Agents Answers - 2011

Agents Answers issue 139 September 2011

• Reminders
• IR3 forms for 2011 must be processed before issuing donations refund
• Shortfall penalties on voluntary disclosures
• Transfer pricing - small-value loans update
• Plain envelopes for debt letters
• ACC earners' levy for 2011 income year
• Paid parental leave increase
• New one-stop shop for student loans
• Tax-exempt organisations and GST registration
• Warning about hoax emails
• Our Large Enterprises team in Auckland has moved
• Losses extinguished when write-off occurs
• Gift duty changes
• Extension of time for qualifying companies
• Helping you get it right.

If you have any suggestions for topics you'd like covered in this newsletter, email agents.answers@ird.govt.nz

Reminders

9 September: This is the first interim filing date for agents with an extension of time. The following percentages are to help you meet the required 100% of clients' returns filed by 31 March 2012:

• 40% of clients with standard balance dates
• 37.5% of clients under E-File
• 20% of clients with late balance dates.

These are guidelines and only a target if you're currently being monitored by your agent account manager.

30 September deadline for company transition: If you had an LAQC or a QC with a 31 March 2011 balance date, and want to transition to an LTC (look-through company), you'll need to apply by the deadline. You may qualify for an extension of time if you've been affected by the Christchurch earthquakes.

Back to top

IR3 forms for 2011 must be processed before issuing donations refund

We need to check donation claims against a customer's current year income, which means we need to process their Individual tax return 2011 (IR3) before or at the same time as their tax credit claim form. Please keep this in mind when you file your clients' returns.

The total donations, childcare and housekeeper payments claimed in a tax year can't exceed a customer's taxable income for that same year. We use their IR3 to verify their taxable income before issuing a refund.

This means the IR3 return for the current tax year must be filed before we can process the Tax credit claim form (IR526). If you file your client's IR526 but don't file their IR3 until later, your client will have to wait for their refund. You can manage your client's expectations by filing their tax credit claims and IR3 at the same time.

If we don't receive the IR3 within 10 days of receiving a claim we'll write to you or your client saying we can't process the IR526 claim form until we receive the IR3.

We'll then hold the claim and regularly check for the IR3 until 30 June 2012. If it hasn't been filed by then, we'll advise your client that we won't take any further action on the claim and ask them or you to contact us when their IR3 is filed. When we've processed the IR3, the claim form will be processed automatically and a refund issued.

If you know there'll be a long delay in filing the IR3, make sure your client's bank account details are held by us. This fast-tracks the refund payment when it comes through. You can also request your client's refund to cover any income tax that might be payable once the IR3 is processed.

Receive just one payment

Before you file your client's IR3 we suggest you request a hold be set on any income tax refund for them. This is just until we've processed their IR526 and transferred their donations tax credit. This means the total credit will be refunded as one payment. You can do this through your secure online services account or by calling your agent account manager.

Back to top

Revenue alert for donations tax credits

We've issued a revenue alert for donations tax credits because we're increasingly seeing situations where people are claiming tax credits for "donations" where they haven't made a true gift of their own money. Such arrangements involve recharacterising (as a gift of money) gifts, which wouldn't ordinarily have been a donation, to receive the donations tax credit.

Payments made under these arrangements are not a charitable or other public benefit gift, and don't qualify for a tax credit. Where we consider donations tax credits have been claimed in such situations, we'll recover the excess tax credit from the person making the claim and will also consider imposing monetary penalties.

Read the full Revenue alert 11/01

Shortfall penalties on voluntary disclosures

The New Zealand tax system is based on voluntary compliance and most taxpayers meet their obligations under the tax laws.

The voluntary disclosure rules provide an incentive to taxpayers to correct their tax liability if they made an error. By making a full voluntary disclosure, your clients get the advantage of either a full or partial reduction of any shortfall penalty they may be liable to.

When you send us your voluntary disclosure letter please include the following:

• the circumstances in which the error arose
• the reason(s) why the error wasn't detected prior to taking the tax position in this instance
• what checks and procedures you undertook to ensure the correctness of the return prior to filing
• the reason(s) why shortfall penalties shouldn't be imposed.

To find out more read the Standard practice statement 09/02 Voluntary disclosures

Transfer pricing - small-value loans update

A considerable amount of financing internationally between associated parties involves
small-value loans (ie, less than NZ$2 million principal).

