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Changes made to record keeping allowances

Author: Paul Singleton

A question we are commonly asked is whether records for a New Zealand taxpayer can be held offshore.

Technological advances have seen a big change in the way records can be kept.  There are a growing number of taxpayers using cloud based computing technologies.  Cloud computing uses the internet to deliver IT products or services such as accounting or payroll software.  While the IT products can be accessed from a computer in New Zealand, the data generated from the system is not stored in the taxpayer’s computer, but in a data centre operated by the cloud service provider.  Many cloud service providers operate data centres that are located outside New Zealand.  This means that New Zealand taxpayers who use such cloud based software would have their records located offshore.

Until very recently, a taxpayer using cloud accounting software (where the information is stored on an overseas server) would not have been complying with the tax law unless an application had been approved by the Commissioner of Inland Revenue (Commissioner)  that records be held offshore.  This request was often overlooked by taxpayers and advisors.

The recent trend in using cloud accounting technology has prompted the government to look at the rules regarding record retention.  Amendments have recently been made to record-keeping requirements under the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (the Act) which apply from 2 November 2012 being the date of royal assent.

While the Commissioner of Inland Revenue can authorise taxpayers to store records offshore, applications could only be made individually.  The Act modifies this rule so that Inland Revenue-approved data storage providers can apply to hold records offshore on behalf of all of their clients.   

According to a draft statement of standard practice recently released by Inland Revenue, permission to keep records offshore will be granted if the Commissioner is satisfied that offshore storage will not impede Inland Revenue’s compliance activities.  In terms of cloud providers offering third party data storage, the Commissioner will consider (amongst other things) whether the cloud provider also has a place of business in New Zealand and if there is a procedure that deals with client data when the relationship with the cloud provider ends.

The Commissioner will also be able to revoke an authorisation.

Taxpayers using cloud computing services should confirm with the provider that it is approved to hold records under these rules.

A further amendment under the Act allows taxpayers to submit and store tax returns electronically, thereby removing the current requirement to retain a hard copy.   Documentation can be retained electronically (without the need to retain paper copies) if the integrity of the information is maintained and the information is readily accessible. 

Please contact your usual Deloitte advisor if you would like further information.

Tax Alert December 2012 Contents 


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