New Zealand: Financial Services Bulletin

Last Updated: 17 January 2007

Welcome to the December 2006 edition of our NZ Financial Services Bulletin.

2006 has seen unprecedented change in the financial services sector. It is a full time job to not only adapt to the changes but also to anticipate the developments that are ahead.

KiwiSaver is now upon us, as is the introduction of the PIE regime and the taxation of offshore investments. These changes are now law and will be introduced progressively next year.

In this edition, we will bring you up to date with these changes as well as remind you of what lies ahead in 2007.

A significant development from our point of view has been our exclusive alliance with DLA Piper in November. We are already in contact with funds and pension lawyers in the DLA Piper group and we intend sharing resources and ideas to benefit our clients. Having Sue Brown in our funds management and superannuation team in Sydney is a big help. Not only is she familiar with New Zealand, she formerly worked for DLA Piper in the UK and knows a number of the lawyers practising in financial services there. Our alliance with DLA Piper will continue to be an exciting development for us in 2007 and beyond.

We are preparing for a busy 2007 and have increased the team to meet the forthcoming challenges. Having said that, we are looking forward to the return of Tracey Cross from parental leave in April!

We wish you a very Merry Christmas.


As noted in our recent Newsflash, the KiwiSaver Bill was passed by Parliament at the end of August. Since then, the KiwiSaver Regulations 2006 and the KiwiSaver Commencement Order 2006 have been released.

Under the Commencement Order, certain provisions of the Act came into effect on 1 December this year, with the remainder to come into effect on 1 July 2007. The provisions of the Act that are now effective include the ability to register a KiwiSaver trust deed, and apply for exempt employer status. In practice, however, it will not be possible to register a KiwiSaver scheme until the provider has entered into a provider agreement with the Inland Revenue, and at this stage, it looks as though this agreement may not be available for signing until February 2007.

The KiwiSaver Regulations 2006 provide further information on a number of issues including:

  • Applications for approval as exempt employers.
  • Requirements for annual report and annual return on KiwiSaver schemes.
  • Requirement that KiwiSaver fees not be unreasonable.
  • Scheme Provider Agreements.
  • Application of Financial Transactions Reporting Act to default KiwiSaver schemes.

Another significant development, announced last week, is that the tax exemption for employer contributions to KiwiSaver will be extended from 1 July 2007 to other registered superannuation schemes. Some of the key features of the tax exemption are:

  • The exemption will be subject to the same cap as the KiwiSaver SSCWT (specified superannuation contribution withholding tax) exemption. This means that employer contributions will be exempt from SSCWT subject to a cap of the lesser of the employee's contributions or 4% of the employee's salary or wages. As for KiwiSaver, a 4% employer contribution plus 4% employee contribution will be required in order to obtain the maximum benefit of the SSCWT exemption.
  • KiwiSaver lock-in rules relating to withdrawals will apply. Based on the example given in the government press release, it appears that all contributions to which the SSCWT exemption applies will need to be locked in. The press release indicates that if the employer contributes 10% and the employee contributes 10%, then 8% in total would need to be locked in. The remaining 12% could be subject to the scheme's normal withdrawal rules (and the employer's contribution would be subject to SSCWT). Trustees will need to consider scheme amendments to effect this.

Article by Gwen Rashbrooke & Alasdair McBeth

Taxation of investment income

Last week the Taxation (Annual Rates, Savings Investment, and Miscellaneous Provision) Bill was read a third time in the House. On Monday, 18 December it received royal assent. The Act contains a number of changes to the tax acts and, in particular, introduces the portfolio investment entity (PIE) reforms and the changes to the foreign investment fund (FIF) regime which taxes offshore portfolio investments. Our previous Tax Updates and other publications have discussed the development of, and concerns with, the May bill.

The main changes from the earlier versions include:

  • Increasing the number of methods for calculating FIF income to six by the adoption of a 'cost method' and a 'fair dividend rate'. The 'fair dividend rate method' was proposed by the Revenue after opposition to the original proposals, the 'market value method' and 'smoothed market value method', became evident. Our November 2006 Tax Update commented on the 'fair dividend rate' proposal. The FEC has adopted this approach despite submissions that the 5% rate was too high and despite submissions that imposing a fixed 5% rate for managed investment funds (regardless of the fund's performance) created a distortion between direct investment and indirect investment.
  • A slight expansion of the proposed exemptions from the FIF rules. The proposals, in essence, remove the grey list exemption that currently exists in the FIF rules. Instead, the FEC has adopted a number of narrower exemptions. Please refer to our December 2006 Tax Update for more information.

