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 »
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