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Getting it right


Popular links to Our Compliance Focus 2012-13

We receive the right information at the right time

We can help customers meet their obligations and ensure they receive the correct entitlements if we receive the right information at the right time. Information that is incomplete or late affects the accuracy of our calculations and assessments, and takes longer to process. When this happens, there is a risk that taxpayers could under- or over-pay their tax. They could receive the wrong amount of entitlement or their contributions could be delayed.

Getting it right at source

Paying the right amount of tax or receiving the correct entitlement relies on accurate information being received from a number of sources. If any information is missing, incorrect or late, it affects our assessment. It is important that we receive accurate information at the point where tax and payments are deducted, such as from employers and banks.

It is the responsibility of the person or business providing the information to make sure it is correct. An employee is responsible for using the correct tax code and their employer is then responsible for deducting the correct amount of tax from their wages.

Interactions and information flow

Compliance model 2011

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Employer monthly schedules

All employers are required to file an employer monthly schedule (EMS). It details their employees' deductions, including PAYE, child support and student loan payments, and KiwiSaver contributions. When employers provide accurate information and file the EMS on time, employees pay the correct amount of tax and receive the right entitlements at the right time.

The accuracy and timeliness of EMS filing remains a priority. A number of employers are still failing to file their EMS on time, and some schedules contain inaccurate information. Errors can cause delays for employees, employers and Inland Revenue. This impacts on our ability to ensure that income, entitlements, contributions and payment obligations are correct and can be properly calculated.

EMS filing delays and inaccuracies can affect the accuracy of employees' summaries of earnings and personal tax summaries. They can also delay the processing of KiwiSaver contributions and child support payments, as well as affecting the accuracy of student loan balances and Working for Families Tax Credits. Significantly, incorrect or missing IRD numbers result in the employees not getting their correct entitlements.

We are continuing our efforts to help employers improve the accuracy and timeliness of their EMS filing. Our programme of activities includes regular updates about common errors, and seminars to help employers fill in their schedules accurately. We also work directly with new employers to help them understand EMS filing, and provide an account management service for large employers.

One of our programme activities has been to encourage businesses to file their EMS online, using ir-File. Filing online reduces the time required to complete and file an EMS. Our ir-File system is designed to be easy to interact with and is supported by payroll software packages.

We are keeping in closer contact with businesses that habitually fail to file their EMS, to help them comply. If businesses persist in returning their EMS late or not filing, we will take action where needed.

What you can do
  • Let us know when an employee stops working for you (otherwise we will continue to expect an EMS record for them).
  • Make sure your employee has provided the correct details, including their IRD number and tax code.
  • Make sure tax is deducted at the special no-declaration rate when no IRD number or tax code is supplied by an employee.
  • File your EMS using ir-File, our online filing system for employers, by going to our File an employer schedule (ir-File) service.
  • If you use file transfer method for ir-File, make sure you complete an Employer deductions (IR345) form.
  • If you use payroll software, maintain your software updates regularly.
  • Fixing warning messages before you send the EMS using ir-File helps to ensure your employees' details are accurate.
  • If you are filing your EMS by paper, ensure you file an Employer deductions (IR345) form. This is required every month for small employers, and twice a month for large employers.
  • Contact us for guidance if you are having difficulties filing.

Resident Withholding Tax (RWT)

A number of individuals are paying incorrect tax on income from their investments because they use a lower rate of resident withholding tax (RWT) than they should. Many people make this mistake because they do not know what their correct rate is, but others intentionally use the wrong rate. They also try to influence their entitlements and liabilities by not including interest income in their tax return or on their personal tax summary (PTS).

We want all people who earn interest and dividends to have RWT deducted at the correct marginal rate. We are working to raise awareness about which rate people should use. We are contacting individuals who use the wrong rate to encourage them to use the correct rate. When needed, we will conduct investigations.

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What you can do
  • Contact your financial institution to check your RWT rate, and ask them to change it if it's wrong.
  • If you're filing a return, declare all interest income at the end of each tax year.
  • If you're a tax agent or intermediary, ask your client about interest and dividend income when completing a return or PTS on their behalf.

Non-resident contractors

A person, company or other entity who is not a tax resident in New Zealand and who has a contract, agreement or arrangement to perform a contract activity in this country is classified as a non-resident contractor. Some non-resident contractors fail to declare their New Zealand income and meet the PAYE requirements for their employees. Their employees also avoid their tax obligations by not declaring their New Zealand income.

