Tax Archives – Page 3 of 6 – Johnston Associates Chartered Accountants

23rd April 2017 by Janine

More Tax for Multinationals in New Zealand

A movement of change has been quietly happening for a while in the tax world here in New Zealand. Our government is trying to update our systems to be easier to use and comparable on a global scale while providing a fair market for large and small businesses to operate in. Many Multinationals are not paying their fair share of tax this is known as Base Erosion and Profit Shifting (BEPS)

Giants of the likes of Apple have for some time paid basically no tax in New Zealand, this is achieved using BEPS Strategies. In short, these companies create arrangements where they shift profits to countries with lower taxed jurisdiction, thus reporting significantly lower income from sales in New Zealand despite having a physical presence in the market. These particular BEPS strategies are known as transfer pricing and permanent establishment avoidance (TP and PE avoidance).

The New Zealand Government is seeking to strengthen our tax laws to combat is including

the Income Tax Act 2007
the Tax Administration Act 1994

There is a focus on improving transfer pricing rules, preventing abuse of double tax agreements used to avoid NZ tax, and improve administration systems to better enforce collection of tax from multinationals. This is being done in accordance with the G20/OECD standard for Automatic Exchange of Financial Account Information in Tax Matters otherwise known as the “Automatic Exchange of Information”, “AEOI”, or the “AEOI standard” in financial publications.

AEOI is a global initiative to address the international problem of offshore tax evasion, which is evading tax by hiding wealth in offshore accounts. In essence, a government implements the AEOI standards requiring financial institutions to investigate financial accounts to identify those held or controlled by non-residents. If non-residential ownership/control is found the following information is shared with the government

identity information (including tax residence)
financial information (account balances and interest earned from accounts)
non-residents local tax administration.

To amend our tax laws in a way that removes any loopholes takes time and diligence, so these new requirements on financial institutions and multinationals will not come into effect until July 2017. After this time we may see a flow on effect in the New Zealand economy.

WHAT DOES THIS MEAN FOR YOU?

When these changes begin to impact multinationals the New Zealand market will see the results of the choosen strategy to minimise the impact on their bottom line, some may accept that paying tax in each country is part of being a good global citizen, while others will taken other paths, we may find one or many of the following:

products from these companies have no significant change in size, price or availability
products from these companies increase in price
products from these companies decrease in product size but remain the same price (this strategy is call the ‘Just Noticeable Difference’)
products from these companies decrease in availability in the market (higher demand for fewer products allows a high price to be charged and accepted by consumers)
products from these companies are withdrawn from our market completely.

In the end we all want fair treatment of businesses in our economy and for these goliaths the New Zealand tax bill is a only one drop out of the ocean of their profits, do you think it’s fair they don’t pay tax?

Tax Policy BEPS – Transfer pricing and permanent establishment avoidance

http://taxpolicy.ird.govt.nz/publications/2017-dd-transfer-pricing-pe/chapter-1

Inland Revenue

A special report from Policy and Strategy – Automatic Exchange of Information

http://taxpolicy.ird.govt.nz/sites/default/files/2017-sr-aeoi.pdf

Inland Revenue

14th February 2017 by Janine

FBT? What is that?

Do your employees use company vehicles for private use? You could be liable for a Fringe Benefit Tax aka the FBT, here is what you need to know.

WHAT DOES A FRINGE BENEFIT TAX APPLY TO?

Fringe benefit is another way of say non-monetary reward, this includes

Company vehicles available for private use,
Free, subsidized or discounted goods and services,
Special low-interest loans
Employer contribution to insurance or superannuation schemes.

*FBT does not apply to a sole trader or partnership businesses, instead adjustments are made to their GST and PAYE tax payments.

The private use of a company vehicle can be overlooked as a benefit in addition to remuneration because of our friendly lend a hand kiwi culture, but the tax man doesn’t see it that way.

FBT can apply to all work vehicles including operation and finance leased, (if you’re not sure what that means check out our last post) and a vehicle owned by the company. It is important to note that if a vehicle is available for private use by an employee or shareholder, regardless of whether use occurs or not, the employer has a liability for an FBT.

