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Accountants to comply with AML/CFT legislation

Some time ago New Zealand has passed a law called the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT).

The purpose of the law reflects New Zealand’s commitment to the international initiative to counter the impact that criminal activity has on people and economies within the global community.

The first sector required to comply with this legislation was the Finance sector (Banks, Financial Planners etc), lawyers are required to comply with the requirements of the AML/CFT Act from the 1st July 2018 and recent changes to the Act mean that from 1 October 2018 accountants are required to comply too.

The intent is for the entire professional services community (lawyers, accountants,banks, etc) to help combat money laundering and terrorist financing, and to help Police bring the criminals who do it to justice so even though the vast majority of our clients are honourable people we know well, and have had a long relationship with, this legislation requires us to do a number of things with regards to every client

The law says that we must assess the risk we may face from the actions of money launderers and people who finance terrorism as well as identify potentially suspicious activity and that means more paperwork for us and a requirement for you to supply us with more information.

For most of our clients we will be asking for certain information when you bring in your annual accounts work, while we need to have compliant processes in place by the 1st October we have a year or so to collect this information about all clients. New clients will need to provide the information BEFORE we can carry out any work.

To complete the risk assessment we must obtain and verify information from prospective and existing clients about a range of things. This is part of what AML/CFT calls “customer due diligence” (‘CDD’).

CDD requires us to undertake certain background checks before providing services to clients or customers. Accountants and other professionals must take reasonable steps to make sure the information they receive from clients is correct, so we need to ask for documents that show this and we need to keep the information on file for a minimum of five years.

If your business activities change significantly then we may need to update the CDD

The minimum information we will need to obtain from you and verify to meet these legal requirements includes:

  • your full name; and
  • your date of birth; and
  • your address.

To confirm these details, documents such as your driver’s licence or your birth certificate, and documents that show your address, such as a current bank statement will be required.

If we complete work for a company or trust we will need information about the company or trust too, including the people associated with it (such as directors and shareholders, trustees and beneficiaries).

We will need to ask you about the nature and purpose of the proposed work you are asking us to do for you; in most cases it will be business advisory and annual accounts/tax work.

We may need information confirming the source of funds for certain transaction to meet the legal requirements and we may also need to ask you for further information depending on a range of variables required by the legislation.

If we are not able to obtain the required information from you, it is likely we will not be able to act for you.

Before we start working for you, we will let you know what information we need, and what documents you need to show us and let us photocopy.

While we may shake our heads at some of the requirements, the Act is bringing New Zealand into line with other countries and if you have any queries or concerns please contact our Practice Manager, Neil Hodgson, who is our AML/CFT Compliance Manager.

From our business perspective there is a huge amount we need to put in place, including various compliance programmes and reporting systems, staff training programes all of which will be audited every two years (NOTE – this is not an audit of you, it is an audit of our systems). We need to keep records regarding AML/CFT for a minimum of five years and this will be held in individual client files as well as in our various compliance documents.

And just so you know they aren’t picking on you we even have to carry out Department of Justice checks and credit checks on our staff as part of our compliance programme.

Personal Liability for Employment Breaches

Most business owners, directors, managers and employees are unaware that they can be personally liable for penalties and the payment of legislative entitlements. A person who incites, instigates, aids, or abets any breach of an employment agreement is personally liable for a penalty of $10,000 for each breach.

IRD Compliance Focus

Each year IRD target a few specific issues relating to tax payer compliance, carrying out investigation and audit activities to recover unpaid tax and penalties.

For every $1 spent by Inland Revenue on compliance focus activities they are recovering approximately $8 from non-compliant tax payers.

In the next year they will receive a funding boost from the government to increase their compliance focus work, which is likely to increase the scope and frequency of IRD investigations and audits.

IRD have indicated that key areas which they will be targeting over the coming year include:

 

The Hidden Economy

This includes any illegal activities or income earned outside of tax system (i.e. “cashies”). The IRD have signalled they have recently had success prosecuting several industries that deal largely in cash, such as takeaway restaurants, beauty salons and builders.

With increased funding Inland Revenue will have greater resources to identify offenders and conduct more investigations into these types of businesses.

 

Property Investment

Previously, residential property sales were only regarded as taxable if it was the purchasers “intention” at the time the property was purchased to resell it for a profit.

However, with the introduction of the Bright Line legislation in October this year, IRD now have an objective test to supplement the intention test, to help determine whether the sale of a residential property is taxable.

Therefore, Inland Revenue are ramping up audit activity in this area to try and catch any property speculators who in the past have hidden their intentions to make tax-free gains on the sale of property.

 

GST Refunds

Inland Revenue will be focusing on tax payers who receive large GST refunds and those who receive GST refunds on an ongoing basis.

For large GST refunds they are likely to request documentation (such as copies of invoices and receipts) to verify the GST claim.

The risk with taxpayers who consistently receive GST refunds is that they may no longer be eligible to be GST registered and should therefore have deregistered for GST (e.g. if the business has ceased or it has slowed down so much that it is a “hobby” rather than a taxable activity).

For any clients who think they might be at risk of audit by the IRD, we urge you to make sure that you are declaring all of your income and complying with all relevant tax laws.

 

It is never too late to come clean to IRD, as up until an audit notification is received from them, taxpayers can make a voluntary disclosure of any mistakes or omissions from tax returns, which can significantly reduce the amount of penalties and interest Inland Revenue will charge on any underpaid tax.

If you are not sure you have met all of your tax obligations or have any questions about Inland Revenue’s compliance focus please contact our office.