AGENTSanswers - 2003
Issue 50 October 2003
- Your chance to have your say on reducing business tax compliance costs
- Repayment calculator for student loan borrowers overseas
- Maori authorities
- Income not liable for ACC earners' levy
- Summary of earnings (SOE) requests on the internet
- Non-trading trusts liability to file income tax returns
- Written authority to act on behalf of your clients
- Provisional tax elections
- Save time with INFOexpress
- Entity status of clients
- Income and expenditure within a circle of membership
- AGENTSanswers by email
Your chance to have your say on reducing business tax compliance costs
You have until 31 October to have your say on the proposed changes to the tax rules aimed at reducing business tax compliance costs.
The Government released a discussion document in mid-September outlining some options, including:
- a subsidy for small businesses that use a tax agent for payroll management and associated tax obligations
- aligning the payment due dates of provisional tax and GST, and
- a new way to calculate provisional tax.
You can find a summary of the discussion document on our website along with an electronic feedback form so you can tell us what you think of the proposed changes. You can request a copy of the summary document from INFOexpress on 0800 257 477.
We are very interested in hearing tax agents' views of the proposals.
Repayment calculator for student loan borrowers overseas
We've developed a new online repayment calculator for student loan borrowers who are currently living overseas. The calculator enables borrowers to find out their estimated repayment obligation as well as seeing the impact of paying a little (or a lot) extra towards their student loan.
The new calculator is a useful tool for both borrowers living overseas and borrowers thinking about leaving New Zealand. It includes information on the repayment obligation calculation and repayment due dates as these are different for a borrower living overseas. For borrowers overseas, the repayment structure is based on the loan balance, whereas for borrowers in New Zealand the repayment obligation is based on income earned over the repayment threshold (currently $15,964 per annum).
Both our overseas and resident repayment calculators are available at www.ird.govt.nz/studentloans.
In May 2003 we launched www.owezero.org.nz to allow borrowers to go straight to our resident repayment calculator. Since then the resident calculator has received over 35,000 hits. From early October the overseas calculator will also be available on owezero.
Maori authorities
In the May 2003 edition of AGENTSanswers, available under the Forms and Guides section of our website, we advised that new rules will apply to Maori authorities from the 2004-2005 income year. We also advised that we would keep you informed about the impacts these changes will have on your clients over the coming months.
The major impacts to existing organisations and those wanting to enter the new system are:
- A lower tax rate of 19.5% will apply to the taxable income of a Maori authority (previously 25%).
- A new definition of "Maori authority" which lists 12 specific entity types eligible to elect to apply the new rules (these entities are either trusts or companies).
- An election system that allows the eligible entities to elect into and out of the Maori authority rules in the year of implementation and on a continuing basis.
- An imputation system that provides for the tax paid at the authority level to be passed through to the authority's members as "Maori authority credits". Previously, distributions made by a Maori authority were deducted before the calculation of taxable income.
- Maori authority credits are fully refundable.
- The distinction between small and large authorities is removed.
The new legislation will result in a number of changes for both Maori authorities and their members. They include:
- simplifying the personal income tax requirements for individual members
- matching the statutory tax rate of the majority of members
- simplifying accounting procedures for Maori authorities
- overcoming historical anomalies.
More information
For further information about Maori authorities please:
- contact your agent account manager, who may make a referral to a local Maori Community Officer, or
- refer to the Tax Information Bulletin, Vol 15, No 5 (May 2003), under the Newsletters and Bulletins section of our website or
- visit the Maori authorities section of our website.
Over the coming months additional information will be made available on our website to help both Maori authorities and individual members understand how the changes will affect them.
Income not liable for ACC earners' levy
In some cases a client may have earnings that are not liable for ACC earners' levy. The amount not liable for earners' levy will be included on your client's summary of earnings. Please remember to include this in Box 11C of their income Individual tax return (IR3) as it makes a difference to the total tax deductions calculated. You can find this under the Forms and Guides section of our website.
If any of the details on your client's summary of earnings are incorrect (for example, wrong or missing employers), please make the changes on the summary of earnings then transfer the amended amount to their return. Attach the summary of earnings to the return.
Summary of earnings (SOE) requests on the internet
You can request SOEs for up to 10 clients at a time on our website.
We have now automated this service so that the request is actioned overnight.
We plan to automate other internet services such as Individual tax return (IR3)'s income return requests in the future, we'll keep you informed of our progress.
Non-trading trusts liability to file income tax returns
Where a trust has no prospect or intention of deriving any assessable income, Inland Revenue does not require an IR6 income tax return to be filed.
However, if the trust receives any assessable income, such as interest, the trustee must file a tax return regardless of the amount of income derived.
If the trust does not derive assessable income, please call us on the tax agents' line. Tell us the name and IRD number of the trust, and confirm that the trust is not receiving assessable income and will not be filing income tax returns.
If the trust begins to derive assessable income again in the future, it must file an IR6 return for that period.
