Agents Answers - 2011

Agents Answers issue 137 July 2011

• Reminders
• Budget 2011 changes
• Keep "key officeholder" details up to date
• Annual update of IR9XA
• Client listing reports give EOT status
• New FBT rate for low-interest loans
• Urgent non-individual IRD number applications
• Depreciating short-term rented motor vehicles and correction to IR265
• Listed tax agents must be suitable
• IR526 and tax credits
• Tax workshops and seminars
• Advising clients on tax planning and structuring
• Authorisation to act for your client
• 2011 national average market values for specified livestock
• Overseas currency rates

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

7 July: Tax returns for the year ending March 2011 are due for individuals or organisations with a 31 March balance date and no extension of time.

Deemed rate: The deemed rate of return for taxing foreign investment fund interests has been set at 8.52% for the 2010 - 11 income year, down from 9.12% for the previous year.

Online filing of 2011 IR3: For the 2011 income year, tax agents who file on behalf of their clients can still file IR3 returns online using a document lodgement number ("DLN"), but can only access the return at www.ird.govt.nz/ir3a-2011.html.

Tax agents can’t use the secure online services facility to file IR3 returns at this stage.

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Budget 2011 changes

The Government's 2011 Budget included changes to KiwiSaver, Working for Families and student loans. Some of these changes have already been enacted although most won't come into effect until next year or later.

The changes include a decrease over time in the amounts of Working for Families Tax Credits for those on higher incomes, and for KiwiSaver a reduction to the annual payment of the member tax credit, the removal of the tax exemption on employer superannuation contributions and an increase in the minimum employee and employer contributions.

We'll be updating our website over the coming months.

Find out more about the Budget 2011 changes.

KiwiSaver changes

The member tax credit (MTC) is to be halved for member contributions made from 1 July 2011 and paid after the end of the next MTC year (year ended 30 June 2012). The change means Government will now contribute 50c for each $1 contributed by individual KiwiSaver and complying fund members, up to a maximum of $521.43 per year, equivalent to $10 per week. To maximise the new annual entitlement a member is required to contribute $1042.86.

The employer superannuation contribution tax (ESCT) exemption has been removed. This change comes into effect on 1 April 2012. All employer contributions to KiwiSaver scheme accounts and complying funds will now be subject to ESCT. ESCT is to be applied at a rate equivalent to an employee's marginal tax rate.

The Government also announced changes to employee and employer contribution rates. These proposed changes will be included in a Bill to be introduced later this year:

• The minimum employee contribution rate will rise from 2% to 3% for all members, new and existing, from 1 April 2013. The default contribution rate for new employees who don't select a rate will also be 3% from that date.
• Compulsory employer contributions will rise from 2% to 3% from 1 April 2013.

Working for Families Tax Credits changes

These changes are effective from 1 April 2012:

• increasing the abatement rate by 1.25 cents every inflation adjustment round from 1 April 2012 until it reaches 25 cents in the dollar
• lowering the current abatement threshold of $36,827 by approximately $450 every inflation adjustment round from 1 April 2012 until it reaches $35,000
• removing the inflation adjustment of family tax credit amounts for children 16 and over from 1 April 2012.

Student loan changes

Changes to student loans will be included in a Bill to be introduced later this year and implemented over the next two years. The following proposed changes may relate to your clients who have a student loan:

• Repayment holidays for overseas-based borrowers will be shortened to one year and borrowers will need to apply for a repayment holiday before leaving New Zealand from 1 April 2012.
• Students won't be able to offset losses against their income to reduce their student loan repayment obligations from 1 April 2012.
• A contact person will be required for all new student loan applications from 1 January 2013.
• Students with an overdue repayment obligation of $500, that's been overdue for a year or more, won't be eligible for new lending from 7 February 2013.
• The repayment threshold will be held at $19,084 until 31 March 2015.

Information on other Budget 2011 changes to student loans can be found on the Ministry of Education's website (keywords: Budget 2011).

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Keep "key officeholder" details up to date

We rely on you to let us know when details change so we can keep our list of tax agents up to date. We hold details of the individual or entity that has significant authority or responsibility for either preparing and filing returns or managing a business that employs people to file returns.

