15 September 2011
New Tax Bill introduced
The Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill was recently introduced to Parliament. The Bill:
- Proposes changes to return-filing and record-keeping requirements;
- Raises the minimum employee and employer contribution rates for KiwiSaver announced in Budget 2011; and
- Ensures that expenditure on software development is deductible if the software cannot be used and the project is abandoned.
In addition, the Bill makes changes in a range of areas such as:
- Taxing bonus shares issued by companies under profit distribution plans;
- Ensuring that recent GST changes on “phoenix” fraud schemes and apportionment of GST input tax deductions operate as intended;
- Clarifying the GST treatment of late-payment fees;
- Introducing changes in relation to fees charged for binding rulings and depreciation determinations; and
- Clarifying entitlements to Working for Families tax credits.
The Bill also contains a number of other technical and remedial amendments. Watch this space for TaxTeam’s analysis of what the Bill means for you!
Full details of the Bill are available on the IRD's tax policy website:
www.taxpolicy.ird.govt.nz
25 August 2011
Tax avoidance back in the spotlight
As predicted by many, the case of orthopaedic surgeons Ian Penny and Gary Hooper has been decided in favour of the Commissioner of Inland Revenue.
This outcome provides strong support for the Commissioner to attack family trading trusts that provide an undue tax advantage to the participants.
The surgeons separately set up companies to employ them, and paid themselves an artificially low salary. They then distributed the remaining income to their family trusts, thereby excluding it from the top marginal tax rate applicable to individuals.
The message is clear – before any structuring or restructuring, it is vital to seek detailed tax advice.
28 July 2011
Unintended consequence of a new GST rule?
A new section was introduced into the Goods & Services Tax Act 1985, effective 1 April 2011. This section deals with the situation where one person has nominated another person to be the recipient of a supply. The IRD's Policy Advice Division has verbally confirmed its current view to us, which is that the section has a wider application than originally intended. As such, we anticipate legislative amendments being recommended for introduction in the next tax bill (expected in September 2011), to have retrospective effect from 1 April 2011.
We understand that some Local Government clients are concerned about the potential implications of this section. Please call us if you would like to discuss the proposed amendments, and how they may apply to you.
8 July 2011
Tax Guide for Elected Members
We have recently updated the Tax Guide for Elected Members that we produced in 2010 in conjunction with Local Government New Zealand, to reflect some of the recent tax changes that have occurred. This document can be found in the left-hand panel, or by clicking here.
20 May 2011
Budget 2011 - how will it affect you?
The Finance Minister delivered his 2011 Budget with few significant changes, particularly from a tax perspective. The announcements that apply broadly are as follows:
- KiwiSaver amendments – reducing the Government’s contribution while increasing employee and employer contributions and removing the ESCT exemption. It is important to consider current and future employment contracts in this regard.
- Adjustments to the Working for Families and student loan programmes. You will need to ensure that your HR area is prepared to deal with staff queries.
- $5.5 billion for the Canterbury rebuild. The implications of this on resourcing throughout the country will be significant.
- Further tightening of public-sector spending. Tax-efficient planning and optimising tax concessions become increasingly important.
- Proposals for mixed ownership of state assets.
- No adjustments to personal or company tax rates and GST, and no new tax-broadening measures (such as capital gains tax or a specific Canterbury earthquake tax).
TaxTeam has produced newsletters on the sector-specific issues arising from the Budget, which can be found in the panel on the left. If you are not currently registered to receive hard copies of our newsletters, and would like to do so, please complete the form here to be added to our mailing list.
11 May 2011
Increase in IRD mileage rate to 74 cents per kilometre
The Inland Revenue Department (“IRD”) has increased the approved mileage rate that may be used to reimburse employees tax-free for private use of their vehicles, from 70 cents to 74 cents per kilometre (“IRD rate”). This amendment has immediate effect. The relevant IRD statement can be found at: http://www.ird.govt.nz/technical-tax/op-statements/os-review-com-mileage-rate.html
The IRD rate is intended to reflect a reasonable estimate of the costs involved in vehicle-use. The IRD’s assessment is based on surveying the running costs of both petrol and diesel vehicles across a range of engine sizes, over 14,000 kilometres of travel a year. These running costs do not focus solely on the cost of petrol/diesel, but include all costs relating to vehicle ownership, such as insurance, maintenance, etc.
Taxpayers are not required to use the IRD rate, but can use any method that provides a reasonable estimate of the likely costs. Any such reimbursement calculated in this way can be paid tax-free. Other approved methods include the AA’s published mileage rates.
Implications
The new IRD rate acknowledges that the costs of vehicle-use have increased. Effectively, this means that employers may increase their mileage reimbursement rates for private vehicle-use without an increased PAYE exposure.
An increase in the mileage rate may result in increased costs to the organisation, so this should be closely considered before implementing a change. Importantly, if your employment agreements refer to the approved IRD rate, your systems will need to change to reflect the increase.
It should also be noted that, prior to reimbursing amounts at the new IRD rate for elected/appointed officials, you may need to consider guidance from the Remuneration Authority or other regulatory body.
If you would like to discuss the implications of these changes to your organisation, please call us on (04) 494 2390.
8 February 2011
Tax treatment of payments to Hearing Commissioners
The IRD has recently clarified the previous ambiguity around the tax treatment of payments made to Resource Consent Hearing Commissioners (“Commissioners”) appointed under the Resource Management Act 1991 (“RMA”).
Confusion previously arose around:
- Whether withholding tax applies to payments to Commissioners; and
- Whether the activities of the Commissioners are a taxable activity for GST purposes.
Withholding tax treatment
The IRD has confirmed the view that payments to Commissioners are honoraria and, therefore, subject to withholding tax. If a Commissioner has completed and provided a Tax Code Declaration form (IR330), withholding tax must be deducted at the rate of 33%; otherwise, the 48% non-declaration rate will apply (unless the Commissioner provides a certificate of exemption or special-rate certificate).
Payments directed to a partnership or company
In some instances, the Commissioner may request that their fee payment be directed to another entity, such as a partnership or company.
The IRD considers that Commissioners are appointed in their personal capacity, so any fees earned are derived by them personally, irrespective of whether the Commissioner has requested that the payment be directed elsewhere. Consequently, withholding tax must be deducted from any payments for work or services provided by Commissioners.
Reimbursed expenses
As a result of recently-enacted legislative changes, the term “honorarium” has been defined to mean payments “for work or services”. As such, reimbursements of expenditure fall outside the definition.
The reimbursements are exempt from withholding tax, provided that the expenditure is:
- Incurred by the Commissioner in undertaking activities related to resource consent hearings; and
- Reimbursed based on actual receipts or invoices retained by the Commissioner.
GST treatment
The GST treatment of payments to Commissioners reflects the current GST treatment of payments to council, committee or board members.
The IRD has confirmed that the services provided by a Commissioner do not constitute a taxable activity for GST purposes, regardless of whether the Commissioner is registered for GST for other activities. Therefore, Commissioners should not charge GST on services related to resource consent hearings.
We recommend that local authorities review and update their internal tax policies to reflect this clarification, and communicate the IRD’s view to Commissioners.