Tax Structure Options for an Australian Company Operating in New Zealand

When an Australian company seeks to conduct business in New Zealand (NZ), several tax structures can be considered. Each has distinct tax implications, particularly concerning NZ income tax and the impact on Australian shareholders.

1. NZ Subsidiary Company

• Structure: An NZ company is formed as a subsidiary of the Australian parent company or is owned directly by Australian shareholders.

• Tax Implications: NZ income tax is levied at 28%, which is not available as a franking credit in Australia. Consequently, profits paid out to Australian shareholders face double taxation: 28% NZ tax and Australian tax at the shareholder level.

• Benefit: Limited liability protection.

• Challenge: Potential double tax exposure due to unavailability of NZ tax credits as Australian franking credits.

2. Branch Structure

• Structure: The Australian company establishes a branch in NZ.

• Tax Implications: While taxed at 28% in NZ, branch profits remitted to Australia encounter the same double taxation issue, as NZ tax is not available as a franking credit for Australian shareholders.

• Benefit: Simpler than setting up a subsidiary.

• Challenge: Double taxation on distributed profits.

3. Unit Trust

• Structure: An NZ unit trust, which is an unincorporated fund, holds assets and distributes profits to unit holders rather than reinvesting.

• Tax Implications: A unit trust is taxed as a company in NZ at 28%. If the trust distributes profits to an Australian unit holder, a credit for NZ tax paid can generally be claimed in Australia.

• Setup Requirement: A trustee (which may be the Australian company, an NZ company, or another appointed entity) is needed. If the trustee is an Australian company, the trust must register as a branch.

• Benefit: Potential tax credit in Australia and efficient distribution of profits to unit holders.

4. Limited Partnership (LP) with NZ Company General Partner

• Structure: An LP where the NZ company is the general partner (0% profit allocation), and an Australian entity (individual or trust) is the limited partner (100% profit allocation).

• Tax Implications: The partners are taxed individually, with the Australian limited partner taxed in their own name for NZ profits. With appropriate Australian tax advice, the Australian partner may claim a credit for NZ taxes paid.

• Benefit: Efficient tax flow to Australia, minimizing double taxation. Provides limited liability for investors.

• Challenge: More complex structure requiring both LP and partner tax filings.

Trans-Tasman Imputation Rules

Trans-Tasman Imputation allows NZ companies to attach Australian franking credits to dividends paid to Australian shareholders. However, NZ imputation credits cannot be attached, so Australian residents will not receive credit for NZ taxes paid. This option is beneficial when an NZ company pays Australian income tax, as it permits the NZ company to maintain an Australian franking account, effectively reducing double taxation for Australian shareholders.

Tax Summary for Each Structure

Additional Tax Considerations

GST (Goods and Services Tax)

• Standard GST return period is every two months. For companies with annual turnover under $500,000, six-monthly returns are possible. GST is applied at 15% for sales to NZ customers and 0% for offshore sales.

PAYE (Pay-As-You-Earn) Obligations:

• Employee salaries and benefits are subject to PAYE, which includes both income tax and an ACC earners’ levy. PAYE filings are generally due within two working days of payday, with payments by the 20th of the following month.

Employer Superannuation Contribution Withholding Tax (ESCT):

• Employers must withhold ESCT on superannuation contributions according to the employee’s marginal tax rate, usually filed with PAYE.

Fringe Benefit Tax (FBT):

• Most non-cash benefits (e.g., motor vehicles, subsidized loans) are subject to FBT at a default rate of 63.93%. Lower rates may apply if benefits are attributed to specific employees with lower tax rates. FBT returns are filed quarterly or annually, depending on the employer’s size.

ACC Employers Levy:

• Additional to PAYE, this levy depends on the industry. For accounting services, it is typically around 0.15% of salary.

Transfer Pricing:

• Cross-border transactions must follow arm’s length pricing. Administrative support is typically cost-plus 5%, while client-related work requires more specific arm’s-length pricing.

Estimated Setup Costs and Compliance

Income Tax Compliance:

• Annual returns required. The default balance date is March 31, though June 30 may be requested. Returns due March 31 if on a tax agency list.

GST Compliance:

• Monthly/bi-monthly filings based on turnover.

Payroll Tax Compliance:

• PAYE, ESCT, FBT, and ACC levies are filed based on employee remuneration and benefits.

Each structure has distinct benefits and requirements, so selection should consider the company’s business objectives, profit distribution plans, and cross-border tax efficiency.