Updates

IRD Audit Activity

The Inland Revenue Department is increasing its audit focus on industries that receive significant portions of their income in cash and tradesman accepting cash for a reduced fee rather than accepting electronic payment.

As well as normal IRD audits once you have filed your annual tax returns the IRD has been doing the following:

  • Site visits to encourage compliance and educate the tax payer;
  • Paying cash for your services and then reviewing/auditing tax returns to see if the cash income has been declared;
  • Visiting your business for one day to see what takings have been received, and using the days takings to determine what the full years takings should be;
  • Comparing eftpos data (without your knowledge) to GST returns to determine cash sales and comparing it to other business’s in your industry to determine the risk of cash income not being declared;
  • Analytical review of annual results to compare your gross profit margins to industry averages to find evidence of cash not being declared.

Also we recommend that you do not pay expenses with cash but with using and eftpos card/cheque or electronic payment as to be on the cash payments basis for GST you have to prove payment to be able to claim your expenses. There have been situations where the IRD has been denying the deductions for goods purchased as there was no evidence of payment.

 

We recommend that you have systems in place to ensure that all cash income is recorded, banked and declared as the penalties for tax evasion are very harsh.

 

Tax cuts by the National Party to be reversed.

National had enacted changes to the income tax thresholds that would have given individuals a reduction in tax payable of up to $20 dollars per week from the April 2018. The new Labour/NZ First collation will reverse these tax cuts leaving the tax rates and thresholds unchanged.

 

Use of Money Interest on Provisional Tax

From the 2018 tax year tax payers who do not estimate their provisional tax, use of money interest will not apply if your provisional tax payments are made on time and your residual income tax is below $60,000.

Also where you pay your tax payments based on your previous tax return (the standard method) use of money interest will not apply until the third provisional tax date.

There are now four methods available for calculating your provisional tax:

  1. The standard method where your provisional tax payments are based on your previous years tax return;
  2. The estimation method where you estimate your current years provisional tax payments based on your expected income;
  3. The GST ratio method, where your provisional tax payments are calculated on your GST income. If you use this method there is no use of money interest payable provided your tax payments are received by the due date;
  4. The accounting income method (AIM), where your provisional tax payments are based on your accounting profit per your accounting system. With this method, there is no use of money interest payable provided tax payments are made on time.

If you have any questions regarding use of money interest or provisional tax please give us a call.

 

The new Labour/NZ First government is planning to make the following changes that will impact the economy:

  1. Progressively increase the minimum wages to $20 per hour by 2020.
  2. Introduce a $1 billion per annum regional development fund to undertake the following:
  • Invest in regional rail;
  • Planting of 100 million trees per year;
  • Large scale capital projects;
  • Conduct a feasibility study for moving the ports of Auckland.
  1. Relocate government functions to the regions
  2. Increase penalties for corporate fraud and tax evasion;
  3. Increase research and development spending to 2% of GDP over 10 years.

The Labour party also wants to introduce the following tax changes:

  1. Ring fence rental losses so that they cannot be used to offset taxable income from other sources;
  2. Extend the tax on the gain on sale of residential properties (Excluding the family home) from 2 years to 5 years;
  3. Set up a tax working group to consider a capital gains tax.
  4. Remove secondary tax rates on wages.

Regional Fuel Tax to be introduced

A fuel tax is to be charged in the Auckland region, with the tax likely to be set at 10 cents per litre. The fuel tax would be used to improve the transport system in Auckland.

 

Paid Parental Leave

The government is planning to increase paid parental leave from 18 weeks to 22 weeks from 1 July 2018, then 26 weeks from 1 July 2020.

 

Anti-Money Laundering Legislation

From 1 October 2017 the Anti-Money Laundering Act will apply to accountants.

What this means is that like banks we will require identification from you to confirm your identity and address, and keep a record of your name birthdate and address as well as hold copies of your identification.

We will also be required to report suspicious transactions.

