NEWSLETTER November 2025- Feb 2026
- carmenonthenet
- 1 day ago
- 9 min read
INSIDE THIS EDITION
Don’t forget the risk from within 1
Inland Revenue is taking a tougher
stance on debt 2
Taxing the sun 3
FBT changes 3
Snippets 4
IRD interest rates 4
Depositor Compensation Scheme 4
Don’t forget the risk from within
Online scammers and phishing attacks have become extremely sophisticated lately. Hence, it is understandable that we are constantly warned to be vigilant and on the lookout for the next attack. But as focus shifts to looking outside the organisation, an eye needs to be kept on what is going on within the organisation. Internal fraud is often subtler, harder to spot early and may occur on a regular basis.
Smaller family run businesses can be more susceptible compared to large organisations because they operate in a ‘high trust’ manner by:
providing their employees with greater autonomy and authority,
using fewer internal checks and process controls, and
not using third party audit services.
The classic example is where the owner is busy running their business so they let their finance manager set up suppliers, approve payments and reconcile the bank, and plan on ‘checking later’. Red flags worth paying attention to include reluctance to share duties or take leave, unusual supplier or bank-detail changes, round-sum or duplicate invoices, late reconciliations and urgent payment requests that are outside the norm, e.g. during shutdown periods such as Christmas.
If you sense something is off, start with simple checks. Scan the supplier master list for fictitious vendors or unverified bank account changes. Review one-off payments to new payees. In payroll, look for “ghost” employees, duplicate bank accounts and payments to ex-staff. In expenses, test for inflated or split claims and identical descriptions posted after hours. Keep bank,
GST and payroll reconciliations current and have someone independent review them.
Don’t assume ‘John’ or ‘Jane’ would never do it – as it can be the last person you would expect. The inevitable question is ‘why?’. Cressey’s fraud triangle is useful for putting it into context. It describes three factors that give rise to an increased risk of fraud if they exist simultaneously, as follows.
Motivation – this can arise from personal financial stress, medical events or unrealistic targets.
Opportunity - this can be in the form of weak controls, autonomy or minimal oversight.
Rationalisation - this is the self-justification behind the behaviour. A person might rationalise their behaviour to the point they do not consider it wrong. They might tell themselves it’s “only a loan” or they’re “owed” it.
After something ‘unusual’ is identified, it’s common to then realise all three existed.
To reduce the potential for internal fraud, try to do the basics right and implement procedures to balance the risk. Segregate duties so no one person can set up, approve and pay amounts. Where teams are small, use a maker–checker model with an external reviewer. Lock down supplier changes with call-backs to verified numbers and restrict who can edit vendor records. Use dual approval above modest limits and block changes to payee details after approval. Limit access with least-privilege permissions and multi-factor authentication.
Even when business ramps up, it’s important to stick to the clear policies and processes your organisation has in place.
Inland Revenue is taking a tougher stance on debt
Over the last six to twelve months Inland Revenue (IRD) has been taking a firmer stance when it comes to collecting overdue tax. This is in the form of increased liquidation action and enforced withdrawals directly from a taxpayer’s bank account.
Given the potential for IRD to take action it is more important than ever to engage with IRD, rather than put your head in the sand. Ideally, you can negotiate and enter into an instalment arrangement with IRD to clear the debt. The benefit of doing so is that IRD will hold off from taking action while the terms of an instalment arrangement are being met, and there is the potential for penalties to be remitted once the debt is cleared. However, entering into an instalment arrangement can be easier said than done.
Understandably, IRD takes the view that it should not be used as a bank to support a business that is unable to meet its obligations. This would provide an unfair advantage over competitors and would be unfair to those who do comply. Hence, IRD now expects businesses seeking instalment arrangements to demonstrate both their ability to meet proposed repayments and to stay current with ongoing tax obligations.
It is therefore not necessarily a question of whether the business has ‘any’ free cashflow to pay its tax, but whether it has sufficient cashflow to meet its future obligations, plus amounts that are already owed. If a business can enter into an arrangement to pay ‘something’ but will continue to fall further behind, IRD will likely decline the request and the business should therefore ‘fail’ rather than continue to trade without being able to meet its obligations.
A hard line will also be taken on PAYE and GST as these are regarded as Crown funds held in trust by the business until they are paid to IRD. Non-payment of employer deductions is a criminal offence. Penalties can include fines, imprisonment, and shortfall penalties of up to 150 percent. Company directors and officers may also be held personally liable if they are aware of ongoing non-payment.
A proposal to enter into an instalment arrangement will likely require the following information to be submitted:
how much can be paid weekly, fortnightly or monthly,
a statement of assets and liabilities,
forward looking budgets, and
cashflow forecast.
If specific transactions are anticipated that are relevant, such as equity from a new investor, IRD could ask for details of that transaction, such as Term Sheets, Sale and Purchase Agreement and details of the investor. Their purpose being to assess whether the transaction has a real prospect of occurring or not.
The IRD’s tougher stance highlights the growing importance of compliance and proactive engagement. Businesses should act early to manage their tax obligations, seek professional advice when needed and avoid using tax funds as working capital.
Taxing the sun
If you or your friends or neighbours have solar panels on the roof of their home it is likely the excess electricity is being sold back to the retailer for a credit on the bill. It is also likely that not much thought has been given to whether that ‘credit’ is actually taxable, however Inland Revenue (IRD) has given some thought to it.
Technically, the credit is likely to comprise taxable income, which then leads down the ‘rabbit hole’ of what costs can be claimed against the income, e.g. depreciation on the solar panels, and a portion of rates, interest, house cleaning costs, etc.
