Agents Answers - 2010

Agents Answers Issue 121 February 2010

• Reminders
• End-of-year filing performance tips
• Tax due 7 April
• Online financial transfer requests
• GST and associated persons
• New 0800 features coming in March
• IR3 filers and child support calculations
• Starting up your payroll giving
• Non-payment penalties and your clients
• Certificate of exemption renewals and tax codes
• Tax statistics now available online
• GST on inbound tour operator facilitation fees
• Now trialling instalment arrangements via tax agents
• Waste disposal levy
• Changes impact on horticulture and viticulture industries
• News from our policy advice division
• Working for Families Tax Credits and IR3 filers
• Input tax deduction for GST

Welcome to Agents Answers

If you have any suggestions for topics you'd like covered in this newsletter, email agents.answers@ird.govt.nz

Reminders

Deemed rate: The deemed rate of return for taxing foreign investment fund interests has been set at 9.18% for the 2008-09 income year, down from 10.87% for the previous year.

31 March: Student loan repayments due for overseas-based borrowers not on a repayment holiday.

Deadline for ratio option elections: Elections for the ratio option need to be to us by 31 March 2010 for clients with a 31 March balance date who want to use this method of calculating their provisional tax during 2010-11.

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End-of-year filing performance tips

Welcome to the first issue of Agents Answers for 2010. We hope you had a good break and are ready for the challenges of the year ahead. With only a few weeks until the end of the tax year we're all anticipating that you'll achieve 100% filing.

Now's the time to review EOT clients who haven't filed their 2009 returns. The AMBR1004 current year returns outstanding report was sent in mid-December and gives detail of your clients who haven't filed yet.

Here are some tips to help you reach your 100% target.

Linking clients close to 31/03/10

If a client is required to file a 2009 tax return and you link them close to 31/03/10 but can't:

• file the return by 31 March 2010, or
• update the return as "not required"

then this client's outstanding return will impact on your filing performance.

Please consider each case carefully before linking so you can achieve the desired 100% filing performance. If necessary, call and talk with your agent account manager.

Request for "D" status for 2009 income tax returns

Do you have clients who won't be able to file their tax return by 31 March 2010?

We can't give an extension of time beyond 31 March, but your client can be granted "D" status (deferred) in special circumstances.

If you need deferred status for a client, the tax agents' extension of time agreement (IR9XA) sets out the application requirements.

Your application must:

• be in writing (email preferred)
• give full details of the reason for the delay
• give the expected date the return will be filed.

If no date is given in your application, you'll automatically be granted "D" status until 15 May 2010. If you need longer, please include this date in your letter.

Please send your applications by Friday 19 March 2010 to allow processing by the 31 March cut-off.

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Tax due 7 April

Clients with a 31 March balance date and an extension of time to file their tax returns need to pay their 2009 end-of-year income tax by 7 April 2010.

Any clients who may have difficulty paying by the due date should be encouraged to contact us as soon as possible, preferably before 7 April. They can phone or use our new online service "Instalment arrangement proposal".

In most cases, they'll qualify for an instalment arrangement, which lets them pay their tax over a period of time.

By contacting us before 7 April they'll be charged the 1% late payment penalty but not the incremental penalties, as long as they keep to the terms of the arrangement.

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Online financial transfer requests

We're committed to increasing the number of services for tax agents via the electronic channel - building on those already delivered such as the Look at Account Information service, and Client maintenance.

We're planning to introduce a 24-hour, seven day a week, self-service, real-time online payment and credit transfer service in February 2010. This new service will give tax agents the ability to transfer whole payment amounts and credits from a limited set of tax types from linked clients to other tax types, periods or customers.

Arrange a meeting with your Agent Account Manager to:

• view our online demo, which gives a step-by-step guide of the process
• clarify how to initiate online transfers and payments.

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GST and associated persons

Sections 2A(1)(f) and 2A(1)(h) of the GST Act 1985 have been amended as follows.
A trustee and a beneficiary of a trust are not associated if:

• the trustee is a charitable or non-profit body with wholly or principally charitable, benevolent, philanthropic or cultural purposes and the supply is made in carrying out these purposes, or
• the beneficiary is a charitable or non-profit body with wholly or principally charitable, benevolent, philanthropic or cultural purposes and the supply enables them to carry out these purposes.

Two trustees of trusts with a common settlor are not associated if:

• either trustee is a charitable or non-profit body with wholly or principally charitable, benevolent, philanthropic, or cultural purposes, and
• the supply is made in, or enables, the carrying out of the charitable, benevolent, philanthropic, or cultural purpose.

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New 0800 features coming in March

Our new voice recognition system for individual customers moved smoothly from pilot to roll-out across the country in December with very favourable responses.

