Expanding into Australia
Please, please and please (that’s a triple please) don’t use your New Zealand company to trade in Australia. Very simply, using a single company in both countries will quadruple your accountancy costs and significantly increase the risk of issues with the IRD and ATO. To beginners, with cute little training wheels, it may seem like a cheap easy option, but believe us when we say it will be far more costly to run your Australian business through your NZ company.
We’ve consulted on this eleventy-billion times and the answer is always the same. You need two separate companies, one for each country. And yes that means two separate Xero accounts, two separate inventory systems, two separate online sales websites, two separate online payment facilities, separate bank accounts).
Major international companies use separate companies in each country they operate in (subsidiaries) because it really is the only way to go about it. Still not convinced? Have a think about the hundreds of thousands our major banks have spent on tax experts to came up with exactly what we’re lecturing you about. For example, Westpac Bank New Zealand is a subsidiary of Australian Westpac Banking Corporation. It’s a no-brainer.
Some key issues:
Your Xero file can only cope with one countries GST. Your New Zealand Xero will only file NZ GST returns (not Australian ones).
If your NZ company imports goods to Australia, you’ll need to file Australian GST Returns which can’t be produced in your NZ company software. The work-around is ridiculously expensive with spreadsheets, journals and reconciliations for the Australian GST.
You also need to complete Australian Income tax returns, for the portion of profits generated in Australia, and these will need to be done old-school using worksheets, complex calculations and allocations. At this point, any decent chartered accountant will throw a hissy fit and quit on you.
There are huge differences between the Australian and New Zealand tax law. They laws aren’t perfectly aligned so running the Australian accounting through the New Zealand company would be like playing a sports game with two sets of rules applied to one game (ludicrous). A simple example is the differing depreciation rates between NZ and Australia. For example, in NZ a laptop is depreciated at 50% DV but in Australia, the rate is 100%.
Generally, the optimal approach is to own your Australian company personally, and declare the profit (after management fees paid to the NZ company) as your personal earnings in Australia. You’d pay personal Australian tax because generally some of the tax paid in Australia can be offset against your NZ personal tax bill. Alternatively, if the Australian company makes a profit and pays company tax in Australia, the Australian tax (franking credits) can’t be used to reduce the NZ tax bill.
If you don’t want to commit to two companies, then simply export to individual customers in Australia from NZ. The customer is the importer; the NZ company is not the importer. After that, you might consider using an Australian distributor, who you can sell/store/distribute large volumes, and they can deal with all the Australian tax and compliance side of things. This works particularly well when the NZ company provides the marketing and promotion but the Australian distributor is moving the product.