This note is not part of the order, but is intended to indicate its general effect.
This order comes into force on 1 April 2014 and applies to income years starting on and after 1 April 2014.
This order is made under new section 21C of the Tax Administration Act 1994 (the TAA 1994), as inserted by the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (the 2014 Act).
Application of minimum requirements
Section 21B of the TAA 1994 (as also inserted by the 2014 Act) provides that a company must prepare financial statements in accordance with prescribed applicable minimum requirements unless the company is exempt.
This order exempts small-scale companies and non-active companies from the minimum requirements.
Also, the Act provides that if another enactment provides applicable minimum requirements for preparing financial statements for the company, the company must prepare its financial statements using those minimum requirements and is exempt from the ones prescribed in this order (see section 21B(3) of the TAA 1994). So, for example, if the company is a charity, it must prepare its financial statements in accordance with the requirements of the Charities Act 2005. If the company is a large company, it must prepare its financial statements in accordance with Part 11 of the Companies Act 1993.
The order states expressly that “company” has the same meaning as in section YA 1 of the Income Tax Act 2007, which includes bodies corporate and other entities that have a legal existence separate from that of their members.
Section 21B of the TAA 1994 also provides that a taxpayer of a class specified in an Order in Council must prepare financial statements in accordance with prescribed applicable minimum requirements.
This order provides that the minimum requirements also apply to look-through companies as defined in the Income Tax Act 2007 unless they are otherwise exempt.
Clause 8 and the Schedule of this order also prescribe the minimum requirements for preparing financial statements.
Clause 8 prescribes the principles according to which the financial statements must be prepared. For example, the intention is that tax values should be used as the basis of valuation when they are consistent with double-entry accounting and accrual accounting. If tax values are not consistent with those 2 principles, then historical cost values can be used as an alternative basis of valuation if the person who prepares the statements considers that they produce a better result, or market values can be used as an alternative basis of valuation if the person who prepares the statements considers that they produce a better result than both tax values and historical cost values.
The Schedule sets out the matters that must be disclosed. Clause 1 prescribes matters that must be shown for income years starting on and after 1 April 2014. Clause 2 prescribes additional information, relating to transactions with certain associated persons of the company, for later income years (eg, those starting on and after 1 April 2015).