Any organisation in New Zealand that engages a nonresident contractor is required to deduct non-resident contractor's tax from the contract payments, unless the non-resident contractor provides an exemption certificate from Inland Revenue. The tax consequences of failure to deduct this tax could substantially increase the costs to the organisation of engaging the non-resident contractor.

The increase in business activities arising from the rebuilding work in Christchurch has resulted in an increase in non-resident contractors working in New Zealand. Some New Zealand organisations are not deducting non-resident contractor's tax from the contract payments and a number of the contractors are not fulfilling their tax obligations. We have been working closely with key agencies to help both industries and non-residents understand what they need to do to comply. As a result of this work, we have seen New Zealand organisations and contractors develop greater awareness of their responsibilities.

If you come to New Zealand or contract non-resident companies or individuals to help with the Christchurch earthquake recovery, or for any other activities, please contact our Non-resident Contractors Team to discuss your circumstances and find out if any tax exemptions apply.

We are continuing to assess the level of non-compliance in the New Zealand business community and introducing a programme of activities to raise awareness of their obligations. Our goal is to ensure all non-resident contractors understand the tax requirements and what happens if they don't comply.

What you can do

As a non-resident contractor:

  • Give details of your New Zealand activity to our Non-resident contractors team. They can let you know what your tax liabilities may be.
  • Deduct PAYE from salary and wages paid to any employee present in New Zealand while working for you.
  • Check the non-resident contractors section of our website to learn more about your tax obligations.

If you engage non-resident entities or individuals to undertake contract activities in New Zealand:

  • Make sure they are aware of their New Zealand tax obligations.
  • Unless they have an exemption certificate, deduct non-resident contractor's tax (NRCT) from payments to non-residents.

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Keeping personal and business details up to date

If a business or individual has not kept us informed about changes in their circumstances during the year, the information used to assess their tax or entitlements may be wrong. As a result, they could face a tax bill they were not expecting or receive an over-payment of entitlements. Alternatively, they could miss out on a refund or social policy payments they are entitled to. It is important for people to keep us up to date about changes in their situation so we can make the appropriate adjustments.

Changes to family and individual circumstances

The entitlement for Working for Families Tax Credits is based on the amount and sources of a family's annual income, and the age and number of dependent children in the family. A family's entitlement can change if their situation changes during the year. Their income might change, they might reconcile with a partner or move overseas to live, there may be a new child, or the family's last dependent child may take up paid work. Recipients need to tell us about any changes straight away, to avoid over- or under-payments. The simplest way to do this is by using our secure online service to update their details.

There may be changes to individual circumstances as well, and we need to know about these. Let us know your new address if you move house. Tell us if a family member dies, so we can update our records and finalise their tax affairs.

You may need to use a different tax code if you change your job or employer. The wrong amount of tax will be deducted for individuals who use the wrong tax code. This may happen when their employer deducts tax from salary and wages, their bank pays interest, or their student loan repayments are calculated.

The reasons why people use the wrong tax code are usually because they do not understand how to choose one, or their job has changed and they have not reviewed the tax code. If the wrong tax code is used, tax could be underpaid, resulting in a debt at the end of the year.

What you can do

Changes to business or employment

You need to tell us if your business stops operating. A final tax return must be filed that includes business accounts and any assets held, up to the date the business ceased to operate. The final tax return is due after the end of the financial year in which the business stopped. You cannot file an early return.

If you cease all taxable activities, or if your turnover for the next 12 months will be less than $60,000, you may cancel your GST registration. Your final GST return must include all assets retained.

What you can do

DIY tax refunds

If you are a salary or wage earner, you can check whether you have paid the right amount of tax, are due a refund or have tax to pay by using Inland Revenue's online personal tax summary calculator.

The calculator uses the details you provide about your income and your personal situation to determine whether you are due a refund or have tax to pay.

You can check the details Inland Revenue holds about your income by registering for an online services account. If any details are incorrect, incomplete or missing, you can update them.

To claim your tax refund, you can request a personal tax summary through your online services account. If you have any amounts owing from previous years (that are not under an instalment plan) or child support arrears, we will use your refund to pay these first. You will receive any remaining credit as a refund.

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Date published: 22 Aug 2012

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