Issue 19 September 2003 (Large Enterprises Update )

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Corporates Contact - 2003

Issue 19 September 2003

Max on tax
Consolidated groups
Tax in the screen production industry
Income tax refunds and ICA returns for 2002 IR 4 returns filed after 31 March 2003
Payments due on weekends or holidays
Manufacturing Sector
High-wealth individuals

Max on tax

It is hard to believe we are almost into October already. Here are some current issues that come to mind.

Binding rulings and non-binding opinions
We have almost completed the first two binding rulings allocated to Corporates segment. Two more have been received and have been allocated.

The plan is that over the next two years the number of binding rulings handled by Corporates will gradually increase. The aim is to reduce the time it takes for each ruling to be issued.

Bearing this in mind, it raises the issue of what happens with what have become known as "non-binding opinions". The intention is that over time the binding rulings service will replace the current non-binding opinions service.

However, we recognise that there are concerns that binding rulings may not be appropriate in certain circumstances. So we can give further consideration to this, I would be interested to hear in what circumstances and under what conditions our readers feel binding rulings would not be appropriate.

I would like to reassure readers that in moving to a binding rulings service, we recognise the need to make a planned and graduated transition. Non-binding opinions will continue to be given until we have the capability within Corporates to provide a binding service in a timely fashion that meets customers needs.

Access to accountants' advice papers
Recently my staff asked some accounting firms (and other organisations) for the names of clients that may have entered into certain transactions. We want to keep close to current transactions being undertaken to ensure these are not schemes that erode the tax base.

I have analysed my staff's actions and conclude that where the manager has decided to approve such a request, the letter will be signed by a Corporates manager. All requests to ICANZ (Institute of Chartered Accountants of New Zealand) members will be in terms of the agreement between Inland Revenue and ICANZ. This procedure also applies to any requests for access to accountants' advice papers and/or audit work papers.

Max Carr
National Manager Corporates
Email max.carr@ird.govt.nz

Consolidated groups

The grouping of a number of wholly owned companies into a consolidated group means only one income tax return is required to be filed, reducing the group's compliance costs. You can apply to become a consolidated group by completing an Election to form a consolidated group (IR494) form.

Consolidation only relates to income tax and income tax related tax types. A consolidated group cannot pay AIL, FBT, PAYE, NRWT and so forth - these taxes must be registered and returned under the IRD numbers of each member company. However, a consolidated group can apply for a resident withholding tax exemption certificate by completing an Application for exemption from resident withholding tax on interest and dividends (IR451) form. For Corporates taxpayers the reason stated on the form would normally be "group income over $2 million".

Consolidated groups can adopt the balance date of the member companies. (However, they do not qualify as "new provisional tax payers" as defined in section OB 1 of the Income Tax Act 1994.) If the group adopts a non-standard balance date in the first year, use-of-money interest may be incorrectly calculated by our system on the assumption it is a transitional year. We recommend that any interest calculated be checked.

General legislation covering consolidated groups is found in section FD of the Income Tax Act 1994. You can also find information on consolidated groups in our Consolidation (IR493) booklet or Tax Information Bulletin, Vol 4, No 5 (December 1992). You can make changes to a consolidated group using a Consolidated groups - general elections (IR495) form.

You can find the publications mentioned here on our website at www.ird.govt.nz or order them through StationeryXpress or by phoning INFOexpress on 0800 257 773.

Tax in the screen production industry

Inland Revenue has been working closely with the screen production industry, including SPADA and the New Zealand Film and Video Technicians Guild, to assist those involved in the production of film, television or video to meet their tax obligations. As a result we have introduced a number of initiatives designed to:

improve access for people in the industry to Inland Revenue staff familiar with the industry
give tax advice and services customised to the industry's needs
provide the opportunity for the industry to raise questions and concerns with us
demonstrate our commitment to removing barriers and making tax as easy as possible for filmmakers.

Screen Production Industry Desk
We have established the Screen Production Industry Desk within the Corporates segment to consult with the industry, develop an understanding of the industry within Inland Revenue and to provide information about tax in the industry that is clear, consistent and easily understood. The Desk works closely with the Non-resident Entertainers Unit and the Non-resident Contractors Unit within Corporates to ensure an integrated approach.

Web-based guide for people in the screen production industry
This provides information about labour-related tax issues in the screen production industry. Over time the guide will be expanded to include information on other tax matters that affect the industry. We hope this guide will become the first port of call for people in the industry with tax queries. You can find the guide at www.ird.govt.nz/screenprodindustry.

0800 SCREEN
We have established a dedicated freephone line, 0800 SCREEN (0800 727 336), for people in the industry who need assistance.

New withholding payment class
Industry feedback has indicated that most contractors prefer to have deductions made at source to avoid a large tax bill at year end. As a result of this feedback a new class of payments has been added to the withholding tax regulations to simplify and clarify the tax treatment for contractors working in the screen production industry. The new class came into effect on 8 September 2003.

This means all resident contractors working in the screen production industry who are covered by the new class (generally those contractors who work behind the camera, eg lighting technicians, hairdressers, payroll and administrative staff) will be subject to 20% withholding tax deduction on payments they receive for services related to screen productions. (This rate is aligned to the existing withholding tax rate that applies to actors.) The no-declaration rate is 35%.

Any contractors who would like a higher or lower rate of deduction can still apply for a special tax code or a certificate of exemption.

Per diem (per day) allowances
Per diem allowances paid to resident and non-resident contractors and entertainers working in the screen production industry in New Zealand form part of their gross income and are subject to withholding tax.

However, a recently released determination (effective from 1 September 2003) allows per diems of up to $60 per day to be paid free of withholding tax and income tax record keeping obligations.

