McLEAN AND CO APRIL 2004
NEWSLETTER PAGE 2
SMOOTHER
PATH FOR SMALL BUSINESS
Newly self-employed people are set to receive a tax
discount.
Self-employed who pay provisional tax in their first year of business
will be eligible for a 6.7% discount on that tax as part of a raft of
measures being introduced over the coming year to simply tax for small
businesses.
Associate Finance Minister David Cuncliffe says the small business
sector is a key driver of growth in the
New Zealand
economy but many struggle to make it past the first couple of years.
He says there's a need to give such businesses a hand up as they start
out.
At the moment businesses don't have to pay tax on income earned during
their first year until the second year, but then both year's payments
can be due about the same time, which can be a real financial
knock-back.
He says the new discount is being offered as an incentive to all
first-year self-employed people and individuals who receive income from
partnerships to make voluntary tax payments during their first year of
business.
Mr Cuncliffe says he hopes businesses will avoid the later strain of
paying two lots of income tax very close together, if they take up the
offer which will result in a 6.7% discount for each dollar of tax paid
during the first year, to be calculated when their end-of-year tax bill
is prepared.
The minister says this incentive is just one of several ideas proposed
by the government late last year in the discussion document 'Making tax
easier for small businesses' and is the first to make it into a taxation
bill. The bill is expected to be introduced within the next few weeks.
Other government proposals under active consideration include aligning
provisional tax and GST payments, allowing small businesses to base
provisional tax and GST turnover on GST turnover and helping small
businesses with PAYE.
Mr Cullen says the tax discount incentive has received considerable
support from the small business community and it's hoped that further
announcements on the balance of the small business tax simplification
proposals can be expected later this year.
FAIR TRADING ACT 1986
This Act, the basis of consumer protection, applies to
traders, shops, government agencies and state-owned enterprises and
extends to advertising outside
New Zealand
by residents who supply goods or services within
New Zealand
. It is concerned with matters such as product safety,
pricing, and financing and requires the Commerce Commission to make
available, or help others to make available, information about the
rights and obligations under the Act of anyone engaging in trade.
The Act forbids misleading conduct in relation to trade
generally and, in particular, in relation to the supply of goods and
services - their nature, characteristics, suitability for purpose and
quantity (and in the case of goods, the manufacturing process) - and in
relation to employment - applicable terms and conditions, for example.
When supplying or advertising goods and services false or
misleading representations are unlawful so it is not permissible to
claim that a product will do something it is not capable of doing nor
that it is made of something of which it is not made (labelling
regulations apply in respect to the fibre content of textile goods and
the cleaning of textiles and garments). Likewise false sponsorship or
endorsement claims must not be made, nor false representations about a
product's country of origin (labelling regulations apply to clothing ns
footwear).
Trade marks must not be forged and a trade mark resembling
some other well known trade mark must not be used to mislead or deceive.
(continued
next page)
McLEAN AND CO APRIL 2004
NEWSLETTER PAGE 3
FAIR TRADING ACT 1986 cont
Bait advertising is unlawful and therefore clear, not
misleading, pricing is required. For example, if a sale advertises
50% off everything then everything must be reduced by 50%. Or if
GST is not included in the price quoted then that must be indicated. And
price reductions must be genuine. It is not lawful to increase the
price of an item in order to reduce it by a large amount soon after. For
many goods the Commerce Commission considers it is only after a higher
price has applied for a 30-day period that a reduction of this kind can
be made.
Goods or services advertised at a specified price must be
available for a reasonable period and in reasonable quantities, having
regard to the nature of the market in which business is carried on and
the nature of the advertisement. Suppliers prosecuted under this
provision have a defence if they can establish that they offered to
supply or have someone else supply the same or equivalent goods or services,
that the customer accepted the offer, and that the goods or service were
supplied accordingly. A contradictory message provided at the end of an
advertisement or in a small notice in a shop is unlawful and if any
additional charges apply these must be made clear, as must any
additional cost where interest or credit free finance is offered. If
additional finance costs are not brought to the purchaser's notice the
price to be paid will be the same as the cash price. Goods and services
must not be promoted by offering gifts and prizes unless the gifts and
prizes are provided and provided in the way they were offered.
Referral selling - providing a rebate or commission to
someone purchasing goods or services if that person provides the names
of other prospective customers - is unlawful as is demanding or
accepting payment for goods and services ahead of supply if there is no
intention to supply the goods and services or if what is supplied is
materially different from what was ordered. Pre-paid goods or services
must be supplied within specified period or within a reasonable time if
no period was specified.
Physical force, harassment, or coercion must not be used
when supplying or advertising goods and services nor in connection with
sales of land. Trading stamp schemes are prohibited and pyramid selling
schemes as defined in the Act must neither be operated nor promoted.
