New Zealand Tax Residency

To be treated as a New Zealand Tax Resident an individual needs to be in NZ for 183 days in a 12-month period or have a permanent place of abode.

There has been some recent development around the issue of permanent place of abode to establish New Zealand Tax Residency. If you are leaving NZ but still have ties to NZ and a place hypothetically available to stay (even if not immediately available, for example an investment property or holiday home) you could still be classed as a NZ tax resident and therefore need to pay tax on your worldwide income in NZ.

Furthermore tax residency can be backdated, for example a person coming to NZ on a holiday, then coming back a month later with family to settle, could be a NZ tax resident from the first time they stepped of the plane.

While needing to file two tax returns in different countries can be a hassle the good news is that for countries that NZ has a double tax agreement with you will be able to claim overseas tax paid to the level of the NZ tax due here on that income. You can go to IRD’s website and see which countries these are.

If you are leaving or entering NZ for more than a holiday it is important to talk this through with your Chartered Accountant and advise them of your intentions, your business interest and interests in trusts and companies as these can also be affected by your NZ tax residency status. We will help you meet your tax obligations and ensure correct disclosures are filed with the IRD.

If you are leaving NZ permanently and meet the criteria for being a non-resident for tax purposes, you would only be taxed in NZ on your NZ sourced income. To cease being a tax resident an individual needs to no longer have a permanent place of abode and be absent from NZ for more than 325 days in a 12-month period.

 

New Financial Reporting Standards: Simpler, Cheaper – or Not

There’s been quite a bit of publicity in the media about how, for the 2014/2015 financial year, Companies and Partnerships will be able to have simpler (and therefore cheaper) Annual Accounts prepared.

Unfortunately the reality is a little different. It is true that the reporting requirements will be less for some fairly large Companies compared to current requirements. And it is true that for some it will also be cheaper, this would be the case if your Chartered Accountant currently prepares more reports than are required – which we don’t.

At Savage & Savage we strive to prepare Financial Reports (Annual Accounts) that meet the user(s) needs and legal requirements, not more, not less, so for most of our clients there won’t be any major changes. Many of the companies we prepare financial statements for already take advantage of the current simplified statements option under the Financial Reporting Order and the only report not required in the future is the Annual Report. There will, in fact be two or so additional reporting requirements.

Some things haven’t changed. All companies must still keep proper accounting records and apply solvency test and prepare financial statements for other reasons and users. The following users of financial statements all have their own requirements:

Inland Revenue Department (see below)

Banks (if you have an overdraft, revolving credit, loan, mortgage or any type or facility with a security attached)

Industry regulatory bodies eg TAANZ, Law Society

Companies Office Act

Other specific legislations

 

IRD’s minimum requirements S&S current practice Change
Profit & Loss, balance sheet, notes & schedules Yes N/A
Using double entry, historical cost and accrual concepts, tax values acceptable Yes N/A
Statement of accounting policies Yes N/A
Financial statement to taxable income reconciliation No – not currently required *NEW*
Comparable figures for the previous year Yes N/A
IR10 key points alignment Mostly – as currently required *NEW*
Associated persons transactions (from 2015-16 year) including a reconciliation to Shareholders’ Current Accounts No – not currently required except as a note *NEW*

 

The only exemption to these minimum requirements is for small companies were neither income nor expenditure exceed $30,000 for the year and they are not part of a group. The only requirement for these companies by IRD will be to file a tax return. For clients that may fall into this category and don’t need financial statements for the bank, industry regulatory body or other legislation we will give you the option of not having Annual Accounts prepared. However, we still need to compile the information and prepare a summary of income and expenses that can be used in the tax return.

The New Zealand Institute of Chartered Accountants (NZICA) has developed a new framework that will be acceptable to IRD and other users including most banks for most clients, but each case is different. If you have an overdraft, revolving credit, loan, mortgage or any type or facility with a security attached you will need to contact your bank. In the next few days we will send clients a template letter to send to your bank.

As members of this professional body we are required to follow their recommendations and use the new framework for preparing financial statements.