The PIE reforms come into force on 1 October 2007. The FIF regime changes will apply:

  • From 1 April 2007, or
  • From 1 October 2007 if an entity makes an election to defer the application of the changes until that date. Note that elections can only be made by entities intending to be PIEs, and elections must be made by 31 March 2007.

Article by Lynette Smith

Proposed tax changes for general and limited partnerships

As advised in our July 2006 Bulletin, the Government released a discussion paper earlier this year containing proposed tax changes to the treatment of partnerships. The paper proposed introducing a limited partnership vehicle that will replace the current special partnership, creating certain advantages such as allowing the limited partnership to have a separate legal entity status while retaining the partnership flow-through income tax treatment.

Submissions on the discussion paper closed in August. Legislation qualifying the tax rules on general partnerships and bringing in new tax rules on limited partnerships is planned for introduction by the Government next year. The Government has announced that it expects to make final policy decisions by the end of this year with resulting changes to be a part of the wider bill next year that also introduces regulatory rules for limited partnerships. The Government has also indicated that the future of the LAQC rules will be considered once the final legislative form of the partnership tax changes are clear.

Article by Matt Kelleher & Lynette Smith

Review of financial products and Providers

By now you will all know that the main objective for the RFPP is to develop an effective and consistent framework for the regulation of non-bank financial institutions and financial products. The stated aim of the framework is to promote confidence and participation in financial markets by investors and institutions, which results in a sound and efficient non-bank financial sector.

The RFPP timeline is coming to the end of stage 3 of the process. Stage 3 involved the release of nine discussion documents back in late August, in which the MED sought feedback on the best way to achieve the objective and aims outlined above.

MED's deadline on receiving submissions on these discussion documents was 1 December 2006. However, the MED has granted exemptions to this deadline so that many industry participants, who are currently swamped with other significant industry changes, have a chance to make submissions.

The fourth and final stage of the RFPP will shortly begin. This involves the MED using the feedback received from stage 3 of the RFPP to develop policy proposals to go to Cabinet. The discussion documents envisage that policy proposals will go to Cabinet in mid 2007 and that legislation will be passed in 2008.

Article by Chris Taylor

Business law reform

Most of the material provisions of the Business Law Reform Bill were enacted by the Companies Amendment Act (No 2) 2006 and Financial Reporting Amendment Act 2006, which were given royal assent on 21 November 2006. Significant changes include:

  • Small to medium enterprises with 25% or more overseas ownership will no longer need to register overseas company financial statements.
  • Overseas companies from prescribed jurisdictions will not need to comply with certain overseas company filing obligations if they have already filed the same information with their native Registrar of Companies (or equivalent).
  • An amendment of the Companies Act annual report provisions enables boards of directors to give notice of an online version of their annual report rather than having to send hard copies to each shareholder.
  • A greater proportion of smaller enterprises will be 'exempt companies' and therefore subject to the least onerous level of financial reporting.
  • Directors who have been disqualified from directorship in overseas jurisdictions will be disqualified from holding office as a director in New Zealand.
  • The Accounting Standards Review Board, the Securities Commission and the Registrar of Companies are given broad powers to exempt entities from compliance in exceptional circumstances.
  • There will be no financial reporting required for non-active entities.
  • There is a new infringement offence regime for breaches of the Financial Reporting Act 1993.

The Government's intention with these measures is to increase the clarity, efficiency and effectiveness of the law regarding the operation of business. These changes will be particularly welcome for companies with overseas ownership that now fall outside the overseas company filing and reporting regimes and those companies that now satisfy the more inclusive definition of 'exempt company'.

None of the material provisions of this reform are yet in force; they will commence at a date to be appointed by the Governor-General by Order in Council. The Orders will not be given until the relevant regulations have been promulgated.

The regulations, which will be promulgated early to mid 2007, will flesh out many of the details of the reforms, for instance the filing requirements for exempt companies and the overseas jurisdictions eligible for filing exemptions. We will keep you updated with any developments in this area.

Article by Richie Flinn

Changes to securities and takeovers legislation

In October, the Securities Amendment Act, the Takeovers Amendment Act, the Securities Markets Amendment Act and the Fair Trading Amendment Act were enacted under the Securities Legislation Bill. Most of the amendments made by these Acts came into effect on 24 October.

