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Business Tax Update - 2012

Business Tax Update Issue 27 February 2012

Welcome to Business Tax Update

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

Reminders

7 February: The 2011 income tax, student loan and Working for Families Tax Credits payments are due unless you have an extension of time through a tax agent.

You can make payments by:

  • debit or credit card securely on our website
  • online banking
  • posting us a cheque
  • visiting any Westpac branch.

If you're having difficulty paying your bill, call us on 0800 377 774 to discuss your situation or send an Instalment arrangement proposal to help us see whether paying by instalment is right for you.

Find out more about 7 February payments.

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Business entertainment and giving gifts

In our December 2011 edition we talked about giving gifts to your employees, clients and suppliers, and prospective clients and suppliers. The article raised a few queries so we thought we'd explain the rules around giving gifts in more detail.

Many expenses incurred for business purposes can be deducted. In general you can claim the costs of any gifts you give to your employees, clients and suppliers, or prospective clients and suppliers, so long as they don't fit within the criteria of an entertainment expense. However, you may have to pay FBT on any gifts you give your employees.

Example

You can claim the cost of a food and wine gift basket given to a supplier to thank them for their service. The cost of the basket is fully deductible as long as it's not provided or consumed as outlined below.

Business entertainment rules

If you provide your employees, clients and suppliers, or prospective clients and suppliers, with any of the following items you may only deduct 50% of the cost because they're counted as "entertainment expenditure".

Entertainment expenses that are 50% deductible are:

  • corporate boxes, corporate marquees or tents, and similar exclusive areas (whether permanent or temporary) at sporting, cultural or other recreational activities that take place away from your business premises, this includes tickets or other rights of entry
  • accommodation in a holiday home, time-share apartment or similar, but not accommodation incidental to business activities or employment duties
  • pleasure-crafts, eg, a corporate yacht
  • food and drink provided or consumed:
    • incidentally at any of the three types of entertainment above, eg, alcohol and food provided in a corporate box
    • away from the taxpayer's business premises, eg, a business lunch at a restaurant
    • on the taxpayer's business premises at a party, reception, celebration meal, or other similar social function, eg, a Christmas party for all staff, held on the business premises (excluding everyday meals provided at a staff cafeteria)
    • at any event or function, on or away from your business premises for the purpose of staff morale or goodwill, eg, Friday night "shout" at the pub
    • in an area of the business premises reserved for use at the time by senior staff and not open to other staff, eg, an executive dining room used to entertain clients.
Note

If you claim a 50% deduction for a business entertainment expense you will have to make a GST adjustment so you're only claiming 50% of the GST (if you've previously claimed 100%).

Gifts provided to employees

If you give your employees a gift you can claim the full cost of the gift as an expense (as long as it doesn't fall within the business entertainment rules) but you may have to pay FBT on it. You won't have to pay FBT on the gift if it's less than the general employee exemption and maximum employer exemption.

If you file your FBT returns quarterly there's a $300 exemption per employee per quarter if you provide free goods (gifts and prizes), or subsidised or discounted goods and services. However, if the value of the benefit for an employee goes over $300 for a quarter, you must pay FBT on the full value of the benefit.

Example

Two employees are given gifts of mystery weekends, one is valued at $250 and the other $350. The $250 gift is not subject to FBT but the $350 gift is.

The maximum employer exemption you can claim is $22,500 per annum. If the total value of benefits for all employees goes over $22,500 for the current quarter and the three previous quarters, you must pay FBT on the total value of the benefits in the current quarter.

If you file annual or income year returns there's a yearly exemption of $1,200 for each employee, with the maximum employer exemption for all employees of $22,500 per year. If the period covered by the return is less or more than a normal income year, an adjustment per employee is needed as follows:

(Days covered by return ÷ 365) × $1,200

Find out more

For more information read our Entertainment expenses (IR268) guide and Fringe benefit tax guide (IR409).

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Do you make student loan deductions?

If you make student loan deductions, changes are under way starting on 1 April 2012.

Employees who have a student loan must add "SL" to their tax code, unless they have an exemption or use a CAE, EDW or WT tax code.

