Suppose that every day, ten men go out for lunch and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes (including GST on purchases), it would go something like this:

•  The first four men (the poorest) would pay nothing.
• The fifth would pay $1.
• The sixth would pay $3.
• The seventh would pay $7.
• The eighth would pay $12.
• The ninth would pay $18.
• The tenth man (the richest) would pay $59

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So, that's what they decided to do.
The ten men ate lunch in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.
"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily lunch by $20.00." So lunch for the ten men would now cost just $80.
The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six men? How could they divide the $20 windfall so that everyone would get his fair share?
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to eat his lunch.
So the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

•  And so the fifth man, like the first four, now paid nothing (100% off).
• The sixth now paid $2 instead of $3 (33% off)
• The seventh now paid $5 instead of $7 (28% off)
• The eighth now paid $9 instead of $12 (25% off)
• The ninth now paid $14 instead of $18 (22% off)
• The tenth now paid $49 instead of $59 (16% off)

Each of the six was better off than before. And the first four continued to eat lunch for free. But, once outside the bar, the men began to compare the amount they got off.
The sixth man said, "I only got $1 off out of the $20 while the tenth man got $10 off!"
"Yeah, that's right," exclaimed the fifth man. "I only got $1 off, too. It's unfair that he got ten times more benefit than me!"
"That's true!" shouted the seventh man. "Why should he get $10 off, when I got only $2?  The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!"
The nine men surrounded the tenth and told him they were angry that he got so much off while they each got very little.
The next day the tenth man didn't show up for lunch, so the nine sat down and had their lunches without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money amongst all of them for even half of the bill!
And that is how our tax system works. The people who already pay the highest taxes should naturally get the largest benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start eating overseas (& there are a million and one instruments to avoid taxes), where the atmosphere is somewhat different (there is no such thing as a fair tax system)!
Socialist ideals only works to provide for the bottom rung of Maslow's hierarchy of needs! Anything above that, everybody suffers making everybody poorer!...and most importantly kill innovation! examples abound from Cuba to China so unless you want be that, you've got to think harder about what you want!
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.

 The purpose of this article is

1. Introduce cryptocurrencies and what problems they actually solve;
2. How to get businesses ready to accept cryptocurrencies as a medium of exchange and store of value, and
3. Briefly discuss the best practice financial & tax treatment of transactions in cryptocurrencies.

A cryptocurrency is a medium of exchange like the USD, AUD, CAD etc but designed for the purpose of exchanging digital information through a process made possible by certain principles of cryptography. Cryptography is used to secure the transactions and to control the creation of new coins. The first cryptocurrency to be created was Bitcoin back in 2009. Today there are hundreds of other cryptocurrencies, often referred to as Altcoins.
Put another way, cryptocurrency is digital currency.
Unlike centralized banking, like the Federal Reserve System, where governments control the value of a currency through the process of printing fiat money, governments (or indeed any single or group of individuals or organisations) have no control over cryptocurrencies as they are fully decentralized.
Most cryptocurrencies are designed to decrease in production over time like Bitcoin, which creates a market cap on them. That’s different from fiat currencies where financial institutions can always create more, hence inflation. Bitcoin will never have more than 21 million coins in circulation. The technical system on which all cryptocurrencies are based on was created by Satoshi Nakamoto (a pseudonym)
While hundreds of different cryptocurrency specifications exist, most are derived from one of two protocols; Proof-of-work or Proof-of-stake. All cryptocurrencies are maintained by a community of cryptocurrency miners who are members of the general public that have set up their computers or ASIC machines to participate in the validation and processing of transactions.

