Large enterprises update (formerly Corporates contact) - 2009

Large enterprises update - Number six: March 2009

• KiwiSaver changes
• Introduction of an independent earner tax credit (IETC)
• PAYE tables from 1 April 2009
• File an employer schedule using ir-File
• eGST changes
• Transfer pricing focus 2009
• Incorrect interest calculations for some non-resident companies
• Extension of time agreements
• Large enterprises - Assurance
• Amending assessments
• SPS 08/03 Income Tax Act 2007 - Penalties and interest arising from unintended legislative changes
• End-of-year requirements
• KiwiSaver reminders
• Ceasing or restructuring companies or branches
• A correction
• From the editor

 

KiwiSaver changes

From 1 April 2009 some changes are being made to KiwiSaver:

• The compulsory employer contribution (CEC) rate will increase to 2% and won't increase further in future years.
• The minimum employee contribution rate will reduce to 2% of a member's gross pay.
• Any voluntary employer contributions you make will be liable for employer superannuation contribution tax (ESCT).
• The employer tax credit (ETC) will be removed.

Find out more about KiwiSaver changes from 1 April 2009.

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Introduction of an independent earner tax credit (IETC)

From 1 April 2009, eligible taxpayers earning between $24,000 and $44,000 will be entitled to an extra $10 each week. For eligible tax payers earning over $44,000 the IETC decreases by 13 cents for every additional dollar earned up to $48,000.

It will be up to your employees to work out if they'll be eligible for the tax credit.

To receive the tax credit through their pay your employees will need to choose a new tax code and tell you what it is so you can deduct the right amount of tax from their wages or salary. They can only use this new tax code for their main job or source of income.

The new tax code is ME, or ME SL for people with a student loan.

Updated Tax code declaration (IR330) forms are now available under "Forms and guides".

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PAYE tables from 1 April 2009

As personal income tax rates are changing, we'll soon be sending out updated 2010 PAYE tables:

• Weekly and fortnightly (IR340)
• Monthly and four-weekly (IR341)

Please use these new tables for pay periods ending on or after 1 April 2009.

If you haven't received your tables by mid-March or you haven't received the tables you require, call us on 0800 443 553. Have your IRD number handy.

The new IR340 and IR341 tables will also be available online or you can order them through INFOexpress by calling 0800 257 773.

If you use a payroll provider, these changes should be incorporated into your payroll package for pay periods ending on or after 1 April 2009.

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File an employer schedule using ir-File

Research has shown that it's more efficient to file your Employer monthly schedule (IR348) (EMS) and the Employer deductions (IR345) (EDF) form electronically through ir-File than using manual PAYE processes.

More employers are using Inland Revenue's online services in a bid to reduce compliance costs and free up valuable time. Filing online is easy, secure and accurate.

We'll soon be contacting employers who aren't yet registered for online services to offer our support to register and begin filing electronically.

Any employer can register to use ir-File. There are two filing methods you can use:

• On-screen form - these are on-screen versions of the EMS and EDF.
• File transfer - if you use a computerised payroll system.

If you're thinking of using a computerised payroll system, file transfer is probably the best option for you.

To see what it's all about, watch the online demonstration - go to "View demonstrations" under "Services requiring login".

ir-File doesn't require any additional software-you simply register online and once you're set up and your schedules are filed, the system confirms we have received them.

For further information about ir-File talk to your payroll provider or go to "Get it done online".

The latest payroll specification document is now on our website.

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eGST changes

In response to feedback from our customers, we've made some changes to our eGST service.

Have you noticed a new automatic response when you file an eGST return? The original message ("Submitted") created uncertainty with some customers - had we received the return or not?

Our new message "Received" confirms your return is safely in our system.

We've also reduced the eGST electronic receipt from four pages to two, which will reduce compliance costs and paper usage.

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Transfer pricing focus 2009

Transfer pricing is still an important part of the international scene in 2009. Inland Revenue will continue to cover the full range of inbound and outbound associated party transactions this year, with special emphasis on issues arising from the economic events of the last 18 months, in particular:

• any arrangements made to import offshore losses through non-market pricing
• potential gaming of interest rates, taking undue advantage of gyrations experienced in credit spreads
• adventurous pricing of hybrid financial instruments (eg mandatory convertible notes).

We will monitor foreign enterprises operating limited risk structures in New Zealand, eg limited risk distributors/commissionaires and contract/toll manufacturers. We expect profits of these entities to be maintained, unless there are very good reasons to the contrary.

We're also aware of pressures building on company balance sheets as a result of losses and asset write-downs. We'll review compliance with our thin capitalisation rules, especially around groups carrying above-average debt.

Remember, it's local management's responsibility to ensure a company's transfer prices meet the arm's length standard. If there has been a major downward shift in profitability over the last 18 months, we recommend documenting the reasons behind this result and keeping supporting evidence to explain the tax position to Inland Revenue.

If you have any questions about the above, please call one of our national advisors (Transfer Pricing):

Keith Edwards	09 984 4340
Robyn Rakete	09 984 4409
Mike Spelman	09 984 4327
Kriti Velji	04 890 3246

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Incorrect interest calculations for some non-resident companies

All non-resident contractor companies, non-resident entertainer companies and agents for foreign insurers with balance dates between October and February will have incorrect use-of-money interest (UOMI) calculations.

This is due to a systems fault.

End-of-year tax for a company that does not have a fixed establishment in New Zealand and is not considered to be resident in New Zealand is due and payable on:

• 7 February in the next income year, or
• 7 April if the company is linked to a tax agent.