However, significant changes made under the Securities Markets Act relating to insider trading, substantial security holder disclosure, investment adviser and broker disclosure, and new laws on market manipulation under the Takeovers Act will come into effect at a later date (currently understood to be April 2007) once relevant regulations have been made.

For a copy of our October 2006 Corporate Bulletin detailing the new laws, see

Article by Rachel Taylor

Trans-Tasman mutual recognition of securities

The Government released draft regulations in September this year to implement the mutual recognition of securities offerings in both Australia and New Zealand. The draft regulations, made under the Securities Act, are the next step towards completing a regime which will allow an issuer lawfully offering securities or managed investment scheme interests to the public in one country to extend that offer into the other country using the offer documents of the home jurisdiction, subject to meeting certain proposed legislative requirements.

The Australian Government has also released its exposure draft of the bill required to implement the regime in Australia. The submissions on the draft Australian legislation closed on 13 October 2006 while submissions on the regulations in New Zealand closed on 24 October 2006.

Once comments on New Zealand's draft regulations have been analysed and the final regulations approved, they will come into force when the Australian legislation is passed and any regulations necessary to implement that legislation in Australia have been completed. We will keep you informed about further developments in this area.

Article by Matt Kelleher

Anti-Money Laundering and Countering the Financing of Terrorism

In October, the Ministry of Justice released its third and final discussion document 'Anti-Money Laundering And Countering The Financing Of Terrorism: Supervisory Framework' as part of its reform of the Financial Transactions Reporting Act 1996.

The reform is being undertaken to ensure New Zealand's compliance with International Financial Action Task Force (FATF) standards for anti-money laundering and countering the financing of terrorism (AML/CFT).

Discussion documents

The Ministry's first discussion document, released in August 2005, provided a high level overview of the FATF requirements and outlined proposals for improving New Zealand's compliance with the FATF standards.

The second discussion document, released in June 2006, reflected feedback received by the Ministry on the first discussion document and provided more information on the compliance gaps identified by the Ministry. The document also focused on the AML/CFT requirements for business and recommended measures for improving compliance.

The focus of the third discussion document was on the requirements of a supervisory framework for AML/CFT regulation. Submissions on the third discussion document closed on 30 November.


Consultation between the Ministry and stakeholders on the second and third discussion documents will continue into early 2007, with new legislation likely to be introduced in late 2007.

More information (including copies of the discussion documents) is available at

Jacqlin Anthony

International Financial Reporting Standards

International Financial Reporting Standards (IFRS) will become a requirement for all New Zealand reporting entities with financial years commencing on or after 1 January 2007.

In our last Financial Services Bulletin we outlined the very significant effect that IAS 32 may have on many entities. This standard dictates that when determining whether a financial instrument is a financial liability or an equity instrument, actual substance overrides legal form. Accordingly, under current International Financial Reporting Standards, if the issuer cannot refuse demands by share and unit holders to redeem their holdings, then the instruments are classified as liabilities. This means that upon implementation of NZ IFRS by many entities, some instruments currently classified as equity will be required to be classified as a liability.

Since our last Bulletin, the New Zealand Financial Reporting Standards Board (FRSB) have made a submission on short term measures outlined in an Exposure Draft compiled by the International Accounting Standards Board (IASB) to help remedy this problem. The short term measures proposed by the IASB and that were recommended by the FRSB to be implemented involve classifying specific types of financial instruments, which would otherwise be classified as liabilities, as equity. The proposals recommended by FRSB include classifying the following instruments as equity:

  • Financial instruments puttable at fair value, provided that specified criteria are met.
  • Obligations to deliver to another entity a pro rata share of the net assets of the entity upon its liquidation as equity.

The FRSB strongly recommended that early application be allowed due to the uptake of IRFS required by New Zealand reporting entities for financial years commencing on or after 1 January 2007. The FRSB also stated that it believes it would be inappropriate for entities to be required to classify financial instruments one way under the current IAS 32 knowing that in the following year's financial statements those financial instruments would have to be reclassified.

The IASB plans to begin considering constituents' comments on the proposals in the Exposure Draft in the first quarter of 2007 and the current project plan envisages that any amendments will be finalised in the second quarter of 2007. Watch this space...

Article by Chris Taylor

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions