Issue 15 October 2002 (Large Enterprises Update )

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Corporates Contact - 2002

Issue 15 October 2002

Electronic payments - making them correctly
Services on our website
FBT and GST changes - are you up to date?
Calculation of specified contribution withholding tax (SSCWT)
Postal address on tax returns
Income from shares
Recent legislation changes
Forms and stationery from our website
FBT - prescribed rate of interest increase
ACC employer invoices
Imputation returns (filed with company return IR4 or separately on an IR4J
Ceasing or restructuring companies or branches

Electronic payments - making them correctly

Inland Revenue receives around 2 million electronic payments from New Zealand and overseas. Currently, almost half of these payments are received without enough information to quickly process the payment to the correct account. We are reliant on customers providing the correct payment information. If the correct details are not received then payments may be credited to:

the wrong IRD number and/or
the wrong branch of the same company, or
the wrong tax type, or
the wrong tax period

We operate a multi-account type environment and we collect and administer 27 different tax types. Where regular payments, like PAYE and GST, are made throughout the year the return period date actually changes (eg 28 February, 31 March or 30 April). Therefore, we, as a payee, do not fit the "one standard account type" operated by other organisations (such as power or phone accounts).

Example:
Joe Bloggs Limited IRD No 98-765-432
GST for period ending 31/10/02

The correct format of payment information for an electronic payment to Inland Revenue is as follows:

Particulars:
98765432 (IRD Number)

Payee code:
000 TAX GST
(Must be "000 TAX" and then the relevant tax-type code, all in upper case characters)

Reference:
31102002
(Return Period End date, not due date or payment date)

If your method of payment does not allow you to provide the three fields of information shown above, please ensure that you show as much detail as possible. The IRD number must be shown.

Current banking technology only allows for one set of payment information details to be included for electronic payments. Therefore separate transactions must be made for each tax type to ensure we have sufficient information to process your payments correctly. If this is not done, then refunds can be incorrectly issued in some cases, leaving another tax type and period without its payment and incurring penalties and interest.

However, if you are making a PAYE payment that includes other deductions such as student loan, child support or specified superannuation contributions withholding tax you can make one payment using the "employer deductions" tax type code - DED. For large employers who return PAYE twice monthly it is also important to show clearly which period the payments are for, (eg 15042002 or 30042002).

Further information for making electronic payments is available in our Making payments booklet (IR584).

Please ensure that staff in your organisation who deal with tax payments read this item.

If you have any further queries about making payments, please contact your business services account manager or our general enquiry line on 0800 443 773.

Services on our website

We have been adding interactive services to our website progressively since January 2002. You can now register on line for:

GST
employer tax types
RWT on interest
NRWT
approved issuer levy
gaming machine duty

Other services on the website you might find useful are:

Depreciation rate finder
FBT multi rate calculator
Overseas Currency calculator
PAYE tax deductions calculator
FBT election form (IR414)

All these services are available to your organisation from the "Get it done online", "Work it out" and "Form and Guides" section of site.

There are also online services that will interest or benefit the staff working for your organisation such as:

information on whether you need to file an IR3 or request a personal tax summary (PTS)
requesting a summary of earnings (SOE)
checking what a PTS would result in - tax to pay or a refund?
requesting a PTS
requesting an IR3 taxpack
requesting a student loan statement
student loan calculator to work out the benefit of paying off their loan faster.

Upcoming plans

We are working towards providing interactive services where all customers have the option to file and pay taxes through the internet. The first stage is customers completing onscreen forms and submitting them to Inland Revenue.

A pilot scheme is under way for filing GST returns online. All we need from you is:

the name of registered company and IRD number(s) involved
a contact name
a phone number
an email address.

If you are interested in filing GST online, please contact your business services account manager or 0800 443 773 (00 64 4 4707577 between 8am and 4.30pm NZ time if you are overseas). After receiving your request, we will email you with all the necessary information to get you started.

Planning has started for filing other returns online, such as income tax returns. Following this, work will be done on allowing customers to request account balances and transaction details online, after an authentication process.

If you and your staff have any suggestions for services you would like made available, please email us at corps.contact@ird.govt.nz.

FBT and GST changes - are you up to date?

