Agents Answers - 2010

Agents Answers issue 131 December 2010

• Reminders
• Best wishes for the festive season
• Our services during the holiday season
• Thanks for your support after the Canterbury earthquake
• Interim IR4J - are you completing them?
• Southland/Otago adverse weather - tax relief
• IETC (independent earner tax credit) reminder
• Paper correspondence and you
• GST adjustments at 12.5%
• Unclaimed monies
• Qualifying company reforms announced
• Tax invoices issued with an incorrect GST rate
• Student loan voluntary repayment bonus for IR3 filers with extensions of time
• Repeal of fund withdrawal tax
• Interpretation statement on the care and management of taxes covered by the Inland Revenue Acts
• The hidden economy of e-Commerce

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

Agents Answers takes a break in January

This is the last issue of Agents Answers for 2010 but we’ll be back in February. As always if you’d like to see specific items covered in our next newsletter send your request or ideas to agents.answers@ird.govt.nz

Tax agent filing guidelines for 11 February 2011

• 80% for standard balance dates
• 78.5% for E-File dates
• 75% for late balance dates.

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

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Best wishes for the festive season

This year has been a busy and challenging year for tax practitioners and Inland Revenue staff alike. Your feedback, support and positive interaction over the year have been greatly appreciated. We hope you all have a well-deserved summer break and you and your families stay safe over the holiday period. We look forward to another productive year and working alongside you in 2011.

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Our services during the holiday season

The table below shows the operating hours of the 0800 tax agents' line over the holiday break.

Day	Date	Time
Saturday	18 December	9am - 1pm
Monday	20 December	8am - 8pm
Tuesday	21 December	8am - 8pm
Wednesday	22 December	8am - 8pm
Thursday	23 December	8am - 5 pm
Friday	24 December	8am - 5 pm
Saturday	25 December	Closed
Monday	27 December	Closed
Tuesday	28 December	Closed
Wednesday	29 December	Closed
Thursday	30 December	Closed
Friday	31 December	Closed
Saturday	1 January	Closed
Monday	3 January	Closed
Tuesday	4 January	Closed
Wednesday	5 January	8am - 8pm

Our normal hours (8am to 8pm weekdays and 9am to 1pm Saturdays) resume on Wednesday 5 January 2011.

The E-File system and helpdesk will be unavailable from midday Friday 24 December 2010 until Wednesday 5 January 2011.

Our 0800 self-service number will be unavailable from 25-28 December and will start again at 6 am on Wednesday 29 December.

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Thanks for your support after the Canterbury earthquake

The contact centre staff in Christchurch would like to pass on their thanks to all tax agents after the Canterbury earthquake. Over this difficult period many of our frontline agent phone staff were unable to take phone calls. We truly appreciated the number of agents who understood this. We'd like to express our heartfelt thanks for making use of other channels for your queries or only calling in cases of urgency.

All our contact centre staff were eager to get back to a sense of normality and appreciate the many sentiments and well wishes we still receive when callers realise they're speaking to a Christchurch team member.

We wish you and your families a safe and enjoyable Christmas and look forward to answering your queries in the New Year.

Mark McIntosh on behalf of the Christchurch Contact Centre

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Interim IR4J - are you completing them?

A number of tax agents are sending a letter or email instead of filing an interim Annual imputation return including FDP account return (IR4J). This results in considerable delays finalising any refunds.

When we get a letter or email providing the IR4J detail we have to follow a set process. This results in more time taken to finalise the IR4J than would be the case if you had taken the correct action initially.

The correct action is for you to complete the interim IR4J form and attach this to your other documents or correspondence. The IR4J will be lodged separately from any correspondence, making the process more efficient.

Following the correct process means you or your client will receive refunds much sooner.

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Southland/Otago adverse weather - tax relief

We understand the recent snow storms and extreme weather conditions have caused significant issues for many of your farming clients in South Otago and Southland. Tax may not be foremost on their minds at the moment but we thought it might be helpful to remind you of options that may assist your clients.

Income equalisation scheme

Your clients may wish to use the income equalisation scheme to take income from their 2010 tax year to their 2011 tax year. We can exercise discretion to allow for late deposits from the 2010 tax year and early withdrawals.

Find out more about the income equalisation scheme - Southland snows

Estimate or re-estimate of provisional tax

Your clients may be able to make a late estimate or re-estimate of their provisional tax if their circumstances have changed due to the adverse weather. We can arrange early refunds if provisional tax has been overpaid.

Late filing and late payment

If you or your clients have been unable to file returns on time it's important you contact us to discuss options. We can't extend the filing dates for GST and PAYE returns, but any penalties for late filing may be waived. If you or your clients receive a letter saying returns are overdue it's important you don't ignore the letter.

Under limited circumstances late payment penalties may be remitted, where the reason for late payment was due to the adverse weather.

Outstanding tax

We'll consider instalments for outstanding tax in some circumstances. Your clients may be able to apply for a write-off due to serious hardship if you know they won't be able to pay the full amount.

