Agents Answers - 2010

Agents Answers Issue 126 July 2010

• Reminders
• Tax agents and personal debt
• CPI adjustment for childcare and boarding service providers
• ACC levies and special tax codes
• 2010 review of mileage rates
• We've revised our disputes resolution process
• Questions we've been asked
• Making tax easier - Government consultation
• Update on recent Budget changes

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

Extensions of time (EOT): You should have received an updated AMBR1000 client listing report in mid-June. Please use this report to check all clients with "W" EOT and "R" EOT status. If you've filed all returns for these clients, they may be eligible to have their EOT reinstated. Please discuss this with your agent account manager.

If any of these clients still have returns outstanding, please send their 2010 return to us by 7 July (for clients with a 31 March balance date).

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Tax agents and personal debt

In recent issues of Agents Answers we've run a series of articles to promote tax agent compliance, including options to facilitate repayment of debt. This is the final in this series and although last, it's by no means least.

In our 2009-10 compliance plan we stated that tax agents as a group are by and large compliant and we have mechanisms that promote and reward this compliance. However, a few tax agents continue to incur tax debt as can be seen in the graph below, which shows the personal tax debt for approximately 6% of registered tax agents.

Personal tax debt for tax agents 31 March 2009 to 31 March 2010

Larger version of image   |   Long description of flowchart

Other statistics indicate that many of you may have incurred tax debt from time to time. Although most tax agents clear this quickly we thought it would be useful to talk about the options available to clear outstanding tax.

Obviously our first preference is for the debt to be paid in full by:

1. cheque - in the post, into our drop box or across the counter at any Westpac bank
2. electronic payment through:
   • online banking
   • automatic payment
   • direct credit
3. tax transfer, nominating a tax credit to be transferred to your debt.

However, we acknowledge that full payment isn't always an option. Where the debt needs to be cleared in instalments the first bit of advice is to take action sooner rather than later. This will invariably save you money as a pre-emptive arrangement reduces penalty charges.

Repayment options

The four options are:

1. payment in full
2. an instalment arrangement where you repay an agreed amount over time
3. writing off an agreed amount if we determine that full payment would cause you serious hardship
4. a combination of an instalment arrangement and a serious hardship write-off.

Find out more about the repayment options.

While some penalty charges will be reduced with an arrangement, you'll still be charged interest on the tax owing. So you may want to consider borrowing money elsewhere to pay the tax bill by the due date. Contacting a tax pooling company is a possible option to reduce penalties and interest costs.

Making an arrangement after the due date means penalties already charged will stand. If you meet all your obligations under the arrangement, no further penalties will be charged. However, use-of-money interest will continue to be charged.

For more information see our Debt options information sheet (IR592) or part 6 of our Debt options (IR582) booklet under "Forms and guides".

We'll talk more about instalment arrangements if you have outstanding returns in the next issue.

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CPI adjustment for childcare and boarding service providers

The standard-cost components for childcare and boarding service providers have been increased retrospectively from 1 April 2009 in line with the annual movement of the CPI.

Childcare providers

The variable standard-cost component increased from $3.09 to $3.15 per hour per child.

Administration and record keeping fixed standard-cost increased from $301 to $307 per annum for a full 52 weeks of childcare services provided.

Boarding service providers

The weekly standard-cost for one to two boarders increased from $227 to $232 each.

The weekly standard-cost for third and subsequent boarders increased from $185 to $189 each.

For more information read the Tax Information Bulletin June 2010.

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ACC levies and special tax codes

If you have employer clients who are paying staff (not contractors) using a Special Tax Code Certificate for a special tax rate, please remind them that the gross earnings are still liable for ACC up to the maximum liable earnings for any financial year.

They must enter these earnings in the "Gross earnings" column of the Employer monthly schedule (IR348) and not in the "Earnings not liable" column, unless the employee is over the maximum for the year.

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2010 review of mileage rates

Inland Revenue has reviewed the Commissioner's motor vehicle mileage rate and the current published mileage rate of 70 cents per kilometre is to continue to apply to both petrol and diesel fuel vehicles.

Read the Operational Statement "OS 09/01: Commissioner's statement of a mileage rate for expenditure incurred for the business use of a motor vehicle".

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We've revised our disputes resolution process

If your client disagrees with how we've assessed their tax you can follow a formal disputes procedure. We're committed to providing a good service and have made some improvements to the disputes process.

The changes include:

• making notices of proposed adjustment (NOPAs) more concise
• offering independent facilitators at conference meetings to promote and encourage discussion and resolve the dispute where possible
• introducing new criteria for "opting out" of the disputes process where a dispute can be resolved at a hearing authority
• making every effort to issue statements of position (SOPs) within three months of either the end of the conference phase or decline of an opt-out request.

Find out more about the changes.

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Questions we've been asked

"Questions we've been asked" are enquiries we've received about specific tax issues. Inland Revenue publishes the answers to these questions as they may be of general interest to taxpayers.

Valuing motor vehicles for FBT if previously owned by the employer

A question was asked in relation to fringe benefit tax (FBT) - in what situations will the value of a motor vehicle owned by an employer be affected by the vehicle having previously been owned by the employer or an associated person of the employer?

