Large enterprises update (formerly Corporates contact) - 2008
Large enterprises update - Number three: April 2008
- Claim your employer tax credit using the new-look IR345
- Research and development (R&D) tax credits live on website
- Managing the company tax rate change
- Penalties amendments
- Client responsibilities when using a tax advisor
- Employers and KiwiSaver
- Questions and answers about KiwiSaver
- Effective dates for other legislative changes
- Tax code declaration (IR330)
- Tax mistakes made by large enterprises
- Portfolio investment entities
- Foreign investment funds
- International financial reporting standards
- New process for getting an IRD number
- Online Services changes
- From the editor
Claim your employer tax credit using the new-look IR345
We're updating the Employer deductions (IR345) form to reflect the introduction of the compulsory employer contribution (CEC) and the employer tax credit (ETC). The new form replaces both the existing IR345 and IR346 forms.
You must send us the new form to claim the ETC.
From 1 April 2008 you'll need to make compulsory employer contributions to your employee's KiwiSaver scheme or complying fund if:
- the employee is or should be having KiwiSaver contributions deducted from their salary or wages, and
- the employee is between 18 years old and the age of eligibility for withdrawing from KiwiSaver or a complying fund.
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When you make contributions you can claim an employer tax credit of up to $20 a member a week or the amount contributed by you, whichever is the lesser. You can claim the ETC for both compulsory and voluntary employer contributions to KiwiSaver schemes or complying funds.
If you take on a new employee and enrol them in KiwiSaver (or they are already enrolled), you can claim the ETC from the first payday.
You'll use the new IR345 from the April 2008 period. The ETC is offset against the payment due and the net amount is paid to Inland Revenue.
We'll mail you the new-look IR345 in time for your April deductions. It has no employer (carbon) copy so you'll need to make a photocopy of the form for your records. If you're registered for ir-File, we recommend you file the IR345 online. But if you do, please don't send us a paper copy as well. Duplicate forms have caused problems in the past.
IR345s filed online are processed every day at 11am. If you need to retract your IR345 for any reason - perhaps you made a mistake - you need to do so by 10.59 am. When your IR345 is successfully retracted, you can file the correct version straightaway. Please call your account manager if you miss the cut-off.
For more information, please refer to Payroll specification document 1 April 2008 to 31 March 2009 or your revised KiwiSaver employer guide (KS4) which was sent to all employers in February.
The new version of the IR345
Research and development (R&D) tax credits live on website
Details of the new R&D tax credit are now available on the Inland Revenue website.
The website contains the information businesses will need to assess their eligibility for the tax credit and outlines the record-keeping requirements of the new process. It includes guidance material adapted for the web from the paper-based draft guidelines released for public consultation in December 2007. Feedback from that process has been incorporated into the website and we will progressively add more information as it becomes available.
The detailed statement to support an R&D tax credit claim, and guidelines for completing this, will be available online in time for businesses to file their first claims. If you need to file before 1 April 2009, you should contact us.
What is the R&D tax credit?
The R&D tax credit has been introduced by the Government to encourage businesses to invest more in R&D, because it believes there are wider benefits to New Zealand from greater investment in R&D.
The tax credit is equal to 15% of eligible expenditure for businesses doing eligible R&D. It took effect from the start of the 2008-09 income tax year (1 April 2008 for most businesses).
Eligible businesses will claim the tax credit in their annual income tax return. They will also need to file a supporting detailed statement, which must be done online, no later than 30 days after the business's income tax return due date.
Eligibility criteria
All types of businesses may be eligible to claim the tax credit, including sole traders, companies and partnerships. Entities that have tax-exempt income only may also be eligible for the tax credit.
To be eligible a business must operate in New Zealand. The R&D activities it carries out must be related to its current or intended business and the business must also control the R&D, bear the financial risk and own the results. A business can either conduct the R&D in-house or contract a public or private sector research provider to do it for them.
Eligible expenditure must meet a number of criteria and not be specifically excluded.
Find out more information about the tax credit or call us if you need further assistance.
Follow these steps to see if you are eligible for a tax credit:
[Larger version of the tax credit flowchart]
Managing the company tax rate change
The change in the company tax rate takes effect from the start of the 2009 income year. We're managing a number of changes that may affect all entities taxed at the company rate.
The changes affect:
- how you will calculate provisional tax payments at the new rate, based on income taxed at the previous rate
- attaching imputation credits from the old rate to dividends paid after the new rate applies
- other rates and formulas linked to the company tax rate, such as QCET, conduit, BETA, FITC and carrying forward excess imputation credits
- the definition of which entities pay tax at which rate, for instance widely-held savings vehicles eg some unit trusts, superannuation and investment funds.