If a tax agent is a natural person, we need the details of that person. Where the tax agent is an entity, we need the details of people who are "key officeholders".

Key officeholders are defined as:

• each person having the duties of tax manager, chief financial officer, chief executive officer or director, if the entity is a body corporate other than a closely held company
• each shareholder of the entity, if the entity is a closely held company
• each partner in the entity, if the entity is a partnership
• each member of the entity, if the entity is an unincorporated body.

Updated details of key officeholders must be given to us within 12 months of any change.

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Annual update of IR9XA

Each year the Extension of time (EOT) arrangements (IR9XA) guide is updated to reflect the agreed filing percentages and dates. For the 2011-12 year the minimum filing percentage has increased. If your performance was less than 85% as at 31 March 2011, we may withdraw your EOT if your filing is below 85% as at 31 March 2012. The 2011-12 filing period is now available.

We won't withdraw an EOT without first issuing a notice in writing that we're considering withdrawing the EOT and inviting you to discuss your circumstances with your agent account manager or Large Enterprises account manager.

Agents and clients of agents affected by the Christchurch earthquakes will be able to renegotiate their 2011-12 filing percentages. To have your situation considered, please contact your agent account manager who has the authority to renegotiate this without penalty to you and your clients.

Client listing reports give EOT status

You should have received an updated AMBR1000 client listing report in mid-June. This report gives you the latest information to help with your filing. Please use it to check all clients with "W" EOT and "R" EOT status. If you've filed all returns for these clients, including their current 2011 return before 7 July 2011, they may be eligible to have their EOT reinstated. Please email your application for EOT reinstatement to your agent account manager.

If any of these clients still have returns outstanding, please send their 2011 return to us by 7 July (for clients with a 31 March balance date). Where you're not able to file a client's return on time and need an extension of time, please request this by calling 0800 377 774 before 7 July 2011.

New FBT rate for low-interest loans

The prescribed interest rate used to calculate fringe benefit tax on low-interest, employment-related loans is 5.90%, down from the previous rate of 6.24% which applied from the quarter beginning 1 October 2010.

The new rate applies for the quarter beginning 1 April 2011.

The rate is reviewed regularly to align it with the results of the Reserve Bank's survey of variable first-mortgage housing rates.

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Urgent non-individual IRD number applications

If you or your staff are applying on behalf of a client for an urgent non-individual IRD number please:

• fax all urgent non-individual applications and registrations to 07 958 2952
• clearly indicate on the front of the application the reason for the urgency.

If you do the above your application will be processed within 24 hours. All other applications will be processed within five days of receipt.

All other non-individual applications and registrations should be faxed to 07 958 2951.

Depreciating short-term rented motor vehicles and correction to IR265

We've been advised that some taxpayers have been using the depreciation rates set for "short-term" hire when assets may have been hired for periods longer than one month.

The "Transportation" asset category has been amended to clarify that the higher depreciation rates apply only to those assets hired for periods of one month or less. The depreciation rates are unchanged.

We've also been asked to clarify whether or not the asset category could be used for assets that are used for both short-term (one month or less) and long-term hire (periods of longer than one month). This issue arises where taxpayers generally hire the motor vehicles/trailers for short-term (one month or less) periods, but may occasionally hire them for a longer term.

It's the Commissioner's view that the higher depreciation rates should only be used for assets that are exclusively hired for short-term periods. Taxpayers who hire assets for both short and long terms should not use the depreciation rates for short-term periods.

Our guide General depreciation rates (IR265) has been amended to reflect this change and to correct an estimated useful life figure on page 56. The estimated useful life for the asset shown below is 5 years, not 6.6 as given in the October 2010 version of the IR265.

Transportation	Est useful life (years)	DV depn rate (%)	DV plus 20% loading (%)	SL depn rate (%)	SL plus 20% loading (%)
Motor vehicles (for transporting people, up to and including 12 seats) (residual value has been estimated at 25%)	5	30	36.0	21	25.2

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Listed tax agents must be suitable

Since 2007 we've been required to maintain a list of eligible tax agents as defined by legislation. Occasionally we may have concerns about an applicant's or existing tax agent's (or key officeholder's) suitability to be a tax agent.