Goods bearing a false trade description may not be imported into
New Zealand
.
The Minister of Consumer Affairs can set minimum safety
product standards and has done so for bicycles, children's nightwear,
cigarette lighters, toys, cots and baby strollers. The standards
do not apply to goods clearly identified as being for export only.
The Minister can also ban unsafe products and require a supplier
to recall products that do not comply with a product safety standard or
which are likely to cause injury. In such cases the supplier may
also be required to repair or replace such goods and/or to explain to
the public why a product is being recalled.
The Commerce Commission is authorised to conduct searches
(after obtaining a search warrant) to determine whether or not
contraventions of the Act are occurring but it is recognised that
reasonable mistakes may be made and certain defences are available. For
example, it is defence to a prosecution for a supplier to prove that
reasonable precautions were taken and due diligence exercised to avoid
contravening the Act and that the contravention was due to someone
else's act or omission - a genuinely advertised pricing mistake
would fall into this category.
Prosecutions under the Act can attract a fine of up to
$100,000 (for a company) and $30,000 (for an individual), plus costs.
Anyone breaching the Act can be ordered to pay for and publish
corrective information and statements.
COMMERCE
ACT 1986
The Commerce Act establishes a Commerce Commission (also responsible
for administering the Fair Trading Act) with the purpose of promoting
market efficiency by fostering healthy competition, informed consumer
choice and sound economic regulation. Commission activities include
investigating and determining whether particular trade practices have
the effect of restricting competition (anti-competitive practices) and
can result in businesses being prosecuted where a breach is found.
Anti-competitive practices relate to supplying or acquiring goods
and services and may involve an individual, two or more individuals, a
company, or two or more companies acting together.
(continued next page)
McLEAN AND CO APRIL 2004
NEWSLETTER PAGE 4
COMMERCE ACT 1986 cont.
The
Act prohibits behaviour intended to "substantially lessen
competition" in a market or which has, or will probably have, that
effect. Such behaviour includes arrangements or agreements between
competitors to prevent, restrict or limit the supply of goods and
services from some other competitor and price fixing by competing
organisations, except in the case of joint venture operations where
goods are jointly produced or services jointly provided.
The term "market" means the
New Zealand
market for goods and services and for other goods and services
that can, as matter of fact and commercial common sense, be substituted
for particular goods and services. It is likely, the Commerce Commission
states, that, for example, butter and margarine would be considered part
of the same market for "spreads" rather than separate markets
since the one can be substituted for the other.
Markets exist between wholesalers and retailers and between
retailers and their customers, with some markets being seasonal, others
regional, and others covering the whole country. Parties engaging
in prohibited behaviour can do so on the basis of a formal contract or
as the consequence of a more informal "arrangement". Whether
contracts or arrangements have the effect of substantially lessening
competition will largely reflect the market in question. It is the
effect of a contract or arrangement that is important; it is not
necessary to show any intention to substantially lessen competition to
establish a breach of the Act. Where, following prosecution,
a court finds that a contract or arrangement does have the effect of
substantially lessening competition its provisions will not be legally
enforceable.
Similarly,
provisions in contracts or arrangements between or among competitors
intended to prevent or restrict the supply of goods and services to
another competitor are prohibited. Examples given by the Commerce
Commission are: competitors banding together to prevent a supplier
supplying other competitors with goods or services, competing suppliers
agreeing to threaten a business so that it no longer buys from some
other supplier, and members of a trade or profession not accepting
businesses in the same trade as members because they provide their goods
and services at a discount. Provisions of this kind are referred
to as "exclusionary provisions" and the prohibition will also
apply where the business or businesses targeted are likely in the future
to be in competition with at least one of the parties who have agreed to
such a provision. However, where a business or businesses are
prosecuted, it is a defence to show that an exclusionary provision did
not have the purpose, effect, or likely effect of substantially
lessening competition.
In
the case of price fixing, this need not necessarily involve agreeing on
a final price but could involve such things as setting a price range or
agreeing on maximum discounts. Price-fixing is considered to be
anti-competitive because it prevents customers from looking for lower
prices. Limited exceptions apply (as in relation to joint ventures). Resale
price maintenance, restricting or eliminating competition on price, is
prohibited. Suppliers of goods and services can issue recommended
retail prices but must make clear that these are only recommendations
and need not be followed. They cannot set a minimum price, either
an actual or a discounted price. The same applies to third parties
who may not hinder or prevent someone from acquiring or supplying goods
until that person or firm agrees not to sell below a specified price.