A number of changes have been made recently to GST & FBT. For example did you know that:

Updated GST and FBT returns have been in use since January 2002.
You pay GST on FBT on your FBT return from 1 January 2002 onwards.
The GST threshold for registration is now $40,000.00.
The threshold for filing GST returns using payments basis is now $1.3 million
Simplified tax invoices can now be issued for amounts between $50 & $1000.00
Debt collection services are now excluded from the definition of financial services.

It may pay to double check any GST and FBT returns filed since January 2002 to make sure everything has been correctly accounted for and on the correct return. Mistakes can sometimes be made when there are a number of law changes.

The current FBT quarterly return IR420 is designed for use for all four quarters of the year. Box 4 of the return is meant for quarter 1, quarter 2 or quarter 3. Box 5 is only for quarter 4. Please take care to complete either box 4 or box 5. Ticking both Boxes 4 and 5 will result in a delay in the processing of the return.

Some common queries we receive include:

What do you do if an error has been made?
How do you return GST on assets retained after cessation?

Answers to these questions and more can be found in our GST guide (IR375) and Fringe benefit tax guide (IR409), these can be found in the "Forms and Guides" section of our site. You can order these guides by phoning our INFOexpress service on 0800 257 773.

You can also view copies of our regular newsletters, GST News and Payroll News online. If you have staff preparing GST, PAYE and FBT returns, they may like to take advantage of the subscription option.

Calculation of specified superannuation contribution withholding tax (SSCWT)

Background

SSCWT is a withholding tax required to be paid by employers who provide cash contributions to registered superannuation funds under the Superannuation Schemes Act 1989. These funds are broken down into two categories--defined contribution funds and defined benefit funds. Defined contribution funds allow an employer's contribution to be attributed directly to each individual employee. These contributions vest to the employee over time and are generally paid out on retirement. Defined benefit funds, however, operate on the principle of unallocated funding. They have a goal retirement sum, say, a percentage of salary, and employers can make lump sum contributions to these funds without attributing them to an individual employee.

Calculation of SSCWT

SSCWT is required to be paid by employers for contributions to both defined benefit funds and defined contribution funds.

Under Section NE 2(2) of the Income Tax Act 1994, the amount of a specified superannuation contribution is the aggregate of the amount that is received by the superannuation fund and the SSCWT payable in respect of that contribution. SSCWT is calculated on the specified superannuation contribution at the rate specified in Schedule 1, Part A, clause 10(b) of the Income Tax Act 1994.

Example

If a $1,000 contribution was made to a superannuation fund, the SSCWT required to be paid is calculated using this formula:

A
_____	x B
1 - A

Where: A= SSCWT tax rate (schedule 1, part A, clause 10(b) of Income Tax Act 1994)

B= contribution to the superannuation fund (exclusive of SSCWT)

0.33
_____	x 1,000 = $492.53
1 - 0.33

It is a common mistake in this case for $330 to be returned as SSCWT (tax at 33% on $1,000), therefore understating the tax on the contribution by $162.53.

Note: The tax rate for SSCWT, as stated in schedule 1, part A, clause 10(b) is set at 33%. However, from 1 October 2000, an employee can elect (with their employers agreement) to pay 39% SSCWT to bring the tax in line with the highest individual tax rate for employees earning over $60,000.

Account maintenance

You can register to pay SSCWT by completing a New employer application (IR334) form. If you are already registered as an employer but wish to add SSCWT as a tax type, phone us on 0800 443 773. Once registered, rather than receiving an IR345 returns, you will be issued with IR346 Employer deductions returns, which include space to declare SSCWT. As most corporate employers are twice monthly payers, it is essential that both IR346's (period 1, - 1st to 15th of month and period 2, 16 to end of month) are filed to ensure a correct assessment is shown in your account. Please note that these assessments are not posted as a result of ir-File schedules being received.

If you no longer are required to account for SSCWT deductions, please advise us, so we can close the account.

Postal address on tax returns

Tax agents are reminded not to show their own postal addresses in their clients' tax return panels. If you do this, clients will not get returns and other communications meant for them. If you wish to file returns on your clients' behalf please complete a Client linking or delinking (IR795) form.

Agents who have incorrectly shown their postal address in the panel meant for their clients' address are asked to contact us to correct the situation.

Income from shares

We ask companies that provide their employees with share give-aways or employee share purchase schemes to remind their staff that the taxable value of these shares must be returned in an IR3 income tax return. There are also provisional tax implications to consider if tax is not deducted at source and a tax liability of $2,500 or more is likely to arise.

