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Considering buying a commercial property in the next two years? By getting your ducks in a row early, you could save yourself hundreds of thousands of dollars. That was the message from the experts who spoke at a recent panel event, hosted by ANZ in Christchurch.

The rules around calculating a company’s taxable income are well established. But what if you’re a mutual association – a resident’s association, membership organisation or industry group (among others)?

The broader implications of tariffs for New Zealand and Australian multinational businesses exporting to the US are significant. This environment is incredibly dynamic as more tariffs and retaliatory measures are released almost daily.

Our tax and industry experts have cut through the noise to focus on the most significant announcements in Budget 2025, and reveal what they mean for your business.

Inland Revenue has just released a draft operational statement (ED0265) about the income tax treatment of transactions between not-for-profit associations (Mutual Associations) and their members.

Inland Revenue has issued an open submission to reduce the complexity of compliance with fringe benefits tax (FBT) - a welcome move toward modernising the regime and addressing long-standing complexity, particularly around motor vehicles and minor benefits.

As 31 March 2025 approaches, it’s time for most businesses across New Zealand to get their financials in order – an often time consuming and stressful task. Whether you’re a small business owner or running a larger operation, with a bit of planning, you can wrap up the financial year smoothly and set yourself up for success in the next one.

New Zealand residents pay tax in Aotearoa on world-wide income. Simple enough. But what about people who only live here sometimes, or intend to move to another country?

Prevention is better than cure: That’s Inland Revenue’s perspective on tax compliance for multinationals. It wants to make compliance easy and non-compliance difficult, by helping customers early, providing clear guidance and keeping costs down.

This year has been a tough one for many industries. The pain has been widespread, so many business leaders are reassessing their operations. They’re asking: What’s working and what needs to be improved? How can we increase productivity? Can we use AI to overcome challenges? And is it time to develop new products or services, or refine existing ones?

A bold long term tax strategy is a key driver to solving New Zealand’s infrastructure woes. Murray Brewer analyses Budget 2024 to see if the Government delivered the fresh thinking needed to achieve future success instead short term cost savings.

There’s new GST legislation in place for online marketplaces, which includes short-term accommodation platforms like Airbnb, ride-sharing platforms like Uber and delivery services like Uber Eats. These online platforms must now collect 15% GST and return it to Inland Revenue. This ‘app tax’ came into effect on 1 April 2024, and it’s already having an impact on the market.

When you take a sip from a 330ml bottle of Speight’s Gold Medal Ale, you probably don’t consider the 47c in excise tax that was included in the price. And why would you? It would only take the fun out of having a nice cold beer. Unfortunately, if you run an alcohol business in New Zealand, you don’t have the luxury of forgetting about excise taxes. These have risen rapidly in recent years because they are benchmarked to consumer inflation. The rise over the last three years in the consumer price index to as high as 7%, has meant more than $94 million in additional excise tax for the alcohol industry. On top of that, the industry has had to absorb rising ingredient and packaging costs, skills shortages, falling sales and higher interest rates. It’s tough going for our alcohol manufacturers and distributors, many of whom are small privately owned and family businesses. While this is an area of tax legislation that might only affect a small number of businesses, it has a sizeable impact. It’s a challenge to be accurate and compliant, particularly for the smaller craft producers that make up around 10% of our local market. These inaccuracies are an under-recognised issue - get it wrong, and it can be extremely costly. Overpaying could lead to significant unnecessary costs Producers must record alcohol volumes accurately, have correct sales records, and lodge that data by the deadlines set by the New Zealand Customs Service. Because brewing is an art and a science, the level of accuracy required can be tricky to achieve. It’s not uncommon to see brewers make tiny errors that lead to big consequences, and the last thing anyone wants is to be facing thousands of dollars a month in unnecessary tax. It’s also easier to make errors at a smaller craft operation, because it’s less industrialised when compared to the big players like Speight’s or Heineken. Take, for example, a fictitious beer manufacturer – let’s call it Bottle Brewery. One of its best-selling beers is a light lager that should have 4% alcohol by volume (ABV). Unfortunately, the team at Bottle Brewery isn’t equipped to be 100% accurate with its calculation and processes. As a result, its light lager has been leaving the brewery with an ABV of 4.08%. That might sound like nothing more than a rounding error, but it’s just enough to increase the excise tax on the beer. The corresponding increase gets applied across the stock keeping unit (SKU) based on sales per month, and the light lager is selling well, shifting 100,000 units in a month. Applying the additional excise tax adds an extra $2,800 per month for that alcohol SKU alone. Plus, the Bottle Brewery team is a bit slow at filing its returns. With that late fine, and the extra excise tax, the company is unnecessarily paying $3,600 a month. Hopefully Botte Brewery has been more accurate with its other beers or its taxes could be really adding up. Underpaying can be a nasty shock When you’re underpaying tax, you run the risk of an unpleasant shock when you need to backpay the outstanding amounts. Customs carries out regular inspections of New Zealand’s alcohol businesses, walking through production facilities to see how you’re recording your alcohol volumes, checking your systems, and inspecting your reports and declarations. Inspectors will look at everything, even checking to see whether you have alcohol sitting in unlicenced areas of your property – you may need to pay excise tax on it if that’s the case. At a time when niche brewers have been struggling to stay afloat, investing in getting this right is well worth the effort – because the costs of getting it wrong can be disastrous. If Bottle Brewery has been paying its excise tax assuming its light lager is 4%, but Customs discovers it is actually 4.08%, the business may be on the hook for several months of backdated taxes. This could be a considerable cashflow blow for a small brewery that’s already feeling the headwinds of tough economic conditions. It may even face penalties for mistakes or omissions, on top of any tax owed. If Customs decides to do a full audit, that will also take up extra time and resources they can’t afford. Customs is very responsive and helpful, and they do have options under the legislation to remit penalties and offer time to pay arrangements. However, they don’t always have the ability or appetite to offer lenient repayment options, and outstanding excise tax and penalties may need to be paid. The right systems and processes can save you time and money Most breweries use spreadsheets to track their sales and alcohol volumes. Academic research has found that an estimated 94% of spreadsheets contain errors, which shouldn’t fill anyone with confidence. Breweries need to develop and maintain a laser focus on improving the quality of their data, and developing models that help them improve accuracy and file returns on time. Typically this investment quickly pays for itself, often simply by avoiding late filing fees. Improving systems and processes often leads to other increased efficiencies throughout the business, including better stock storage practices and more precise forecasting. When it comes to excise tax reporting, a millilitre of prevention is worth a fermenter full of cure.

