AGENTS Answers - 2009
AGENTSanswers Issue 114 June 2009
- Fair dividend rate rules
- New business industry codes
- Balance dates
- Inland Revenue publications
- The Job Support Scheme (formerly known as the nine-day fortnight)
- Look at account information
- Filing returns with the right information for the right period
- Reminders
- Correction
- Newsletters online only
- Note from the editor
Fair dividend rate rules
We issued a number of determinations in 2008 to help clarify the rules on taxing dividends from foreign investment. The most recent being DET FDR 2008/13 on 8 September 2008.
Commentary as recent as April this year highlights confusion around how individual investors in overseas companies should be taxed using the new fair dividend rate (FDR) rules that came into force in 2007.
Deemed reasonable yield
The FDR rules ensure offshore investments are taxed on a deemed reasonable dividend yield of 5% of their value. This means individual investors in overseas companies are taxed on a maximum of 5% of the value of their investments in good years, when they increase in value.
Example
An individual with portfolio investments of $100,000 that increase 10% in value will be taxed on deemed income of $5,000. For someone on a 38% top tax rate, tax owing on the $5,000 will be $1,900. In bad years, when there is an investment loss, the individual investor pays no tax on the investments.
New rules v old
Under the new rules, if things go badly, no tax is required on these investments, even if they receive a dividend. Under the old rules, individuals paid tax on their dividends even if their investments went down in value.
Example
Someone whose $100,000 investments went down 10% in value but who received a $3,000 dividend yield from the investments had to pay tax on that $3,000. Under the FDR rules, that individual pays nothing.
Managed fund investments
Investment in overseas companies through managed funds such as KiwiSaver, the investment income is taxed on 5% of its value in both good and bad years. Although for managed funds the new rules don't distinguish between years of increase or loss in value, investors in managed funds have the advantage of being taxed at a maximum rate of 30%.
More information
Our booklet A guide to foreign investment funds and the fair dividend rate (IR461) covers who qualifies to use these rules and how they work. You can find this booklet under "Forms and guides".
New business industry codes
The "nature of business code" has been replaced with the Business Industry Activity Code. This seven-character alphanumeric code is needed when completing a GST registration form.
To find the correct code to use you can:
- go to www.businessdescription.co.nz and use the search function
- download the ACC410 booklet Determining your business industry description and code.
All staff and agents who complete a GST registration request on behalf of a business need to use the updated codes. These codes are also used on annual tax returns.
Balance dates
From time to time letters are received from agents saying they thought an entity has a non-standard balance date. They have been filing to this assumed date and now want to know if we can backdate the balance date to reflect this.
The Commissioner's policy is not to allow a taxpayer to carry a known income or loss into a prior income year. This would happen when a taxpayer applies for a new balance date after the anniversary of the old one, and requests the new balance date to be effective from the previous income year. The Commissioner will not agree to a change to a balance date which is earlier than the date of the application.
How to check a client's balance date
The client list report (AMBR1000) is sent out to tax agents regularly during the year or can be ordered from your agent account manager.
The balance date for each entity is printed in the third column after the IR number and the name.
If a new client informs you that they have a non-standard balance date this is one way of checking if the information is correct.
Inland Revenue publications
Do you have the latest version?
If you keep our publications on hand, this is a good time to check they are up to date. Just look for the version date under the booklet reference number (this is usually at the top on the front cover, as shown below).
Viewing online rather than holding actual publications is always the preferred option as this guarantees you are viewing the most recent version.
New INFOexpress card
Tax agents have consistently told us Tax agents' guide to using INFOexpress (IR355) needs reviewing. Feedback suggested deleting the booklet altogether in favour of the INFOexpress calling aid, as a stand-alone card.
As a result of your feedback the IR355 will be replaced with the IR358 (see below). This calling aid can be ordered by calling 0800 456 678 or ask your Agent Account Manager.
The Job Support Scheme (formerly known as the nine-day fortnight)
The Job Support Scheme is administered by Work and Income to help employers retain workers who might otherwise be facing redundancy.