It may not be appropriate for a person to be a tax agent where, for instance, the person:

• has been notified of an offence or breach by the disciplinary body of a professional organisation of which they are a member
• is an undischarged bankrupt or an insolvent entity
• is an individual or a body corporate that has been convicted of a crime involving dishonesty (within the meaning of section 2(1) of the Crimes Act 1961)
• is an individual who is prohibited from being a director or promoter of, or taken part in the management of, a company under sections 382, 383 or 385 of the Companies Act 1993
• is a person who has been convicted of an offence under the Tax Administration Act 1994
• is a tax agent who has a poor compliance history in respect of their personal tax affairs or as a tax agent of taxpayers
• has personal circumstances which would make being a tax agent inappropriate.

Agent account managers and Large Enterprises account managers monitor tax agents as part of their usual work. If they become aware of information that causes concern about a tax agent's suitability, they will follow a set process to consider the facts.

Find out more about the tax agent's role.

IR526 and tax credits

If you previously filed a Tax credit claim form (IR526) for your clients you'll have received a new IR526 for the current year with an "A" in the top right-hand corner.

To help us process the IR526 faster, please return the completed form to us with your agency's stamp on the signature line as well as your signature.

It's also important that the client is linked to you as we use the linking information to check the return is actually from a tax agent.

If you haven't received an IR526 for your client you can download the Tax credit claim form (IR526) and write "A" in the top right-hand corner. If you already have a form, but without the "A", just do the same.

Following these steps will reduce the instances of schedules without receipts being returned to you.

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Tax workshops and seminars

If you have clients who would benefit from a better understanding of taxes and help preparing their records for return filing we offer workshops for:

• employers
• GST returns
• completing your IR3.

In some areas we also offer tax clinics that cover topics of interest for individuals such as:

• IRD number verification
• Working for Families Tax Credits
• KiwiSaver
• child support
• working smarter with our online tools and services.

Go to a full list of workshops and seminars for the 2011 calendar year.

Advising clients on tax planning and structuring

Clients come to you for advice because you're likely to have more knowledge about the true tax impact of an arrangement and can ensure they're not put at risk of significant penalties. When advising clients how to structure their tax and whether to take advantage of particular tax planning opportunities, it's therefore important to take due diligence.

We monitor tax practices closely to ensure acceptable tax planning doesn't cross over to tax avoidance. We're currently investigating practices such as:

• income splitting by individuals
• payment of excessive remuneration
• transfer of assets to minors (children under 16) or associated individuals.

People who design, promote or on-sell inappropriate tax schemes to clients will be held accountable for their actions and we may apply promoter penalties.

The investors penalty is reduced from 100% to 20% if a promoter is penalised.

Read more on promoter penalties.

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Authorisation to act for your client

It's important that you and your agency hold the required authority to act on a client's behalf.

A recent case where spouses separated and the only authority held was for the couple's company highlights the importance of this process.

When a client contracts your services it's usual for them to sign an agreement for this service. You need this in all instances where you need to access their records held by us.

If you offer an online process for clients with no face-to-face contact, it's important to get a signed electronic authority to act on their behalf and sight a photo ID. They must establish their identity so you're reasonably sure they're entitled to provide that authority. You must record and store the client's authority and identity documents and we must be able to access this information.

Find out what information is required on an authority to act.

2011 national average market values for specified livestock

Each year we determine national average market values for specified livestock classes. The values are calculated using on-farm values assessed by livestock valuers as at April 30 each year, based on the average value of animals throughout the country, in each class of livestock.

The 2011 values apply to specified livestock on hand at the end of the 2010-11 income year.

See the list of livestock and their values for this period.

Overseas currency rates

We have removed the overseas currency converter calculator from our website but you can still view currency rates there. Just go to "Work it out", "Overseas currencies" and download the table for the time period you're interested in.

These tables contain the exchange rates to convert foreign currency amounts to New Zealand dollar value. They cover the rolling 12-month average, mid-month and end of month rates for the period. The current-year table covering 1 April 2011 to 31 March 2012 will be progressively updated throughout the year.

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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: 05 Jul 2011

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