However, there are exemptions for the FBT if your company vehicle meets all of the following:

The principle design is not for carrying passengers, these include utes, light trucks and vehicles altered to permanently not have rear seats.
The company’s name and logo must be permanently and prominently displayed on the vehicle.
The employees and shareholders must be informed that the vehicle is for work purposes only with the exception of traveling between work and home. It is preferable this be done in writing or ideally in the employment contract.
The company must complete quarterly checks of the logo book and petrol purchases for the vehicle. Accurately maintaining these records is very important.

If your company vehicle meets the above criteria but is available for private use on particular days for employees on call outs outside normal hours you can be eligible for a partial exemption.

However, if the above criteria are met and the vehicle is stored at a shareholder’s home and the business premises is also the shareholder’s home, the vehicle cannot under any circumstances be used for private purposes if the company wishes to avoid a FBT. If the shareholder’s home is a secondary work premise, EG a home office, then a restricted private use condition can be applied.

WHAT DOES IRD LOOK FOR IN RESTRICTED PRIVATE USE?

The employer must have clear details on the restrictions, confirm and provide evidence that the employee is aware of these restrictions, and at request produce a log book of both personal and business mileage proving observance of the restrictions.

NB: If the log book records are not regularly monitored, the vehicle is available for private use on the weekends, or the signage on the vehicle is removable the IRD can enforce a FBT

FBT DOES NOT APPLY IF

The vehicle is stored on the company premise which is not a shareholder’s home
The vehicle has a gross laden weight above 3,500 kilograms
If an employee contributes towards the value of the vehicle by way of payment to the employer

HOW IS FBT CALCULATED?

FBT is calculated on either the vehicle’s cost price (including GST) or on its “tax value” (ie depreciated value at the start of the income year in question). Once you elect to use a method you must continue using that method until either:

the vehicle is sold
the vehicle lease ends
five years have passed

Vehicle Cost Price Method

Every quarter 5% of the vehicles cost price inclusive of GST is multiplied by 49.24%

Tax Value Method

Every quarter 9% of the vehicles depreciated value inclusive of GST is multiplied by 49.25%

NB: Liability is reduced by the number of the days the vehicle was not available for private use or was exempt from FBT.

WHEN DO COMPANIES USUALLY PAY FBT?

Most small businesses will elect to file and pay FBT annually. A quarterly option does exist and is mandatory for employers whose gross amounts of taxes in the preceding year exceeded $500,000.

FBT is a tricky subject and often it is better to be safe than sorry when it comes to the tax man, check out the IRD website for FBT on Company Vehicles or give us a call.

Kevin Scoble

16th November 2016 by Janine

Is your building still earthquake safe? A tax deductible assessment will soon be available

What a week it has been for New Zealand! It now feels as though the quakes are easing in the most part and we now must get back to normal life. Some of us have damaged homes and businesses scaling from severe to minor, so what do you do?

If you haven’t already had your business premise inspected by the local council Structural Engineer this should be happening soon, they approve the safety of the building for people to re-enter and use for normal operations. So what about any structural damage that may occur after the inspectors visit during aftershocks? Or the general feeling of insecurity in your post-earthquake building?

hard-hat-295414

We need to be prepared and safe, and it is for this reason the IRD is discussing and will soon decide on how a Detailed Seismic Assessment report can be tax deductible for businesses.

Here is what you need to know:

A Detailed Seismic Assessment (DSA) is a report describing the likely impact of an earthquake on a building. Its potential vulnerabilities, possible methods of fixing these vulnerabilities, and an estimated cost. It includes an earthquake rating expressed as a percentage under the new building standards – 34% or lower being earthquake vulnerable.

Who can obtain a DSA?

Property owners renting out commercial or residential buildings
Property owners who use their home or separate premise for their own businesses
Leaseholders if the safety of that building may impact on their business.