More information concerning the Anti-Money Laundering rules can be found at:

https://www.dia.govt.nz/Services-Anti-Money-Laundering-Index

 

Sharing information to fight global tax evasion
- Do you manage trusts, trust accounts, or both?
- Do you act as corporate trustee for NZ trusts or NZ foreign trusts?
- Do you hold or control accounts with financial institutions?
Then you may have obligations under the Common Reporting Standard (CRS). Check out the CRS guidance and support materials including the fact sheet Family Trust obligations under the  CRS at www.ird.govt.nz (search keywords: AEOI CRS).

 

Manage your ACC account online

In an effort to improve their online experience, ACC have launched a new online service for business customers  to manage their account and levies online, 24/7 from any device. Businesses are encouraged to register now. Once registered you can view invoices and transaction history, update business and contact details, invite others to view or manage your account, and pay any unpaid invoices. Making sure your details are all updated will help ensure you’re charged the right amount of ACC levies to cover you and your employees. Just visit acc.co.nz to register.

 

Mileage rate for motor vehicles increased

For the 2017 tax year (1 April 2016 to 31 March 2017), the mileage rate for both petrol and diesel fuel vehicles has increased to 73 cents per km.

This year IRD are also able to set mileage rates for hybrid and electric cars. The mileage rates for these vehicles are:

hybrid - 73 cents per km
electric - 81 cents per km.
For both Hybrid and Electric vehicles, IRD data shows that although these types of vehicle have lower running costs, these are offset by higher fixed costs.

If you're an employer you can use the above rates when reimbursing employees for the use of their private vehicle for work-travel for the current tax year (1 April 2017 to 31 March 2018).

The mileage rate is reviewed after a tax year ends so the rate reflects the average motor vehicle operating costs for that year. If you've filed your 2017 income tax return using the 2016 rate of 72 cents per km, you can request an amendment.

If the mileage rate doesn't reflect your actual costs, or your work-travel is more than 5,000km per year, you must keep a record of your actual vehicle expenses.

 

Threshold change for correcting an error in your next tax return

On 1 April 2017, the threshold for correcting a minor error in your next tax return increased to $1,000. This applies to tax returns for:

income tax (including RWT and NRWT)
fringe benefit tax, and
GST.
You can fix a minor error in your next tax return when:

the error was caused by a clear mistake, simple oversight, or mistaken understanding on your part, and
the total discrepancy in the assessment that is caused by the error is $1,000 or less.

Use-of-money interest (UOMI) rate change

On 8 May 2017 the UOMI rates on underpayments and overpayments of tax changed.

The new rates are:

underpayments - 8.22% (down from 8.27%)
overpayments - 1.02% (down from 1.62%).
Rates are reviewed regularly to ensure they are aligned with market interest rates.

 

New ACC rates

The ACC levies have been set by regulation for the 2017-2018 tax year.

The earners' levy is set at $1.39 (GST inclusive) per $100 liable earnings.

The maximum liable earnings has increased from $122,063 to $124,053.

 

New choice for provisional tax will give certainty to small business

The accounting income method (AIM), will soon make provisional tax easier for small businesses to manage.

From 1 April 2018, if your turnover is less than $5 million per year, you can choose to use AIM.

Using AIM, you will:

pay provisional tax as your business earns a profit
calculate and pay provisional tax through your accounting software
have certainty of your income tax during the year if you have fluctuating or seasonal income, and
have more time to focus on growing your business.
AIM capable software will work out how much provisional tax you need to pay each instalment. IRD are working with the accounting industry and software developers to confirm how it will be calculated.

IRD will have more information about how AIM will work over the next year.

AIM is part of a drive by the Government and IRD to simplify tax for business. AIM was introduced with the Making Tax Simpler - Better business tax package. It passed into law on 23 February 2017.