The following is the answer to this question - you can read the full explanation in the item Questions we've been asked: QB 10/03 or in the Tax Information Bulletin, Vol 22, No 5 (June 2010).

The value for FBT purposes of a motor vehicle owned by an employer is determined on the basis of either the cost price or the tax value of the vehicle to the employer. Generally, the starting point for both of these is the actual cost price of the vehicle to the employer - the cost price is the actual cost price to the employer, and the tax value is the actual cost price to the employer less the total accumulated depreciation of the vehicle.

The appropriate starting point to value the vehicle for FBT purposes won't necessarily be the actual cost price of the vehicle to the employer if, in the two years before the employer most recently acquired the vehicle, the vehicle was owned by:

• the employer; or
• a person associated with the employer at the time the person owned the vehicle.

If the cost price method is to be used, the starting point will be the highest cost paid for the vehicle by the employer or the associated person on any acquisition.

If the tax value method is used, the appropriate starting point is determined by clause 4 of Schedule 5 of the Income Tax Act 2007. More information on the application of clause 4 is in the Tax Information Bulletin, Vol 19, No 3 (April 2007), page 81.

GST treatment of futures contracts

We were also asked to consider the correct GST treatment of futures contracts that:

• are cash-settled*, or
• provide for the physical delivery of a commodity exempt from GST, or
• provide for the delivery of money.

* A cash-settled futures contract is a futures contract that is settled by an exchange of agreed cash flows rather than by the delivery of the underlying commodity.

The key points in the answer to this question are given here. You can read the full explanation in the item Questions we've been asked: QB 10/02 or in the Tax Information Bulletin, Vol 22, No 4 (May 2010).

No GST is chargeable on the provision or assignment of a futures contract in the three circumstances listed above, because the provision or assignment is either an exempt supply or zero-rated.

The provision or assignment of a futures contract is a financial service and therefore an exempt supply when the futures contract:

• doesn't provide for physical delivery of a commodity, or
• provides for physical delivery of a commodity, but that commodity is an exempt supply, or
• provides for the delivery of money.

When a person supplies a cash-settled futures contract to a non-resident who is outside New Zealand when the contract is entered into, that supply will be zero-rated.

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Making tax easier - Government consultation

The Government has been looking at ways to simplify PAYE and tax returns, provide faster, more efficient online services, and reduce paperwork and compliance costs for businesses, individuals and their agents. Improved online access and technology would help free up Inland Revenue staff to work with you on more complex matters.

Before any changes are made, the Government wants to hear New Zealanders' opinions of the proposals. Consultation is now open through a public online forum and discussion document.

To comment on proposals, join the discussion on the Making tax easier website.

Please take this opportunity to provide your views, either through the online forum, or by commenting on detailed proposals in the discussion document available online. You can also pick up RSS feeds from the site to follow the discussion, promote the consultation to your clients and encourage them to comment.

The consultation and online forum are being managed for the Government by Inland Revenue, and will remain open until mid-July.

Go to the Making tax easier website and see how simpler tax processes could work for you and your clients and tell the Government what you think.

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Update on recent Budget changes

On May 20 the Government announced a package of tax changes in its 2010 Budget and these have now been enacted. Some of the changes are outlined here, and we'll update our website with more about the changes.

Read the latest information on the 2010 Budget.

Depreciation changes

Up until now a 20% depreciation loading has been available for qualifying items. This depreciation loading has now been removed. The new rule applies to eligible assets for which binding purchase contracts were entered into after 20 May 2010.

You can also no longer apply for special depreciation rates for buildings, effective from 20 May 2010.

Changes to thin capitalisation

Thin capitalisation rules apply limits to the loading of debt against a New Zealand company within a foreign multinational group to reduce tax paid in New Zealand. Where thresholds are exceeded deductible interest is apportioned and reduced.

A change has been made to the threshold, reducing the safe-harbour debt-to-asset ratio from 75% down to 60% for a New Zealand group's debt or a natural person's debt.

The changes will apply from the 2011-12 income year.

No change has been made to the worldwide group ratio of 110% or the outbound interest ratio of 75%.

Capital contributions/consumer contributions

A capital contribution is a payment to a person that compensates them for certain capital expenditure. An example is a payment received by an electricity lines company from a farmer towards the cost of extending the network to enable a new building to be connected.

From 20 May 2010, the recipient of each new capital contribution must either:

• count the amount as income (spread equally over 10 years), or
• by election, take the amount into account by reducing the tax book value of the asset by the amount of the capital contribution.

For the election option to be used for an asset, it's sufficient that a lower tax book value is included in the tax asset register accounts.

Otherwise the default option of treating the payment as income and spreading this over the 10 years will apply. Either approach once adopted is then irrevocable.

PAYE and GST changes

In August we'll be sending your clients a letter explaining what they'll need to do to implement the PAYE and GST changes.

For GST filers, it will outline what they need to do during the transition period and provide details of the special one-off transitional return two- and six-monthly filers will need to complete.

For employers, it will outline when the updated PAYE tables and calculator will be available and provide more information about other implications of the income tax rate changes.

The GST Advisory Panel has now been set up. You can submit questions or feedback through the GST Advisory Panel website.

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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: 07 Jul 2010

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