This builds on the success of Virtual Hold in helping customers get through to the right service and the right person to handle their enquiry.

We're now concentrating on specific tax agent functions and you'll start to experience voice recognition from March 2010.

What will change?

Our phone system will understand your speech so we'll know what you're calling about when you get through to a staff member. For example, if you want to check the progress of a client's IR3 tax refund you can say "I'd like to find out the status of a client's IR3 tax refund". Your call will still go to a tax agent-trained staff member who'll know immediately what you're calling about and will be able to help you straight away.

Another new feature enables you to be identified (via your agency and client IRD number entered). You'll then be able to complete security verification via your current personal identification number (PIN). This will happen before you speak to a staff member.

All this information - customer identification, agent validation and the purpose of your call - will be presented to our agent upon receiving your call.

Our current self-service (INFOexpress) options remain unchanged, and our call-back service remains available at all times during normal business hours.

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IR3 filers and child support calculations

If your client files an IR3 return, but their income was derived solely from withholding income* they may be incorrectly assessed for child support purposes.

If a liable person files an IR3 return for the 2009 year, our computer system automatically assumes they have earned other taxable income and uses their 2008 taxable income (rather than 2009), to calculate their 2010 child support liability. If this assumption is incorrect, please ask your client to contact Child Support on 0800 221 221 to have their child support liability checked.

* This is income from employment (subject to the PAYE rules) or interest and dividends (subject to the RWT rules), all with a New Zealand source. The PAYE and RWT rules are defined in section YA 1 of the Income Tax Act 2007.

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Starting up your payroll giving

We talked about the new payroll giving scheme in November. As January was the first month payroll giving donations could be made, it's timely to go over the key points again.

Setting up payroll giving

Payroll giving is voluntary and flexible. Each employer can choose how they want to set up their scheme. Some options might include:

• letting individual employees choose any approved donee organisation
• offering a limited list of approved donee organisations
• letting employees vote for an approved donee organisation (eg, donee organisation of the month or year) they can donate to
• setting a minimum donation amount.

Depending on how the scheme is set up, employees can choose the frequency, amount and donee organisations for their donation.

What participating employees need to do

Any employee who chooses to donate through payroll giving is responsible for giving their employer sufficient information so the donation can be passed to the donee organisation. This includes the:

• name of the donee organisation
• amount of the donation
• pay period, or periods, they want to donate in
• bank account details or postal address details for the donee organisation.

Employees are also responsible for checking the donee organisation is on the approved donee organisation list.

Employer responsibilities

Employers who offer payroll giving are responsible for:

• deducting the requested donation amount from the participating employee's salary or wage
• calculating the correct tax credits for each payroll donation made
• recording the tax credits for payroll donations on the EMS
• keeping records of all tax credits for payroll donations, donation amounts, donee organisations and payment dates
• passing the donation to the chosen donee organisations within the specified timeframe
• advising the donee organisations that the donations are made through payroll giving.

Before deducting donations from employees' wages, it's a good idea to confirm the donee organisations are on the approved donee organisation list.

If an employee requests a donation to an organisation that isn't on our approved list, they should not receive tax credits for the donation. The requested donation can still be made, but it won't form part of the payroll giving scheme and won't be eligible for tax credits for payroll donations. This should be discussed with the employee.

Timeframe for passing on donations

Donations must be passed to the donee organisation on or before the PAYE payment due date that is closest to the end of two months from the last day of the pay period when the donation was deducted.
The following shows how the date is calculated:

• Date A is the last day of the pay period. If the pay covers 29 January - 12 February, the last day of the pay period is 12 February.
• To find Date B, add two months to Date A. In this instance Date B is 12 April.
• Date C is the nearest PAYE payment due date to Date B. This could be either before or after Date B.

PAYE filing frequency	Date A last day of pay period	Date B two months from Date A	Date C nearest PAYE payment due date to Date B
Monthly filer	7 January	7 March	20 March
Twice monthly filer	7 January	7 March	5 March
Monthly filer	30 January	30 March	20 March
Twice monthly filer	30 January	30 March	5 April
Monthly filer	12 February	12 April	20 April
Twice monthly filer	12 February	12 April	5 April

Date C is the last day donations can be passed on to the donee organisation. The donation can be passed on at any time up to and including this date.

Calculating tax credits for payroll donations

Tax credits for payroll donations are calculated for each employee who makes a donation using payroll giving and are 33⅓ cents for each dollar donated.

Tax credits for payroll donations must not exceed the amount of tax for the pay period.

You can use our PAYE/KiwiSaver calculator to calculate tax credits for payroll donations - go to "Work it out".

ir-File updates

You must record tax credits for payroll donations for your employees' donations on your employer monthly schedule. Our ir-File form has been updated to include this information. If you don't offer payroll giving or an employee doesn't have any tax credits for payroll donations these fields remain blank.

