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Minimum financial reporting requirements for companies

Chapter 4 - Non-corporate business that could prepare financial statements

4.1 This consultation is concerned with the company position, which is more immediately important given the wider objective of removing the present general-purpose requirement from years commencing 1 April 2014 onwards. However, Inland Revenue has done some preliminary thinking about which non-corporate business could be required to prepare financial statements. While this thinking is nowhere near final, comments are invited on the following:

  • From the tax year commencing 1 April 2015 or equivalent, subject to a minimum threshold, other taxpayers that are in business such as sole traders, partnerships and limited partnerships, and trusts could also be required to prepare special-purpose financial statements. Regardless of the attribution of partnership transactions to partners, the partners would not be required to also prepare financial statements in respect of their partnership interests (which also includes LTC and special partnership interests).
  • The minimum threshold for these other businesses should be such that micro-businesses should have no financial reporting obligations. However, it would seem that views of what a micro-business is vary considerably. We suggest that the GST registration threshold ($60,000 turnover or expenses, but ignoring sales or purchases of capital assets and other balance sheet transactions) is an obvious starting place. This would exclude about 40 percent of the 550,000 active IR 10 filers. However, we are very open to discussion on this.
  • Comment is specifically invited on whether natural individuals who derive schedular payments could usefully be exempted from this preparation requirement if their expenses are small compared with their income – say, expenses of less than 10 percent of income.

4.2 Except at the margin, we believe that most of these taxpayers are presently preparing financial statements and so there should be minimal compliance costs involved. However, we acknowledge that this is dependant on the selection of an appropriate threshold. We recognise there will be varied private-sector views about this. We welcome feedback on this now, in advance of more formal consultation on the matter, which is scheduled for next year.