certainly provides us and our bank manager with some certainty on what the future looks like."

So what’s next? A swim in the lagoon, a cocktail and a movie….

NUMBERS Spring 2016 • 27

ELECTRIC VEHICLES AND DRIVE ELECTRIC UPDATE Major changes have happened since our Spring 2015 issue of NUMBERS, where we reported on Drive Electric, an incorporated society which works to promote electric vehicles (EVs) in New Zealand. Those changes affect both the electric vehicle industry in New Zealand and Drive Electric.

R

EADERS MAY RECALL THAT NEW Zealand is one of the best-placed countries in the world for the introduction of EVs because of our reliance on electricity generated from renewable sources. EVs have many positive benefits including reducing New Zealand’s carbon emissions and improving the country’s balance of payments by reducing oil imports.

The New Zealand Government announced its Electric Vehicles Programme on 5 May 2016 with the aim of increasing usage of EVs in New Zealand. The Electric Vehicles Programme targets doubling the number of electric vehicles throughout New Zealand every year to reach approximately 64,000 by the year 2021.

The EV Leadership Group was announced by Simon Bridges on 24 August 2016 - members include Drive Electric Chair Mark Gilbert and Drive Electric board member Gary Nalder.

Drive Electric is entering a new and exciting phase with the proposed appointment of several new board members. The diverse board will cover all key industries within the EV space – including power companies, new motor vehicle dealerships, charging infrastructure, finance, fleet companies and environmental specialists.

Staples Rodway continues to support Drive Electric with pro-bono work and with Auckland Director Annette Azuma continuing on the board.

You can read more about Drive Electric at driveelectric.org.nz and further information about the Electric Vehicles Programme can be found by visiting www.transport.govt.nz/ourwork/climatechange/electric-vehicles

Article by Annette Azuma STAPLES RODWAY AUCKLAND annette.azuma@staplesrodway.com

THE KEY ELEMENTS TO THE ELECTRIC VEHICLES PROGRAMME � Extending the existing Road User Charges exemption for light electric vehicles � Introducing a new Road User Charges exemption for heavy electric vehicles � Work across Government and the private sector to investigate co-ordinated bulk purchasing of EVs � Support the development and roll-out of a public charging infrastructure � A nation-wide EV information and promotion campaign � A contestable fund of up to $6 million per year to support innovation � Enabling EVs to access bus and high occupancy vehicle lanes � Review of tax depreciation rates and the method for calculating fringe benefit tax for electric vehicles � Review ACC levies for plug-in hybrid EV � Establishment of an EV Leadership Group

GILLIES McINDOE RESEARCH INSTITUTE

GALA DINNER P

ROUD SPONSORS OF THE GILLIES McIndoe Research Institute (GMRI), Staples Rodway Wellington hosted clients at this prestigious fundraising event on 21 July at the Boatshed in Wellington.

GMRI is the brain child of world renowned plastic surgeon and cancer research scientist, Dr Swee Tan. Dr Tan is most well-known for isolating the gene that causes strawberry birthmarks in children and has pioneered the research which found a cure for the disfiguring tumours. These tumours can now be cured in a matter of months.

Rodney) and hosted by TV personality Mark Sainsbury, the evening raised over $80,000 for the GMRI thanks to the sponsors and the masterful auctioneering of Marty Scott, from Harcourts Wellington.

Dr Swee Tan & Mark Sainsbury

Staples Rodway Wellington’s involvement with GMRI began when former partner, the late Graham (GT) Langridge joined the Board at its inception. The firm has continued to support GMRI since that time by providing pro bono services.

David Hulston now sits on the Board, providing high level financial and business advice.

With over 170 guests at the Gala Dinner, beautiful singing by 14 year old Tiana So’oialo (daughter of former All Black,

Sylvia van Dyk, Robert Elms from Staples Rodway & Judith Langridge

RETIRED TARANAKI DIRECTOR WINS QUEEN’S SERVICE MEDAL Proving that retirement doesn’t always involve slowing down, Staples Rodway Taranaki retired Partner, Robin Brockie, has been awarded the Queen's Service Medal in the Queen's 90th Birthday Honours for his services to the community.

With 43 years in the industry Robin’s governance experience includes roles with the Dame Malvina Major Foundation, Venture Taranaki Trust, Tui Ora Limited, Anglican Diocese of Waikato and Taranaki and the Taranaki Arts Community Trust.

Robin is known for his enthusiasm and commitment to his work and even though he resigned from his role as Staples Rodway Director last year, has now been appointed as Chairman of the Western Institute of Technology at Taranaki council.

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

HAWKES 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

30 • NUMBERS Spring 2016

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