Are your records up to standard?
Tax Alert - June 2021
By Bridget O’Meara & Anna Zhang
As business are becoming increasingly digitalised, agile and environmentally sustainable, business records are no exception to these developments. Inland Revenue has recently issued guidance regarding the retention of business records. There are a number of points to recap on below, to ensure you are complying with these requirements.
While there are numerous legislative requirements under company and corporate law imposed on businesses to hold appropriate business records, the Inland Revenue’s standard practice statement relates to the documentation requirements under New Zealand tax law.
The key requirement remains that businesses are required to keep sufficient business records to allow its tax compliance with tax laws to be readily ascertainable by the Commissioner. They must be kept for a period of seven years after the end of the income year to which they relate.
Standard Practice Statement 21/02 “Retention of business records in electronic formats, application to store records offshore and keeping records in languages other than English or te reo Māori” applies from 6 May 2021 and replaces its predecessor issued in 2013.
What language are your records in?
Previously, applications had to be made to hold business records in te reo Māori. Now the Commissioner has confirmed that as te reo Māori is an official language of New Zealand, alongside English, no application is required for records to be held in te reo Māori (note, certain phrases required by the Goods and Services Tax Act 1985 are still required to be in English).
An application can be made to keep records in an alternative language for tax purposes. This can include approval for some or all of the business records. Such an approval is not a relaxation in the standard of record keeping, nor does it mean the IR will communicate in that alternative language. The law is silent on which language is to be used when completing tax returns. The statement provides that the Commissioner will accept returns in the prescribed format, in either English or te reo Māori language with numbers entered using Arabic numerals.
Do you store your records in the cloud?
As businesses move towards being paperless and increasing digitalisation, records may not be held in their traditional physical form. Records stored electronically, either in or outside New Zealand, in either your own system or an outsourced provider, must meet the requirements of the Contract and Commercial Law Act 2017 (CCLA). As such, the integrity of the information in the records is to be maintained and readily accessible for future reference. Further conditions to retain records under the Inland Revenue Acts are provided in the Contract and Commercial Law (Electronic Transactions) Regulations 2017. The statement sets out the Commissioners view when these requirements and conditions are met.
Where are the records?
The default position may be that records are stored in New Zealand, however the Commissioner accepts that businesses may have reasons to store their business records outside of New Zealand. Where this is the case, they can apply to Inland Revenue for authorisation. The Commissioner may authorise storing records offshore or a third party to hold records offshore, if the storage does not impact on the Commissioner’s compliance activities.
An applicant will be required to demonstrate that the storage method complies with the legal requirements. The Commissioner decides on the merits of each case, including the compliance history of the business. In addition conditions may be attached to the authorisation.
Have you outsourced to a third party provider?
The good news is that taxpayers are not required to submit an application if their third party providers are already an Inland Revenue approved third party. You can review this online here.
Where authority is obtained for third party providers to store the business records, the statement is very explicit that such outsourcing does not replace the businesses responsibility to meet the record keeping requirements.
As part of any third party application, the Commissioner will consider whether the third party carries on business in, or through, an establishment in New Zealand, and will also consider the processes that the third party has for data should they cease to hold records for the relevant taxpayer.
The Commissioner continues to emphase in the statement that internal controls must be adequate to ensure that all business transactions executed electronically are completely and accurately captured. Depending on where your business is in its digitalisation journey, it is vital that the governance around these processes are robust to ensure the information in the records is complete and accurate. It would be timely to review your tax policies and processes to ensure appropriate controls are in place to mitigate both financial and reputational risks. See our earlier article on how we can help with adopting best practice tax governance.
If you have any questions about managing your business records or need assistance making an application, please reach out to your usual Deloitte advisor.
June 2021 Tax Alert contents
- New business continuity test – Inland Revenue releases guidance
- Intra-group service charges – are your group’s processes up to date?
- The wage subsidy debate continues… over a year on, was the scheme a success? And are you safe from audit?
- Advantage sports: being a team player can reduce your tax bill
- Are your records up to standard?
- Mileage reimbursement rates – what you need to know
- Snapshot of recent developments