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Tax Payments – When Received In Time

May 1, 2015 by Capital Hill Leave a Comment

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.

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.

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).

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.

Financial Reporting For SMES

February 1, 2015 by Capital Hill Leave a Comment

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,
  • 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 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.

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