The larger number of consumers, strength of the economy in Australia, and ease of access are what tempts a large number of New Zealand businesses to expand their ventures over the ditch.
As tempting as these possibilities are, there are several factors that need to be considered before taking the plunge into international business.
1. Consider a business structure with your long-term goals in mind
As with New Zealand, there are many different structures that a business can operate through in Australia, i.e. partnership, company, trust (discretionary and unit), limited partnership, and sole trader. Each of these structures carries with it inherent pros and cons that need to be considered, i.e. tax rates and profit repatriation. It’s important to apply your thoughts to more than just the immediate short-term gain to ensure you get the most out of the business over the time you operate it. Having an upfront discussion with your Staples Rodway advisor about the short, medium and long-term plans for your business venture will be time well spent.
2. Seller must be aware of GST rules on importing Goods to Australia
There has been much talk in the media recently around GST and cross-border transactions. Initially, both the Inland Revenue Department and the Australian Taxation Office (ATO) focused on services (Netflix Tax). However, the Australian Government has recently passed legislation requiring low value physical goods that are imported into Australia to be charged GST.
The onus for the GST is on the seller, not the purchaser, and the seller is required to furnish a Business Activity Statement (Australian equivalent of a GST return) to the ATO and pay accordingly. There are limits, deductions, and other rules that apply to how GST is calculated in Australia, and their rules are different to New Zealand’s rules. It is vital that whoever is filing your GST return has a thorough understanding of the Australian GST rules and system to ensure your business remains compliant.
3. Compliance is vital and is different for every state
In addition to GST, Australia has a number of other laws that your business will need to be aware of and comply with if appropriate: Capital Gains Tax, Australian Business Register requirements, Pay As You Go (Australia’s equivalent to our PAYE), Superannuation contributions, Income Tax, State and Federal rules around governance, stamp and other duties, and payroll tax to name a few. As well as the federal tax system for GST and income tax, each state levies other taxes and duties in varying ways at varying rates.
4. No 'one size fits all' approach to profit repatriation
One of the major concerns we see for clients wanting to conduct business in Australia is how to repatriate the profits back to New Zealand in a tax effective manner; do I use a legal structure and repatriate the profits via management fees, dividends, wages, or some other means? Do I trade as a sole trader and have the profits taxed at marginal rates? Do I use a look-through structure (such as a limited partnership) so that I can obtain a tax credit in New Zealand for Australian tax paid?
Unfortunately, there is no “one size fits all” answer to this question. The need to consider the size and scope of opera-tion in Australia, the presence of the business in Australia, the physical location of the goods or services to be sold in Australia, the long-term goals around growth, exit strategy, living arrangements, and the owners’ personal goals are often not taken fully into account. Instead, the focus can be on the short-term “I can save you $x of tax in one year” approach.
Even worse are the cases of “just dip your toe in and see what happens”. This can lead to all sorts of issues around taxable presence/branch/permanent establishment issues, allocation of profits, double taxation, loss of franking credits, fines, penalties, and interest cost. These may put you off what could have been a successful venture had proper forethought been applied and the Double Tax Agreement between New Zealand and Australia considered.
This list is by no means exhaustive and could be added to with labour rules, union issues, corporate compliance and property ownership concerns. There are a lot of opportunities to successfully expand an existing business into Australia, however, it should be done correctly with forethought applied to avoid any nasty surprises further down the track.
Should conducting business in Australia (or any overseas jurisdiction) be your next step in growth, make sure you do your homework and speak to your Staples Rodway advisor before taking the leap. Staples Rodway liaise with Pitcher Partners, our associated Australian firm, to ensure the best outcome for our clients. We are part of the Baker Tilly International network, which has 125 independent firms in 147 locations.