Likely DSA tax deductible situations:

To satisfy existing or potential tenants of a building’s safety
To identify possible damage after an earthquake
To evaluate the safety of someone else’s building where the safety of that building may impact on another’s business.
To obtain insurance for a building for contractual terms or reduce the cost of associated premiums

Likely DSA non-tax deductible situations:

In a capital project to seismically strengthen a building
A capital project to develop or improve a building

Of course there are conditions that must be met for tax deductibility, including an identified need or occasion, or whether there will be potential creation of an identifiable asset or enduring benefit, all of which we can help you with.

The piece of mind a DSA will provide is priceless when we remember that our organisations are made up of Mums, Dads, and the children of our community.

If you are considering a DSA for your buildings we can help you determine tax deductibility and identify other tax deductible expenses you may be missing out on.

21st September 2016 by Janine

“Netflix” tax about to go live

This post comes from our resident tax expert – Kelvin Scoble

The cost of digital services that are imported into New Zealand is poised for a 15% hike when GST becomes payable from 1st October.

digital-download

This is the day when overseas companies who supply “remote services” to end consumers in New Zealand will be required to register for GST here and to charge output tax on those services.

It might sometimes be hard to recognise it as such, but the widening of our GST base and others like it in Australia and much of Europe is a major landmark in a wider re-engineering of global tax rules, as countries around the world move decisively to shore up the integrity of their indirect tax regimes in the face of rapidly evolving commercial practices.

In this case the principal driver of change is to ensure that providers who are based here are not disadvantaged by their physical location, and that offshore suppliers pay tax on the same consumption principles as their domestic rivals do.

Remote services include:

Digital content including movies, TV shows, music providers, e-books and online newspaper subscriptions.
Games, apps, software, gambling and related services.
Website design and web publishing services.
Legal, accounting, insurance, business advisory and other similar consulting services.

If you are a New Zealand business which is registered for GST you won’t be charged tax on remote services you purchase from offshore suppliers, provided that:

You purchase the offering as part of (or for use in) your taxable activity here; and
You tell the supplier you are registered for GST; and
You give the supplier your GST number.

If you fail to do either of the last two things the supplier will have to charge you GST at the standard rate. The fish hook to watch here is that unlike domestic suppliers, non-resident suppliers are not compelled to issue a “tax invoice” and you won’t be able to claim back any GST that you have been (incorrectly) charged and paid.

There are ways to resolve errors but they are limited to specific situations and will be time-consuming because invariably they require you to liaise directly with the supplier concerned. This is not always easy to achieve in practice, particularly if the problems relate to low-value transactions and intermittent or one-off purchases.

If an intermediary is involved; for example, a mobile app store which retails products developed by app wizards – the GST obligations are borne by the agent (not the principal), so you will be charged GST by the intermediary.

If digital services are purchased for private use you will be charged 15% GST. Any attempt to represent yourself as being registered for GST so you can avoid the tax would be very unwise – there are hefty penalties for mischief of this type.

In case you wondered how seriously these issues are taken by governments, the answer is “very”. This week there were reports out of Australia that regulators there were considering their ability to force internet providers to block access to internet shopping sites that refused to collect and pay GST over to the ATO. While Treasury officials in Canberra described such measures as a “last resort” it is clearly a tool which is being contemplated. There is no evidence of any such approach in this country, but in the modern world only a fool would stand between a government and tax revenues it feels it is entitled to receive.

In the meantime the situation regarding imported goods remains unchanged for now.

However Customs is under increasing political pressure to do more work in terms of exploring the increasing cost of GST and duty concessions for low-value items and potential ways to reduce what is undeniably a growing “leakage” from the economy as a whole. Given the myriad issues at play here we expect further updates from officials in the not too distant future.

15th July 2016 by Janine

Panama Papers force overhaul of foreign trust disclosure rules

The days of a regulatory light touch for foreign trusts in New Zealand are swiftly drawing to a close with a raft of new compliance obligations being proposed by the Government this week.

