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NE WS L E T T ER
REDUCED FINANCIAL REPORTING
REQUIREMENTS FOR SMEs
SUMMER 2014
Contents
Reduced financial reporting
requirements for SMEs 1
Tax Payments – when received 2
in time
Snippets3
New Rules for companies
4
Vanburwray News5
TAX CALENDAR
January 15 2015
2nd instalment of 2015 Provisional Tax
(March Balance date except for those who pay provisional tax twice
a year)
Pay GST for period ended 30 November 2014
March 28 2015
2nd instalment of 2015 Provisional tax (June balance date)
April 7 2015
Terminal Tax for 2014
(March April, May and June Balance dates)
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Recent changes to the Financial Reporting
Act 2013 (FRA 2013) have changed the
requirements for entities that are not “large” by
definition.
Broadly, this means that most NZ
businesses will no longer have to prepare
financial statements that comply with New
Zealand Generally Accepted Accounting
Practice (NZ GAAP). Recognising that this
could lead to a reduction in the disclosure of
financial information by a business, the IRD
has introduced its own minimum standards.
The standards are aimed at providing the IRD
with a basic level of information so that it can
adequately assess a business’s performance.
From 1 April 2014, the IRD requires
companies (including look-through companies)
that have annual revenue of $30 million or less,
and assets of $60 million or less (or subsidiaries
of multinational companies with less than $10
million of annual revenue and assets of less than
$20 million) to prepare financial statements
that meet its stated minimum requirements.
Entities that exceed these thresholds are
required to prepare more extensive financial
statements as per the standards set out by the
External Reporting Board.
Some extremely small companies will be
exempt from the IRD’s minimum requirements,
as follows:
Companies that:
• are not part of a group of companies, and
• have not derived income of more than
$30,000, and
• have not incurred expenditure of more than
$30,000 in an income year.
• Non-active companies who are not required
to file a return.
Minimum Requirements
Under the IRD’s minimum requirements, the
financial statements must contain:
• a balance sheet setting out the assets,
liabilities and net assets of the company at
the end of the financial year,
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• a profit and loss statement showing income
derived and expenditure incurred for the
year,
• a statement of accounting policies describing
the basis on which the accounts have been
prepared, and a description of any material
changes in accounting policies used since
the previous income year.
The statements must be prepared using
double entry and accrual accounting principles.
There are also certain valuation principles that
may be applied. Tax values may be used where
they are consistent with double entry and accrual
accounting, or historical cost when tax values are
not consistent with the accounting principles
used, or when historical cost provides a better
basis for valuation. Market values may be used if
they provide a better basis of valuation than tax
values or historical cost. Interest and dividend
income must be grossed up to include resident
withholding tax and imputation credits.
There are also presentation requirements that
state the accounts must show:
• comparative figures for the prior income year,
• if the accounts are GST inclusive or exclusive,
TAX PAYMENTS WHEN RECEIVED IN TIME
Despite our best efforts, many of us are
familiar with the consequences of making late
tax payments to the IRD. Often, the problem is
not just that we forget and leave it to the last
minute, but that the payment we make is not
processed or received by the IRD in time.
Late payment penalties and use-of-money
interest can often be prevented by simply paying
tax on time. The IRD has released an updated
Standard Practice Statement (SPS 14/01) setting
out when different types of tax payments will be
accepted as having been paid by the due date.
Importantly, it contains several amendments to
the previous standards, particularly in relation
to payments by post and payments made at
Westpac. These changes took effect from 1
October 2014. To ensure your next tax payment
is not late and subject to interest and penalties,
it is important to familiarise yourself with the
standards, as summarised below.
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tax reconciliation to accounting profit,
tax fixed asset register,
reconciliation of shareholders equity for the year,
relevant amounts from the financial statements summary (IR 10),
notes to support any amounts disclosed as exception items on the IR 10.
In addition to the above requirements, specific
disclosures are required for foresters, livestock
owners, and transactions with associated
persons.
These are a minimum set of requirements.
A higher level of reporting can be adopted
if required. The IRD will also accept accounts
prepared under NZICA’s special purpose
framework.
In recent years the IRD has become more
adept at collecting and analysing financial
information for investigative purposes. Care
needs to be taken to disclose the right level of
financial information, but always put it through
an IRD lens to ensure it is presented in the most
favourable light. A misunderstanding by the
IRD when reviewing information could lead to
unnecessary and costly IRD scrutiny.
Payments by post – previously, the IRD
based the payment date on the post date on
the envelope. This is no longer the case. Instead,
the IRD will deem the payment date to be the
date the envelope is received. As a result, if your
routine is to post the cheque on the due date,
you may need to put it in the post a day or two
earlier.
Electronic payments – payments made
electronically or by direct credit into an IRD
account must be completed before the end of
the bank’s online “business hours”.
