Thomas Pippos: Not even Santa can avoid tax clauses

Christmas is a busy time for Santa, made worse as he also seeks to manage his tax affairs.

As early as October, Santa starts appearing in advertising, malls and parades - all providing him with the appearance fees and royalties required to keep the Grotto at the North Pole up and running. On the big night - December 24 - Santa cashes in, collecting enough milk and cakes, and occasionally beer, to feed all the elves and reindeer for the coming year.

Making matters worse, he imports all manner of goods into New Zealand, triggering even more tax compliance.

Like all other non-residents coming to New Zealand to do business, Santa needs to consider the tax implications of his actions.

The easy - Santa's income

The appearance fees Santa receives for listening to the wishes of long lines of children, and his share of photography income, should have been tax-deducted at source.

As a non-resident entertainer, the relevant rate is 20 per cent. Fortunately for the forgetful Santa, if the withholding tax is not deducted at source, he doesn't have a secondary obligation to make this withholding payment himself.

Unfortunately, though, he would have to include this income in his tax return which, in the absence of professional assistance, will generally be due the following July. Santa is also likely to be receiving royalties for the use of his image and catch-phrases such as "Ho, Ho, Ho" and "Merry Christmas" as used in advertising and Christmas cards.

As is the case with appearance fees, royalties received by a non-resident should have been tax-deducted by the payer but, this time, non-resident withholding tax deducted at 15 per cent. This is the only New Zealand tax Santa has to pay on this royalty income but he has to ensure that his sometimes neglectful clients pay it, because if they don't, he has to pay it directly.

The tricky - GST

Santa, like all others in business, has to think about GST and, in this case, he should register and account for GST on all supplies he makes. He needs to ensure that he sends timely and accurate tax invoices and files his GST return each month, given the volume of transactions he undertakes.

On the positive side, as a result of registering, Santa will be able to claim back GST on any expenses he incurs. Most importantly, he can claim back the GST that Customs charges him for importing all those toys.

A little bit tricky in Santa's case is the fact that he is big on barter - getting milk, cake and beer - all of which have GST implications.

The staff

Santa also needs to consider the tax obligations of his staff. Depending whether his team of dedicated New Zealand resident elves are either employees or contractors, Santa will have obligations to deduct PAYE or a withholding tax. He also has to consider FBT as they can use the sleigh during the off-season, and specified superannuation contribution withholding tax deductions for their monthly employer contributions.

Fortunately for Santa, those elves he brings in from the North Pole generally escape the tax net as they are in New Zealand for fewer than 92 days and they pay full taxes back home.

The forgotten - Gift duty

Yet another tax Santa would be liable for on his visit to New Zealand is gift duty. As he gives away more than $27,000 of presents on the big night, gift duty must be paid, quite a substantial amount in Santa's case. And if he forgot, then that liability would fall on all the recipients of the gift. How many years has Santa been promised that this archaic tax would be repealed?

The anticipated - Carbon tax

A relief for poor old Santa, the expected introduction of carbon tax was dropped on the eve of Christmas. Although he expected that he was to be largely unaffected by the proposals (as the sleigh does not use fossil fuels), he was riddled with guilt as livestock (including reindeer) are the biggest emitters of greenhouse gases.

The afterthought - Tax return

If all Santa's income has been taxed by the withholding taxes discussed above, he has the option of not filing a return. But that would not be the smart thing to do, given the expenses he has incurred.

If he decides to file a return, he has to remember not only all the income he earned and try to work out what expenses he can deduct against it, he also needs to reflect whether he has appropriately documented the way in which he calculated everything from a transfer-pricing perspective to ensure he doesn't get stuck between the New Zealand and North Pole authorities. He also needs to reflect whether his gearing model falls foul of our thin capitalisation rules.

The simply mindless - Statistics

Having left New Zealand, Santa is finally swamped with questionnaires about his turnover, level of and gender of employees, how much time is spent in New Zealand and each other country - all useful stuff if ever anyone cares to know his business.

The uncloaking - Santa's accounts

If statistics weren't bad enough as Santa is looking to incorporate his activities via a limited liability company to protect his personal assets from unscrupulous fiends, he may have to file full accounts of his Kiwi operations with the New Zealand Companies Office each year. Worse, he may have to have them audited. Someone said he should use a trust.

The rest

To add insult to injury, Santa has just been informed that the use of his sleigh requires various Resource Management Act consents before operating again next year - made worse by the fact that they will need to be notified and one Ebenezer Scrooge is thought to be using the process to make Santa's life a living hell. Thankfully his tax affairs, although painful, are manageable.

* Thomas Pippos is managing tax partner at Deloitte.