The New Zealand Institute of Chartered Accountants (NZICA) is proposing to radically simplify tax returns for small businesses so they can be completed by a business owner in one hour every month. The suggested changes include eliminating annual statutory accounts and using a business' GST return as the basis for their overall income tax return.
Almost half of all New Zealand businesses (48% according to Statistics NZ) have annual revenue of NZ$600,000 or less. They all need to produce financial statements to the same standards that large privately held companies use. Both their bankers and the IRD currently expect these ‘statutory accounts’.
And they need to produce separate GST returns on a much more frequent basis.
Lowering the compliance cost load – which is usually code for high accountant fees – has been a stated goal of Governments from both sides of the spectrum for many years, but practical options have eluded policy makers.
Not only does the present system deter people from starting their own business, it is also likely that complexity discourages compliance.
The NZ Institute of Chartered Accountants (NZICA) is proposing some radical solutions aimed at separating out this group for a very simplified approach, significantly different to what is required for larger businesses. The IRD, the Treasury, and bankers are watching and encouraging the proposals, the NZICA said.
The NZICA simplification concepts are likely to eliminate large amounts of processing work for their members and they are bracing for a backlash. Essentially, annual ‘statutory accounts’ would be eliminated and income tax liability would be based on the GST return.
Their goal is a system that any business owner can do in one hour, in one return, each month.
The advent of cloud bookkeeping systems from the likes of Xero and MYOB give a universal backbone supporting such a change.
Essentially, NZICA proposes that qualifying enterprises report on a GST cash-basis as their only tax compliance obligation. Interestingly, that even eliminates the holding of asset registers and the calculation and deduction of depreciation. It even abandons accrual accounting – a remarkable recommendation from a professional accounting body.
Richard Austin, the President if the NZICA said they are looking for “a tax system that has compliance costs that are not disproportionate to business size.”
“We propose a rule of ‘one’ for small business. No more than one hour, one return, and one payment each month for income tax and GST compliance,” says Craig McAlister, the Tax Director for the NZCIA.
By taxing these qualifying businesses at the personal marginal tax rate, their new system would remove the need to keep imputation accounts, eliminate trading stock and fixed asset records, and avoid provisional tax, FBT, and entertainment tax records. In fact there would be no annual ‘balance date’ accounts at all.
For ‘micro’ businesses (those too small even to register for GST), they have even simpler proposals.
The NZICA has been working on these concepts since 2009, and this latest version is now open for public comment and consultation here » and the full Report here »
Do you have a view on what is in fact a radical proposal by the accountants? Tell us what you think in the comment section below (you will need to sign in or register first to use that feature).
8 Comments
ah, no. Read what they are actually suggesting. It's unusally radical, and will likely result in less [bookkeeping] work for its members. In fact, if it works well, it could well be a model for business tax systems for much larger enterprises. Its got the look of a 'flat tax' - and could be tough for many practicioners. It's their own members who should be worried. Clients should applaud.
IFRS was supposed to sort out the worlds problems too David. Our compliance costs rose exponentially. I spend 10 times the amount of time on compliance and our smallish business has spent over $1m extra as a result. Banks and financial institutions have suffered similar cost increases to comply with IFRS and RBNZ additional regs. The underlying business has not changed one iota. Furthermore the US which started the global collapse stuck with US GAAP as they thought it superior to IFRS anyway.
To go back to cash based accounting sounds great on the face of it but the world doesn't operate that way and frankly capitalism wouldn't support it. Business is complex. There is a huge plethora of statutes, rules, regulations, and jurisdictions to consider in today's world. It is a nice thought to simplify things to the degree suggested, but I just can't see it happening.
I would prefer It if we wen't down the route of looking at a tiered structure for gst, introducing capital gains tax, and reducing corporate tax to 20%. That would get me excited as it would incentivise businesses to retain profits, ensuring businesses are well capitalized. This is one of the key problems with most businesses in this country - there balance sheets are weak. It also means they struggle to get finance, and is a fundamental reason why banks lend on residential property at the expense of business
I have a small side business,,My accounting obligations costs put a minus sign in front of the bottom line of my P and L... I could tolerate an hour a month and GST is easy meaning I could do it myself... I am going to have a crack at it myself next year but I may fall into the "lack of compliance" trap because I dont understand the complexity of full annual financial accounting. (sigh!) Small business cant get off the ground. Maybe make small enterprise tax and complianc free until 3 years into it and then IR or auditor comes in and signs off on capability to fully fledged business using this one hour a month system. Just a thought,,,
To get assurance they seem to be suggesting a health check by an accountant on the monthly returns...so that will cost ya :-)
I personally can't see how a serious business can grow relatively blind without periodic financial information. Any many would not pay for that if not required for tax. Such a lack of enterprise in this country I guess its academic.
Maybe a good place to start is get rid off all the tax right offs that companies get.
If the tax rate 27% then in reality they are paying nothing like, that because of all the things they can right as expenses, what a joke of a system.
All it does is encourage companies to waste money and run inefficiently, and costs the goverment money in tax.
That needs to be sorted out more than anything else.
why not do away with tax as we know it and have GSTat say 30% ON EVERYTHING no exceptions
no claiming back no depreciation no nothing
WOODROW WILSON once said
Big business is not dangerous because it is big but because its bigness is created by PRIVELIGES and EXEMPTIONS
That was in 1912 it would appear it still applies today
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.