Anti-Money Laundering and Counter Financing of Terrorism Legislation

There are no two ways about it; we operate in a truly global market place and the transfer of money around the world on a daily basis is now commonplace. While this is great for business development opportunities it does present risks, particularly in the context of people moving money around for nefarious purposes.

The sheer volume of transactions across international borders is enormous and the international banks cannot vet each transaction as it occurs, making it much easier for those wanting to move money around with malicious intent. The lawmakers have recognised this against the backdrop of funds being “washed” through our banking system and while we are generally a very trusting nation we need to recognise the need to be more vigilant when becoming a party to international money transfers.

New Zealand consistently rates as one of the least corrupt nations in the world and with that reputation there has been a certain naivety and trusting attitude that international fraudsters and money launderers are keen to exploit. The New Zealand Police estimate that nearly $1.4 billion of domestic proceeds are laundered each year through drugs and fraud offending and that does not include tax evasion.

New laws are being passed placing a greater onus on lawyers, accountants and real estate agents to ensure that funds that pass through their trust accounts are not the product of such nefarious activities and where there is suspicion that the funds could have dubious provenance, the transaction needs to be reported to the Police Financial Intelligence Unit (FIU).

From November, any transaction into New Zealand, via an international wire transfer, in excess of $1,000, whether suspicious or not, will need to be reported to the FIU. This will include payments made by foreign customers. The mind boggles at the administrative burden this will create. The Police are hoping to use that data to produce typicality reports that will alert parties to both international and domestic money transfers to the types of transactions that could be classed as irregular.

One bank recently related a story of a company that had signed a contract to supply an overseas party with goods and services but had requested a deposit before undertaking the work. The money arrived but it was a multiple of what had been requested. When the overseas party was contacted, they explained it as a mistake and requested that the excess be paid to a different local bank rather than being returned. The recipient of the funds became suspicious and reported it to the FIU. Upon investigation, it was a money laundering scheme and the money was returned to its point of origin rather than being moved about as requested.

Don’t allow yourselves to become unwitting participants in a scheme of money laundering or dubious activity; be alert to funds that appear unexpectedly in your account, especially funds that have originated from a high-risk jurisdiction. Be sure that any funds deposited into your account are for a proper purpose only, and if you have any suspicions, report the matter to the Police. When unexplained deposits appear, it will pay for you to maintain a healthy dose of scepticism. Be safe rather than sorry.

If you have any queries about the new laws and how they may impact you feel free to contact us and we can take you through the implications.

The Importance of Strategic Planning

Where do you want your company to go? What are your goals, objectives, mission, and vision for the future? What does all this jargon mean?

If you are unable to answer any of these questions, you may need to think about strategic planning.

Strategic planning is critical to success and sustainability, no matter what business you are in. It is far different from classic business planning in that it focuses on the future by defining where you want your company to go. Without knowing where you want to go, it can be very hard to work out how you’re going to get there.

There is no one-size-fits-all method to strategic planning. It involves a significant amount of reflection on what you aim to achieve in your business and requires some out-of-the-box thinking. Strategic planning is as much about the ‘feel’ of your business as it is about the science of management. The more you understand your business, your industry, and your vision, the better your strategic plan will be.

A good strategic plan establishes a clear direction for your business. Providing an organisation with a common purpose, goals and a set of actions to reach the goal ensures that everyone is working for the same outcome and that time and resources are being allocated to the same goals and objectives. It can help not only yourself, but your team to align themselves with the overall vision, and minimise the risk of losing sight of that vision.

A strategic plan will help you to identify your core capabilities, while also identifying weaknesses. It can provide a lot of insight into the areas of your business that can be redesigned in order to deliver the best performance, productivity and profit. Furthermore, a good strategic plan will help you to understand the changing external environment within which you operate. This is critical because if your business fails to adapt to its environment, it will not succeed. Even successful businesses need to realize that what made them successful today is not what will make them successful tomorrow.

It’s not enough to just create a strategic plan. Like all plans, a strategic plan is useless if you don’t follow it up with actions. The beauty of strategic planning is that it creates a natural action plan from the identification of your preferred strategy. For example, if you create a strategic plan that involves increasing sales to a particular region, you’ve also identified the beginning of a basic action plan. From creating new business opportunities, to streamlining the operations and engaging staff, a well-formulated strategy will enable increased growth, productivity and profit both now and into the future.

We believe that the best strategic plans start with a good brainstorming session. We are also aware that getting the ball rolling on developing a strategic plan can be quite daunting, especially for new businesses. If you would like to discuss your business strategy, we have a team of professional consultants that are here to help.

Advisory Boards: Could Your Business Benefit?

At the outset, what is an Advisory Board? Is it the same as the Board of Directors?