Before we launch into cryptocurrencies - it's important to briefly understand what problem (s) they actually solve!
Principally, there are 2 key problems

1. having to have (and almost always misplaced) trust in a) the issuing authority (Governments) to only issue currency (or promise) that they can back up with value and not more and b) the record keeping authority (banks) will hold accurate records of transactions in that currency.
2. high transaction cost (e.g monthly account maintenance fees, wire transfer fees, documentation fees etc), &

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Once there is understanding of the problems this trust causes, it is easy to see how cryptocurrencies remove these risk almost completely from commerce making transaction costs cheaper and accurate and the medium of to maintain value.
To get to that, it is important to understand what really is currency, what is a bank, what is a government and what has all that to do with Faith or Trust?
We do apologies in advance about the level of complexities in the concepts discussed. Given the brief scope of the article, the readers are expected to at least have an awareness of the existence and types of cryptocurrencies.

A currency is a physical note and coin issued by the government of a particular country as a medium of exchange to facilitate commerce and to some extent store of value in terms of purchasing power. It is a promissory note in which the issuer (the government) promises to give to the holder value in the denomination of that note! 
These are also called "Fiat Currencies" as they are created and backed solely by trust (or faith) in a integrity of the government that it will actually be able to deliver the promised value when it is presented by the holder.

 A bank is an organisation that the people "trust" to

1. hold accurate records of currency transactions between 2 or more parties
2. hold the account holders currency safely (as they are usually guaranteed by the governments) and most importantly
3. Although not strictly relevant for this article, create artificial currency // value in the form of loans and mortgages by bringing time in the equation of value and currency.

As discussed in the introduction above, the key problem is Trust (or faith)

1.  In the integrity of the government of a particular country to print and circulate currency that they are actually able to redeem in value. Should that trust erode, the value or the purchasing power of that currency will fall as fast as that erosion is perceived (i.e it doesn't even have to be actual decline due to demand and supply of that currency) - e.g hyperinflation in Zimbabwe in 2007 and 2008. Herein lies the biggest risk in fiat currency - risk that the government will be unable or unwilling to honour its' promise on a currency or a certain denomination of it (e.g demonetization of ₹ 500 and ₹ 1,000 notes in 2016 by the Indian Government), so that it has no intrinsic value.
2. in the centralised banking system that keeps full trust-worthy records of all transactions and facilitates the transfer of value from A to B incurring large transaction costs and sometimes losses.

Problem 1) wouldn't exit if the governments' ability to print currency (& therefore its promise) is backed up by inherent value holdings (eg in gold as in the olden days - called the Gold Standard)!
Gold doesn’t inflate / deflate like fiat currencies do. Given its limited supply, it is guaranteed to hold its value. Things tend to cost the same in gold over long periods of time. In fact, 2,000 years ago, Roman centurions were paid about 38.58 ounces of gold per year. In US dollars today, this comes out to about $48,350. The base salary of a captain in the US army today comes out to just about the same at $48,500.
This makes gold a much better store of value than fiat currency! You don’t have to trust anyone to trust that your gold will retain its value relatively well across the sands of time.
The problem with gold though, is its' use as a medium of exchange! It is hardly practical to carry gold around and shaving the exact weight required for a cup of coffee or a taxi / bus ride or perhaps a dress or to transfer value over long distances. This precise problem drove the development of fiat currencies!

Cryptocurrencies solve both issues! Given the Gold analogy, a cryptocurrency is "Digital" gold so much so that its' extraction is even called mining! It is

1.  a virtual unit of value that can be used as a medium of exchange because it is highly divisible (up to 8 decimal place in bitcoins (called a satoshi);
2. can be irreversibly transferred from A to B in minutes / seconds anywhere in the world as there is no central authority, costing few cents regardless of the amounts transferred - so no intermediaries, no disputes, negligible transaction cost & no trillions of dollars in bank profit;
3. Mostly anonymous to curious eyes;
4. As safe and secure as your digital wallet is;
5. Supply is controlled by software that cannot be interfered with by politicians, bankers and other people who seek to artificially manipulate its' value. Therefore there is no need to place any faith / trust in the integrity of the issuing authority (governments) nor the bank!. It is impervious to artificial manipulation of purchasing power or value, only to the economic forces of demand and supply which at the global level are impossible to manipulate;
6. Practically impossible to hack the software that "mines" it. If it is interfered with in any way, shape, or form it segregates from the original stack creating virtually a new currency - keeping the integrity of the original currency maintained at all time;
7. Like Gold, has limited supply to guarantee value (e.g there can only ever be 21 million Bitcoins ever), regardless of the economic cycle, country or a region.
8. The software guarantees the new units are mined at a consistent rate (e.g a block of bitcoins are created every 10min or so, no matter the computing power that is behind the creation making each new block of Bitcoin exponentially more difficult to mine than the last one)

Well, generally speaking, as a business, in principle, you need to do the following steps to get setup up to transact in cryptocurrencies.