Working for Families Tax Credits

Working for Families Tax Credits entitlements are based on a person's yearly family income. Your client's entitlement may have changed if their family income will reduce because of the adverse weather event.

Your clients can claim the Working for Families Tax Credits either weekly, fortnightly or at the end of the year. It's important clients talk to you about their options before applying.

Child support

If your clients are having trouble making their child support payments by the due dates they should call 0800 221 221 to discuss their options.

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IETC (independent earner tax credit) reminder

The IETC is a tax credit for individuals whose annual net income is between $24,000 and $48,000.

Your clients will be entitled to IETC for any months during the period 1 April 2009 to 31 March 2010 if they're:

• a New Zealand tax resident
• not entitled to Working for Families Tax Credits (or received an overseas equivalent), this includes their partner.

And they didn't receive:

• an income-tested benefit
• NZ Super
• a veteran's pension
• a foreign pension or benefit, or an overseas equivalent of any of the above.

If your client doesn't meet the above criteria for even one day of any month they won't be entitled to IETC at all for that month, so don't include it in your calculation.

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Paper correspondence and you

We're looking at our paper correspondence with tax agents again, with a view to moving more data through E-File and stopping low-value paper letters or statements.

We're interested in your views, such as:

• what paper correspondence you think has little value to your business
• what would be better coming to you via E-File
• what information you'd prefer to receive via "Look at Account Information" than by paper output.

We're developing a programme of work to reduce our paper output and/or redirect it through our E-File channel and would like to hear from you. Any information you can provide to help with this would be greatly appreciated.

Please forward your views and comments to Michael Taylor, Team Manager Returns and Event Management, Customer Operations, by emailing Michael.Taylor@ird.govt.nz

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GST adjustments at 12.5%

Though 1 October has been and gone some adjustments may still need to be made for certain supplies containing GST at 12.5%.

Remember, when you account for any of these you need to include the GST component as an adjustment on your return, not the GST-inclusive amount as income or an expense. To help you record these adjustments we've redesigned the GST adjustments calculation sheet (IR372) so there are separate boxes for adjustments at the 12.5% GST rate for both your income and your expenses.

The most likely adjustments you'll need to make at the 12.5% GST rate include the following.

Late claims and employee reimbursements

You may not have been able to claim the GST on an expense in the period the supply occurred, usually because you hadn't received a tax invoice at the time you filed the return for the period. This can also be the case where employees present tax invoices for reimbursement, which you then include in your expenses when you file your next return.

When making a late claim for an invoice that includes GST at 12.5%, make sure not to include the GST-inclusive amount as an expense in the return you make the claim. Instead, the GST component of the invoice needs to be included as a credit adjustment in Box 13 of your GST return.

Finance lease payments

If you or a supplier has elected to keep payments towards a finance lease at the 12.5% GST rate you also need to account for these payments as adjustments when they're made or received. If you're receiving payments towards a finance lease that you've elected to keep at 12.5% GST, then include the GST component of each payment as an adjustment in Box 9 of the GST return covering the period you receive the payment. If you're purchasing the finance lease you'll include the GST component of each payment as an adjustment in Box 13 of the GST return in which you make the payment.

Find out more about finance lease payments

Credit and debit notes

Credit and debit notes issued to adjust the price of an invoice issued prior to 1 October 2010 can also include GST at the 12.5% rate. Rather than simply recording the difference between the credit or debit note and the original invoice as either income or an expense in your GST return, you need to instead include the difference between the GST component of the credit or debit note and the GST on the original invoice. This difference is then included in your GST as either a credit or debit adjustment, as appropriate.

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Unclaimed monies

As a service we provide a list of owners of unclaimed money left untouched for six or more years in businesses such as financial institutions and insurance companies.

Unclaimed money is not income tax refunds or any other unpaid tax refunds. Under the Unclaimed Money Act 1971, funds left untouched for more than six years are required to be paid to Inland Revenue.

Most unclaimed money is from deposits left in banks and other financial institutions. It includes insurance proceeds, cheques and wages.

In October 2010 we had 18,498 names on this list, who were owed a total of $17,310,553. The sums involved can range from just over $100 to several thousand dollars.

If you think you might be entitled to unclaimed money please send us your name, address, IRD number and proof of identity, eg, a copy of a birth certificate, driver's licence or passport, by:

• email to unclaimed.monies@ird.govt.nz
• mail to: Unclaimed Money
  Inland Revenue
  PO Box 38222
  Wellington Mail Centre 5045

View the list of unclaimed money (The list was last updated in October 2010).

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Qualifying company reforms announced

Minister of Revenue, Peter Dunne has announced that Government will introduce new rules preventing loss attributing qualifying companies (LAQCs) from passing losses on to their shareholders.

The proposed legislation creates a new tax entity - a look-through company (LTC). The LTC's income, expenses, tax credits, rebates, gains and losses are passed on to its owners, in accordance with each owner's effective interest in the company.

Existing qualifying companies (QCs) and LAQCs will be able to transition to the LTC tax rules, or change to another business vehicle, such as a limited partnership or sole trader, without a tax cost.