We're managing the changes by:
- ensuring our staff are up-to-date with the changes
- updating printed and online materials such as returns, return guides, related forms, guides and booklets
- newsletter articles
- website updates
- presentations to stakeholders.
We'll continue to tell you about any changes through this newsletter and website updates.
Penalties amendments
The Taxation (Business Taxation and Remedial matters) Act 2007 makes a number of amendments to the Tax Administration Act 1994. They include:
- increasing the reductions given for some voluntary disclosures
- a new late payment grace period
- new GST late filing penalties
- new EMS non-payment penalties
- changes to shortfall penalties.
These amendments are to encourage customers to voluntarily comply by relaxing penalties when customers have genuinely and consistently tried to do the right thing. The voluntary disclosure rules took effect from 17 May 2007. Most others took effect from 1 April 2008.
Reductions for voluntary disclosure penalties
If you've made a mistake in your tax return, we recommend you tell us about it as soon as possible.
Shortfall penalties for not taking reasonable care, making an unacceptable interpretation, or taking an unacceptable tax position can now be reduced by 100% if you make a voluntary disclosure before we advise you of a pending tax audit or investigation.
Previously, the maximum reduction in penalties was 75%.
The 75% reduction still applies to voluntary disclosures made before notification of audit if the tax shortfall arose because the customer was grossly careless, took an abusive tax position or evaded tax. Disclosures made after notification of an audit or investigation but before the audit or investigation begins still qualify for a 40% reduction.
A new late payment grace period
Each customer, regardless of their compliance history, starts with a clean slate and will get a grace period the first time they make a late payment after 1 April 2008. We'll send these customers a reminder, stating a further date for payment. If payment isn't made, the late payment penalty will be imposed as if the reminder had not been given.
Further late payments in the subsequent two years will not qualify for a grace period.
New GST late filing penalties
Late filing penalties applied to GST returns from 1 April 2008.
The first time a customer files a GST return late after this date they will receive a letter requesting the overdue return and informing them that a late filing penalty may be charged on any GST return filed late in the future.
If in the following 12 months a subsequent GST return is filed late, a late filing penalty will be charged.
Late filing penalties for GST returns are $50 for someone on the payments basis or $250 for people on the invoice or hybrid basis at the date the GST return is due.
New EMS non-payment penalties
From 1 April 2008 non-payment penalties apply to employers who file their employer monthly schedule (EMS) but don't pay the amount payable on the schedule.
The penalties will be applied on a monthly basis until:
- the outstanding amount is paid, or
- the employer enters into an instalment arrangement, or
- the total non-payment penalties charged reach 150% of the amount outstanding when the first non-payment penalty was charged.
Before any non-payment penalties are charged, we'll send the employer a letter informing them that they may incur a penalty if the tax is not paid or an instalment arrangement entered into.
One month after this letter, penalties of 10% will be charged on any unpaid tax. When the customer pays or enters an instalment arrangement the last penalty imposed reduces to 5%.
Non-payment penalties are in addition to shortfall penalties, late payment penalties and use-of-money interest.
Changes to shortfall penalties
The scope of the unacceptable tax position penalty has been narrowed and now only applies to income tax shortfalls over $50,000 and more than 1% of total tax for the period. The threshold for the abusive tax position shortfall penalty has been removed and the temporary shortfall rules have been clarified.
Do you need more information?
You'll find an in-depth discussion of all amendments to the compliance and penalties legislation in our upcoming April 2008 Tax Information Bulletin.
Client responsibilities when using a tax advisor
We generally consider you have taken reasonable care if you have relied on advice provided by a tax advisor. In most cases, you won't incur a shortfall penalty on your return(s).
However, the Taxation (Business Taxation and Remedial Matters) Act 2007 states that a tax advisor's client may incur a shortfall penalty for not taking reasonable care if they:
- fail to provide adequate information when seeking advice
- fail to provide reasonable instructions to the tax advisor
- unreasonably rely on a tax advisor or on advice they have reason to believe is incorrect
- had a tax shortfall in the previous four years that arose from a corresponding tax position.
Employers and KiwiSaver
We've found that some employers are forgetting to complete the KS1 form and others are unsure of the opt-out rules. Here's a quick summary of what you need to know:
The KS1 form
Please remember to fill out a KiwiSaver employee details (KS1) form whenever an employee enrols in KiwiSaver. Remember to include the employee's home address. Send us the completed KS1 before your next employer monthly schedule (EMS) is due to be filed.
