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Quick Reference Guide

Chapter   25  –  Business Legislation

25.1  Overview

The business laws addressed in this chapter have a huge bearing on how you can and can’t do business in New Zealand. In the documentation that you keep for running your business, it is well worth noting relevant legal matters and how you plan to ensure compliance.

This chapter concentrates mainly on laws dealing with fair competition and consumer protection law. Chapter 12 addresses key areas of the Companies Act and Chapter 23 the Tax Administration Act. Chapter 26 covers the following employment legislation:

  • Employment Relations Act

  • Harmful Digital Communications Act (Cyber bullying)

  • Health and Safety at Work Act

  • Holidays Act

  • Human Rights Act

  • Immigration Act 1987

  • KiwiSaver Act

  • Minimum Wage Act

  • Parental Leave and Employment Protection Act

  • Smoke-free Environments Act

  • Volunteers Employment Protection Act 1973

The following Acts have not been referred to in this publication but may have a bearing on your business practices:

  • Resource Management Act

  • Building Act

  • Hazardous Substances and New Organisms Act

  • Wages Protection Act

Also see our A-Z of New Zealand Business Law available to subscribers in hard copy and coming soon to the website.

25.2   Commerce Act 1986

The aim of the Commerce Act is to promote competition in markets within New Zealand. It prohibits conduct that restricts competition (restrictive trade practices) and the purchase of a business’s shares or assets if that purchase leads to a substantial lessening of competition in the market. In conjunction with the Fair Trading Act these laws give businesses the right to put a stop to infringing commercial activity carried out by competitors.

The Commerce Commission has powers of enforcement under this Act.

There is a strict code established by the Act, which prohibits certain practices and permits others depending on whether they can be justified on the grounds of public benefit.

25.2.1   Restrictive Trade Practices

The Act prohibits any business from

  • Entering into any contracts, arrangements or understandings if their purpose or likely effect is to substantially lessen competition in a market

  • Using market power to restrict, deter or eliminate competition

  • Engaging in price fixing

25.2.2   Mergers and Takeovers

Business acquisitions that are likely to have the effect of reducing competition in a market are also prohibited. A prospective purchaser may seek clearance of a proposed acquisition from the Commerce Commission. It is the responsibility of the purchaser to ensure that the acquisition will not have anti-competitive effects.

25.2.3   Non-Compliance

Any business or private individual can apply to the Court for an injunction to restrain restrictive trade practices by others. Fines for a breach are substantial. In general the Commerce Commission will concentrate on breaches only where a consumer issue is involved, or some public purpose is to be served by doing so. Having a compliance programme in place will often influence whether the Commerce Commission takes action in respect of a breach, and will have an impact on the level of the fine.

25.3   Fair Trading Act 1986

The Fair Trading Act:

  • prohibits certain misleading and deceptive conduct and unfair practices in relation to trade;

  • specifies disclosure requirements relating to the supply of goods and services; and

  • addresses product safety

The Act applies to all aspects of the promotion and sale of goods and services - from advertising and pricing to sales techniques and finance agreements. The Act also applies to pyramid schemes, and provides for consumer information standards covering country of origin (clothing and footwear) labelling, fibre content labelling, care labelling and supplier information notices relating to motor vehicles. Under the Act, the Commission also enforces six product safety standards relating to baby walkers, pedal bicycles, flammability of children’s nightclothes, cigarette lighters, household cots and toys for children aged up to three years.

Recent amendments address:

  • unfair contract terms

  • unsubstantiated representations about the product or service

  • extended warranties - buyers now have 5 days to cancel

  • shill bidding (bidding by or for the seller without disclosing this)

  • unsolicited goods and services, uninvited direct sales and lay-by sales

  • consumer information standards, product safety and product recalls

  • online sales

  • auctions and auctioneers.

There is a new right to contract out of certain provisions in business contracts.

