There is a mandatory “shortfall” penalties regime in place in New Zealand which Inland Revenue apply automatically and for a large number of cases.
Inland Revenue can charge penalties in the range from 20% up to a whopping 150%. These penalties cannot be remitted and are good reason in themselves to encourage you to engage a knowledgeable tax advisor.
We happen to have a good record of negotiating a reduction in the rate of shortfall penalties. That being said, life is a lot easier when we avoid the penalties in the first place!
Examples of where we are finding automatic penalties are being applied include when:
- Motor vehicle logbooks are not kept or do not comply with New Zealand requirements.
- Please also check that any work-related vehicles still meet the criteria, otherwise fringe benefit tax may be applicable. The New Zealand requirements pertaining to the fringe benefit regime are different from Australia. Don’t let local knowledge get you into trouble across the Tasman!
- Stocksheets are not kept, or a stocktake is not physically taken. Unlike for Australian tax, New Zealand tax law requires an annual stock take for all businesses unless certain criteria is met.
- Bad debts are not physically written off before 31 March 2017 (or 30 June 2017 if that is your approved year-end).
- Tax on schedular payments (formerly withholding tax) is not deducted from contractors, unless they are operating as a company or have a certificate of exemption issued by Inland Revenue. The normal tax rate ranges from 10.5% – 33%. Remember, New Zealand do not use the equivalent of ABN’s as a means of exempting the deduction of withholding tax. Even if they are registered for New Zealand GST, you may still have a duty to deduct withholding taxes. If you are dealing with New Zealand contractors please contact us for advice.
- Resident withholding tax on interest (10.5%, 17.5%, 30% or 33% on election) is not deducted when paying interest of $5,000 or more per annum to a non-financial institution/individual (unless a certificate of exemption is supplied). This tax is usually due on the 20th of the following month. If you are paying interest to an Australian tax resident who does not have a permanent place of business in New Zealand (even if they are a bank) you will have other obligations. Contact us urgently if that applies to you as the tax costs may be significant unless urgent tax registrations are made.
The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.