Agents Answers - 2010

Agents Answers Issue 125 June 2010

• Reminders
• Self-service calling aid replaces INFOexpress card
• Regaining a client’s extension of time
• Online services for tax agents and your responsibilities
• New electronic notices for E-File tax agents
• Your authority to act
• Student loan reminders
• RWT rates on interest available for individuals, trustees and Māori authorities from 1 April 2010
• Quick summary of 2010 Budget
• Income/losses from portfolio investment entities (PIEs)
• Inland Revenue sets sights on undeclared offshore income

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

It's that time of year again: If your agency receives taxpacks for clients who no longer need to file, please let us know so we can correct our records. You can do this by emailing us (either through E-File or our send and receive email service). Or you can call us on:

• 0800 456 678 for tax agents
• 0800 443 773 for large enterprises.

Imputation returns IR4 and IR4J: Remember to tick the box that shows whether the opening balance is a debit or credit. This is Box 42 on the 2010 IR4 and Box 6 on the 2010 IR4J. If the return doesn't indicate a debit or credit we'll 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.

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Self-service calling aid replaces INFOexpress card

The upgrade to our telephone system in April changed the way you can access services via the 0800 456 678 number.

We provide a calling-aid card for tax agents who use our automated telephone service. The card outlines the services available. It previously referred to INFOexpress but has now been revised and renamed to reflect our updated telephone system.

Because the options and flows have changed significantly, we suggest you take the time to review the new card.

Larger version of image

The main changes are:

• the term "INFOexpress" changes to "self-service"
• fewer options
• simpler flows.

The new Tax agents' self-service calling aid (IR358) is now available. If you don't already have copies, contact your agent account manager.

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Regaining a client's extension of time

Now's the perfect time to confirm that all your eligible clients have an extension of time.

Please check your client list (AMBR1000) carefully. For any clients listed as "without an extension of time" (W EOT or R EOT), check that:

• all their returns are filed
• the last return was filed before a late filing penalty was imposed.

If both of the above apply, then email your agent account manager and ask for the extension of time to be reinstated.

Find more information in the latest Extension of time agreement (IR9XA).

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Online services for tax agents and your responsibilities

Like any internet-based account access, Inland Revenue's online services for tax agents come with strict rules governing usage. These rules have been established to protect the individual whose information is being accessed and to maintain the integrity of Inland Revenue systems.

It's of paramount importance that all tax agency staff, from the CEO to the clerk, as well as sole-trade tax agents are conversant with the terms and conditions of use. We urge you to review these terms and conditions and remind your staff of them.

Summary of your responsibilities

Everyone with online services access, whether an individual or an account owner, account administrator or account user for an organisation, has certain responsibilities. When you register to use Inland Revenue's online services as an individual:

• the name you provide should be your first and last name and you'll be the registered user
• the email address you provide should be your own individual email address and not a shared email address
• you choose your user ID and we'll mail a first-time password to you that must only be used by you.

For organisations, one or more individuals with authority to represent the organisation must register as an account owner:

• No member of the organisation should access or attempt to access the online services through automated tools or engage in any activity that will, or is likely to, interfere with or disrupt the online services.
• Members of the organisation should represent to Inland Revenue that such account owners, account administrators and account users have the authority to represent the organisation in relation to online services.
• Account owners, account administrators and account users must accept responsibility for the use of the online services.

As a registered user you're responsible for keeping your user ID, password and identity verification phrase secure. You should never disclose your password or verification phrase to anyone, including Inland Revenue staff. If you think someone knows your user ID or password, or you've forgotten your password phrase, you must immediately:

• change your password, or
• cancel your online services account, or
• call us.

Every time you use an online service as a registered user - as an individual, an account owner, administrator or user for an organisation, on behalf of another person or organisation (eg, your employer), as a tax agent or nominated person - you're saying that person or organisation authorised you to use the service on their/its behalf.

Read the full list of terms and conditions.

Breaches of these terms

Inland Revenue can, at its discretion, suspend or restrict your access to our website or any part of it for any reason, including a breach of these conditions. If the suspension is due to a breach of conditions and in Inland Revenue's opinion, the breach isn't or can't be remedied, then Inland Revenue may suspend your access indefinitely or terminate your access.

If you're not sure if you or your staff are adhering to these terms and conditions, please talk to your agent account manager - they can go over them with you and your staff.

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New electronic notices for E-File tax agents

From 1 July 2010 paper Notices of Assessment and Return Acknowledgements for agents who E-File will be replaced by electronic versions. These will be delivered through approved software packages.

This change applies to any return type or tax credit claim form submitted through E-File.

E-File lets you submit returns to and receive information directly from Inland Revenue. Find more information on E-File.

If you have any further questions, please contact our E-File helpdesk on 0800 433 453 or email efile.team@ird.govt.nz

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Your authority to act

From time to time we come across tax agencies not correctly managing their client's authority to act. When a client contracts your services as an accountant or bookkeeper it's usual to have them sign an agreement for this service. This sets out the terms of the service and usually includes an agreement to allow you access to their records held with organisations such as banks and Inland Revenue.

In all instances where you need to access their records held by us you need to hold a signed authority from that client to do so. Without this authority you are in fact illegally gaining access to another person's private tax information. This is also the case where you allow another person access to a client's Inland Revenue accounts.

When a client gives authority, that authority is to the person, in the case of a sole trade agent. Where the agency employs staff, the authority is usually given to the agency. However, we've recently found situations where this practice is not being followed.

Please ensure you and your agency are applying the authority to act requirements correctly as this protects your agency and also the individual client. If you have any concerns about your practices talk it over with your agent account manager.

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Student loan reminders

Many student loan borrowers use a tax agent to file their IR3. With the 2010 filing season underway, we want to remind you which clients are required to file IR3 returns and the implications of any overseas travel on repayments.

Should your client file an income tax return?

They should if they:

• have income from:
  • self-employment
  • a partnership or trust fund
  • rental income
  • income from overseas
• receive schedular payments
• earn the above as well as salary or wages.

It's important your clients file a return so we can assess their student loan correctly.

Please also check that all previous years have been filed. Only when these are all filed will their student loan account be assessed correctly.

What if your client goes overseas?

Short trips of up to six months: As long as your client is in New Zealand for 6 months (183 days) or more before going overseas, their student loan will remain interest-free.

Longer trips of six months or more: If your client goes overseas for 184 days or more, you'll need to contact Inland Revenue before they go if you're acting on their behalf.

Repayment holidays: While your client is overseas, they can take a break from making student loan repayments for up to three years. However, they don't get a break from interest charges.

Repayments: If your client isn't on a repayment holiday, they'll need to make repayments on their loan from overseas. For each tax year, they will (or you will, if you act on their behalf) need to make two equal payments, based on the loan balance, on 30 September and 31 March as shown in the table below.

If the loan balance is ...	then the yearly payment amount is ...
under $1000	the whole loan balance
over $1,000 and up to $15,000	$1,000
over $15,000 and up to $30,000	$2,000
over $30,000	$3,000

Find out more about student loan payment options. To receive regular updates about student loan information, subscribe to Notify Me.

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RWT rates on interest available for individuals, trustees and Maori authorities from 1 April 2010

The April issue of Agents Answers had an article on income equalisation schemes that may not have explained the changes sufficiently. The following is a fuller explanation of the RWT changes.

RWT rates for individuals from 1 April 2010

Income	Rate
0–$14,000	12.5%
$14,001–$48,000	21%
$48,001–$70,000	33%
$70,001 upwards	38%
Default rate for existing accounts	21%
Default rate for new accounts	38%

Existing accounts for individuals, trusts and Maori authorities and other non-company entities that were on the 19.5% rate will have been automatically moved to the 21% rate on 1 April 2010.

Trustees of trusts use the RWT rates for individuals; however, only trustees of testamentary trusts will be able to elect the new 12.5% rate.

RWT rates for companies from 1 April 2010

Only the RWT payer has the option to introduce an RWT rate of 30% from 1 April 2010, otherwise the RWT will remain at the current 33% rate.

Companies will remain at 33% until 31 March 2011 when the new default RWT rate of 30% will be applied.

Deducting RWT from dividends

Dividends paid to the owners of shares in a company are generally taxed at a flat RWT rate of 33%.

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Quick summary of 2010 Budget

The Government announced the annual Budget on 20 May 2010, which included a package of tax changes affecting both individuals and businesses. They include:

• cuts to all personal tax rates (effective from 1 October 2010)
• excluding investment losses when determining entitlement to Working for Families Tax Credits (effective from 1 April 2011)
• property tax changes that:
  • remove depreciation loading (effective for assets purchased after 20 May 2010)
  • set a zero depreciation rate on buildings with an estimated useful life of 50 years or more (effective generally from the 2011-12 income year)
• an increase in GST to 15% (effective from 1 October 2010)
• business tax changes, such as a reduction in the company tax rate from 30% to 28% (effective from the 2011-12 income year)
• reducing tax rates on investments and savings (some effective from 1 October 2010 and others effective from the 2011-12 income year)
• stricter tax rules for foreign-owned companies (effective from the 2011-12 income year).

Find out more about how your clients will be affected by these Budget changes.

For more technical detail about the tax changes go to the Policy Advice Division website.

We'll have more information about these changes in the July Agents Answers.

Advisory Panel to be set up to assist with GST change

Revenue Minister Peter Dunne has announced the establishment of a GST Advisory Panel to help businesses and the Government implement the GST increase.

The panel members will come from the private sector and will be able to advise businesses on any common concerns. The panel will also work with Inland Revenue as businesses move their systems to the 15% rate on 1 October.

The panel will monitor businesses to:

• see how they're dealing with the change
• let Government know of any issues businesses may face in recording and charging the new rate
• advise Government about any industry specific concerns, activities or types of transaction related to the GST rate increase.

For more about the panel, go to the Policy Advice Division website.

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Income/losses from portfolio investment entities (PIEs)

We've noticed a number of taxpayers incorrectly claiming losses from PIEs. The following explanation should help you apply the correct treatment of attributed income or loss. Losses can only be claimed by zero-rated investors or investors who have had the zero rate applied to their loss.

Investor attributed income is excluded income of a natural person (resident individual) investor except when the investor's income has had the attributed income taxed at a rate that is less than the investor's correct prescribed investor rate (PIR). This can occur in two situations:

• the investor has notified the PIE of an incorrect rate or not updated their rate, or
• the income is included in an exit period and the PIE has used the zero-rate.

All investors who have had the zero rate applied and all zero-rated investors are required to include the income/loss and tax credit details in their income tax return. (For individuals, the income can qualify for the $200 exemption for persons not required to file a return.)

For trustees who have chosen the 30% PIR, the income or loss is excluded income and isn't included in the trust return. If the trustee chooses 12.5% or 21%, only the income and tax paid at the PIR is included in the trust return. No claim can be made for an attributed loss.

For example, PIE income taxed at the default rate for a zero-rated investor must be included in the investor's return or a trust electing 21% must also include the attributed income in the trust return.

In this case, section LS2 or LS4 of the Income Tax Act 2007 allows for a tax credit of the PIE tax on that non-excluded income.

Investor attributed losses are only available as a deduction for investors that have had the zero PIR applied. For resident individual investors this will only occur in limited circumstances as only a small number of PIEs are allowed to zero rate an individual's attribution and only when the investor exits the PIE. Refer to section DB53 of the Income Tax Act 2007. No other investors are entitled to any form of loss from the PIE and cannot include a loss in any annual tax return.

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Inland Revenue sets sights on undeclared offshore income

New Zealand tax residents are required to declare all their income, including income from foreign sources, such as offshore deposits and income held in overseas structures which they control.

Inland Revenue is focusing its attention on New Zealand residents with undeclared taxable offshore income and is particularly targeting the non-disclosure of offshore bank accounts, the use of foreign credit/debit cards, overseas life insurance policies and superannuation funds.

Our network of tax treaties with other international tax authorities supports our audit activities, as does active participation in bilateral and multilateral compliance projects. This gives us better information about international transactions involving New Zealand tax residents.

Failure to declare offshore income or to make appropriate disclosures to Inland Revenue can attract serious penalties, including shortfall penalties up to 150%, as well as prosecution action. However, penalties may be reduced by way of a voluntary disclosure.

Any taxpayer who considers they may be at risk should consult with a professional adviser and consider a voluntary disclosure before it's too late. Read the guidelines on making a voluntary disclosure.

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Footnote

Agents Answers comments generally on topical tax issues relevant to tax agents. Every attempt is made to ensure the law is correctly interpreted, but articles are intended as a brief overview only. The examples provided are not intended to cover every possible factual situation.

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Date published: 31 May 2010

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