Agents Answers - 2010

Agents Answers issue 130 November 2010

• Reminders
• Completing the Client linking and delinking (IR795) form correctly
• Authority to act ends with client’s death
• ACC CoverPlus Extra premiums deductible
• Redundancy tax credit extended
• FBT returns - are you making the right elections?
• Binding rulings update
• New-look GST guides and factsheet
• Online services accounts - who can be the owner?
• Refunds we've sent in error
• GST late filing penalties
• Budget 2010 - RWT rate change for trustees and Māori authorities

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

Tax agent filing guidelines for 12 November

• 60% - standard balance date
• 57.5% - E-File
• 50% - late balance dates.

Talk to your agent account manager if you need help managing your filing within the guidelines.

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Completing the Client linking and delinking (IR795) form correctly

Providing the correct information on the Client linking and delinking (IR795) form ensures that communications go to the right address and right person in a timely manner. If the wrong action is taken on this form it can ultimately mean that communications are misdirected and, in the worst case, penalties incurred by your clients because they haven't responded to our mail. Let's take a look at some areas where mistakes are commonly made.

Most of you will be using online services or the tax agents' self-service options to link or delink clients. The following instructions apply to both these options as well as completing a paper IR795 form.

When sending us a fax, use a fresh form each time to ensure legibility.

Linking only some tax types

When you or your staff are linking a client it's important to be clear about what tax types you want to be linked to. On the Client linking or delinking (IR795) form you need to make sure you select the right options.

If you have a client who intends to do their own GST returns but you still want to be able to view their GST records held by us, then follow these steps:

1. Put a tick in the "Link" option in section 1.
2. Put another tick in the "Send mail to client" option in section 1.
3. Then in section 2 put a tick in:
   
   • "A" for the tax types where you want the information to come to you, or
   • "C" if you want it to go to your client.

Sample form with ticks for requested actions:

More tips for tax types:

1. If you link to INC, then ICA/DWT/WPN/WPE will automatically link to you.
2. If you link to PAY, then CSE/KSE/KSR/SLE/SSC will automatically link to you.
3. Choose RWT tax type only for interest on dividends.
4. Choose IPS tax type for RWT on ordinary interest.

Client's address details

The section "Client's details" on the IR795 may seem obvious, but this is often completed incorrectly. The most common mistake tax agents or their staff make is to put their own postal address in the space provided for "Client's postal address (if different from street address)".

Sample form showing client's postal address:

By using this form to link your client, we'll use your agency's address if you've ticked an "A" option in section 2 of the form. You should always only show your client's postal address in this part of the form - never put your own address here.

If you think you or your staff may have been filling in the link forms incorrectly, phone the tax agents' line or talk to your agent account manager about how to correct them.

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Authority to act ends with client's death

When a client for whom you have authority to act dies, your authority ceases from the date of death. However, in many cases the client and/or estate may have tax responsibilities that need tidying up. If so the executor/administrator of the estate needs to authorise you to continue to act as agent. For us to be able to discuss the client's information with you or your staff, we need you to confirm that you hold either a written or electronic authority from the executor or administrator.

A second IRD number may be issued while tax matters for the deceased are being finalised. In this case you'll need to be linked to both tax numbers, and you'll need authority from the executor/administrator for both.

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ACC CoverPlus Extra premiums deductible

Previously, premiums for ACC CoverPlus Extra (CPX) haven't been tax deductible for shareholder-employees. Now, when an employer company pays a shareholder-employee's CPX levy, or reimburses them for payment of those levies, the amount paid or reimbursed (excluding the earners' levy) will be tax deductible as an expense to the employer company.

You can find out how to work out the earners' levy component of the CPX premium on the ACC website (keywords: earners' levy calculator) .

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Redundancy tax credit extended

Revenue Minister Peter Dunne has announced an extension to the redundancy tax credit. The May 2010 Budget repealed the tax credit from 1 October 2010, but it's now extended to 31 March 2011.

The intention to extend the credit is in response to the Christchurch earthquake. Mr Dunne said, "Without the tax credit, in some situations, people could be taxed too highly if they had worked part of the year".