Our advice since October 2009 has been that 300 basis points (3.0%) over the relevant base indicator (generally the bank bill rate for variable-rate loans or the swap rate for fixed-rate loans) is broadly indicative of an arm's-length rate, in the absence of a readily available market rate for a debt instrument with similar terms and risk characteristics. After considering the current state of financial markets, we're reconfirming this rate until our next review scheduled for
mid-2012.

Plain envelopes for debt letters

From August, you may receive letters from us in plain envelopes without Inland Revenue's logo.

All outgoing debt letters will now be sent this way. This change follows current business practice and should see more of our mail opened by recipients. Please make your agency staff aware of this practice.

Back to top

ACC earners' levy for 2011 income year

When GST increased from 12.5% to 15% on 1 October 2010, the ACC earners' levy deducted as a component of PAYE from salary/wages also increased. The affect of this change is shown in the table below.

	Up to 30 September 2010	From 1 October 2010
Earners' levy basic rate - GST exclusive per $100	$1.7778	$1.7778 (no change)
Earners' levy basic rate - GST inclusive per $100	$2.000025	$2.04447
Maximum levy payable	$2,200.36	$2,244.36
Maximum income level	$110,018.00	$110,018.00 (no change)

Since the ACC earners' levy is always rounded down, up to 30 September 2010 deductions were made at a rate of $2.00 per $100 up to the maximum liability. From 1 October 2010 deductions were made at a rate of $2.04 per $100 up to the amended maximum levy payable.

Legislation doesn't allow an annualised (average) rate for end-of-year ACC earners' levy assessments as currently occurs with income tax rates.

As the rate change was effective from 1 October 2010, the dates the income has been recorded as earned now become the basis for how the total levy is calculated. The levy will be deducted at the appropriate rate (depending on when the income was earned) until the customer earns $110,018.00. Once they earn more than this, the levy is no longer charged.

Because the month the income was earned is the basis for the calculation, the actual amount payable may vary depending on circumstances, even though the maximum income level remains the same. So if a customer earns $120,000 in the first half of the year, they'll pay $2,200.36. If they earned it all in the second half of the year, they'll pay $2,244.36.

Changes have been made to the summary of earnings to separate earnings into two employment periods where the employment spanned 1 October. This allowed the correct ACC earners' levy to be calculated according to the period. No changes are required if a person wasn't employed in that period.

Back to top

Paid parental leave increase

The paid parental leave (PPL) weekly maximum entitlement rate increased from $441.62 to $458.82 a week (before tax) on 1 July 2011. This rate applies to employee and self-employed PPL recipients entitled to receive the maximum PPL rate.

Find out more about paid parental leave including the new rates

The first PPL payment date with the new rate was made on 7 July.

If you have clients (including self-employed) who currently receive PPL at the maximum entitlement rate they would have received a letter from us telling them about the increase.

We've also updated the following publications to include the new rate where applicable:

• Congratulations on your new baby (IR753)
• Paid parental leave application for an employee (IR880)
• Paid parental leave transfer to an employee (IR881)
• Paid parental leave application for a self-employed person (IR888)
• Paid parental leave transfer to a self-employed person (IR889)

If your agency holds a supply of these please dispose of any dated June 2010 or earlier. You can download new versions, dated July 2011, from our website or order copies from 0800 257 773.

New one-stop shop for student loans

A new webpage now lists key student loan information - from getting a student loan to repaying it - all on the one page. Jointly developed by StudyLink and Inland Revenue, it connects you to information on both websites.

If you have clients with a student loan, we're sure they'll find it useful.

Go to the new studylink page

Back to top

Tax-exempt organisations and GST registration

In some cases it may be unclear whether a tax-exempt organisation needs to be GST registered and if so, what income is used to determine the $60,000 threshold. Section 51(1) of the Goods and Services Tax Act 1985 (GST Act) outlines the liability to register.

Even if an organisation holds an income tax exemption, it must register for GST if:

• its annual turnover for this month and the last 11 months exceeded $60,000 (including certain imported services received), or
• its turnover for this month and the next 11 months is expected to exceed $60,000 (including certain imported services received).

Turnover doesn't include donations received in the form of "unconditional gifts" because unconditional gifts made to non-profit bodies aren't consideration for the supply of goods or services. "Unconditional gift" is defined in section 2(1) of the GST Act.

