From the current tax year (the one starting 1 April 2015) there are certain transactions that deal with associated persons that are now required to be reported for New Zealand tax purposes.
They apply when the associated person is not a tax resident of New Zealand.
Therefore this will apply in the situation where an Australian company provides management, infrastructure or administrative support to a related New Zealand company, subsidiary or branch and charges management fees for this purpose.
If you or your company is an Australian tax resident and enters into certain transactions with an associated New Zealand entity such as:
- interest expense on loans;
- loans or other advances;
- expenses for services such as wages, salaries, management fees and payments for other services provided to that New Zealand company or entity;
- expenses for rent and leases; or
- expenses to acquire intangibles or know how (including royalty payments);
- then you should take advice to ensure you comply with the new income tax requirements.
If your Australian entity charges an associated New Zealand entity for management fees you should be mindful that there are additional obligations that you should meet over and above deciding how much you can charge.
There has been a tightening up in recent times as Inland Revenue is concerned about the tax leakage caused by Australian businesses charging management fees to related New Zealand entities which have the effect of reducing the tax payable in New Zealand.
Many Australian entities have been using management fees as a way of reducing double-taxation brought about by foreign tax credits paid in New Zealand reducing Australian tax and therefore reducing franking credits. These NZ tax credits are un-franked in Australia.
We are hearing from a number of small Australian businesses with interests in New Zealand who are being charged with penalties and having their tax assessments revised incurring additional interest and other costs as a result of their non-compliance in this area.
Our job is to help you comply and we are happy to have a chat to ensure your situation is being dealt with correctly.
And we can provide advice on how best to achieve your goals using legitimate means.
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.