With hopes Covid is now somewhat in the rearview mirror, the pace of change in the transfer pricing space has not slowed down. The OECD continues to drive the base erosion profit shifting (BEPS) programme to minimise tax competition among jurisdictions and ensure multinationals pay their fair share. However, the effectiveness of the programme’s final stages depends on the willingness of countries to implement and enforce these rules consistently. It remains to be seen how tax authorities worldwide will adapt to these changes and if a new era of cooperation will indeed emerge in the global tax landscape. However, with economies around the world still in or coming out of recession, there are questions around whether the 142 countries that have signed up to the BEPS framework remain committed to such a unified approach, or if there will be a shift to a ‘every jurisdiction for themselves’ mentality. As some economists have indicated, there are signs certain economies are shifting away from a focus on globalisation to looking inward and more national economic protectionism. What does this mean for New Zealand-based multinationals? There seems to be a stand-off between countries waiting to see who will jump first. In the meantime, some have implemented the needed regulations, while others – like New Zealand - have also hedged their bets and have legislation waiting as a backup, as demonstrated by the introduction of the digital services tax laws brought in by the Labour Government. The current National-led Government is yet to confirm if this will remain, be repealed, changed or trumpeted, but it has increased resources for Inland Revenue to expand its audit capacity, minimise taxation losses and ensure greater integrity and fairness in our tax system. And it’s likely there will be heightened proactivity in this space so the Government can collect the extra revenue needed to deliver on its election policies. This means change for multinationals could be on the way, and transfer pricing rules may be an area in which Inland Revenue increases audit activity; this may also not be limited to the tax authority of New Zealand but others around the world. The key for potentially affected Kiwi businesses will be to: · review their New Zealand and global transfer pricing policies to ensure they remain fit for purpose · establish suitable governance to implement these policies appropriately · keep management up to date with changes in the transfer pricing space. Countries will be weighing up the benefits of a unified approach against the temptation of self-interest, while businesses grapple with economic uncertainties and transfer pricing rules which will continue to change. As New Zealand and other countries await international unification, internal pressures will continue to mount, setting the stage for a complex interplay between economic recovery, taxation, and the delicate dance of international relations.