Total PAYE recorded on the EDF (electronic deduction form) is the amount of PAYE and/or schedular payments less all tax credits for payroll donations for that pay period.

You can see these changes in the ir-File demonstration.

For more information see our publication Payroll giving (IR617) under "Forms and guides".

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Non-payment penalties and your clients

Non-payment penalties are charged when employers don't pay their employer monthly schedule (EMS) payments in full.

One month after payment was due we send a notice to employers showing their outstanding EMS amounts. This notice says that if payment isn't made or an arrangement entered into within a month then a non-payment penalty will be added to any period with outstanding amounts.

If the employer pays their outstanding EMS by the date shown on this notice, they won't receive a non-payment penalty.

If payment isn't received or an arrangement entered into by the date on the notice, a 10% penalty will be charged and an additional notice is sent advising of this. If payment or an arrangement to pay is made before the due date in the additional notice, the penalty reduces to 5%.

If payment isn't made or an arrangement entered into by this due date the process repeats itself.

The process continues each month until:

• the amount is paid in full, or
• the employer enters into an instalment arrangement, or
• the total penalties charged reach 150% of the unpaid amount before any penalties were imposed.

For a full explanation of this penalty process see the Tax Information Bulletin Vol 20, No 3 (April 2008).

How to help your clients

To ensure your clients don't incur non-payment penalties, please advise them:

• how the non-payment penalty is applied (see above)
• to contact us before the due date if they think they may have difficulty paying their EMS payment
• if they pay their tax in full or enter into an instalment arrangement now, they won't be charged a non-payment penalty or continue to have a late payment penalty applied to their outstanding EMS payments
• they can phone us on 0800 337 771 to enter into an instalment arrangement.

If you contact your clients, please encourage them to pay their outstanding EMS payments or contact us to enter into an instalment arrangement straightaway to avoid the non-payment penalty. They can phone or use our new online service "Instalment arrangement proposal".

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Certificate of exemption renewals and tax codes

With the tax year drawing to an end it's timely to talk about the renewing of certificates of exemption (COEs) and applying for special tax codes.

Applying for a COE renewal

If you have clients with COEs about to expire now's the time to apply for a renewal using our service "Apply for or renew a certificate of exemption from PAYE on schedular payments" - go to "Get it done online".

To qualify, your clients need to:

• be in business
• receive schedular payments subject to a prescribed rate of tax under Schedule 4 of the Income Tax Act 2007
• have a good record in New Zealand for filing returns and paying tax when it's due.

Applying for STC or IPE codes

A number of tax agents have applied for a special tax code (STC) or an exemption from resident withholding tax (IPE) using our service "Apply for or renew a certificate of exemption from PAYE on schedular payments".

This service can't accept these applications and in all instances they are declined.

To save you time in the future when applying for an STC for your client, download and fill in a Special tax code/Student loan special repayment rate application (IR23BS) form and post it to your nearest Inland Revenue office.

For an application to be exempt from resident withholding tax we need a completed Application for exemption from resident withholding tax on interest and dividends (IR451) form.

Both these forms can be downloaded from "Forms and guides".

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Tax statistics now available online

You can now view a range of statistics about tax revenue and social entitlements.

These statistics include donation rebates and child support data, working for families tax credits entitlements, GST turnover and filing, and income distribution by income bands.

The revenue statistics cover the years from July 2001 to June 2008, and customer data is available from April 2001 to March 2008. The figures will be updated every year.

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GST on inbound tour operator facilitation fees

Recent legislation has clarified that the "facilitation fee" charged by inbound tour operators (ITOs) is liable for GST at the standard rate (12.5%).

The facilitation fee relates to services a registered person provides in packaging one or more domestic tourism products and services in New Zealand and selling them outside New Zealand to a non-resident person. The tourism products and services may include accommodation, meals, transport, and other activities.

To help minimise the impact of the legislative change a transitional period has been put in place. The transitional period runs from 1 July 2007 to 30 June 2008. For this period, the GST on facilitation fees is zero-rated.

If ITOs supplied services that included the facilitation of inbound tour operations and GST was paid on these services, they may be entitled to a refund of the amount of GST paid.

Who is eligible for a refund?

ITOs are eligible to receive a refund if:

• they were registered for GST and supplied the facilitation services between 1 July 2007 and 30 June 2008, and
• they can clearly show the separation of the facilitation fee from other taxable income.

How do they apply for a refund?

Applications requesting a refund must be made in writing prior to 8 June 2010 and include:

• a calculation that confirms the separate amounts of facilitation fees and other taxable income on a GST period-by-period basis, and
• confirmation that they are an ITO.

