Agents Answers - 2011

Agents Answers issue 138 August 2011

• Reminders
• Helping you get it right: Inland Revenue's compliance focus 2011-12
• How to avoid errors when filing loss information
• Help us to help you
• Check the year for electronic payments
• Controlled foreign company (CFC) disclosures are now electronic
• Deadline for transition to a look-through company
• L letters can help you meet your filing requirements
• Provisional depreciation rate set for fleet tracking units
• Tax deductibility of failed software developments
• What's new on our tax agents webpages
• Corrections to June and July Agents Answers

Reminders

28 August: The first instalment of 2012 provisional tax and student loan interim payments are due for people who have a March balance date. The second 2012 provisional tax instalment is due for those using the ratio option to calculate provisional tax payments and who have a March balance date.

When staff leave your agency: For security purposes please ensure their access to your online services account has been removed. Either the owner or the administrator of the account can remove this access.

Don't share agency passwords: Please don't share your online services account password-it's a breach of the conditions of use of this system. A firm's access to online services may be removed if we identify continued sharing of passwords.

Helping you get it right: Inland Revenue's compliance focus 2011-12

Continuing our programme of helping New Zealanders meet their tax obligations, we've released our annual Helping you get it right: Inland Revenue's compliance focus 2011-12. This document gives an overview of key compliance issues and what we'll be doing to manage them. It also highlights how you can help your clients if they get it wrong.

This past year we took an innovative and targeted approach to remind our customers of their obligations. Our early intervention campaign ahead of the 7 February due date saw us texting over 60,000 customers, resulting in over $48 million in debt being repaid.

Our overseas-based borrowers campaign, which included online advertising, has seen over $2 million in overdue student loan debt recovered since the initiative began in October 2010.

This year we've grouped our compliance activities under four key themes:

• Everyone pays and receives the right amount
• We receive the right information at the right time
• Everyone files and pays on time
• We provide confidence and certainty to our customers.

These should give you a clearer indication of what your clients need to do to meet their tax obligations for registering, filing, reporting, claiming and paying on time.

We'll continue to work with industries, such as hospitality, scrap metal, fishing and aquaculture, tourism and agriculture, and monitor online trading and short-term property rentals ahead of major events.

We'll also focus on customers splitting their income to evade tax, identify those reducing their child support liability, and reduce the opportunities for misusing charitable status.

Our goal for this year is to build on all these initiatives.

You play an important role in helping your clients get it right and we encourage you to register for the upcoming tax agent seminars in a location convenient to you.

Seminars are being held across the country throughout August and early September 2011. These will cover issues in our compliance focus programme in detail and what they mean for you. A question and answer session will follow the presentation when you'll have an opportunity to share your thoughts or ask more about our areas of focus.

Spaces are limited, so be sure to contact your agent account manager to book a seat.

Read more about our 2011-12 compliance focus

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How to avoid errors when filing loss information

We want to help you avoid mistakes when filing tax returns. When we discovered the same mistakes being made every year in calculating and using losses we thought about how we could let you know.

So we compiled the most common mistakes found in returns and produced an online checklist. Ticking off the items on this checklist before you file your returns could help identify any issues you may have missed and avoid delays further down the track.

Go to our getting losses right checklist

Help us to help you

Our Office of the Chief Tax Counsel and Legal and Technical Services produce a number of statements and rulings to explain how taxation laws affect taxpayers and their agents. Their work programme is based on the:

• importance of an issue
• level of uncertainty or ambiguity
• number of taxpayers potentially affected
• need to resolve existing issues.

All drafts go through a public consultation process before they're published. This is when you can have your say about any technical and/or commercial aspect-your input is highly valued.

You can register to receive an email notification when exposure drafts are available for comment. You can do this by:

subscribing to our public consultations here

Go to our Public Rulings work programme to find out what stage the drafts are at

It's easy to have your say. Just download the draft, read through it and if you have any comments email them to us at public.consultation@ird.govt.nz

Check the year for electronic payments

Do you make your payments to us through internet banking? If so, when you go to your bank's website, the year shown will default to the current year, eg 2011. Please remember to change this, if the payment isn't for the current year, before you make the payment.

Find out more about making electronic payments

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Controlled foreign company (CFC) disclosures are now electronic

Section 61 of the Tax Administration Act 1994 requires taxpayers with interests in foreign companies to disclose those interests to the Commissioner "in the prescribed form".

With the change in the international tax rules to incorporate an active business test, the prescribed form also changed. This was outlined in the 2011 International tax disclosure exemption ITR22.