It is likely the above will be extended to apply to non-Company entities in the near future.

Is it OK to become a Trustee or Director?

Obviously it is fine for you to become a director of a company you own. Becoming a director does come with responsibilities but as long as you operate within the law and meet your obligations as a director everything should run quite smoothly.

Do note however that the responsibility for a company trading within the law rests with the Directors not the Shareholders and if the company does not operate within the law then many of the protections offered by a limited liability company disappear. If you are asked to become a Director of a friends company tread with extreme caution, especially if your good friend is running the business and isn’t a Director – you will be taking on the legal liability for your good friend’s deeds and the end result may not always be a happy one.

People are often flattered if they are asked to become a Trustee of a trust or want to help a family member or friend by becoming a Trustee of a family trust. Again, tread with caution because there are significant personal liabilities you can be exposed to. If something goes wrong a Trustee can (and often is) held to account on behalf of the trust.

Several years ago a client of ours did a good deed by becoming a Trustee of a good friend’s family trust. The trust owned some property and seemed quite straight forward until the property was sold. It turned out the trust was developing property and IRD deemed there was tax owing by the Trust. The ‘friends’ were both made bankrupt and had no money to pay the tax so the tax man knocked on the door of the other Trustee (our client) and demanded he pay up. The good deed our client carried out by agreeing to be a Trustee ended up personally costing him tens of thousands of dollars in GST, Income Tax and penalties.

Many people are Trustees and Directors but the job is often best left to professionals rather than good friends. If you do become a Trustee or Director make sure you take on this legal responsibility with your eyes wide open and know what the worst case scenario may be.

End of year check list

At the end of each financial year there are a number of things you need to do and some things you can do to make our job easier and to ensure the information you give us is both complete and accurate.

Please ensure you complete the Client Questionnaire form(s) we have sent you. You will need to complete one form for each entity we are completing tax returns for (company, partnership, trust, personal etc)

 

Simple checks to ensure the accuracy of your information are:

□          Bank Accounts – check they are reconciled up to the end of balance date e.g. 31/3/14 (including credit card accounts).

□          Petty Cash – check it balances and all transactions are showing in your computer package.

□          Loans – check there are 12 payments coded to the relevant accounts.

□          Power, Telephone (landline) & Mobile – check there are 12 payments for each account.

□          Rent – check there are 12 payments for the year.

If you use an accounting package for your record keeping then check the appropriate code and simply count the number of transactions against that code for the year. There may be small variations in some instances so make sure you know why there is a variation. For example you may have paid a telephone account late (after the end of the financial year) and it appears in the next year’s processing. Make a note of these variations and give us the information – it will save us asking you for it later.

 

Other information

□          Sundry Debtors – reconcile your debtors and check you have given us the correct figure on the client questionnaire and this equals what your computer package says.

□          Sundry Creditors – reconcile your creditors and check you have filled out the client questionnaire and this equals to what you computer system says plus additional creditors like March GST and PAYE.

□          Stock on Hand – make sure you have taken a stock take at balance date and have put the correct figure on the client questionnaire.

□          Fixed Assets – ensure any new assets you have purchased that are over $500  have been coded to a fixed asset code and listed on the fixed asset schedule attached to the client questionnaire. Be as descriptive as you can about what the asset is (e.g. Compaq Presario C700 Notebook Computer) or better yet, attach a copy of the receipt for the purchase of the asset.

□          Home Office – check you have provided us with up to date figures on the client questionnaire.  If you have already claimed home office please specify what you have claimed.

□          Finance Agreements – if you have taken out any new finance agreements for the year (such as an insurance policy or to purchase a new vehicle), locate a copy of the agreement (or contact the lender to obtain an additional copy) and send in with your annual accounts information.

□          Once you have checked everything off and have sent a back up to Savage & Savage you need to lock the period at 31/3/14 under preferences (MYOB) or Financial Settings (Xero).  This will stop you from entering any further information into previous financial year.  If you need to enter anything into your last financial year and we still have your books then you need to let us know otherwise our journals may not be correct when entered onto your system.