No; it is, as its name suggests, a mechanism whereby guidance and thought leadership can be provided to the Board and Senior Managers.

It enables the owners and managers of a business to have access to an independent view and creates a non-threatening environment to facilitate the discussion of issues that could have a significant impact on the business. It creates an opportunity for discussions to take place between management and trusted advisors on a far more detailed level than would normally occur at Board level.

In today’s complex business environment management is not always equipped to make decisions on critical business issues alone and when that situation arises, the position of CEO becomes a lonely one. The Advisory Board is a forum where ideas and concepts can be tested; with the logic being that two heads are always better than one and some independent perspective can only be a healthy thing. It is a particularly useful forum in closely held or family-run businesses as it can bring fresh perspectives and should also have the effect of challenging long-held ideas on how to run the business.

Advisory Boards can be especially useful in the following situations:

• When the business is experiencing rapid growth;
• When there is a necessity to raise funds;
• In building strategic partnerships;
• When the business faces changes in direction or needs to make tough decisions;
• In dealing with succession issues – including the commitment to develop a succession plan;
• When entrance to a new market or introduction of a new product is contemplated;
• When there are management or shareholder issues that require resolution; and
• Managing the various development stages of the business.

It is the Kiwi way to “do it yourself” but sometimes the input from a trusted external party can bring a perspective that does not exist internally. Frequently management is so close to the business that it cannot “see the wood for the trees” and that external view can add balance as well as possibly introducing alternatives that had not previously been considered. As the business moves from one stage to another in its natural lifecycle, different challenges present themselves and having that independent viewpoint can be invaluable.

We have recently been focussing on this for a number of our clients who have placed a great deal of value on having that regular catch-up on a semi-formal basis outside the normal Board of Directors forum just to cast ideas about and to then develop strategies around them.

Perhaps your business can benefit too?
 
 

Landlord Responsibilities under the Health and Safety Act

On 1 April 2016 the new Health and Safety Act came into force. We have previously covered what this Act means for employers, employees, businesses and anyone involved in a business. However, it is important to recognise that the scope of this Act extends beyond what we traditionally view as a business. While the Act does not specifically define a business, it does provide a very broad definition of a ‘person conducting a business or undertaking’ (PCBU). As such, this broad definition captures every residential landlord, as owning a single residential investment property may not be classed as a business, it most certainly falls under the definition of an ‘undertaking’.

The obligations imposed by the Act also extend to anyone who holds a position that allows them to exercise influence over the management of the PCBU. Theoretically, therefore, family members, solicitors, accountants or anybody else with this influence could be held responsible for breaches of the Act, regardless of whether they are listed as a director or trustee for the property owner.

Under the Act, the landlord, or responsible party, is required to ensure that a property is provided as a safe and healthy environment for workers engaged in work on the property, as well as for tenants. Consequently, a landlord must:

• Alert anyone engaged in work on the property to any Health and Safety issues present on the property;
• Ensure that the person undertaking the work is competent and appropriately qualified to do that work, which is best achieved by engaging a reputable company; and
• Deal with issues in a competent manner as soon as they become known. This means providing a suitable permanent solution, rather than a temporary fix.

Gone are the days of the old number eight wire DIY attitude to carrying out maintenance on a residential property. Unless the landlord or person carrying out the work can prove they were fully qualified to complete the work, they could be opening themselves up to penalties for breach of the Act.

The fines and penalties imposed for breaches of the Act should be enough of an incentive for landlords to be compliant. Failure to meet your obligations under the Act may lead to prosecution resulting in fines or penalties of up to $3 million for a PCBU, and $600,000 and/or five years imprisonment for an individual or officer of a PCBU. Ignorance of the obligations set out under the Act will not be a viable defence and the Act prevents a PCBU from insuring against any financial penalties.

The implications of the Act in relation to residential rental properties remains unclear, and it will likely take a few test cases before we can gain a full understanding of how the Act will be enforced. Contracting the services of a qualified and reputable agent or property management company may be the best way for a landlord to ensure that the Act is fully complied with. If you are unsure about any of your responsibilities under the Act, we strongly recommend that you seek professional advice.

Provisional Tax Changes

From 1 April 2017 changes were made to the provisional tax regime.   Here is a summary of the options now available:

Standard Uplift Method

• The current safe harbour $50,000 residual income tax limit for calculating Use of Money Interest (UOMI) is increased to $60,000. This now applies to individuals and non-individuals.
• UOMI charges for the first 2 provisional tax payments for all taxpayers using the uplift method has been removed, therefore UOMI will only apply from the 3^rd payment date.
• No interest will be paid by the IRD for overpayments.
• Taxpayers can switch to Estimation method from the 3^rd instalment date and still receive concessionary interest rules for the first two instalments.