Read the 2011 International tax disclosure exemption ITR22

In particular, the commentary to the exemption states: "Disclosure of all interests in a controlled foreign company is required using a Controlled foreign companies disclosure (IR458) form. This form, which involves uploading a prescribed spreadsheet, can cater for up to 500 individual disclosures."

Go to the Controlled foreign companies disclosure (IR458)

The IR458 form must be completed online. Please note that electronic filing is a mandatory requirement for CFC disclosure.

We have noticed that some taxpayers who are subject to the new rules are still using the old paper-based form and not the new prescribed electronic form. Paper-based disclosures are not compliant with section 61. We're therefore contacting the taxpayers concerned and requiring them to file correctly.

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Deadline for transition to a look-through company

Legislation passed in December 2010 created a new tax entity known as the look-through company (LTC). The LTC can be used for income years starting on or after 1 April 2011.

If you have clients who had an existing QC or LAQC prior to 1 April 2011 and they want to transition to an LTC, they have until six months from the start of the relevant transitional income year to do so. If their LAQC had a standard balance date of 31 March they have until 30 September 2011 to make an election. To do this they need to complete a Look-through company election (IR862) form.

Alternatively, they could become a sole trader (if the QC/LAQC has only one shareholder) or a partnership.

Find out more about Look-through companies (LTCs)

Read our factsheet Qualifying companies - changes (IR870)

Read our guide Look-through companies (IR879) 

The Tax Information Bulletin Vol 23, No 1 (February 2011) explains the LTC rules and changes to the QC and LAQC rules in more detail you can read about these changes in the link below.

Read about Changes to the qualifying company rules and introduction of look-through company rules

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L letters can help you meet your filing requirements

To help agents meet their extension of time (EOT) filing requirements, we can issue a letter to clients (with EOTs) who have a New Zealand address and haven't provided the necessary information for you to file their tax return.

This letter is called the L letter. It's issued in Inland Revenue's name and can be requested by tax agents from the tax agents' 0800 self-service line (0800 456 678). These can be requested now and are usually available from August until mid-February each year. We recommend you request them before December 24 to allow your clients time to get their records to you during the holidays, if they're too busy during the working weeks.

When an L letter is issued we remove the client from your filing performance statistics. This means those clients won't affect your performance, if you've done your best to get the records from them, which helps you meet the requirements of the EOT agreement.

If you have a client with an overseas address, please contact your agent account manager to discuss.

See a sample of an L letter on this page under Filing problems - L letter and D status

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Provisional depreciation rate set for fleet tracking units

A provisional depreciation rate has been set for fleet tracking units. Determination PROV21: Tax depreciation rates provisional determination number PROV21 was signed on 16 June 2011 and applies for the 2011 and subsequent income years.

Provisional asset class	Estimated useful life (years)	DV rate (%)	SL rate (%)
Fleet tracking unit	6	30	21

Read the Determination PROV21: Tax Depreciation Rates Provisional Determination PROV21

Tax deductibility of failed software developments

Revenue Minister Peter Dunne recently announced that businesses will be able to claim tax deductions on failed software developments.

The bill confirming that expenditure on failed software is deductible is expected to be introduced later this year and the deduction is expected to be backdated.

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What's new on our tax agents webpages

We've added to and updated the Correspondence guidelines for tax agents on our website.

Read the Correspondence guidelines for tax agents.

A new guideline on obtaining an authority to act sets out the detail required from your client when they give you their authority to act on their behalf. A signed and dated authority is required before you can apply to link them.

If you haven't seen these before, there are guidelines for:

• obtaining an authority to act
• election not to depreciate an asset
• determining residency status
• voluntary strike-off requests
• request for change of balance date
• livestock election
• application to use buyer-created invoices
• payments to a spouse, civil union partner, or de facto partner
• remission of penalty request
• request to set up an instalment arrangement.

They're a useful tool for all staff who interact with us as they list the information you need to supply to avoid unnecessary processing delays.

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Corrections to June and July Agents Answers

In the June issue (no 136) we commented on RWT on company dividends and noted that a company must provide a dividend statement to its shareholder with various details. We went on to say the form needed to be pre-approved by the Commissioner of Inland Revenue under section 29 of the Tax Administration Act 1994.

We wish to clarify that the dividend statement must be in a form approved by the Commissioner, but this is not required to be pre-approved.

In the July issue (no 137) an incorrect fax number was given in the article on page 2 "Urgent non-individual IRD number applications". The fax number should have been 07 958 2952.
The online version has been corrected and we apologise for any inconvenience this may have caused.

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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: 29 Jul 2011

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