The redundancy tax credit was originally introduced to provide some tax relief to those who received a redundancy payment. In these situations, the payment often moved the person into a higher tax bracket. This was perceived to be an unfair outcome and the tax credit rectified that situation.

The extension will apply to all redundancies received before 1 April 2011. If a Redundancy tax credit (IR524) form is lodged with us now, claims for redundancy payments received on or after 1 October 2010 will be processed after the legislation is passed, which is expected in early December 2010. It will be paid at the rate of 6 cents in the dollar to a maximum of $3,600 for each redundancy payment.

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FBT returns - are you making the right elections?

We've noticed a number of tax agents filing FBT returns incorrectly. The following should help you and your staff give us the correct FBT return and data.

Three FBT returns can be completed:

1. Fringe benefit tax quarterly return (IR420), for employers who must file every quarter, and those who choose to do so
2. Fringe benefit shareholder/employee income year tax return (IR421), for companies with shareholder-employees
3. Fringe benefit ordinary employee annual tax return (IR422), for employers who elect to file returns for the year ended 31 March.

Elections to file FBT returns annually or on an income year basis can be made using our Fringe benefit tax election form - under "Get it done online". 

You or your client can file an income year or annual return if one of the following applies:

• total annual gross tax and ESCT (employer superannuation contribution tax) for the previous year is $500,000 or less
• the employer is a close company and the only benefit was the provision of one or two vehicles for private use of shareholder-employees (option B)
• you weren't an employer in the previous year.

It's important the correct form is completed for the circumstances and based on the appropriate election.

The election options are:

• Option A - employers with ordinary employees (not shareholder-employees)
• Options B, C, D or E are for close companies only:
  • B income year returns for shareholder-employees only
  • C annual returns for ordinary employees and quarterly returns for shareholder-employees
  • D income year returns for shareholder-employees and quarterly returns for ordinary employees
  • E annual returns for ordinary employees and income year returns for shareholder-employees.

Remember you must file your election by the appropriate due date. Find out more about FBT and election dates.

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Binding rulings update

You may find these recently published binding rulings of interest. Find the full details on these rulings.

BR Pub 10/09: Legal services provided to non-residents relating to transactions involving land in New Zealand

This ruling considers the GST position when certain legal services are provided by a registered person to a non-resident at a time when the non-resident isn't present in New Zealand. It states that the following legal services are zero-rated pursuant to section 11A(1)(k) of the Goods and Services Tax Act 1985:

• legal services relating to transactions involving the sale and purchase of land in New Zealand
• legal services relating to transactions involving the lease, licence, or mortgage of land in New Zealand
• legal services relating to easements, management agreements, construction agreements, trust deeds, guarantees and other agreements relating to land in New Zealand
• legal services relating to disputes arising in relation to land in New Zealand.

BR Pub 10/10-10/13: Local authority rates apportionments on property transactions where the rates have been paid beyond settlement or are in arrears - goods and services tax implications for vendor and purchaser

These rulings address the question of how apportionments of local authority rates made in property transactions should be treated for GST. BR Pub 10/10 and 10/11 apply to situations where the rates have been prepaid by the vendor beyond settlement. BR Pub 10/12 and 10/13 apply to situations where the local authority rates for the property are in arrears on the settlement date and the parties have agreed that the purchaser will pay the outstanding amount, in exchange for a credit against the settlement amount for the vendor's share of the outstanding amount.

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Our new-look GST guides and factsheet

Customers have told us they don't understand our guides and that some of our information is long-winded and repetitive. We agree, so we decided to improve our GST guide (IR375) and GST - do you need to register (IR365).

Our redesign focused on making them more user-friendly. To ensure we were on the right track we talked to our customers and staff. We also undertook research on customer needs, such as small/medium enterprise customer perspectives, which provided findings about how customers want to interact with us and receive information.

We used this feedback to redesign our products. Then we created prototypes and presented them to a selected group of customers. We asked them how the prototypes met their needs, reviewed their feedback and produced our new-look GST publications.

The redesign has meant we now have three new-look products:

1. GST - do you need to register (IR365)
2. GST guide: Working with GST (IR375)
3. GST plus: Working out specific GST issues (IR546).