If you're registered for ir-File you can send us the KS1 electronically.
You can get more copies of the KS1 form from our website or by calling INFOexpress on 0800 257 773 - have your IRD number with you.
Opting out
If you automatically enrol an eligible new employee in KiwiSaver, they can opt out after they've been employed for two weeks. They then have six weeks to decide whether to opt out. The cut-off point for opting out is when they have been employed for eight weeks. After this period employees may still be able to opt out through the late opt-out process however they will need to meet certain criteria.
Existing employees who have voluntarily enrolled in KiwiSaver cannot opt out.
Anyone who has been a member of KiwiSaver for 12 months may apply for a contributions holiday. If someone is experiencing financial hardship they may be entitled to an early contributions holiday before the 12 months is up.
If one of your employees wants to apply for an early contributions holiday, they can call us on 0800 KiwiSaver (0800 549 472).
For more information please go to the employers section of our website.
Remember, as an employer, you can register online to receive regular email updates about important information or changes.
Questions and answers about KiwiSaver
- Q. If an employer makes a voluntary extra contribution to KiwiSaver for a redundancy payment, is it eligible for the employer tax credit?
A. Yes, you can claim the employer tax credit. The redundancy payment does not count when working out the employee deduction or compulsory employer contributions.
- Q. We've heard that ACC will no longer deduct payments if someone joins KiwiSaver.
A. ACC will not automatically enrol someone in KiwiSaver. Nor will they begin making deductions for members unless specifically asked to by the member (using the KS2 form or similar).
- Q. If an employee opts out after the employer has already claimed the employer tax credit from Inland Revenue, how can they claim back their contributions?
A. If the member opts out we will refund any employer contributions, less the amount of employer tax credit claimed.
- Q. Under the new legislation an employer must meet and discuss salary sacrifice arrangements with employees and renegotiate in good faith. If the employer stated that this comprised a total remuneration package how does that affect KiwiSaver contributions? Is the employer obliged to pay on top?
A. Any employment contract clause that was in place before 13 December 2007 which stated compulsory employer contributions would not be paid on top of salary or wages must be put aside and renegotiated in good faith.
Effective dates for other legislative changes
Definition of salary and wages for KiwiSaver purposes
The definition of salary and wages now excludes redundancy payments, accommodation benefits or allowances and overseas living costs. No employee deductions or compulsory employer contributions are required for these salary components from 1 April 2008.
New definition of casual employee
Casual employees engaged on an irregular and intermittent basis and people who receive holiday pay with their wages will not be enrolled automatically. This new definition of a casual employee took effect from 1 April 2008.
Tax code declaration (IR330)
When you take on a new employee, they must give you a completed Tax code declaration (IR330) before their first payday. It must show the employee's IRD number and tax code.
If the employee doesn't give you an IR330, you must deduct tax at the no-declaration rate until they do.
Tax mistakes made by large enterprises
Here's the list for this issue of Large enterprises update:
Goods and services tax
- No tax invoice. Remember, you need to have a tax invoice before you claim GST on supplies of over $50. We're finding some enterprises are making claims based on estimations. Others are claiming for payments made to contractors before the job is verified and the contractor has issued a tax invoice.
- Asset sales omitted. Some enterprises aren't paying GST when they sell fixed assets.
- Invalid tax invoices. A common error is claiming GST on payments made to a non-registered person (eg an overseas contractor). Also making a claim based on an overseas invoice without first converting the foreign currency to New Zealand dollars.
- Forgetting GST on fringe benefits. Some fringe benefits are subject to GST. Remember to account for them in Box 7 of your FBT return.
- Incorrectly classing supplies. Sometimes "regular" sales are treated as zero-rated or exempt, when the enterprise should be paying GST on them.
Depreciation
- Incorrect valuation of assets
- Out-of-date asset registers
- Assets transferred to associated persons not accounted for correctly.
International tax
- Non-resident withholding tax (NRWT). Some enterprises are forgetting to deduct NRWT when they pay interest or royalties to an overseas recipient. There's also confusion about what payments are liable for NRWT or approved issuer levy (AIL). If you're not sure, please talk to your account manager or call us on 0800 443 773.
For more information about these international tax issues, please refer to our Non-resident withholding tax payer's guide (IR291), or contact our Non-resident Centre by email nonres@ird.govt.nz or call 03 951 2020. - Imputation credit accounts (ICAs). Some non-resident companies that trade in New Zealand are maintaining ICAs. In general, only resident companies can do this, although Australian companies can maintain ICAs if the parent company has made an election.