25.3.1   Enforcement and Remedies

The Act has two enforcement mechanisms:

  • monetary penalties - maximum fines have increased to $200,000 for individuals and $600,000 for bodies corporate.

  • consumers and competitors (including the Commission itself) can obtain court injunctions preventing infringements and can recover damages resulting from a breach

  • Other than possibly being fined, a business convicted of an offence may also have to:

  • publish information to, for e.g. clarify misleading information

  • publish corrective statements

  • carry out replacements or supply parts

  • refund money and return goods

25.4   Consumer Guarantees Act 1993

This Act gives remedies to the consumer against suppliers, manufacturers and importers – rather than just retailers. The Act protects the end consumer by creating statutory quality guarantees for goods and services sold in trade. It applies to new and second-hand goods and services ordinarily acquired for personal, domestic or household use. This includes auctions and competitive tenders (also online).

Consumer rights are expressed as a series of “guarantees” that a seller automatically makes when offering goods or services ordinarily purchased for personal use. A new guarantee has been added that goods delivered will arrive on time (as well as being in good condition).

Consumers who sign a contract-out clause may also have this set aside depending on the circumstances.

25.4.1   Effects of non-compliance

The trader’s liability is limited to loss or damage that could have been expected to result from the failure of the service. A business that breaches any of the statutory guarantees may be liable for damages, from replacement costs to incidental costs to compensation for profits lost as a result of defective goods/services.

25.4.2   Compliance programme

All traders are advised to carry out a compliance check on all packaging, terms of trade, labelling and customer service information. Most breaches occur at the point of sale. Retailers must be aware of details of supply contracts to ensure that liability for defective goods can be passed back to the supplier, manufacturer or importer.

25.5   Credit Contracts And Consumer Finance Act 2003

The CCCFA protects consumers when goods or services are acquired on credit ,or money is borrowed, for personal use, It applies to consumer credit contracts, consumer leases and home buy-back transactions.

The Act sets out the information disclosure requirements for hire purchase and other consumer credit transactions and regulates methods of interest charging, fees, payments and repossessions. The CCCFA provides for remedies where the contract is oppressive and allows for changes to the terms of contracts on the basis of hardship to a consumer. There are penalties if the Act is breached, and an enforcement role for the Commerce Commission.

Lenders are required to follow a responsibility code. To download a copy, go to www.consumerprotection.govt.nz and search for responsible lending code.

Lenders must exercise care, diligence, and skill in advertising and all dealings with borrowers and guarantors. Lenders must make reasonable enquiries before entering into a loan or guarantee to satisfy themselves that the other parties’ needs will be met and that they are able to meet their payments and other obligations under the agreement without substantial hardship.

25.6   Door To Door Sales Act

This Act has been repealed and provisions have been amended and absorbed into the Fair Trading Act, applying to unsolicited goods and services, uninvited direct sales by phone or in person and to lay-by sales.

Consumers are now automatically entitled to a 5-day cooling off period and all relevant terms must be disclosed to the customer at the time of purchase.

25.7   Personal Property Securities Act 1999 (PPSA)

This Act applies where goods are delivered before full payment is made and where personal property is used as security for loans or the provision of credit.

To protect the interest of the seller or person in whose favour the security is granted under the PPSA, the security must now be registered on the Personal Property Securities Register (PPSR) that is maintained by the Ministry of Economic Development and can be found online at www.ppsr.govt.nz.

The PPSA has significantly reduced the effect and relevance of Romalpa (“reservation of title”) clauses. These were a form of security interest where the seller retained total ownership of the goods until the debtor had paid the creditor in full. A creditor would normally repossess the goods if the debtor failed to pay the creditor for the goods purchased under the Romalpa clause.

Under the Consumer Guarantees Act, there are further conditions that must be met for a Romalpa clause to have effect.