 

Changes to paid parental leave (PPL)

The Government has made changes to paid parental leave (PPL) that will apply to people with babies due or born on or after 1 April 2016, and to people who take full-time care of a child under six from that date. As an employer there are a number of changes that may affect you. These are:

• PPL is now available to more people

• employees may ask you to complete a work verification as part of their PPL application

• employees receiving PPL can now work Keeping in Touch (KIT) hours without affecting their PPL entitlement

• employees can now resign while on parental leave without affecting their entitlement to PPL.

 

The changes in more detail.

PPL is now available to people who become the primary carers for a child under six years old. This could be through giving birth, or taking on permanent responsibility for the care and upbringing of the child.

Primary carers could include parents, grandparents or other family members, Child, Youth and Family Home for Life parents, whāngai and other permanent guardians.

 

Primary carers can now receive PPL when they have worked:

• an average of 10 hours a week or more

• for at least 26 of the 52 weeks immediately before the baby's due date or the date the child comes into the care of the person.

This work could include seasonal or contract work, and does not have to be for one employer.

Employees who have worked for you for the required hours may ask you to complete a declaration on their Paid parental leave application (IR880) form. More information is on the form.

Employees receiving PPL will be able to work KIT hours. They'll be able to work up to 40 hours over the 18 week period without affecting their PPL entitlement. These hours can only be used after the first 28 days of parental leave. These hours are paid and must be agreed between the business and the employee.

Parents of babies born prematurely (before 37 weeks of pregnancy) will qualify for additional entitlements. Employees may now resign from their job while on parental leave, without losing their PPL entitlement.

When can PPL be applied for and taken?

 

A person can apply for PPL:

• before their baby is born

• after their baby is born but before the child's first birthday

• when a child comes into their permanent care, or

• at any time up until the child has been in their care for 12 months.

 

If they apply for PPL after the first 18 weeks the child is in their care they'll receive their entitlement as a lump sum backdated to the baby's due date.

 

Update your forms

IRD have created a new Paid parental leave application (IR880) form to reflect the changes to PPL. If you have any old forms, please replace them with the new version.

Find out more about the PPL changes

Go to the Ministry of Business, Innovation & Employment website for more information about parental leave.

 

Making the right student loan deductions.

If your employee has a student loan they should be using a tax code that has "SL" as the last two letters of the code. You'll need to make student loan deductions from their salary or wages and may also be asked to make extra deductions, either by your employee or by IRD.

 

Your employee only needs to use the SL repayment code while they're repaying their student loan. Once they've paid off their loan they can complete a new Tax code declaration (IR330) form to change their tax code.

 

 All about IRD audits.

For many people in business, audits are a complete mystery and at some time, IRD may contact you to arrange an audit. IRD have produced a video for their business customers "All about Inland Revenue audits", that explains everything in plain language. The video walks you through a business audit from start to finish. You can see what happens, how to prepare for an audit, and what to do if you've made a mistake.

If you want to know what to expect from our audits go to the IRD new video All about Inland Revenue audits.

 

New property sales form. 

IRD have a new Property sale information (IR833) form for customers to include in their 2016 and future income tax returns where they:

• have a taxable property sale, and

• show the income from the sale in the "other income" box of their tax return.

A separate IR833 should be filed for each taxable property sale in that year. If there have been more than five sales in one year, you can file a list with all the details instead of individual IR833s.

Customers filing electronically will specify within the "other income" field that property has been sold and how many sales were made. The return will then provide the specified number of IR833s to be completed. The form includes information to help complete it correctly. If property sale income is returned as business or self-employed income IRD don't expect you to file an IR833.

 

IR833 and income tax packs.

Where IRD information shows a customer may have had a taxable property sale during the year IRD will:

• include one IR833 with their tax return if they normally get a tax return issued as part of IRDs annual process, eg, the customer files an IR3 return

• send out an income tax return and IR833 to customers who normally wouldn't need to file a tax return, eg, only had salary and wages in the previous year. This will happen at the end of April or early May.

Even if an IR833 hasn't been sent with the tax return, IRD will expect one (or more) to be sent to them with your income tax return if you have a taxable propertysale(s) included as "other income".

 

GST and body corporate.