Finance Minister Bill English and Revenue Minister Michael Woodhouse jointly announced they will adopt all of the recommendations from the Shewan Inquiry that was instigated following the uproar created by the leak of documents sourced from Panamanian law firm Mossack Fonseca.

tax-reform

Readers who have followed this saga will recall that the inquiry by tax academic and former PwC chairman John Shewan concluded that our existing rules were wholly inadequate in the modern world. Consequently a substantial overhaul (if not a complete rebuild) of the rules was recommended to preserve our international reputation as the global fight against money laundering and aggressive tax practices continues to gain momentum.

Parliament will work through the first stage of legislative change next month with a tax bill that includes the following measures:

A new register for all foreign trusts that can be accessed by key regulatory agencies.
Far wider disclosure obligations on registration to identify the settlors, protectors, trustees and beneficiaries of all foreign trusts, together with a copy of the trust deed.
Every year thereafter foreign trusts must file annual returns with Inland Revenue disclosing any changes to the information provided at registration and the trust’s annual financial statements.
The trustees will also have to declare the nature and amount of all distributions made during any given reporting period and provide a range of tax identification details for each recipient beneficiary.
Transitional rules are proposed for existing foreign trusts so they have time to meet all the new requirements for the tax year commencing 1 April 2017.
Foreign trusts that fail to meet registration and disclosure obligations will lose their exemption from tax in New Zealand on income derived from sources outside this country. This implies a probable 33% impost on existing trustee income tax rates.
A requirement for all foreign trusts to pay initial registration fees and annual filing fees (amount not quantified at this stage, but likely to be $500 in each instance).

In a related move lawyers and accountants will be fast-tracked into the anti-money laundering and terrorism financing rules, although further work is required by officials before those changes come into effect sometime next year.

What does this mean on the ground?

New migrants will be subject to a grace period so they have sufficient time to work through these issues in a measured fashion. Although we have seen little detail in this respect, we assume the grace period will be substantially the same as the exemptions and concessions that are available under our transitional residency rules.

On that basis we also assume the same concessions will be available to Kiwis who are considering a permanent return to New Zealand after a long period of non-residency.

While we expect more details to become public very soon, recent migrants who have an interest in an offshore trust of any type (including a testamentary trust or estate) would be well advised to seek professional assistance with these matters if they have not already done so.

Unfortunately this area of tax law is technically challenging and the international dimension only adds to the complexity that can exist. Notwithstanding that the bottom line is that a proactive approach will go a long way towards avoiding the hefty tax costs that can arise from unwitting oversights and unintentional mistakes.

20th May 2016 by Janine

We’ve got their back and yours too!

Johnston Associates South Chartered Accountants formed part of the line up backing the Tasman Makos for success in 2015 and we’re proud to announce that, once again, we’re on board as a brand sponsor of the Tasman Rugby Union for the 2016 season.

You’ll see our Johnston Associates South logo sits proudly on the back of the jersey, but of course it’s not just the Makos backs we’ve got covered… We’ve got you, our clients, covered too! As Chartered Accountants, we undertake specific examinations and continued professional development to ensure that we can meet the high standards that your business needs to help you grow successfully.

Screen Shot 2016-05-19 at 2.13.12 am

Here are 5 ways we have your back at any stage of your business journey:

We use strategic knowledge to formulate business plans. You might need these for start up finance, investors, or your board. You’ll definitely need one as an entrepreneur to allow you monitor your business growth.
We’re trained to restructure corporate procedures and policies, to help you improve your business’ performance. If you’ve just bought a business, contact us to find out how we can help make it more efficient.
Don’t fall foul of the taxman. We have a resident tax specialist who can come up with a financial tax plan, as your business grows.
We work with other seasoned professionals in Nelson, Tasman and Marlborough. Our relationships with other service providers, from lawyers to banks and many others, ensures that whatever stage your business is at, and whatever processes you’re going through we can liaise (given your permission) with other key parties to ensure that your journey to business success is plain sailing.
We help with your succession plan, even before you’ve thought about moving on. Preparation is the key to any success, and deciding when and how you want to leave your business is as important as deciding when and how you want to start it.

Tax