  • The buyer must have received understandable oral or written advice about the effect of the clause, and have acknowledged that understanding in writing

  • The buyer must have received a copy of the written agreement, containing the Romalpa clause

25.8   Privacy Act 1993

The purpose of this Act is to promote and protect individual privacy. At the time of printing there is a Bill before Parliament to amend the current Act. The proposed reforms are aimed at identifying risks and preventing incidents that could cause harm. The Act affects every person or organisation that collects, stores, uses or discloses information about individuals (human beings). No business is exempt. The Act sets out 12 “information privacy principles” which any holder of personal information about individuals must observe. Anyone may complain to the Privacy Commissioner about an interference with the privacy of an individual. (See 26.3.6).

The principles are set out and discussed in our guide: A-Z of New Zealand Business Law. This is available to subscribers and coming soon to our website.

25.9   Sale Of Goods Act 1908

This Act continues to apply to sales of goods not covered by the Consumer Guarantees Act. It imposes implied conditions as to the title, quality and fitness of goods and requires that the seller has the right to sell the goods, that the goods are fit for their purpose, and that the goods are of merchantable quality. It also provided remedies for unpaid sellers and for the non-delivery of goods.

The Sale of Goods Act may cover:

  • commercial goods

  • personal, household goods to use in your business and the seller contracted out of the Consumer Guarantees Act

  • goods for re-supply or resale

  • goods to use in a manufacturing process.

The Sales of Goods Act also applies to computer software.

25.10  Caveat Emptor

The Sale of Goods Act and Consumer Guarantees Act offer some protection to buyers.

The old rule caveat emptor, Latin for “buyer beware”, still applies to all sales between individuals. It gives the buyer full responsibility for determining the quality of the goods in question. Here, the seller generally has no duty to offer warranties or to disclose defects in the goods.

The rule also applies in respect of returns where the issue is not one of quality. For example: You buy shoes that are too small for you. The shop is not obliged to take them back and refund your money.

Whatever the legal position, caveat emptor remains a good doctrine for any purchaser to follow.

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Chapter 1 - New Zealand Tax Framework

New Zealand taxation is imposed by the Income Tax Act 2007 (ITA). The basis for calculating tax is summarised in the following flowchart from the Core Provisions set out in Part B of the Act. This overview provides the context for details discussed in this quick reference guide.

Chapter 2 – Tax Planning

Tax rates have come down in the past several years, but rates still vary for different taxpayers such as individuals, companies and trusts. There are also special rules that apply to certain taxpayers and not to others. While this is so, opportunities will exist to structure your affairs to benefit from the different rules and tax rates.

Chapter 3 – Tax Residence and Source of Income

“Tax residence” and “source of income” are central to determining liability for taxation in New Zealand. Residence determines the jurisdiction and source relates to where income is earned or deemed to be earned.

Chapter 4 – Assessable Income

Not every gain received by you or your business is taxable. The Income Tax Act only imposes tax on taxable income.

Chapter 5 – Deductible Expenditure

The questions of what expenditure is deductible and when, are of prime importance in determining your tax liability. For most expenditure, the question of deductibility is straight forward. However, there are exceptions. This chapter looks at what you may deduct and when.

Chapter 6 - Depreciation

Expenditure on capital assets cannot be deducted immediately. The value of the asset depreciates over time and the cost is spread over its useful life. Costs are there- by matched against any income that the asset generates and the tax deduction occurs each year on a more gradual basis until the asset is fully depreciated.

Chapter 7 - Entertainment Tax

Entertainment expenditure must be for business purposes to be deductible and special rules exist to clarify what may be claimed for tax. The rules are slightly different for GST. There is a working party looking at simplifying the regime but in the meantime, the current rules apply.

Chapter 8 - Trading Stock (or Inventory)

Trading stock purchases are a regular and significant revenue expense for many businesses. However unlike many other revenue expenses, a tax deduction for trading stock is only allowed at the time the stock is sold.

Chapter 9 – Real Estate Transactions

This chapter distinguishes between taxable and non-taxable property transactions.