New legislation clarifies how GST will apply to body corporates registered under the Unit Titles Act 2010 (or 1972 Act).

The Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Act 2016 amends the Goods and Services Tax Act 1986. The amendments clarify that levies or fees paid by members of a body corporate to the body corporate are treated as being consideration for services provided by the body corporate. However, supplies from a body corporate to its members won't be included in the body corporate's turnover when determining if the body corporate needs to register for GST.

This means that body corporates will be able to voluntarily register for GST, but won't be required to register unless supplies to third parties exceed the $60,000 registration threshold. Whether GST registration is compulsory or voluntary, output tax is payable on the total value of taxable supplies, to both members and third-party.

From 26 February 2015:

• specific rules apply to determine effective registration and deregistration dates

• funds and assets held at date of registration are treated as payment for services

• common property held on date of deregistration is valued at zero

• body corporates registered under the new rules must remain GST registered for at least 4 years.

 

New rates announced

Inland Revenue Orders in Council signed on 23 November 2015 set the following new rates.

 

New rate for calculating FBT on low-interest loans

The prescribed interest rate used to calculate fringe benefit tax on low-interest loans provided by employers to their employees is 5.99% for the quarter beginning 1 October 2015 and subsequent quarters.

 

Minimum family tax credit increase for the 2016-17 tax year

Low-income working families eligible for the minimum family tax credit (MFTC) will receive an increase for the 2016-17 tax year. The MFTC currently guarantees recipients an after-tax income of $23,036 a year ($443 a week). This will increase to $23,764 a year ($457 a week) for the 2016-17 tax year, starting on 1 April 2016.

 

GST on entertainment expenses

Once a year, you have to make an adjustment on your GST return to pay GST on the 50% non-deductible expenses you've previously claimed - these are supplies under the GST rules. You make this adjustment in the GST return that covers the earlier of the date:

  • your income tax return is due to be filed, or
  • you file your income tax return.

The GST adjustment is 3/23 of the non-deductible entertainment expenses, exclusive of GST (except non-taxable allowances). Include the adjustment on the GST adjustments calculation sheet (IR372) under "Entertainment expenses" and in the adjustments total in Box 9 of your GST return.

 

Taxing cashed-in annual leave

If you agree to cash-in an employee’s annual leave [up to one week], the payment they receive is considered a “lump sum”.  PAYE on lump sums is worked out at a flat rate, which changes depending on the employee’s grossed-up annual income. Receiving a lump sum increases your employee′s annual income.  This means they’ll need to adjust their family income if they have child support and/or Working for Families Tax Credits.

 

Reminders for employers

The 2015 summaries of earnings is issued in May and personal tax summaries in June.  Make sure all your Employer monthly schedule [EMS/IR 348] and Employer deductions [EDF/IR 345] forms have been filed for the year 1 April 2014 to 31 March 2015 so you receive the correct ACC invoices and your employees receive the correct summaries.

 

Schedular payments and the ACC earners’ levy

If you hire contractors and deduct schedular payments, show their tax code as WT.  Include the gross schedular payment details in the “Gross earnings and/or schedular payments” and “Earnings and/or schedular payments not liable for ACC earners’ levy” columns in your EMS.  This will ensure you don’t get charged ACC earners’ levy on the schedular payments made.

 

Keeping records and claiming business expenses

With the end of the tax year fast approaching, you might be starting to prepare your tax returns. If you've kept good records it'll be a breeze, whether you do the return yourself or get a tax agent to do it for you. If you haven't made a good job of record keeping it might be difficult putting all the paperwork together. You could also miss out on claiming some expenses.

When's the best time to get a good record-keeping habit? Now is good.

From the beginning of a new tax year, start filing your statements, invoices, GST returns and interest statements. You can use a manual filing system or computer-based program, as long as you keep it in order and up to date, and you can retrieve information easily when you want to. Records you need to keep include:

  • receipts or invoices for all claims
  • interest and dividend statements
  • a record of rental income and expenses
  • purchase and sale agreements (for disposal of investment assets).