1. Subscribe to a digital wallet (several are reviewed on the internet but we will recommend a few should you need that advice) from where you can receive and send cryptocurrencies! The digital wallets need to be capable of handling transactions in significant volume.
2. Setup a digital payment gateway in your eCommerce-enabled website where cryptocurrencies can be connected to sale transactions. This is essential to link to your digital "bank" account in your general ledger. There are several of these available today, some more suitable in certain transactions / industries than others.

However, these two aren't the simplest things to do when day-to-day work has to carry on! As with anything digital, there are always risks! And you should come and see us at Core Business Services to ensure that you have the most suitable gateway and the secure wallet given the state of technology!
The complications arise in accounting & reporting for these transactions! Given they the sender and recipient are virtually anonymous on the decentralised records, their reporting becomes very complex. Recognition of whether a transaction is on revenue account (resulting in tax obligations) or capital account (Loans and advances) add further complications. Regulators are yet to catch up and understand the fundamental nature of cryptocurrencies. All their systems & understanding are based on traceability to sender / receiver and purpose as there is an audit trail of every transaction.
Sooner or later regulations will come and if you're keen to stay on the right side of these, please come see us so we can configure your accounting systems and train accountants / business owners to deal with digital wallets.
Aside from reporting end, at the business process level the application of blockchain technology is ushering in B2B connectivity at the General Ledger / Accounts Payable / Accounts Receivable / Stock / Fixed assets levels where creditor bills & debtor invoices and there subsequent settlement will happen at the accounting systems level without the need for duplication or time delays! If you need to know more about where the technology is headed - please check out : https://request.network/assets/pdf/request_whitepaper.pdf.

Cryptocurrencies are both a store of value (like gold) and a medium of exchange (like a $) and that itself creates a host of tax issues - one for settling transactions and then valuing the Bitcoins as there are literally hundreds of exchanges all over the world matching buyers and sellers!
There is no official guidance from the IRD in relation to cryptocurrencies. Type in cryptocurrencies, Bitcoin, Ethereum, Dash, Ripple and so on, in the search box and you get absolutely nothing. We tried to connect with our account managers at the IRD and similar response!
Without specific guidance from the IRD, for now we cannot imagine the treatment of cryptocurrencies to be any different from existing systems to measure & report transactions made in foreign currencies and foreign currency holdings.
If a NZD transaction is settled in a fiat currency, we'd use one of the options (transaction date rate, rolling averages, mid-month rates etc.) to record settlement (& consequent profit or loss). Thereafter, we would revalue the holdings of foreign fiat-currencies at reporting dates based on rates published by the IRD - with the translation loss or gain being tax deductible or taxable as the case maybe.
When it comes to Altcoins, there are literally hundreds of exchanges in the world where these are traded and a trader / holder is free to trade on any exchange without any artificial encumbrances at all! Transactions in Altcoins will pretty much follow the same methodology except that, in the absence of any publications from the IRD, we think using the closing period end value from a few prominent exchanges should do the trick as along as the same exchange is used every period end. It is important to note that there is no law or rule about it yet but we believe that this would be the position most easy to defend!

Key message
The key message here is that regardless of the simplicity of the concepts, its often not so simple to get setup for cryptocurrency payment gateways, link them to the general ledger integrations and work the taxable profits and losses from such transactions. We do recommend you contact us so we can discuss the details & specifics to your case before advising on the appropriate methodology going forward.