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In the "Tax mistakes" section of the December 2007 issue of Large enterprises update, we discussed losses carried forward and imputation credits carried forward. Unfortunately, we got the thresholds wrong. The two paragraphs should have read: Company lossesCarrying forward a loss despite a breach in shareholder continuity. Remember, you can only carry a loss forward if the company maintains a common ownership of 49%. ImputationCarrying forward credits despite a breach in shareholder continuity. You can only carry your credits forward if the company maintains a common ownership of 66%. We apologise for any inconvenience this may have caused. |
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Portfolio investment entities
Portfolio investment entities (PIEs) came into existence from 1 October 2007.
Here are a few reminders and items of interest for those entities that have elected to become PIEs.
Correctly determining prescribed investor rates (PIRs)
Investors in PIEs should review their PIR each year and give it, along with their IRD number to the PIE before the start of the tax year. If investors don't pass on their PIR, the PIE is required to tax investors' allocated income at the default rate of 33% (30% from 1 April 2008).
File transfer registration
When you register for our online services, it can take up to ten days to get your password in the mail. If you're intending to file a PIE return or your annual reconciliation, and you're not already registered for this service, please make sure you allow time for the password to be issued before filing your first return.
PIE tax payments
Quarterly (section HL21) PIEs and exit period (section HL23) PIEs that pay PIE tax should make payment in the usual manner, but instead of putting "INC" for the tax type, you should enter "PIE".
Thinking of changing your allocation/calculation periods?
If you have already registered as a PIE and now wish to change your PIE tax calculation basis, you need to do this before the start of the tax year.
Formation losses
When claiming formation losses, you need to give us full details of the opening balance of the formation loss, including:
- losses brought forward (pre-PIE losses)
- current period losses (pre-PIE losses)
- transitional adjustment losses (arising from deemed disposal and reacquisition).
Send this information to Neil Owen, Team Leader, Finance Sector, Large Enterprises.
Transitional issues
Investments held in certain New Zealand and Australian companies may be subject to a deemed disposal and reacquisition provision, effective the day before an entity becomes a PIE. This may generate an additional tax liability in the income tax return to the date the PIE commenced. For most PIEs this will be the 2007 income tax return.
Send details of any additional tax liability arising from the deemed disposal and reacquisition of shares, including how the amount is to be spread, to Neil Owen, Team Leader, Finance Sector, Large Enterprises.
Foreign investment funds
FIF advertising campaign
Advertisements aimed at investors with overseas investments totalling more than $50,000, ran in major metropolitan newspapers, investor magazines and various online sites from 4 February to the end of March 2008. They direct people to Inland Revenue's website to find further information about the new foreign investment fund (FIF) rules.
FIF transitional issues
Investments held on revenue account in certain New Zealand and Australian companies may be subject to a deemed disposal and reacquisition provision, effective the day before the income year starting on or after 1 April 2007.
Send details of any additional tax liability arising from the deemed disposal and reacquisition of shares, including how the amount is to be spread, to Neil Owen, Team Leader, Finance Sector, Large Enterprises.
International financial reporting standards
The Taxation (Business Taxation and Remedial Matters) Act 2007, passed in December 2007, will result in many of our large enterprise (LE) customers using new international financial reporting standards (IFRS) accounting-based rules for tax purposes.
If your organisation comes under the new rules, all accounting financial statements commencing on 1 January 2007 or later must be prepared following IFRS. And you're required to use the new IFRS tax rules in all corresponding income tax returns as well.
For most organisations, the first return that must comply with the new IFRS tax rules will be the 2007-08 return.
For LE taxpayers who do not have to adopt IFRS for accounting, the new IFRS tax rules do not apply and they must continue to file tax returns based on the existing rules.
The new IFRS tax rules almost entirely deal with the spreading of income and expenditure for financial arrangements (the accrual rules). There are also some minor changes to the trading stock and research and development rules.
Early adopters
Tax law allows taxpayers who are IFRS accounting "early adopters" to voluntarily switch to the new IFRS tax rules before the new tax rules become compulsory (from the 2007-08 return). Early adopters can choose to use the new tax rules from the corresponding tax year of the year of adopting IFRS accounting.
If you have completed accounting financial statements that start any time between 1 January 2005 and 1 October 2006 (both dates inclusive) following IFRS, you can choose to continue to use the pre-IFRS tax rules to file your tax return/s for those period/s but must use the new tax rules from the 2007-08 income year.