The amount calculated must be:

• calculated for each taxable period that falls in the transitional period
• apportioned on a pro rata basis for any days in the taxable period that fall outside the transitional period (ie, if your taxable period spans 1 June 2008 - 31 July 2008).

The GST refund for this period is the facilitation fee divided by 9:

$1,250 ÷ 9 = $138.88 GST

Post your request to:

Inland Revenue Investigations Unit
Takapuna Office
PO Box 33150
Takapuna
North Shore City 0740

The legislative change can be viewed on the New Zealand Legislation website, or contact us on 0800 456 678 if you have further queries.

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Now trialling instalment arrangements via tax agents

We've enhanced our online instalment arrangement requests.

An 18-month trial for selected agents will let them initiate an instalment arrangement for a client through our e-channels (E-File and secure email). We've streamlined the flow of information we require from agents to make this an efficient and effective service. Agents using e-channels will receive a response in three to five working days.

The new process will be available to compliant tax agents who belong to a professional body. As with all arrangements, the final decision to accept an arrangement rests with Inland Revenue.

These are some of the incremental steps we're taking to strengthen our e-solutions, and contribute towards our goal of making it easier for tax agents to do business with us.

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Waste disposal levy

The GST Act 1985 has been updated to clarify the GST treatment of the waste disposal levy introduced in the Waste Minimisation Act 2008.

These levies are treated as consideration for a supply of services for a taxable activity and are therefore subject to GST.

Payment of the levy includes, and is for, a payment made by:

• a waste disposal facility user to a waste disposal facility operator
• a waste disposal facility operator to the Secretary for the Ministry for the Environment
• the Secretary to a funding recipient or territorial authority to fund waste minimisation activities in the community as described in section 30 of the Waste Minimisation Act 2008.

For more detailed information see section 5(6AC) of the GST Act 1985.

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Changes impact on horticulture and viticulture industries

From 1 April 2010, any type of contractor (individual, partnership, trust or company) is required to have tax deducted from schedular payments (previously known as withholding tax) when providing work or services under a contract or arrangement for the supply of labour, or substantially for labour, on land in connection with fruit crops, orchards, vegetables or vineyards.

This doesn't include work or services provided by a:

• post-harvest facility
• management entity under a formal management agreement under which the entity is responsible for payment for the work or services provided.

This change is in an amendment to Schedule 4, Part C of the Income Tax Act 2007.

Check our website in the next few months for further information on the impact of these changes.

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News from our Policy Advice Division

NZ signs TIEAs with the Bahamas and St Kitts

New Zealand has signed Tax Information Exchange Agreements (TIEAs) with the Bahamas and the Federation of St Christopher ("St Kitts") and Nevis. You can read more about these agreements on the Policy Advice Division's website.

New Zealand now has TIEAs with:

• Anguilla
• Bahamas
• Bermuda
• British Virgin Islands
• Cayman Islands
• Cook Islands
• Federation of St Christopher and Nevis
• Gibraltar
• Guernsey
• Isle of Man
• Jersey
• Netherlands Antilles
• Turks and Caicos Islands.

FBT rate reduced for low-interest loans

The prescribed rate used to calculate fringe benefit tax on low-interest, employment-related loans has been set at 6.00%, down from 6.41%, from 1 October 2009.

Minimum family tax credit rises

The annual amount of the minimum family tax credit that guarantees a family's after-tax income rises from $20,540 to $20,800 from 1 April 2010.

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Working for Families Tax Credits and IR3 filers

If you have clients who file IR3 returns because they have business income, please remember to provide business adjustment details by:

• attaching an Adjusting your business income for Working for Families Tax Credits (IR215) form (if filing a paper return), or
• attaching e-file correspondence for the business adjustment to your electronic IR3.

If we don't receive the adjustment detail, then the Working for Families Tax Credits will be incorrectly calculated and your client won't receive their correct entitlement.

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Input tax deduction for GST

Our Legal & Technical Services team was recently asked to consider whether a taxpayer who provides restoration services for non-resident customers is entitled to an input tax deduction for GST levied by New Zealand Customs ("Customs") under section 12(1) of the Goods and Services Tax Act 1985 ("the GST Act").

Input tax is defined at section 3A(1) of the GST Act to mean GST imposed on goods and services acquired for the principal purpose of making taxable supplies. We were asked if the taxpayer "acquired" the goods - in that the goods remain the property of the overseas customer.

Section 3A(1)(b) applies to GST levied by Customs on goods entered for home consumption. Under that section an input tax credit may be available where the goods have been "applied or acquired" for the principal purpose of making taxable supplies.

In the above circumstances, it is our view that the taxpayer had "applied" the goods for the principal purpose of making taxable supplies and an input tax credit should be allowed.

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Date published: 03 Feb 2010

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