Employees can contact Inland Revenue on 0800 377 774 if they are unsure how to calculate or return the resulting income.

Recent legislation changes

Recent legislative changes have affected compliance costs for Corporates segment customers in meeting their income tax obligations by aligning tax treatment to Financial Reporting.

Trading Stock
Now that the new trading stock valuation changes in subpart EE have had a chance to 'bed in', it is timely to review key points and impacts of the regime:

The new rules apply from the 1999 income year, which can mean from as early as October 1998 for some.
Note that if shareholding continuity has been lost after 30 September 1998, the new rules must be applied to any part year calculations for loss offsetting or losses carried forward.
Valuation at cost now aligns tax requirements with Financial Reporting.
Materiality allows tolerance for small errors in Financial Reporting. However this only applies to tax to the extent of the determination of cost, so omissions or alternative valuation methods, within materiality levels, for Financial Reporting are not acceptable for tax (i.e. materiality does not apply) so must be separately adjusted.
Market Price is now defined to be proceeds (after expenses) in the ordinary course of business. Note however (1) you must have evidence of this; (2) it cannot apply global or use mathematically formulated discounting; and (3) it can't be used for Excepted Financial Arrangements.

Research & Development
New sections DJ 9A and 9B of the Income Tax Act 1994 allow alternative treatment for Research or Development (R&D) costs. Some of the key points of interest are:

The new rules apply from the 2002 income year.
Their purpose is to clarify the Capital / Revenue boundary as it applies to R & D.
The previous DJ 9 rules continue to exist, and you can choose whichever regime is more favourable to yourselves.
The new rules allow a deduction if (a) it is expensed under Financial Reporting Standard No 13 (FRS-13), or (b) is not recognised as an asset under FRS-13, or (c) it was expensed for Financial Reporting due to being immaterial, but for tax it is deductible only if it would have been expensed under FRS-13 had that standard been applied to that item.
The meanings of "Research" and "Development" are defined to be as per FRS-13.
The new rules only prevent the capitalisation test applying, so the expenditure must still meet deductibility requirements of a nexus with derivation of income, and not being otherwise excluded from deductibility (eg in relation to exempt income).
FRS-13 has a 'Five Asset Recognition Criteria' test for determining whether something is an Expenditure or Asset.
Costs of software development that come within the definitions of Research or Development and are expensed for accounting under FRS-13 are deductible under the new rules.

Forms and stationery from our website

Before you pick up the telephone to request an IRD form or guide, check our "Forms and Guides" section of our website. Many of the forms and booklets that are commonly used are available on the website and can be downloaded.

FBT - prescribed rate of interest increase

The prescribed rate of interest used to calculate fringe benefit tax for low-interest, employment-related loans will increase on 1 October from 7.5 percent to 7.98 percent. The rate, which last changed on 1 July this year, is reviewed regularly to align it with the results of the Reserve Bank's survey of first mortgage rates

Subsequent update: The rate for this quarter was later reduced to 7.83%, by Order in Council on 18 November 2002. This was reported in Tax Information Bulletin Vol 14 No 12, page 46.

ACC employer invoices

ACC have recently begun invoicing employers for their ACC levies. The invoices are based on information supplied by Inland Revenue from employer monthly schedules for the year ended 31 March 2002. This article sets out what data we have supplied and how the components have been calculated.

The information supplied is the total for all employees for the 12 months (or fewer months if the employer started or stopped employing part-way through the year) consisting of:

total gross earnings
earnings not liable for earner premium
withholding payments
earnings in excess of the specified maximum.

Gross earnings
Gross earnings are the total gross earnings for all employees and include:

those employees who have not provided an IRD number, and
those employer monthly schedules that we are holding in error resolution (those that haven't been fully processed due to unresolved issues).

Schedules in error and other changes to the data will be reflected in a subsequent change tape as they are corrected.

Earnings not liable for earner premium
This figure has been reduced by the amount of withholding payments shown as earnings not liable for earner premium.

Withholding payments
The total of gross earnings for all employees with a WT tax code.

Earnings exceeding the specified maximum
This is the total of all earnings exceeding the specified maximum. The specified maximum for the year ended 31 March 2002 is $85,795.