However, this definition expressly excludes payments made by the Crown or a public authority. Any grants received from a government agency aren't regarded as a donation. Section 5(6D) of the GST Act requires any payment in the nature of a grant or subsidy made on behalf of the Crown or by any public authority to be a supply of goods or services and therefore included in the turnover figure.

If the organisation charges for services provided overseas, whether nominally or otherwise, these charges should also be included as turnover, even though they would be zero-rated.

Back to top

Warning about hoax emails

We're aware of yet more hoax emails circulating in an attempt to gain access to personal information. These emails ask you to ring a telephone number to confirm your billing address or claim to offer a tax refund.

The link in the email directs you to a fake webpage with an Inland Revenue logo. You're then asked to enter personal details, including your username and credit card details. Providing information in this manner puts you at risk of having your personal details stolen.

While these scam sites may look like our site they're not. To avoid any risk, our advice is to never click on any links within a suspicious email. Don't reply to the email, and delete it fully from your mailbox.

You can report suspicious emails that target Inland Revenue customers by sending an email to phishing@ird.govt.nz

Our Large Enterprises team in Auckland has moved

The Large Enterprises team in Auckland has moved from Oracle Tower and is now situated in either Manukau or Takapuna.

The general enquiry line is still 0800 443 773 for help on working days between 8 am and 4.30 pm.

The Manufacturing/Forestry team (including Non-resident Entertainers) is now in Manukau:

• 5 Osterley Way, Manukau, Auckland
• PO Box 5542, Wellesley Street, Auckland 1141
• fax 09 984 3081.

If you have any queries please email the Assistance Team Leader rajni.raju@ird.govt.nz

The Services team (including Transport and Technology) is now in Takapuna:

• AIA House, 5 - 7 Byron Avenue, Takapuna, Auckland 0622
• PO Box 5542, Wellesley Street, Auckland 1141 (mail will be redirected from Manukau)
• fax 09 984 3082.

If you have any queries please email the Assistance Team Leader teresa.tongia@ird.govt.nz

Back to top

Losses extinguished when write-off occurs

Do you have clients with losses to carry forward? If so, you need to know that when a client has a tax debt written off, and they also have losses to carry forward, those losses are reduced or written off. This ensures they don't benefit twice - once by having the debt written off and again by still being able to carry forward any income tax loss to future years.

Losses are extinguished under sections 177C(5) and (6) of the Tax Administration Act 1994, proportionately to the amount of debt written off. This extinguishing applies when there is a write-off of any tax type except student loan repayment obligations (SLS) or child support (CPR and NCP).

If you think you may have treated a loss case incorrectly, please call the tax agents' 0800 number or talk to your agent account manager.

Gift duty changes

Recent changes now mean that gift duty will no longer be charged on liable gifts made on or after 1 October 2011. Gift statements will not be required for these gifts, but will still be required for liable gifts made before 1 October 2011.

Extension of time for qualifying companies

This extension of time applies to qualifying companies, delayed in the 2012 income year from transitioning into look-through companies, partnerships and sole traderships. A six-month extension of time (up to 31 March 2012) has been given to any qualifying company, who, as a result of the Canterbury earthquakes is unable to comply with the time limits for:

• electing to transition to a look-through company
• notifying Inland Revenue about transitioning to a partnership or a sole tradership.

The six-month extension of time applies from the date when the qualifying company must submit either a Look-through company election (IR862) form or a Qualifying company and loss attributing qualifying company transition (IR891) form.

To apply for the extension of time you'll need to attach a letter explaining how either of the Canterbury earthquakes has affected your ability to comply when you make your election or notification to transition to another business structure.

See our Look-through companies (IR879), or

Qualifying companies (IR435) guides for more information.

Back to top

Helping you get it right

We want to help you and your clients do the right thing at the right time. We have a new section called "Help your clients get it right" on our website. Here you'll find information on doing the right thing when registering, reporting and filing tax returns, and when making a claim or a payment.

Whether you're just starting out in an agency or wanting to check out the tools and support we offer, it's worth taking a look.

Go to "Help your clients get it right"

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.

Download ›

PDF | 345kb | 4 pages

 

Download Acrobat Reader to view PDF files

Report an accessibility problem for this page

 

 

Date published: 01 Sep 2011

Back to top