If you have clients who employ between 50 and 100 employees please note that the scheme has been extended. From 27 April 2009 these employers are now eligible to apply.
To find out more about the scheme go to Work and Income's website.
For information on employment relations, paid parental leave, holiday entitlements, sick leave, redundancy, restructuring and the Job Support Scheme go to the Department of Labour's website.
Find out more about tax obligations for employers and employees.
Filing returns with the right information for the right period
Our processing staff have noticed an increase in returns being filed with an incorrect IRD number or for the wrong period, for both paper and electronic returns. When filing a return it is important to record the period end date for the return, not the due date.
Example
Customer 999-999-999 files GST monthly and is filing for the month of June.
What incorrect returns mean for your customers
If your customers have incorrect returns:
- their tax record at Inland Revenue will be incorrect
- incorrect debits or credits may be applied to their record
- they will receive letters advising of these debits and credits and, in some cases, penalty and interest charges.
Corrective action you can take
Agents need to check that staff preparing returns are:
- using the correct IRD number
- adding the right information for the period they are filing for
- filing all the pages of the return.
Please also mention this to clients who are filing their own returns when you meet with them.
Where to get help
For electronic filing, go to tax agents and check out "Get it done online".
For paper return filing, call 0800 377 779 or talk with your agent account manager.
Reminders
- Foreign dividend payment return (IR4F) due no later than 20 July.
If you have clients who need to file an IR4F return, our Imputation and the company tax rate change (IR237) factsheet contains useful details -go to "Forms and guides".
The Tax Information Bulletin Vol 20, No 3, April 2008, contains full details on tax and foreign dividends. - Imputation returns IR4 and IR4J - don't forget to tick the box to indicate if the opening balance is a debit or a credit.
This is Box 42 on the 2009 IR4 and Box 6 on the 2009 IR4J.
If the return doesn't indicate a debit or credit we will automatically select a debit. This will create a debt, sometimes for very large sums. Please remind your staff and clients to select the correct option. - It's that time of year again - if your agency receives tax packs for clients who no longer need to file, please let us know so we can correct our records.
You can do this by using client maintenance in online services. You need to be registered to use this service.
Or you can call us on:- 0800 456 678 for tax agents
- 0800 443 773 for large enterprises.
Correction
In the April AGENTSanswers newsletter we ran an article about KiwiSaver changes.
| 1 April 2009 will see a number of changes to KiwiSaver that all employers need to know about. These are: |
|
The above segment of that article wasn't correct. It should read:
- The compulsory employer contribution (CEC) increased to 2% and won't increase further in future years.
- The minimum employee contribution reduced to 2% of an employee's gross pay.
The online April AGENTSanswers has been corrected.
Newsletters online only
We're fast-tracking business tax information to your inbox. In the near future we'll be publishing our business newsletters online only. Subscribe at Newsletters and bulletins and you'll receive an email notification when each new issue is published.
Note from the editor
If your mailing details are incorrect, we have missed someone off the distribution list or you have suggestions for future topics, please email: agents.answers@ird.govt.nz or contact:
The Editor
AGENTSanswers
Inland Revenue
PO Box 2198
Wellington 6140
Disclaimer
AGENTSanswers comments generally on topical tax issues relevant to tax agents. We make every attempt to ensure the law is correctly interpreted, but articles are intended to be a brief overview only. The examples provided are not intended to cover every possible factual situation.
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Other issues this year
AGENTS Answers Issue 120 December 2009
AGENTS Answers Issue 119 November 2009
AGENTS Answers Issue 118 October 2009
AGENTS Answers Issue 117 September 2009
AGENTS Answers Issue 116 August 2009
AGENTSanswers Issue 115 July 2009
AGENTSanswers Issue 113 May 2009
AGENTSanswers Issue 112 - April 2009 supplement (electronic copy only)
AGENTSanswers Issue 111 April 2009
AGENTSanswers Issue 110 March 2009
AGENTSanswers Issue 109 February 2009
Date published: 29 May 2009
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