Earnings in excess of the specified maximum are calculated by:

totalling the gross earnings for each employee
reducing that total by any applicable earnings not liable for earner premium
applying the specified maximum.

Monthly schedules	Tax code	Gross ($)	Earning not liable for earner premium ($)
April 2001
John Brown	M	27,000
Tom Smith	M	2,000
Peter Young	WT	1,000	1,000

May 2001
John Brown	M	37,000	200
Tom Smith	M	5,000
Peter Young	WT	5,000	5,000

June 2001
John Brown	M	50,000
Tom Smith	M	3,000	100
Peter Young	WT	5,000	-

Totals		$135,000	$6,300

The information supplied to ACC would be as follows:

Total gross $135,000
Earnings not liable* $300 ($6,300 less withholding payments of $6,000)
Withholding payments $11,000 (Sum of payments with a WT code)
Earnings over maximum $28,005 (Sum of payments to Brown less earnings over maximum)

*In this case the employer failed to show the withholding payment to Young in June as earnings not liable.

Workings:

Sum of payments to Brown		$114,000
Earnings not liable	$200
Specified maximum	$85,795	$85,995
Earnings over maximum		$28,005

In its invoicing, ACC is showing each of these components as part of the calculation of the liable earnings. The liable earnings are the total gross earnings less the sum of the other components.

Imputation returns (filed with company return IR4 or separately on an IR4J)

A number of incorrectly completed 2001 Imputation returns were filed in March and April this year. Boxes 40 and 43 on the IR4 return and Boxes 6 and 9 on the IR4J return must be completed to show whether the balances are debits or credits.

If these boxes are not completed, they will be keyed as debits. The resulting assessments will then differ from what you expected.

Making sure you do this when filing your returns would avoid an incorrect assessment in the future.

Ceasing or restructuring companies or branches

Some companies, or branches of companies are restructuring without being fully aware of the Inland Revenue account maintenance implications.

Restructuring often increases the workload and working hours of company finance staff, and we would like to help you lessen this load.

Prior notification of any proposed cessation or restructuring is essential to ensure that things run as smoothly as possible for you and your staff. This is especially relevant where organisations are filing monthly and/or quarterly returns, for example PAYE, FBT, child support, RWT on interest or GST.

If you are considering a change in your company structure, you need to consider the following issues:

Income Tax

Do I need to apply for a different balance date - will this affect payment dates for income tax and provisional tax?
Do I need a new RWT exemption certificate?
Is delinking or linking to a tax agent involved?
When can I get a new IRD Number for a company?

GST

When can a new GST registration be processed?
Do I need to group register for GST, or change a current group?
Do I need to reapply for other needs such as buyer created invoices, or special accounting periods?
Do I need to change the filing frequency for GST?
Do I need to register new trade names for GST?
Should I file GST returns received for periods after the date of cessation where I've provided written notification?

Payroll

Do I need to advise ACC of the cessation? How will my payroll cessation affect my ACC liability? Will my ACC number change too?
What FBT implications will there be?
Does my paying SSCWT affect my cessation date?
What do I do on my last employer monthly schedule under my old IRD number?
How do I get a new payroll branch IRD Number and what time constraints are there?
What do I need to do on my first employer monthly schedule for a new employers' account?
Do I need new IR330's from all the staff?
What happens to my old ir-File UserID and password?
How long does it take to get a new ir-File UserID and password?
What happens when staff earn over the ACC maximum and they change payrolls?
Does a cessation during the financial year differ to one at 31 March?
What should I tell staff about the changes?
Can PAYE and FBT accounts be closed before child support is closed?
How long it takes to close a child support employer's account?

Note: If you use a payroll bureau, please ensure they are fully informed.

General

Are other tax types involved as well?
What difference does it make if I go from being a company with one IRD Number to a company with more than one IRD Number, (ie more than one branch)? What are the benefits and the disadvantages?
What forms do I need to complete for a cessation? (This can differ if company or tax agent).
What are the due dates for cessation forms?
Are there reconciliation returns required, and what are the due dates?
How long will I keep getting forms under the old number, and what do I do with them?
Are changes of address, telephone numbers, fax numbers and personnel required?
Has the company's nominated person(s) changed?

If you have any enquiries, please telephone your business services account manager or our enquiry line on 0800 443 773. If your proposed restructuring is major, we may make an appointment with you to discuss the issues involved.