Written authority to act on behalf of your clients
Agents have been asking why they need to hold written authority to deal with their clients' tax affairs. As a government department we take our customers' privacy very seriously. It is our responsibility to ensure that we comply with the privacy provisions specifically built into the Tax Administration Act 1994.
Section 81 of the Tax Administration Act governs what information we can release and to whom it can be released. Section 81(4)(l), which provides for information about clients to be released to agents, specifically states that authorisation from the client must be held in writing.
Because of this it is our policy not to give out any information about a customer to an agent unless the agent has been authorised by that customer in writing.
Your agent account manager may ask to see written authority from your clients during their visits to you.
Provisional tax elections
From the 1999 income year you or your clients can elect to be treated as provisional tax payers if certain criteria are met.
Section MB 2A(1) of the Income Tax Act 1994 provides the criteria you must meet if you want to elect to be a provisional tax payer for a certain year.
Criteria
- You must have paid at least $2,500 by your last instalment date.
- When you paid your first provisional tax payment, you had a reasonable expectation of being a provisional tax payer for that year (other than by electing to be a provisional tax payer).
How to make the election
You should make an election at the time you file the income tax return for your client or your own business. If you think you meet the criteria, attach a note to the front of the tax return for the relevant year, stating you wish to make an election to be treated as a provisional tax payer for that year. If you have already filed your return for 2003, you can still elect to be a provisional tax payer by writing to us.
If you E-File your returns, please E-File correspondence regarding your election at the same time as you file the return.
Save time with INFOexpress
We have been receiving a greater number of calls on the tax agents' 0800 number recently. This means that you may experience delays in getting through.
INFOexpress offers an alternative means of obtaining information about your clients. You have immediate access to a range of automated services specially designed to help you with the enquires you make most often.
You can use INFOexpress from any touch tone phone. Simple recorded messages will guide you each step of the way. With INFOexpress you can obtain or provide information outside our normal office hours. INFOexpress operates between 6 am and midnight, 7 days a week. Our busiest time of the day is from 8 am to 12 midday. For quicker service, please call outside these times.
We produce a handy card that shows what you can do using INFOexpress and how to do it (click on the image below to see the card full size).
You can pin or tape it to a wall beside your phone or computer to use when you call.
You can order copies of the INFOexpress calling aid (IR358) through StationeryXpress or by phoning INFOexpress. It's also available under Forms and Guides on our website and version 5 of the Tax Agents' CD Rom, which you received from us in April this year.
Entity status of clients
In June we became aware that our system had incorrectly changed some of your clients from IR3 filers to salary and wage earners. This meant you may not have received an Individual tax return (IR3) for some clients this year and a personal tax summary (PTS) showing incorrect income details may have been sent to you or your client instead.
Approximately 15,000 cases have been affected and the majority of these are clients of tax agents.
We have identified what caused this error and we are in the process of implementing greater safeguards to make certain this problem does not happen next year. We apologise for the inconvenience caused.
If some of your clients have been affected, you will receive a letter from us. If you do not receive a letter about this issue from us by the end of this month, none of your clients were affected or you have since filed Individual tax return (IR3) for those that were.
Income and expenditure within a circle of membership
In the June 2003 issue of AGENTSanswers we included a brief article on how the mutuality principle applies to organisations that derive income from their members. You can find this under the Newsletters and Bulletins section of our website.
We confirmed that while the mutuality principle does still apply to many member transactions, section HF 1 of the Income Tax Act 1994 does subject certain income derived from members to income tax. These transactions are listed in subsection (8) of the section. Member subscriptions do not fall into this category and are not subject to income tax.
It has been pointed out that our article did not mention expenses incurred by these organisations and in particular, whether they are deductible for income tax purposes.
If an organisation is carrying on a business, then all expenditure necessary in carrying on that business is deductible. Other non-business costs incurred by an organisation are only deductible for income tax purposes if they relate to the earning of gross income.
If income derived from within the circle of membership is not assessable, then expenses relating to that income are not deductible. This means that many costs in relation to the operation of the organisation will not be deductible and will not give rise to losses that can be offset against gross income.
Expenses that are incurred in producing both assessable income and non-taxable income, such as office expenses, may be claimed on a pro rata basis. An acceptable method of apportioning the expenses would be:
(Assessable income divided by total income) multiplied by shared expenses.
AGENTSanswers by email
We send this newsletter electronically to those of you who have successfully subscribed to our AGENTSanswers email facility. However, many emails are being returned as undeliverable. This may be because:
- errors were made in the address on subscribing
- the subscriber has left their place of work and the email address no longer exists, or
- the workplace firewall does not allow attachments to emails.
We will be unsubscribing all addresses that are undeliverable. If you or someone you know has registered for the AGENTSanswers email facility but is not receiving a copy, let us know by sending an email to agents.answers@ird.govt.nz.
The electronic version is distributed one week before the printed copies are available. If you would like to receive this information earlier and to be able to email it to others in your workplace, please subscribe to the publication.
If you have an email address but don't have internet access, email us at agents.answers@ird.govt.nz and we will subscribe you.
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Date published: 19 Nov 2004
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