Disclaimer
The above publication discusses business issues generally and is not intended to be specific advice. Whilst every effort has been made to provide valuable, useful information, Core Business Services Ltd, any related suppliers, associated companies & practices accept no responsibility or any form of liability from reliance upon or the use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only. Please do consult with your advisor or call this firm for information / advise specific to your circumstances before finalising any particular course of action.

Recently a few new clients called to understand what type of entertainment expenses are deductible for tax purpose and what's not. Technically, expenses incurred in earning assessable income are deductible for tax purposes. Most business related expenses are fully deductible. If the expense doesn’t help your business earn gross income, it’s private and you can’t claim it as a tax deduction. A principle, easy enough to get, right? Well, it turns out that its not so simple in relation to some expenses. Given that its relatively easy to extend an argument in favour of a position one is taking, the IRD has specified some rules in relation to some of expenses - entertainment is one of them.

This article discusses, with some examples what type of entertainment is deductible for tax purposes and what type is not. We have used examples of Christmas parties below as some shops & cafes have already started to get setup for Christmas parties!
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Deductibility also impacts GST & FBT so its important that one understands this carefully.

It becomes a little trickier when there’s an element of private enjoyment. You might think that the firm’s Christmas party for clients is a business related expense and should be fully deductible because it’s promoting your business, products or services.

Generally speaking, if there’s an element of private enjoyment, the expenses (in addition to the food and drink) associated with events where you entertain clients and/or staff will only be 50% deductible. For instance, this would include the hire of crockery, glasses, waiting staff and music.

Accordingly, if your clients OR employees OR anyone associated with the business have a greater opportunity to enjoy the entertainment than the general public, you can only deduct 50% of the costs.

There are exceptions of course!

Entertainment supplied for charity is 100% deductible. For instance if you throw a Christmas party for the children’s ward at the local hospital, this is fully deductible.

Entertainment enjoyed outside New Zealand is 100% deductible. If you take the team to Fiji or Cook Islands for Christmas (lucky them!), all costs (net of amounts contributed by staff if any) will be fully deductible.

Recently a few of our clients' staff were appointed to the board of companies acquired by the clients. We were approached by the staff to advise on their rights, duties and obligations as directors.
This article endeavours to discuss the essentials of being an effective director, whether you have been appointed by your employer to the board of one of its subsidiaries or you have accepted the role of the director in a company, even if you are one of its shareholders. We will discuss what the law sets out as your legal rights, duties and obligations and what they mean on a practical day-to-day basis.
Being a director is more than just a title - they need to be both risk-managers and responsible risk-takers to enable companies to grow and survive. Directors are the representative of the company and shareholder, and answer to them. Even if you are also the main shareholder, as a director you’ll have legal responsibilities to actively monitor the management of your company and may face serious penalties if things go wrong.
Although the article addresses directly the directors, the practical day-to-day conduct applies equally to trustees.
 ...So before you take up a directorship

Every business owner would like to know the true current market value of their business. Unfortunately, no single quick "rule of thumb' will help determine the true value of a business. In fact business valuations are performed in order to take the guess work out of valuing the business.
Although there are additional adjustments applied to value shares of closely held businesses to account for levels of control & influence over business decisions & marketability of the particular parcel of shares, for the purposes of this we will use the term business valuation to include valuation of shares as well.

There are three types of trust for New Zealand income tax purposes:

1.  Complying trust (formerly qualifying trust) - one which has been taxed in New Zealand on ALL (worldwide) trustee income since the date it began. These include trusts settled by New Zealand residents with New Zealand trustees, estates of people who were New Zealand residents when they died and other trusts which have elected to become complying trusts. A trust remains a complying trust if, since settlement of the trust, the trustees have satisfied all obligations in respect of its income tax liabilities.
2.  Non-complying trust (formerly non-qualifying trust) - If a trust ceases to meet the conditions for a complying trust in an income year, it will no longer be a complying trust - it will generally become a non-complying (formerly non-qualifying trust). For example, if the tax on a complying trust's trustee income is not paid, or if the trustees cease to be New Zealand residents. A non-complying trust is any trust that is neither a complying trust nor a foreign trust at the time it makes a distribution. It is generally a trust that has a resident settlor, has been established overseas with non-resident trustees, and has not been liable for New Zealand income tax since it was first settled. It also includes a trust where its trustee income has been liable to full New Zealand tax but the trustees have not paid the tax.
3.  Foreign trust - Foreign trusts are trusts that are established in New Zealand but no settlor (the person who settles assets on the trust) is resident in New Zealand at any time. A foreign trust may have one or more trustees resident in New Zealand.

This article only deals with Foreign Trusts.

A trust exists when one person (a "trustee") holds and owns property for the benefit of another person (a "beneficiary"). A family trust is a trust set up to benefit members of your family.

 The purpose of the family trust is to hold (through you transferring your assets), so that legally you own no assets yourself, and through the trust, still have some control over, and get the benefit of, these assets.

 You can set up a family trust either while you are still alive (by a declaration of trust contained in a trust deed) or when you die (by the terms of your will). This article is mainly concerned with trusts created while you are alive, and with the benefits that these trusts can provide for you in your lifetime.
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 The family trust can be setup either as a "Fixed" trust (with named / specified beneficiaries with fixed ratio / amount of benefits) or a "Discretionary" trust (with "described" beneficiaries with benefits that are at the "discretion" of trustees). This is discussed in a bit more detail in the beneficiaries section below.

​More and more companies are being re-organised by value chain (how the business adds value to its customers and stakeholders) rather than functionally (Products, production, finance, HR etc). Unfortunately management accounting has failed to keep pace in delivering value added proactive periodic financial reports!

This is particularly true in small to medium sized organisation (both for and not-for-profit sectors) where traditional accounting is used mostly as part of its compliance infrastructure. Among other disadvantages, this approach

1. forces the performance managers to be more like budget managers. Where there are indirect cost allocations, the performance managers will also have accountability over costs or their method of allocation are not in their control; and
2. is excellent in masking wastage!

 
Incorporating the portfolio approach to management reporting insures that

1. products and services stand on their own by making transparent, the resources consumed in generating margins by product / service and value for customers; 
2. there is ONE individual or team responsible for eliminating "wastage" by either transferring it out of the business or ensuring that its starts to add value to its customers and finally, but most importantly,
3. On an ongoing basis, the business managers will need to establish a direct relationship between one-off costs and value added BEFORE these are incurred!

​Although the concepts, in different incarnations, are applicable to both new and existing businesses, it is particularly beneficial to those at the cusp of a growth spurt.

In October 2015, the National Government introduced the Bright Line Test on land transactions. This was an attempt to slow down the runaway property market by imposing extra "costs" on land transactions that fall within the ambit of the Bright Line Test!

The government didn't really have a choice - the dreaded Capital Gains Tax is political suicide and the runaway property prices was hurting the government's chance for re-election (oh yes! & the public). So, quite brilliantly, they applied what is common in some European countries.

It is obviously working as CoreLogic data shows that 7% of the Auckland sales in 2016 were properties that were sold within a year compared to 11.7% at the peak of the last boob during mid-2000.

Withholding Tax (or TSP) is like PAYE for certain type of contractors. This was more or less a flat rate earlier.
 From 1 April 2017, 2 key things have changed:

1. Its no longer a flat rate - contractors now have an option of choosing between 10%, 20% or 45%, and
2. Labour Hire firms are now included in the list of taxpayers who must now deduct TSP's when paying their contractors (whether they billing them as individuals or via their companies).

Schedular payments are payments made to contractors who perform certain activities. These payments are required to have tax deducted but they’re different to salary or wage payments.

​Schedular payments apply to contractors across a broad spectrum of industries; from cleaners, farm workers and gardeners, to entertainers, sportspeople, labour-only builders and fishing boat workers.  
Details of what type of payments can be considered is included in the IRD form IR330C.