Change of method adjustments
Any change of method adjustments for financial arrangements on conversion to IFRS accounting must be included in the first income tax return you file using the new IFRS tax rules.
If the conversion to IFRS accounting occurred in an earlier accounting period (early adopters) but the first tax return using the new IFRS tax rules is the 2007-08 return, the required change of method adjustments will be calculated at the end of the 2007-08 income year and included in the 2008 return.
2007 Income tax returns
Most LEs need to file their 2007 income tax return by 31 March 2008. After that date, we may identify any early adopters and review their returns to make sure everyone's on the right track.
The latest version of the annual risk review questionnaire may also contain questions related to IFRS.
Are you an early adopter? Please consider making a full disclosure of the IFRS tax positions you've taken under the new IFRS tax rules. If you make a full disclosure, it will help reduce the level of enquiry undertaken by our investigators.
Include a separate schedule with your return. If you're an e-filer, you may send the schedule as an attachment.
Unacceptable tax positions for early adopters
If someone takes an unacceptable tax position, they may incur a shortfall penalty. But, for IFRS early adopters, there will be no penalty for an IFRS tax position taken in a period up to the end of the 2006-07 income year if the requirements of section 141B (1C) of the Tax Administration Act 1994 are met.
Working papers
Keep your working papers to back up your IFRS tax calculations. Read our IFRS checklist.
Need more information?
The April 2008 Tax Information Bulletin discusses the new IFRS tax rules in depth.
If you have any questions or concerns, please talk to your Assurance account manager. Or, you can email Bill Gardner at bill.gardner@ird.govt.nz or call him on 04 890 3194.
It's best to deal with any IFRS issues early, rather than see them develop into problems later on.
We'll be happy to help you.
New process for getting an IRD number
Are you taking on a new employee who doesn't have an IRD number? Now they can apply for one at an AA Centre or a PostShop. There are hundreds of these outlets throughout New Zealand.
Applicants will need to bring two specified forms of identification (listed on the IRD number application - individual (IR 595) form), plus photocopies, to any Automobile Association (AA) Driver Licensing Agent, any PostShop or selected New Zealand Post retail outlet.
At least one of the identity documents must contain a photo, and both must be original documents. They could include passports, birth certificates, driver licences or an 18+plus card.
The AA, PostShop or New Zealand Post agents will confirm the applicant's identity and send photocopies of the documents to Inland Revenue, who will notify applicants of their number within 8-10 working days.
This new process will help to prevent identity theft and the fraudulent use of IRD numbers. It meets conditions of the new, all-of-government evidence of identity (EOI) standard.
Please remember that if an employee doesn't provide you with an IRD number, you are legally required to deduct tax at the no-declaration rate. If we receive an employer monthly schedule with missing IRD numbers, we place the schedule in a "holding account" until we receive the IRD numbers. This will delay the transfer of important employee payments like child support and KiwiSaver.
The new process does not affect people with existing IRD numbers and does not apply to applications for an IRD number for entities such as companies, trusts and partnerships.
Find out more information about IRD numbers, and the application form itself.
Online Services changes
In April, Inland Revenue will make some changes to the look and feel of these Online Services that require login:
- Client maintenance
- ir-File (employer monthly schedule)
- Look at account information
- Portfolio investment entity (PIE) file transfer
- Send and receive mail.
The changes will make it easier for you to use the services and they also include improved navigation and personalised menus based on your customer profile. So when you log in, you'll only see the Online Services relevant to you.
We're not making any changes to the way the services work.
You will need to update the link in your bookmarks or favourites as the login page will have a new website address.
Further changes to Online Services are timed for mid-2008 to give you:
- greater control over your people's access on a per service basis. You'll be able to register for an Inland Revenue Online Services account and have that account activated quickly so you can start using it. You can control which of your employees you want to access the account, suspend or cancel access (eg, if an account user resigns) and reset passwords.
- more direct access to your organisation's information usage. You'll be able to track your employees' access to Online Services.
Future articles will update you on these changes. Inland Revenue will also put updates on our website and in other customer publications such as, AGENTSanswers and Payroll News.
From the editor
Disclaimer
Large enterprises update comments generally on topical tax issues relevant to large enterprises. While every attempt is made to ensure that the law is correctly interpreted, articles are intended to be a brief overview only and are not a full commentary or analysis of the law. The examples provided are not intended to cover every possible factual situation.
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Date published: 16 Jul 2008
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