Chapter 10 - Financial Arrangements

The Financial Arrangements or Accrual Rules are a detailed set of rules relating to the tax treatment of debts and debt instruments and transactions including debt related aspects.

Chapter   11 - Business Structures

Your business structure can have a huge impact on taxation and the legal framework under which your business operates. Here, we compare the different business structures available to you. These are discussed in greater depth in following chapters.

Chapter 12 - Companies

Companies are a popular structure for doing business because they allow a degree of protection and flexibility. Companies offer business people the advantages of limited liability and may provide a beneficial structure for tax purposes.

Chapter 13 – Partnerships and Trusts

A partnership is formed by a contract between parties, to carry on business or commercial activities in common, with a view to making a profit.

A trust is a legal promise by a trustee or trustees to hold and administer property, sold or gifted by a settlor, for the benefit of identified beneficiaries.

Chapter 14 – Farming

Primary production in New Zealand forms a major part of our GDP. Not surprisingly there are specific tax provisions relating to this form of enterprise. Agricultural production is unique since it is the only form of production involving “natural increase”. As a result, special accounting and tax rules are required.

Chapter 15 – Forestry

A number of events in the forest life cycle give rise to taxable forestry income. Clearly, this includes the net proceeds of sales, including felled timber and thinnings etc. In addition, sales or transfers of forestry or cutting rights are also taxable. The forestry regime also contains special rules for deduction of forestry expenditure.

Chapter 16 – PIE and Offshore Investments

Being a small country, much of our investment is off shore. Although this accounts for a relatively small portion of New Zealand’s tax revenue, overseas investment is governed by quite a complex regime and affects a large percentage of the population either directly or indirectly.

Chapter 17 – Provisional Tax

Provisional tax is a means of paying tax on income, that is not fully taxed at source via PAYE or other withholding payments.

Chapter 18 – Withholding Taxes

In this chapter, we consider withholding tax obligations in respect of interest, dividends and royalties paid. We also look at Non- Resident Contractors Tax. Chapter 26 “Employment Responsibilities” discusses withholding tax obligations when you pay New Zealand resident contractors, including commission agents, builders etc.

Chapter 19 – Fringe Benefit Tax

Fringe benefit tax (FBT) was introduced to tax non-cash benefits provided to employees or associates of employees. These rules also apply to non-cash benefits provided to shareholder employees and their associates.

Chapter 20 – Goods and Services Tax

The application of GST to the majority of New Zealand business transactions is straightforward. GST can however give rise to difficult issues, especially in the area of “non standard” transactions. This would include the sale and purchase of real estate, financial services based transactions, GST on fringe benefits provided and GST adjustments for entertainment tax.

Chapter 21 – Accident Compensation

Accidents and injuries in New Zealand are covered by a publicly funded insurance scheme administered by the Accident Compensation Corporation (ACC).

Chapter 22 – Year-End Tax Planning

Year-end tax planning is an important part of managing your tax expense. Year-end tax planning should be undertaken prior to year end. For 31 March balance date businesses, this review should be conducted in February.

Chapter 23 – Tax Administration

Unless these matters are handled by a bookkeeper or dealt with efficiently, a considerable amount of your otherwise productive business time will be expended in complying with your basic tax obligations.

Chapter 24 – Penalties, Binding Rulings & Disputes Resolutions

Failure to meet tax obligations may result in civil penalties, criminal penalties (discussed below) or both. Further, the penalties are not deductible for taxation purposes!

Chapter   25  –  Business Legislation

The business laws addressed in this chapter have a huge bearing on how you can and can’t do business in New Zealand. In the documentation that you keep for running your business, it is well worth noting relevant legal matters and how you plan to ensure compliance.

Chapter 26 – Employment Responsibilities

This section summarises key points to help you fulfil your obligations as a good employer, reduce day-to-day problems and comply with the law.

Appendix – Tax Facts – A Brief Summary

Editor | FBA
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