Some years ago, I remember someone bemoaning New Zealand business owners’ lack of ambition. This person said when owners have grown their businesses big enough to start to look overseas they then sell, as long as the sale price would allow them to join the Triple “B” and buy a bach, a BMW and a boat. Although I hadn’t heard of this club before, the point that stuck with me was the comment about the real value of a company being unlocked globally by its new owners. I think things have moved on significantly since then with New Zealand companies such as Seequent selling for $1.46 billion, Ziwi for around $1 billion and Partners Life also for $1 billion. Certainly, a lot more that a ticket to join the Triple “B” club! Gone are the days when companies sold for 3-4 times EBITDA (earnings before interest, tax, depreciation and amortisation) or maybe 7-8 times EBITDA if the buyer had Australian pension fund money looking for a home. Deals like Seequent are not referable to EBITDA at all, with technology companies increasingly being sold at multiples of sales instead – sometimes up to 45 times sales and beyond. How to get the best bang for your buck when selling your business While you are sitting at the beach or lake over Christmas, thoughts of selling your company may cross your mind. If so, there are lots of things you might need to start thinking about. Firstly, get sale ready. When a company is sold, there will almost certainly be some level of due diligence – typically covering finance, legal and tax. A buyer doesn’t want any nasty surprises. Preparing for this will involve ensuring everything is in order – making sure all agreements, processes and procedures are documented and all information likely to be needed is collated and ready to provide. Some businesses plan for this several years ahead and look to have their annual accounts prepared and audited. These actions, though worthwhile, are generally house-keeping tasks and won’t necessarily increase the value of your business. So what can add value, or at least bump-up the multiple of earnings that a purchaser is willing to pay? When it all boils down, the value of a business is based on the demonstrable track record of sustainable earnings, or the prospect of growth in earnings in the future - or, ideally the combination of both. Therefore, being able to prove the reliability of your revenue and profits, and the strength of your position in the industry is worthwhile. It’s also important to have a well thought out set of financial projections which demonstrate the growth prospects for the business and how these can be achieved. Is growth going to come from the existing product base, new product development or bolt-on acquisitions to increase presence and market share? How much will this cost, and what are the potential returns if actioned? The other key question a purchaser will want answered is around people, and most specifically you! What does the business look like with you – are key customer and supplier relationships shared across a management team, meaning your exit from the business is not detrimental to its performance? Answers to these questions are usually presented in an Information Memorandum (IM), a short sales document used to market the business to prospective purchasers. Detailed sell side due diligence reports can also be provided to prospective buyers. While this won’t generally stop buy side due diligence being undertaken, it can help buyers get to the heads of agreement stage more quickly and ensure all the information and materials are ready for due diligence questions. Once a heads of agreement (high level terms likely to be reflected in any future sale and purchase agreement entered into) has been signed, a buyer will typically be granted a period of time where they have exclusive rights to undertake due diligence, and formalise a contract and purchase price. If they decide to proceed, the buyer will submit the first draft of a sale and purchase agreement. The buyers and seller will negotiate the terms of the sale and purchase agreement with the document going backwards and forwards between the buyer’s lawyers and the seller’s lawyers. The document may go back and forwards several times while clauses are negotiated. Will you sell shares or assets? A business sale can involve shares in the company or its assets. The advantage of a share sale for the seller is they can walk away and often the sale proceeds are a tax-free capital gain. The disadvantage for a buyer is they inherit any “skeletons” buried within the company not identified during due diligence. Often the sale and purchase agreement will seek to put some of these risks back on the seller in the form of vendor warranties and indemnities. Under warranties and indemnities, the seller will have to refund part of the purchase price if specific things are identified or occur. Where the seller still wants to draw a line in the sand and not have to worry about warranties and indemnities, it is possible to obtain warranty and indemnity insurance. This is specialist insurance, and a premium is paid to the insurer to transfer the risk arising from warranties and indemnities post sale to the insurer. Typically, the warranty and indemnity insurer will want to review all due diligence reports and may require further due diligence to be undertaken or exclude certain risks. Where business assets are sold, the company’s past stays with the vendor with the business being transferred into an existing or new company owned by the purchaser. This involves changes of ownership of assets, assignment of business contracts and the transfer of employees. It can also involve the purchaser assuming agreed liabilities, such as leases and employee entitlements like holiday and sick pay. When business assets are sold, the vendor will need to wind up the selling company to access any capital gains tax free. What about tax? Purchase price allocation Purchase price allocation is where the parties agree what portion of the overall purchase price is allocated to the various assets acquired and liabilities assumed. This is a key area for negotiation. A purchaser will want to allocate as much of the purchase price as possible to items which will be tax deductible either upfront or at some point in the future, such as plant, patents and trading stock. The seller will want to allocate as much of the purchase price as possible to non-taxable items such as goodwill and trademarks to increase the amount of non-taxable goodwill that they realise. There is generally a natural tension between the seller’s best outcome and the purchaser’s best outcome, so Inland Revenue will generally accept the purchase price allocation agreed between unrelated parties as being a fair market price. GST The purchase price will be either inclusive of GST or have GST added on top. Generally, a seller will insist on the purchase price being “plus GST if any”. The purchase price can be zero rated for GST in certain circumstances, such as where an interest in land is included in the sale (ie, a lease) or where the sale is made to a purchaser outside New Zealand. GST zero rating can also apply to a going concern, ie, where what is being purchased is able to be operated on its own immediately after the purchase is complete without adding anything to it. As most business require premises, it is generally quite hard to have a situation where there is a going concern which isn’t already zero rated for GST due to an interest in land being transferred. There are many more things to consider, and if you are considering selling your business you should get your house in order sooner rather than later. There may be significantly more at stake that membership in the Triple “B” club!

The more you know about your business, the better your decision-making can be. That’s why we’re always surprised at how many businesses don’t produce consistent monthly reports. Periodic reporting checks the pulse of your business and gives you monthly updates on your key performance indicators.