What you can claim

You can claim most of your business expenses, for example:

  • running costs of using a vehicle for work purposes, transport costs and business travel
  • rent paid on business premises
  • depreciation on items such as your computer and office furniture
  • part of any household expenses if you use your home for your business, eg, mortgage interest, telephone and electricity
  • interest on borrowing money for the business
  • some insurance premiums
  • work-related journals and magazines
  • membership of professional associations
  • work-related mobile phone, stationery and uniforms
  • tax agent's fees.

You'll save on fees if you complete your own return, but a tax agent will have a better knowledge of what you can and can't claim. Using their expertise may cover their fees and still get you ahead.

 

GST on entertainment expenses

Once a year, you have to make an adjustment on your GST return to pay GST on the 50% non-deductible expenses you've previously claimed - these are supplies under the GST rules. You make this adjustment in the GST return that covers the earlier of:

  • the date your income tax return is due to be filed, or
  • the date you file your income tax return.

The GST adjustment is 3/23 of the non-deductible entertainment expenses, exclusive of GST (except non-taxable allowances). Include the adjustment on the GST adjustments calculation sheet (IR372) under "Entertainment expenses" and in the adjustments total in Box 9 of your GST return.

Note

You can't claim this GST adjustment amount as a deduction for income tax purposes.

 

Paid Parental Leave Increase in 2015

Paid parental leave is a government-funded entitlement to eligible parents who are self-employed or in paid employment. It’s paid to offset the loss of income that working parents experience when they take parental leave from their work to care for a child.

Paid parental leave is paid by Inland Revenue on behalf of the Ministry of Business, Innovation & Employment—it’s not paid by the employer.

Eligible parents can receive parental leave payments for up to 14 weeks. This will increase to 16 weeks for babies expected/born or a child under the age of six adopted, on or after 1 April 2015.

Updated forms for self-employed parents, employees and employers to complete will be available on the IRD website from 18 December 2014.

 

Getting Your KiwiSaver Deductions and Contributions Right

When an employee's KiwiSaver deductions and your employer contributions are under the compulsory 3% for any given month, IRD will contact you if there's no clear reason why.

KiwiSaver employee deductions and employer contributions are to be made on all gross salary or wages. For contributions to KiwiSaver schemes, gross salary or wages generally means total salary, wages or allowances, including bonuses, commission, extra salary, gratuity, overtime and other remuneration of any kind before tax. It doesn't include:

  • Redundancy payments
  • The value of providing board or lodging, use of a house or part of a house, or the payment of an allowance instead of the provision of this benefit
  • The value of overseas accommodation and cost of living allowance.

It's important that KiwiSaver employee deductions and employer contributions are calculated on any final pays and lump sum payments.

 

Employing Recognised Seasonal Workers

If you're in the horticulture or viticulture industries and are a registered Recognised Seasonal Employer [RSE] with the Ministry of Business, Innovation and Employment [MBIE], here are some helpful tips for any new staff you take on under the scheme:

  • RSE workers can only work for the employer in the job stated on their RSE work visa.
  • PAYE is deducted at a flat rate using the NSW tax code from the employee's Tax code declaration [IR330] form on your Employer monthly schedule [EMS/IR348].
  • You won't need to make any student loan deductions, however, you may need to make child support payments if we ask you to.
  • No KiwiSaver deductions or contributions need to be made as they're not eligible to join [a person can't join KiwiSaver if they're holding a work visa].

Cheques must be received on time.

From 1 October 2014, cheque payments posted to IRD must be received on or before the due date to avoid late payment penalties and interest.

 

There's never been a better time to go online.

You can pay online by:

  • Your bank's tax payment service [if it has one]
  • Online banking
  • Credit or debit card through the IRD website

You can make your payments right up to the due date and your payment will show up on your bank statement straight away [depending on the bank's transfer times].

You can file your income tax, GST and employer returns online through your myIR Secure Online Services account.