Tax tips - Case studies - Issue 1
Holiday pay tax – getting help to get it right
Recent headline: “Government takes bosses to court over holiday pay non-compliance” NZ Herald 5/3/18.
The Ministry of Business, Innovation, and Employment (MBIE) has been working with over 150 companies on holiday pay non-compliance. The exposure could run into millions for a single organisation with a casual, shift, or variable pay workforce. We have recently helped a client manage their holiday pay review, identifying an exposure in excess of $150,000p.a. We provided a report for the client detailing the exposure, then created a recommended remediation plan to focus on minimising organisation and employee impact.
The client was then able to correct holiday pay for current and former employees and satisfy the Labour Inspectorate. The client also worked with us to make sure that holiday pay calculations are now correctly set up in the future.
On average, our clients found their exposure was between 0.3 – 1% of their total payroll cost. Given the Labour Inspectorate generally reassesses at least every 6 years, the liability can become significant!
Talk to your PwC adviser to find out how we can help your organisation understand your holiday pay position or connect directly with Phil Fisher.
Partner, Financial Advisory Services, Wellington, PwC New Zealand
Applying machine learning to classify expenditure
Managing the classification of capital expenditure has always been a manual and time-consuming process for finance teams and fixed asset accountants. It’s also an area with a high degree of human judgement and risk of errors, which can lead to discrepancies and Inland Revenue tax audit adjustments.
One of our clients had uncovered historic discrepancies in their capital expenditure classifications and had responded by getting a more senior member of their finance team to undertake a ‘high level’ manual review of material classifications. By using PwC’s machine learning software tool - SWIFT fixed asset module - they were able to undertake a review of all expenditure more accurately and in a fraction of the time. The tool is capable of analysing large sets of data and making virtually any type of classification based on previously learned behaviour. In this case, SWIFT immediately identified a number of inconsistencies made in the original manual classifications.
Tax authorities are increasingly using analytics tools to audit organisations and Inland Revenue will be no different as it continues to automate under its transformation programme. Clients in New Zealand have found SWIFT easy to use, liked the fact it doesn’t require any system integration, and that they are ahead of the curve when it comes to analytics.
Talk to your PwC adviser to find out whether SWIFT could help your organisation or connect with Adam Marcroft.
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SME business and bringing in overseas talent
Many of our small and medium-sized clients have identified skills shortages and challenges around bringing in overseas talent (be it short, medium, or long term).
Our clients have told us they didn’t know how to approach bringing key foreign skilled workers into New Zealand.
PwC recently supported two clients to solve their immigration process issues:
- The organisation has their talent globally disbursed, but needed a key member of the team to be in New Zealand to support a sale and project implementation. We helped our client build a business case to help them through the immigration process quickly and effectively. In this case, it was a ‘Specific Purpose or Event’ work visa.
- We also assisted a client with hiring a long term employee from overseas as the client was unable to find the right combination of industry and language skills locally. PwC helped the client demonstrate to Immigration New Zealand that they met the labour market test requirements in support of the individuals Work Visa application.
If bringing in overseas talent is a challenge for your organisation, please connect with our specialist team – Matt or Jaq.
Helping clients prepare by 1 July for New Zealand’s international tax changes
A lot of our clients are worried about new international tax rules coming in from 1 July that fundamentally change how foreign owned businesses are taxed in New Zealand.
One of the key issues clients want to talk to us about is how these rules will affect the way their New Zealand business is financed. In many cases, the New Zealand tax costs will materially increase.
We are helping our clients to understand the potential impact and weigh up whether to accept the increased tax burden or restructure their New Zealand financing structures. Proactive advice on the application of the new rules to their circumstances, the likely tax impact, and options available to address these changes and is invaluable.
The key is to balance the effect of the new ‘BEPS’ rules with commercial drivers to formulate the best way forward for their business.
If you think your organisation may be affected by the new rules, please talk to your PwC adviser.
Simplifying your business structure
Many of our private business and corporate clients who have been in business for a number of years, find themselves with overly complex structures that are not fit for the future. A rationalisation is required. We find this business simplification process leads to lower operating costs, lower tax risk and, of course, a much more manageable (or saleable) business.
We’ve recently helped three clients through a business and ownership structure review by working through these steps:
- Assess the purpose of entities
- Assess the appropriate share holding structure and risk profile
- Align the business structures with commercial needs
- Determine the cost and risks with change
- Execute through transfers, liquidations, amalgamations, and wind ups
In all cases, the resulting structure has aligned commercial and shareholder interests, reduced complexity, and facilitated new thinking in the organisation.
If you think your business structure is outdated, contact your PwC adviser or connect with Michael Bignell.
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