Estimation Method

• Pay estimated amount at each provisional tax payment date.
• Interest will be charged by the IRD on under payment and interest will be paid by the IRD on over payments once actual amount is determined.
• Once estimated, the taxpayer cannot switch to the uplift method.
• Shortfall penalties can be charged on estimates that are unreasonably low.

Ratio Method

• Pay based on % of GST.
• Due when GST payments are due.
• Final balance due on terminal tax date.
• Only available if income tax liability is less than $150,000.
• Need to meet certain criteria and apply before the start of the income year.

Accounting method

• This method is available from the 1 April 2018 for businesses with a turnover of less than $5m.
• Income is calculated and tax paid every 2 months based on the profit during that period.
• The taxpayer will need IRD approved software to calculate the profit.

If you are unsure about the best option for you or if you have any questions regarding any of the above options, please contact your Ecovis KGA account manager.

Points to Note

Cloud Based Accounting Software

Concurrent with the new Acts, IRD is making more and more taxation reporting and payment options available online.  For some small businesses, especially those that tried it when it was first available and gave up on it, that may be an intimidating prospect.  However, IRD has made their online sites more user friendly over time.

We encourage the use of widely available accounting software packages, to take advantage of changes brought in by the new Act.  Using the online option will make your business easier to run.  But it won’t just be in relation to IRD reporting.  Switching to online accounting software removes a lot of stress for you in terms of compliance and reporting.  What’s more, we often find that a time-consuming part of doing end of year work for some clients is first tidying up the bookkeeping.  That then becomes a cost to you – and an avoidable one at that.

Cloud-based accounting software packages for small business can cover everything from revenue management to salesforce records, your billing system, bank reconciliation, inventory management, HR, customer records and a whole lot more.  Here are the biggest benefits of using cloud-based accounting software:

• You’ll save time.
• You won’t lose data if your computer crashes.
• Well-established software companies have a history with IRD and keep up to the minute with tax changes and developments.
• The best companies offer technical support as part of their package.

By reducing time spent on bookkeeping, you’ll free up time for gaining customers, extending your reach and expanding your profile in the market.

Switching to a new bookkeeping system can be daunting at the best of times, and it’s certainly not a panacea for poor record keeping.  If you’re interested in making the move, contact us to discuss your options and to plan a methodical transitional process along with any training needed for you and your employees.  Time spent doing this will likely repay you many times over!

FBT on work-related vehicles

You must pay FBT on a work-related vehicle, if it’s available for private use.  It doesn’t matter that the vehicle is a commercial vehicle and not a car, nor that it’s been sign-written to comply with Inland Revenue requirements.  What matters is whether the travel to and from home is necessary in, and a condition of, employment.  A plumber usually goes to different jobs every day.  It would be impractical to return to the employer’s premises.  The employee’s home becomes a place of work.  The employer should give a written instruction to the employee about taking the vehicle home and state it is not to be used for private purposes.  We recommend getting the employee to sign confirming he/she understands the instruction.  If you comply with this, no fringe benefit tax has to be paid.  If the employee doesn’t deviate significantly from the route home and stops off at, say, the supermarket, that’s not counted as being available for private use.  The work-related vehicle exclusion is applied on a daily basis. If the employee has unrestricted private use on work days but is not allowed to use the vehicle on days he isn’t working, the fringe benefit tax liability can be reduced proportionately.

PAYE salaries for company owners

The law has just been changed. Provisional taxpayers will be permitted to take a PAYE salary and still remain provisional taxpayers. Some people have been doing this already, but it has never been entirely correct. If you are a shareholder employee of your company and want to get some of your tax paid as you go, you can be an employee of your company and come into the PAYE system. Any profits left over at the end of the year can still be credited to you in the usual way. However, the profits will be much smaller and although you will still have to pay provisional tax and year-end tax, the amounts will be much less daunting.

You should note if you do put yourself on PAYE, you must continue with a PAYE salary for the life of your company. You cannot change your mind and be a full provisional taxpayer again. This doesn’t mean you have to continue with the same amount of salary. If the company is not performing too well, it’s logical to reduce your pay.

You should also note you will have to guess your provisional income in the year you make the change to a PAYE salary. If you underpay the provisional tax, Inland Revenue will require use of money interest at a rate more than 8% a year.

If the company makes a loss as a result of your PAYE salary, you will not be able to reduce your income by the amount of the loss unless your company happens to be a look through company.  The loss will be locked into the company until it can be set off against profits in future years.  There has been no provision for allowing a self-employed person to have a PAYE salary. If you are one of these, the best thing you can do is make monthly payments in advance into your account at Inland Revenue.

If you have any questions please contact your Ecovis KGA account manager.