For example, if a GST payment is made on 28
April at 10.30pm but the bank’s internet banking
cut off is 10.00pm then the payment will not
be processed that day and could be treated as
late. This also applies to payments made from
overseas (bearing in mind the international time
difference).
Physical delivery – payments made by
cheque must be delivered to an IRD office before
it closes, by the due date.
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Cash & EFTPOS – all cash and EFTPOS
payments must be paid over the counter
at a Westpac branch by the due date. It is
important to note that returns must still be
filed electronically, posted or delivered to the
IRD (Westpac will accept the payment but not
the actual tax return).
Post-dated cheques – post-dated cheques
will not be banked by the IRD until the specified
date. If it is post-dated after the due date then
it will be treated as a late payment (even if it
was received before the due date).
SNIPPETS
Tax residency case overturned
A recent Taxation Review Authority (TRA)
case concluded an individual was a New
Zealand tax resident despite being absent from
New Zealand for a long period of time. In brief,
the decision was a consequence of having an
investment property that was ‘available’ to him
in New Zealand and an on-going relationship
with his family and ex-wife.
On appeal to the High Court, the TRA’s
decision has been overturned. The High
Court held that the individual was not a New
Zealand resident as he had never lived in the
New Zealand investment property; therefore it
could not be regarded as his ‘home’. Although
he did have other, on-going, personal
connections with New Zealand, in the absence
of having a ‘home’ or ‘house’ in New Zealand,
these connections did not alter the conclusion
reached.
This case provides a sigh of relief, as the
original TRA decision was of some concern.
Although every individual’s situation is
different, the High Court decision should give
New Zealanders living and working overseas
with an investment property in New Zealand
some peace of mind.
Drones reveal tax evasion
Tax avoidance is a big problem for many
governments around the world with some
countries going to great lengths to identify and
hold tax avoiders accountable. In particular,
Argentina has started using drones to catch
people who fail to declare certain items of
property in their tax returns.
According to news reports, tax authorities
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Take note that from 1 October 2014, Westpac
stopped accepting cheque payments so these
must now go directly to the IRD.
Weekends & public holidays – if a due date
falls on a weekend or a public holiday then
electronic payments will be accepted on the
next working day. This includes all provincial
anniversary days.
Whatever your preferred method of
payment, adhering to these updated and
clarified standards will enable you to avoid
unwanted interest and penalties.
have sent drones over wealthy areas of
Argentina to investigate the existence of assets
that owners may have failed to declare on their
tax returns. The unmanned aircraft have taken
pictures of at least 200 homes and 100 pools,
all of which were sitting on plots registered
as vacant. The drones’ findings amounted to
missing tax payments of more than US$2m
(NZ$2.55m) with owners of the properties now
expecting heavy fines.
Could New Zealand be next to catch on to
this trend?
Take care when setting remuneration
Rules exist to stop people paying too much
salary or profit share to a family member, as a
way of paying less tax.
Make sure any income you want to allocate
to a relative, working in your business, can be
justified.
If you get caught paying amounts you can’t
justify, IRD can reallocate the income. In most
cases the consequence will probably be a Use
of Money Interest charge going back three or
four years and potentially penalties. For small
companies, the company income is increased
by the amount deemed excessive and the
shareholder is deemed to have received a
dividend, with no Imputation credits attached.
A defence against excess remuneration in
a partnership or Look Through Company is to
have an agreement, which must comply with
these rules:
• Be in writing and signed by all partners.
• Binding for at least three years.
• All partners or owners must be over the
age of 20 when the contract was signed.
For partnerships, each partner must have
control over their share of profits and be liable
for their share of losses.
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The 80/20 principle applies widely
In 1906 Pareto, an Italian, noticed 80% of the
wealth in his country was in the hands of 20%
of the people. Others later noted the 80:20 rule
applied widely.
Thus 20% of something is always responsible
for 80% of the results. Twenty percent of your
stock will take up 80% of your shelf space or
storage; 20% of your suppliers will provide 80%
of your stock; 20% of your staff will cause 80% of
your headaches.
Knowing this principle can help your business.
If you know the 80% part, look for the vital 20%
creating this 80%. Work on the 20%.
As a manager, put 80% of your time into the
important 20% of your work.
Seven tips for email senders
Here are seven tips which will help email
readability.
1. Keep emails concise. Think about the message
you want to convey, and do it in as few words
as possible. Long emails don’t get read.
2. Draw attention with the subject line. Like a
NEW RULES FOR COMPANIES AND
LIMITED PARTNERSHIPS,
04 SEPTEMBER 2014
The Companies Amendment Act (No 4) 2014
and the Limited Partnerships Amendment Act
(No 2) 2014 passed into law on 24 June 2014.
These Acts strengthen the rules applying to the
governance, registration, and reconstructions
of companies and the registration of limited
partnerships.