You have to make student loan deductions from their pay when they earn over the pay-period repayment threshold, eg, $367 weekly.

From 1 April 2012, there are some changes to the way you make your employee's student loan deductions.

Pay-period repayment obligations

The standard student loan deductions you make from your employee's salary or wages cover their repayment obligation, unless there's a significant over- or under-deduction. Make sure your deductions are correct and properly identified on your employer monthly schedule (EMS).

Significant under-deductions

If the correct student loan deductions aren't made from your employee's salary or wages, they may be paying significantly under what they're required to pay. We may contact you (and your employee) and ask you to make additional deductions on top of the standard deductions. You'll need to identify these extra deductions separately by entering the new "SLCIR" repayment code on your EMS.

Exemptions

Your employee may not have to make student loan repayments if they're studying full-time and expect to earn less than $19,084 (the annual repayment threshold) in the tax year.

Your employee will give you a certificate authorising their repayment deduction exemption. They won't have to use an "SL" repayment code while they have this. When the exemption ends you must add back the "SL" repayment code. This means you'll make the deductions at the correct rate without significant under- or over-deductions.

Special deduction rates

There are new rules for getting a special rate for student loan deductions. If your employee gives you a special deduction rate certificate, you'll need to make student loan deductions at the rate specified and for the period stated.

Extra repayments

Many borrowers make payments on top of their compulsory deductions to pay their loan off faster. These additional repayments may also be eligible for a voluntary repayment bonus. If you're already making extra student loan deductions for your employee or they ask you to start, identify this on your EMS using the new "SLBOR" repayment code. We'll recognise these as voluntary extra deductions when we process your EMS and include them in your employee's voluntary repayment bonus calculation.

Find out more about the student loan changes.

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Changes to ESCT from April 2012

The 2% exemption from employer superannuation contribution tax (ESCT) is about to be removed. From 1 April 2012, if you're contributing to a KiwiSaver scheme or a complying fund, all your employer contributions will be liable for ESCT.

The rate for calculating ESCT will change from 1 April 2012. Unless you're paying contributions into a defined benefit fund, you won't be able to use the 33% flat rate option. Instead, you'll need to calculate ESCT at the employee's marginal ESCT rate. The other option is to treat your employer contributions as salary or wages and tax your employee through PAYE (with their agreement).

Find out more about the ESCT changes.

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Working for Families changes effective from 1 April 2012

The abatement rate will increase by 1.25 cents at every inflation adjustment round from 1 April 2012 until it reaches 25 cents in the dollar.

The current abatement threshold of $36,827 will be lowered by $477 to $36,350 on 1 April 2012 and then reduced by $450 at every subsequent inflation adjustment round until it reaches $35,000.

The inflation adjustment for family tax credit amounts for children 16 and over will be removed from 1 April 2012 until the amounts for younger children catch up. All family tax credit amounts will then be adjusted for inflation.

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Using the right tax code for new staff

It's hiring season again. When you welcome new employees on board make sure they're on the right tax code so the right tax rate is deducted. This is particularly important if they have a student loan (see above).

You can make things easier for you, your staff and us by reminding your employees to use the right tax code. This will ensure you deduct the right amount of tax from their wages, as well as other deductions like student loan repayments.

If we see your employee has the wrong tax code, we'll write to you requesting that you change it. We'll advise you which employees are using incorrect tax codes and let you know which tax code to use.

You can use our PAYE/KiwiSaver deductions calculator and calculate tax deductions from your employees' gross wages including student loan deductions.

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New ACC rates agreed by Cabinet

On 12 October 2011 the Minster for ACC announced the ACC levy rates for 2012-13. These rates were considered and agreed by Cabinet to be passed into legislation during the first quarter of 2012.

The earners' levy is set at $1.70 (GST inclusive), down from $2.04 the previous year.

The minimum liable earnings for self-employed workers increases from $26,520 to $27,040.

The maximum liable earnings will increase for:

  • self-employed people under the Work and Earners' Account from $110,018 to $111,669
  • employees, private domestic workers and earners other than self-employed under the Work and Earners' Account from $111,669 to $113,768
  • employees and private domestic workers for calculating the residual portion of the Work Account from $110,018 to $111,669.