Draft legislation released in August includes a proposed new income tax exemption for electricity generated at the home that is sold back to the grid. The exemption is to apply from the 2026–27 income year and is a pragmatic change to eliminate the need to calculate and return income by the general population, who typically derive income from salary or wages which are subject to automatic assessment by IRD.
The exemption will apply to income derived from the sale of excess electricity generated at a dwelling by a natural person. “Excess electricity” refers to power generated but not consumed at a dwelling, which is then supplied to an electricity retailer. The exemption does not impact payments or discounts provided by retailers for a person’s own electricity use.
A dwelling includes a residence and its associated structures or improvements but excludes commercial accommodation such as hotels or motels. Therefore, income from electricity generated at commercial properties will not qualify for the exemption. However, in most cases, it would be captured as part of the ‘netting’ of the income against the deductible electricity cost.
For farms, only electricity generated at the farmhouse or its immediate surroundings qualifies for the exemption, as this area is considered the dwelling. Income from panels on the wider farmland or other farm structures will remain taxable.
Of note, and somewhat unusually, the exemption only applies to natural persons (including tenants), the definition of which excludes individuals who are trustees. Hence, if an electricity account is in the name of a trustee who is not also a beneficiary, the exemption will not apply. In most cases, the power account will be in the name of the beneficiary / occupier anyway. But this is something worth checking to ensure taxable income is not ‘inadvertently’ being generated.
FBT changes
Earlier this year, Inland Revenue (IRD) released an officials’ issues paper titled “Fringe Benefit Tax – Options for Change”. The paper sought feedback on potential reforms to the FBT regime. The most notable proposals related to the application of FBT to motor vehicles, particularly utes. In the May 2025 Budget, the Government signalled support for the reforms. However, the Government later backed away from some of the proposed changes, most notably, those relating to utes.
Draft legislation has now been introduced to Parliament, and the changes are more in the nature of ‘tweaks’, as opposed to structural reform. The more notable changes are outlined below.
Gift cards: Currently, general practice is to treat gift cards as an unclassified benefit and subject to FBT. FBT applies to unclassified benefits unless a de minimis exclusion applies. That exclusion provides FBT is only payable on an unclassified benefit provided in a quarter if:
the total value of all benefits provided to that particular employee exceeds $300, or
the total value of all benefits provided to all employees over the past four quarters (incl. the current quarter) exceeds $22,500.
However, confusion arose after IRD published the view that PAYE applies to certain ‘open loop’ gift cards, and not FBT. An open-loop card is a general-purpose prepaid gift card, like a Prezzy card, that can be used at a number of different retailers.
From 16 April 2025 employers will be able to choose whether gift cards are subject to FBT or PAYE, and for FBT purposes they will comprise a “classified” fringe benefit and therefore no longer qualify for the de minimis exclusion. This change will mean tax will apply to the provision of gift cards to employees, whether under FBT or PAYE, and the de minimis exemption will no longer apply.
Frustratingly, this change is being backdated and therefore tax may need to be accounted for retrospectively if FBT has not been accounted for on the understanding that the de minimis applied. Hopefully the effective date will be changed or IRD will comment specifically on this point and what it considers an acceptable approach.
Reimbursements: Where an employer reimburses an employee for costs that would have been an unclassified benefit if paid directly by the employer, the employer can choose whether to treat the payment as subject to PAYE or FBT. This change will be effective from 1 April 2026. This option will only apply to unclassified benefits, not to classified benefits such as health insurance.
Global insurance policies: From 1 April 2026, a proposed amendment will give employers more flexibility in how they account for FBT on Global insurance policies.
The Bill clarifies that where companies have insurance policies covering a number of employees with the same or similar entitlements, the cost can be treated as a pooled benefit or allocated to employees by dividing the total contribution across the group.
Snippets
IRD interest rates
There are certain topics that we enjoy being cynical about. The speed at which oil companies increase their price at the pump when the price of crude increases versus the speed at which it drops when the price of crude decreases. Or similarly, how quickly banks increase interest rates when the OCR increases, versus reducing it for OCR decreases.
Could it be time to add the IRD to the above list? The table below summarises the movements in the OCR over the last few years and compares those movements to the interest rate charged by IRD. It is generally understood that IRD does not wish to be treated as a bank; therefore, there is a large variance between the debit and credit rates. However, given the punitive nature of the debit rate charged, it is reasonable to expect more timely reductions in the rate.
Depositor Compensation Scheme
As of 1 July 2025, the Depositor Compensation Scheme (DCS) has come into effect to protect the savings of individuals and businesses if a bank or other ‘deposit-taker’ fails. Managed by the Reserve Bank of New Zealand, the scheme is designed to strengthen public confidence in the country’s financial system and promote stability during times of economic stress.
Under the scheme, eligible deposits held with licensed banks, credit unions, and building societies are protected up to a limit of NZD 100,000 per depositor, per institution. This means that if a participating institution is unable to meet its obligations, depositors will be repaid up to the coverage limit.
The DCS covers common deposit products such as savings accounts, transaction accounts, and term deposits. However, it does not extend to investments such as shares, bonds, or managed funds (KiwiSaver and other superannuation schemes), nor does it cover deposits held with unlicensed or overseas institutions. The scheme will be funded by levies on participating financial institutions rather than taxpayers. This ensures that the cost of protection is borne by the industry itself.
By introducing the DCS, New Zealand joins many other developed countries that already have similar safeguards in place, giving people added confidence that their money is secure even in the event of a bank failure.
If you have any questions about the newsletter items, please contact me, I am here to help.