Companies Act changes
As of 1 May 2015, new registration requirements
introduced by the Companies Amendment Act
2014 will affect new applications to incorporate
a New Zealand limited liability company with the
Companies Office. Existing companies on the
companies register will have 180 days to comply
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©©2011
2014
headline in a newspaper it should entice the
reader to look for more details.
3. Avoid attachments – they should only be
what someone requests. Never try to convey
a message with an attachment. Opening
an attachment is an extra step readers are
unlikely to take. Say what you want to say in
the body of the email.
4. Check the text. Proof read before you hit the
send button. Spelling mistakes and ‘textspeak’ are unprofessional.
5. Double-check forwarded messages. Beware
forwarding a message with a thread deep
down in the email that might have been sent
to you in confidence.
6. Never assume privacy. Assume that your email
will be read by others; after all you have no
control over what happens to your email once
you send it. So be courteous and respectful.
7. Take a breath. Never send an email in anger. If
you receive an annoying email, never respond
immediately. Put the email aside and reply
when you are calmer. Consider always leaving
those difficult emails until next day. You’ll be
more rational.
with the following New Zealand “resident
director” requirements.
• All New Zealand incorporated companies are
required to have at least one director who
lives in New Zealand or in an enforcement
country and is a director of a company in that
country.
• All directors must provide their place of birth
and date of birth.
All companies must supply their ultimate
holding company details (if applicable).
The Registrar of Companies will have more
power to identify the true owner of a company
by enquiring about:
• individuals controlling companies and
limited partnerships
• individuals controlling directors and general
partners, and
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• individuals that directors and general
partners may have delegated their powers to.
The Act also enhances the powers of the
Registrar of Companies to investigate noncompliance of companies by:
• creating criminal offences for serious
breaches of directors’ duties where:
• a director acts in bad faith and not in the
best interests of the company and knows
that this will cause serious loss to the
company
• a director dishonestly incurs debt for the
company when the company is insolvent,
or the director knew, the company would
become insolvent, and
• aligning the company reconstruction
provisions in the Companies Act with the
Takeovers Code.
Limited Partnership changes
The Limited Partnerships Amendment Act
2014 (and Amendment Regulations) came
into force on 1 September 2014. The changes
introduced are to increase confidence in New
Zealand’s financial markets and the regulation
of corporate forms. More stringent registration
requirements have also been introduced to
assist with New Zealand’s compliance with the
Financial Action Task Force on Money Laundering
(FATF) recommendations.
Limited partnerships registered after 1
September 2014 will be subject to the changes.
Existing limited partnerships (registered before
1 September 2014) have until 27 February 2015
to comply with the “resident general partner”
requirements. The principal changes include:
• new “resident general partner” requirements
• new qualification requirements for individuals
who are general partners
• collection of place of birth for all individuals
who are general and limited partners
• a requirement to provide additional
enforcement country information by
Australian residents who are directors of
Australian companies, and
• amendments to a number of forms.
The changes enhance the powers of the
Registrar of Companies to:
• prohibit persons from being a general
partner or promoter of a limited partnership
in certain circumstances
• identify the controllers of a limited partnership
• place a note of warning against a limited
partnership
• ascertain whether information provided is
correct
• deregister a limited partnership in certain
circumstances, eg non filing of annual return,
when the Registrar has reasonable grounds
to believe that the limited partnership
has intentionally provided inaccurate
information, and
• assist law enforcement agencies to meet New
Zealand’s obligations as a member of FATF.
Source: www.business.govt.nz/companies
VANBURWRAY NEWS
We welcome Jesse Watt to the Eichstaedt team and Rebecca Walker to the Darney team.
Jesse has recently completed a Batchelor of Commerce Degree at Victoria University majoring in
Accounting and Commercial Law. Jesse’s interests include tramping, regaining (random orienteering)
and music, including playing the piano.
Rebecca is studying a BBS by correspondence through Massey University.
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© 2011
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www.vanburwray.co.nz
© 2014
We extend to you our best wishes for a
Merry Christmas
and look forward to working with you in the New Year!
Our office will be closed from
12pm Tuesday 23rd December 2014
and will re-open at
8:30am Monday 12th January 2015.
To all of our Clients & Associates
have a safe and happy holiday!
from the Directors & Team at
VANBURWRAY CHARTERED ACCOUNTANTS LTD
If you have any questions about the newsletter items, please contact us, we are here to help.
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Friendly reminder: we have free client parking to
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reception and Caci Clinic.
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2014
All information in this newsletter is to the best of the authors’ knowledge true and accurate.
No liability is assumed by the authors, or publishers, for any losses suffered by any person
relying directly or indirectly upon this newsletter. It is recommended that clients should
consult a senior representative of the firm before acting upon this information.
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