Businesses
or persons with a "substantial degree of market power" are
prohibited from using that power to prevent competition. Market power
must not be used to restrict entry, prevent or deter competitive
conduct, or eliminate competitors or potential competitors from the
market in question or from any other market.
A
number of exceptions apply in respect to anticompetitive practices,
including any such practice that is specifically authorised by
legislation and clauses in employment agreements or in contracts between
sellers and purchasers of businesses that prevent the employee or seller
from setting up in competition in the same area with their former
employer, or with the purchaser, for a period of time (although overly
restrictive clauses have on occasions been rejected by the courts).
The
Commerce Act also covers acquisitions and mergers and should there be
concern that a business acquisition might breach the Commerce Act, the
person proposing to acquire the assets of the business or shares may
seek authorisation from the Commission. The Commission must decline
clearance for any acquisition or merger it believes would result in a
substantial lessening of competition.
In
investigating complaints, the Commerce Commission has a right of entry
power and can compel businesses to provide information to assist in
proving the Act has been breached. Where it considers this
necessary, the Commission can ask the Serious Fraud Office to carry out
an investigation.
McLEAN AND CO APRIL
2004 NEWSLETTER PAGE 5
THE
BUSINESS PLAN
The business plan is your pathway to profit. It can
mean the difference between success and failure. A business plan with
goals and actions can guide you through turbulent economic times with
alternative channels which you can fall back upon as changes dictate.
Through the development of a business plan, you will
identify your areas of strengths and weakness, and you will spot
opportunities and threats which may loom on the horizon. You will review
competitive conditions of the marketplace and isolate opportunities and
situations that seem advantageous to your business.
The business plan will communicate your understanding
of the industry in which you operate, the competitive situation in which
you operate, the capability of your management, the capacities of your
particular business, event he suitability of your location. It will make
reasonable assumptions and forecasts of your expectations concerning
sales, expenses, cash flow and attainment.
The following outline of a typical
business plan can serve as a guide. You can adapt it to your specific
business. Breaking down the plan into several components helps make
drafting it a more manageable task.
Introduction:
The
statutory minimum wage applies even if an employee is paid partly or
wholly by commission or by piece rate. It applies to all types of jobs
and employees, including homeworkers, casual, temporary and part-time
employees.
MINIMUM
WAGE EXEMPTIONS
An exemption from the
minimum wage lets a person work for less than the minimum wage. Labour
Inspectors can grant an exemption to a person with a recognised
disability that significantly slows his or her work and makes him or her
incapable of earning the minimum wage.
McLEAN AND CO APRIL 2004
NEWSLETTER PAGE 7
WAGES AND TIME RECORDS
Employers must keep
wages and time records for each employee, for six years. Employees and
their representatives have the right to see these.
These records must
include the following information:
1.
the employee's name
2.
the employee's age,
if under 20 years
3.
the employee's postal
address
4.
the type of work the
employee undertakes
5.
the type of
employment agreement, individual or collective
6.
the title, expiry
date and employee classification in any applicable collective agreement
7.
where payment is
calculated by the hour, the hours and days of employment in each pay
period
8.
the wages paid each
pay day
9.
details of employment
relations leave taken
10.
details of annual
leave taken
11.
details of statutory
holidays worked and days in lieu provided
12.
details of salary
deductions, such as PAYE and agreed superannuation contributions.
Employers have
obligations to keep holiday records. These may be kept as part of the
wages and time records.
FREE POSTAGE FOR TAX PAYMENTS
The
Government has announced that businesses will be able to post their
payments of GST, PAYE and Fringe Benefit tax free from the beginning of
this year.
The
Government stated that the move is part of the Government’s ongoing
project to reduce compliance costs and is a way of recognising the work
business does on behalf of the tax system.
PAYING SCHOOL CHILDREN TO WORK IN YOUR BUSINESS
School
children are liable to income tax in the same way as other taxpayers.
However, school children whose total earnings from all employment does
not exceed $20 per week or $1040 per year are not required to provide
their IRD number to their employer and it is not necessary to deduct
PAYE. PAYE or Withholding Tax must be deducted if the
school child is earning more than the threshold.
Where a
school child does not provide an IRD number, and total earnings exceed
the threshold, you must deduct PAYE at the "Non Declaration"
rate of 45c in the dollar.
If you
pay your own children to work in your business, the pay rate should
reflect the effort put in and the market rate for similar casual or
part-time work.
There is
no threshold for university, polytechnic, and tertiary students.
PAYE or Withholding Tax should be deducted from their wages or contract
payments. Tertiary students working part-time should be encouraged
to apply for a Special Tax Certificate. Otherwise they will pay
tax at the normal rates and have to lodge a Tax Return to get a refund.
Applications for a Special Tax Code are made on Form IR23 BS.
