Ten Top Tax Tips for Businesses in 2014
The Christmas holiday break is a great time to take stock, regroup and think about the shape of your business for the year ahead.
Tax risk management should form a part of those reflections. An unforeseen tax bill can seriously dent your cash flows, not to mention the risk of bad publicity and increased stress.
My ten top tax tips for 2014:
- File returns on time. Remember the IRD can go back more than four years to increase tax assessments if this isn’t done.
- Take advice and get it right. If mistakes occur, penalties and interest can double or triple your tax bill.
- Keep an eye out for changes that affect you or your business. Many firms publish regular summaries of key tax changes. Reading these is much easier than wading through tax legislation.
- Monitor the IRD’s website. It’s a good source of information and the compliance focus this year has separated multinationals from small/medium businesses to try to make it easier for businesses.
- Take time to consider the tax implications of every decision you make. This is critical, no matter how absorbed you might be in the operational side of your business. Think about the business structure in which you operate and the transactions you enter into. Mistakes can happen when you treat tax as an after-thought. By then it’s often too late.
- Document management is a key piece of tax risk management strategy. This means keeping good tax records and, most critically, keeping notes in real time about the decisions you make and the circumstances under which you are operating. This is not necessarily intuitive. But you want your files to tell the full story about what was happening and what was considered at the relevant time.
- Sign and date your file notes. In a tax audit, the IRD will question you about what you did and why. Since the onus is on taxpayers in any tax dispute, the IRD tends to be dubious about explanations (however genuine) where there is no contemporaneous documentation to back them up. Valuable information can be lost when staff quit, making the onus of proof even more challenging to discharge.
- Separate your tax advice and legal advice so they are kept confidential and protected from disclosure to the IRD later down the track. Accidental disclosure of advice to the IRD is a common mistake that can be difficult to undo. These are statutory rights you are entitled to so you should protect them.
- Proactively manage your tax risk. The days of telling the IRD nothing and hoping it will go away are long gone. The IRD is encouraging people to come forward for discussions where there is uncertainty about a tax position you may be proposing to take.
- As part of these discussions, you can apply for binding rulings, non-binding rulings, commissioner’s official opinions and, in certain cases, make disclosures. All these options have varying degrees of certainty and penalty protection that can save significant costs. They also reflect positively on your compliance history, which is something IRD takes into account when considering whether to exercise a discretion in your favour.
With a little forethought tax does not need to be an impediment to the health and wellbeing of your business in 2014.
Kirsty Keating leads the tax controversy practice at EY New Zealand and is a principal of EY Law