Existing QCs and LAQCs can also choose to continue to use the current QC rules without the ability to attribute losses, until a review of the dividend rules for closely held companies has been completed.

The proposed legislation is expected to be enacted before the end of this year, and will come into effect from 1 April 2011.

Find out more about the proposed reforms on our Policy Advice Division's website.

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Tax invoices issued with an incorrect GST rate

In the October Agents Answers the article "GST - what to do now the rate has changed" described what to do if incorrect GST rates were given on a tax invoice. The following provides more information if you or your clients are in this situation.

It's possible that some businesses may have inadvertently issued tax invoices after 1 October using the old 12.5% GST rate. Generally, this would be where goods or services were supplied before 30 September but not invoiced until after 1 October.

A transitional provision allowed suppliers to issue tax invoices until 11 October 2010 using the old GST rate. However, in this case the tax invoice had to have been dated 30 September and the output tax accounted for in the GST return covering 30 September.

Some suppliers may not have taken advantage of the transitional provision, but still issued tax invoices after 1 October using the old GST rate. Regardless of the rate used, all tax invoices dated on or after 1 October should include GST at 15%.
Tax invoices issued on a GST-inclusive basis will be deemed to have the GST calculated at the new rate.

Provided the tax invoice meets all the requirements of a valid tax invoice, your clients will still be able to use it to support their claim of the expense, even if the supplier applied the incorrect rate on a GST-inclusive basis.

If the supplier's mistake also meant they charged less than they intended to, from miscalculating the amount of GST, it's between the supplier and their customer whether the price can then be changed. If the price is increased, a debit note will need to be issued to record this.

Tax invoices issued that state the price for the goods and/or services plus GST, but using the wrong GST rate, won't be valid tax invoices. The customer won't be able to use that tax invoice to support an input tax credit. In these cases a credit note will need to be issued and a replacement debit note, using the correct GST rate, issued.

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Student loan voluntary repayment bonus for IR3 filers with extensions of time

Voluntary repayment bonuses are calculated once an IR3 return has been filed. Customers with a standard filing date will have their bonus applied by 31 December 2010. However, if your agency has an extension of time this date may change depending on your due date.

Once a return is filed, a bonus, if eligible, will be applied to your client's account within 12 weeks of receiving the return.

If your customer has paid their loan in full, we can close their loan as soon as we receive their IR3. Some customers may be entitled to receive a refund once their loan is closed, so the sooner you can get the IR3 filed, the sooner we can get the refund to them.

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Repeal of fund withdrawal tax

The changes to fund withdrawal tax in the Taxation (Budget Measures) Act 2010 have been repealed. In their place the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 repeals fund withdrawal tax with effect to withdrawals made on or after 1 April 2011. Withdrawals made before 1 April 2011 will continue to be included as assessable income in income or PIE tax returns.

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Interpretation statement on the care and management of taxes covered by the Inland Revenue Acts

The interpretation statement IS10/07: Care and management of the taxes covered by the Inland Revenue Acts - Section 6A(2) and (3) of the Tax Administration Act 1994 sets out the Commissioner's:

• position on his responsibility under section 6A(2) of the Tax Administration Act 1994 (TAA) for the "care and management of the taxes covered by the Inland Revenue Acts", and
• his duty under section 6A(3) of the TAA "to collect over time the highest net revenue that is practicable within the law".

A brief background explains the changes made to the statement since the consultation periods in 2005 and 2008.

This statement was published in the November Tax Information Bulletin Vol 22, No 10, and you can read it here online.

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The hidden economy of e-Commerce

Our compliance focus document outlines the issues we're focusing on for 2010-11, one of these being the hidden economy. This is where businesses may take part in activities or schemes to deliberately evade their tax obligations. Here we profile one of the hidden economy industries "e-Commerce" and explain about what we're doing and how you can ensure your clients are compliant.

e-Commerce covers any business that is run through an online selling site, or an existing business that makes additional sales through a website. If your client uses websites such as Trade Me, e-Bay or Etsy.com to sell goods or services as part of their business, they must include this income on their tax return.

Our current activity

We've begun a data-matching programme focusing on individuals (who appear to be operating a business) and businesses who sell goods or services through online selling sites.
Data-matching allows us to identify individuals or businesses who are avoiding their tax obligations.

People or businesses identified through data-matching may not be including income from online trading on their tax returns or paying GST or income tax on it. Customers who have been identified as not accounting for income from online trading will be contacted by letter or phone and may be audited.

What you can do

You can remind your clients that if they're operating a business they must pay tax on any income from online trading. If your clients haven't been doing this they can make a voluntary disclosure.

Find out more about your clients' business tax obligations.

Once your client advises us of anything that may be wrong with their tax returns, we'll work with them to correct it as soon as possible. The benefits of making a voluntary disclosure are greater if a full and complete disclosure is made before being notified of a pending tax audit.

Future focus

We're also researching income from online gambling sites and virtual worlds. If your clients conduct business in these areas, please remind them they must include this income on their tax returns.

View our compliance plan "Helping you get it right: Inland Revenue's compliance focus 2010-11" at "Are you getting it right?".

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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: 02 Dec 2010

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