A factsheet (IR365) helps people decide if they should register for GST or not, and two guides explain GST in more detail. One guide has basic information all customers need to know (IR375) and the other has more complex GST situations and less common GST scenarios (IR546).

The information is now simpler, clearer and easier to understand for customers who just need the basics of GST. We've included flow charts and summaries of key points for each chapter, and encourage customers to file online.

The new IR375 and IR365 can be ordered from Stationery Express. You can find all three under "Forms and guides".

If you have any feedback about these products, please email customerinformation@ird.govt.nz

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Online services accounts - who can be the owner?

Did you know your clients can have online services accounts to access information about themselves or their own entities? It doesn't impact on your status as their tax agent or your ability to view their information using your tax agency's online services account.

How do your clients get an online services account?

Your client can choose to register for an individual or a business account. To open a business account they must be an "owner" or authorised person for the business. They then select the "Register now" link under "Secure online services" and provide the details requested.

Once they've completed the online process they then contact us on 0800 227 774 to have their account activated.

When your clients have access they can then use the manage account access facility in their account to grant access to others as either an administrator or user.

Who is the business owner?

Acceptable owners for online service accounts are for:

• companies - directors
• trusts - trustees
• estates - administrators or executors
• partnerships - partners
• all non-individuals - executive office holders.

In the context of the validation process requirements, an "executive office holder" of any non-individual organisation is an individual person who:

• has administrative or supervisory authority in the organisation
• has been specifically appointed to perform special duties in that regard
• is under specific written authority of the governing body to become an account owner for that non-individual organisation. A governing body may be an individual, such as a partner in a partnership, or it may be a full board, such as a board of trustees.

Overseas company clients who would benefit from using our online services to view their account information can also register for an online services account.

In this instance we can activate access for a person other than an owner (eg, a financial controller) provided they're authorised in writing by an owner of the business, eg, a director of the overseas company.

Read more about our online services or view our demonstrations - under "Secure online services".

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Refunds we've sent in error

If you or your clients receive a refund for payments or credits we've released in error, please return it to us as follows:

• For cheque refunds, please return our cheque and tell us where the payment or credit should have gone.
• For direct credit refunds, please send your cheque or electronic payment for the exact amount of the refund and tell us where the payment or credit should have gone. If the payment isn't returned within 15 days, then penalty and interest charges may be applied.

When we get the full amount of the refund we'll update the payment or credit at the date originally received, giving your client the best advantage date for any transfers.

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GST late filing penalties

Late filing penalties do apply to GST returns. The first time a customer files a GST return late they'll receive a letter requesting the overdue return and telling them that a late filing penalty may be charged on any GST return filed late in the future.

If in the next 12 months a GST return is filed late, an automatic late filing penalty will be charged.

Late filing penalties for GST returns are $50 for those on the payments basis or $250 for those on the invoice or hybrid basis at the date the GST return is due.

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Budget 2010 - RWT rate change for trustees and Māori authorities

Individuals RWT rates aligned with the 1 October 2010 income tax changes announced in the May budget also changed the rates for trustees and Māori authorities.

For trustees who allocate trust income to beneficiaries and choose an RWT that matches a beneficiary's marginal tax rate, for the 2012 income year, the rate changes will align the RWT rate with the marginal tax rate. There is likely to be a tax shortfall for trustees of most trusts (such as family trusts).

For example, a trust treats the income as trustee income that's liable for income tax at 33%. The trustees had chosen the 33% RWT rate to align with the trust tax rate. On 1 October 2010 the interest payer will have reduced the RWT rate to 30%.

This doesn't change the treatment when allocating interest income to allocate the actual RWT withheld from that interest to beneficiaries.

Most Māori authorities will have their RWT rate reduced from 21% to 17.5%. This will result in less RWT credit to offset their 2011 income tax.

Trustees and Māori authorities need to consider how the reduced tax credit affects their end-of-year income tax and provisional tax. Trustees may want to change their RWT rate back to 33% to avoid any shortfall.

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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: 04 Nov 2010

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