You can find out more about this on our web-based screen production industry guide at www.ird.govt.nz/screenprodindustry/ or in the Tax Information Bulletin, Vol 15, No 8 (August 2003), which is available on our website.

Screen Production Industry Desk
Inland Revenue
Private Bag 39984
Wellington
New Zealand
Freephone 0800 SCREEN (0800 727 336)
Email screen@ird.govt.nz

Non-resident Entertainers Unit
Inland Revenue
PO Box 5542
Auckland
New Zealand
Phone 64 (0)9 367 1329
Email nr.entertainers@ird.govt.nz

Non-resident Contractors Unit
Inland Revenue
Private Bag 39984
Wellington
New Zealand
Phone 64 (0)4 802 6056
Email nr.contractors@ird.govt.nz

Income tax refunds and ICA returns for 2002 IR 4 returns filed after 31 March 2003

A number of tax agents and taxpayers have overlooked the provisions of section MD 2 of the Income Tax Act 1994.
The concession for an income tax refund to be issued without an IR 4J imputation return only relates to those 2002 returns filed on or before 31 March 2003. If you have filed your 2002 income tax return late (ie from 1 April 2003 onwards), you will not receive an income tax refund until an IR 4J for 2003 is filed. Staff on our enquiry lines are unable to assist until the imputation return is filed.

If you would like more information on this, please see our article in the March 2003 (No 17) issue of Corporates Contact or call us on 0800 443 773.

Payments due on weekends or holidays

There seems to be some confusion about when to make payments if the due date falls on a weekend or public holiday.

GST payments are due on the last working day of the month (except for payments due on the last working day in December, which are deferred until 15 January), so if the last day of the month is a weekend or a public holiday, the payment is due on the last working day before.

However, PAYE, FBT, NRT income tax and so forth can be made on the next working day after the due date. When you make payment:

by posting a cheque, it won't be late as long as it is postmarked on or before the due date
over the internet and by electronic transfer, you need to be aware of the bank's cut-off time by which a payment transaction must be entered for it to meet a due date.

You will need to make sure you enter all the details we need to process your payment to the right account and period - you can find information about this in our Making payments (IR584) booklet or order through StationeryXpress or by phoning INFOexpress on 0800 257 773.

If you are outside New Zealand, payment must be received in New Zealand by the due date.

You can also pay in person at most branches of Westpac. You'll need to take your payment slip, statement or a copy of your return with you and Westpac will date-stamp it for you to keep with your records.

We are currently updating our Standard Practice Statement PRC-100 Tax payments -when received in time, which covers this topic. The external consultation process for this ended on 29 August, but you can still request a copy of the exposure draft ED-0028 from rulings@ird.govt.nz.

Manufacturing Sector

The Manufacturing Sector of the Corporates segment is based in the Auckland Central Business District and also has a small group of staff in Christchurch who handle a variety of industries located in the South Island.

The Manufacturing Sector deals with the tax affairs of the following industries:

forestry, wood processing and wood-based products
whiteware and brownware
food and beverages
chemicals
plastic extrusion and conversion
packaging
personal care products
textile manufacturers
electronics and electrical manufacturing industries
tobacco products
construction and roading industries.

The Manufacturing Sector also includes the Non-resident Entertainers Unit.

The Account Manager, Taxation and Audit coordinates compliance audit procedures and provides technical assistance. The Account Manager, Business Services will help you maintain your tax accounts, provide an advisory service and answer technical correspondence.

Audits of companies over the last twelve months by the Manufacturing Sector identified seven areas of major concern. These are listed below in order of frequency:

interpretation between capital and revenue expenditure
offsetting of net losses in terms of section IE 1
loss of continuity (section IF 1 and OD 5)
adequate accounts for part-year losses (section IF 1(4))
loss refreshing arrangements
financial arrangements (section OB 1)
imputation credit account (ICA) - imputation tax adjustment
ICA - imputation tax credit shopping
depreciation
amalgamations and consolidations
deconsolidations - the break-up of consolidated groups.

The Sector will be concentrating on these areas over the next twelve months. If you have any concerns in these areas, please contact your account manager, the Team Leader or the Sector Manager, who will be pleased to assist.

Manager, Manufacturing Sector
Mike Spelman
Phone 09 367 1351
Email mike.spelman@ird.govt.nz

Team Leader, Business Services
Hilary Wylde
Phone 09 367 1334
Email hilary.wylde@ird.govt.nz

Non-resident Entertainers Unit
Inland Revenue
PO Box 5542
Wellesley Street
Auckland
Phone 09 367 1329
Fax 09 377 1159
Email nr.entertainers@ird.govt.nz

High-wealth individuals

Over the next nine months the Corporates Services Sector will be setting up a unit in Hamilton that will look after high-wealth individuals. The primary objective of the Unit is to develop a better understanding of this group of taxpayers and to use that understanding to ensure they are complying with their tax responsibilities.

The functions of the Unit are research, monitoring, risk assessment, audit and providing a tax service for this group of taxpayers. The Unit will also have a coordinating role with other segments of Inland Revenue.

Generally, the Unit will focus on high-wealth individuals or family groups with wealth (or the control of wealth) in excess of $50 million. This threshold will be reduced to $20 million where the high-wealth individual:

controls companies in the Corporates segment
has substantial wealth in property development
has complex business structures or pays little tax relative to their level of wealth, warranting the need for a better Inland Revenue understanding of the structures employed, or
has been involved in tax-aggressive arrangements.

Taxpayers eligible for transfer to this Unit will include entities the high-wealth individual controls such as companies, trusts and partnerships, and also family members where they have interests in the financial structure of the high-wealth individual. For more information, contact Roy Macdonald by phone on 07 834 7288 or email roy.macdonald@ird.govt.nz