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Child support deduction notices

In mid-March you'll receive a new child support deduction notice for each employee who has child support deducted from their salary or wages.

The new notice will tell you when to make deductions for your employee and the correct amount to deduct.

We send new notices every year as all child support paying parents are reassessed for the new tax year starting on 1 April, which may mean a new payment amount. If you don't receive a new notice for your employee please continue to deduct child support at the existing rate.

We usually issue a separate notice for each employee you make deductions for. However, we can send you deduction notices as a:

  • consolidated notice - a notice in schedule form showing all additions and changes to child support payments for multiple employees on the same schedule
  • combination - individual deduction notices for some employees and a consolidated deduction notice for others.

If you'd like to receive deduction notices in one of the above formats please call us on 0800 220 222.

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Are you completing the correct FBT return?

Recently we've noticed some FBT returns have been filed incorrectly. The following should help you give us the correct FBT return and data.

If you're an employer and wish to change your filing frequency, register for FBT or advise that you're no longer liable for FBT, you need to complete a Fringe benefit tax election form, send us a letter or secure email, or call us on 0800 377 772. Please note the quarterly option is not available online.

The date the election is received by us will determine the effective date of your elected filing option. You may be required to file or continue filing quarterly returns until the following financial or income year and any back-year quarterly returns.

Find out more about FBT.

Three FBT returns can be completed.

Fringe benefit tax quarterly return (IR420)

This is for employers who must file every quarter. Do not tick the alternate rate box at keypoint 4 on the return for quarters 1-3. The alternate rate can only be used in March.

From 1 October 2010 you must use 49.25% for all four quarters, or if using the alternate rate, use 43% on quarters 1-3 and the alternate rate calculation on quarter 4 only.

Fringe benefit shareholder/employee income year tax return (IR421)

This is for companies with shareholder-employees and covers the same period as the company's accounting year. You can file an income year return if:

  • you're a close company and your annual gross PAYE and ESCT for the previous year is no more than $500,000, or
  • you only provide motor vehicles for the private use of shareholder-employees and that benefit is limited to two vehicles, or
  • you weren't an employer in the previous year.

Existing companies with shareholder-employees can elect to file income year returns by the last day of the first FBT quarter in the income year for which the election applies.

Companies that are new employers must elect by the last day of the first quarter they started employing in, within the income year the election applies for.

Note the flat rate changed from 61% to 55.04% from April 2010 and changed again to 49.25% from 1 April 2011. You can also use the alternate rate calculation instead.

Fringe benefit ordinary employee annual tax return (IR422)

This is for employers who elect to file annual returns for the year ended 31 March and if:

  • your annual gross PAYE and ESCT for the previous year is no more than $500,000, or
  • you didn't employ anyone in the previous year.

If you're a current employer, you must elect by 30 June in the year the election first applies. New employers must elect by the last day of the first quarter after starting to employ.

Choosing an option

The options available to elect are as follows:

  • Option A is for annual returns for employers with ordinary employees (not shareholder-employees).
  • Option B is for income year returns for shareholder-employees only.
  • Option C is for annual returns for ordinary employees and quarterly returns for shareholder-employees.
  • Option D is for income year returns for shareholder-employees and quarterly returns for ordinary employees.
  • Option E is for annual returns for ordinary employees and income year returns for shareholder-employees.

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Viewing our tax statistics

This is the third year we've made tax statistics available online, giving you access to a wide range of data about tax revenue and social entitlements. The information includes data on customers, revenue collection, donation rebates, child support, Working for Families Tax Credits entitlements, and income distribution by income bands. Last year, we also added new sections on debt and compliance.

We have statistics for the financial years from July 2001 to June 2010, and customer statistics from April 2001 to March 2011.

View our annual tax statistics.

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International tax gets a new look

We've put all our information about international tax issues in one place on our website so you'll be able to find what you need more easily.

See our international tax page.

Businesses with international tax obligations are those that have international activities, trade or investments. Our website is updated regularly so you have the latest international tax information.

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Footnote

Business Tax Update comments generally on topical tax issues relevant to businesses. 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 Feb 2012

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