If you are affected, please call Large Enterprises on 0800 443 773 and we'll put a hold on the account and arrange a correction. Unfortunately, this will take several weeks so thank you for your patience.

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Extension of time agreements

For those of you with a tax agent taking care of your income tax returns, Tuesday 31 March 2009 is the last day for 2008 returns to be filed under our extension-of-time arrangements.

If, due to exceptional circumstances, your return cannot be filed by that date, your tax agent should contact us in writing with the reasons and the estimated date of filing.

The Tax agents' extension of time agreement (IR9XA) sets out the requirements.

The request will be processed more efficiently if it is sent to us:

By mail

Crown, Finance or Resources clients
PO Box 2198
Wellington 6140

Services (including High Wealth) and Manufacturing clients
PO Box 5542
Wellesley Street
Auckland 1141

By email

Send these to the appropriate team leader. Find the email address for the sector that applies to you.

By fax

Send faxes to the appropriate team. Find the fax number for the sector that applies to you.

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Large enterprises - Assurance

We'd like to tell you about some changes in the Large Enterprises Assurance unit.

We've received feedback that taxpayers and accountants are unsure of who to contact in the assurance area for large enterprises.

This unit is responsible for the investigations, risk identification and general technical advice to taxpayers who have a turnover above $300 million. The unit also completes binding rulings. The unit also includes our deals with transfer pricing and the exchange of information through our Competent Authority.

We have staff in Auckland, Hamilton, Wellington, Nelson, Christchurch and Dunedin.

The unit is managed as follows:

Tony Morris

Assurance Manager (Investigations - Large Enterprises)

Paul Mason

Investigations Manager, Auckland

James Mulcahy

Investigations Manager - Investigations staff, Wellington, Nelson, Christchurch, Dunedin

John Trezise

Investigations Manager - Investigations staff in financial and insurance portfolio Auckland, Hamilton, Wellington, Christchurch

John Nash

Chief Advisor International - Transfer Pricing Specialists

They also have five current principal advisors who provide specialist technical advice across Inland Revenue on international tax, financial arrangements, mergers and acquisitions, and insurance.

If you have any issues you want to discuss with these managers please contact them:

Paul Mason	09 984 4370
James Mulcahy	04 890 3151
John Trezise	03 968 3082
John Nash	04 890 3290

After recent discussions with various corporates and results from our Large Enterprises survey, we've reviewed the work we complete and plan to put these features in place:

Risk identification

Our investigation work is based around the identification of risk through the review of tax returns filed by taxpayers within the group.

The risks identified are scored and prioritised to help us allocate our resources.

The account manager also has the role of investigator in Large Enterprises, Assurance, and identifies and reviews risk for each taxpayer.

Our account managers plan to visit each taxpayer at least twice a year to get a better understanding of the taxpayer's business and accounting systems and keep improving our risk identification work.

They'll ask what's the most convenient way they can work with the taxpayer to complete the risk review for each year. Feedback tells us that many taxpayers would like us to identify any perceived risks as early as possible. This risk identification could take place at the time of a transaction, the time of completion of a return or after the filing of a return.

We'll tell the taxpayers about the risks identified to see if we can quickly clarify any issues which may mean there is no risk.

Risk investigation

Any taxpayer investigation will largely focus on the risks identified through the process. There will also be times when we want to review other parts of a taxpayer's return, because we are running a project across a particular type of transaction. The project may be to ensure we are getting coverage across the full range of tax issues.

In the coming year we are completing projects in these areas:

• Investigations into taxpayers' GST systems.
• Reviews of executive remuneration concurrent with regular investigations.
• Hybrid financial instruments.

We've also received feedback that our staff might say they are investigating particular risks, but the records we ask for are very general.

So, we're asking staff to communicate more with taxpayers around what records are available to assist with investigating a particular area.

Timeframes and communication

The Large Enterprises survey consistently shows taxpayers believe we can shorten the time we take to complete our work and improve our communication of what's happening if there are delays.

We are putting significant focus on completing investigations and disputes in reasonable timeframes. Our work is often complex so at times there will be lengthy disputes.

However, our staff will keep in touch on a regular basis and update you on the progress of a particular issue.

If you think staff are taking too long or not keeping you informed, please contact their manager.

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Amending assesments

SPS 07/03 - Requests to amend assessments (May 07)

This standard practice statement sets out when the Commissioner may use discretion to amend assessments to ensure correctness under section 113 of the Tax Administration Act 1994.

The SPS 07/03 - Requests to amend assessments (May 07) applies from 17 May 2007. Our systems are designed for only one return per return period per tax type. Paragraph 33 contains some important information.

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SPS 08/03 Income Tax Act 2007 - Penalties and interest arising from unintended legislative changes

The SPS 08/03 Income Tax Act 2007 - Penalties and interest arising from unintended legislative changes sets out the treatment of shortfall penalties and use-of-money interest when a tax position is taken under the Income Tax Act 2007 and a confirmed unintentional legislative change gives rise to a tax shortfall.

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End-of-year requirements

Date 2009	Requirement
Friday 20 March	Are your records correct? The last or second-to-last large employer’s taxes payments are due today.
Friday 20 March	Any applications for D status should now be in for 2008 income tax returns.
Tuesday 31 March	Today is the last day to file 2008 tax returns with extension of time, including Annual imputation return including dividend withholding payment account return (IR4J). If you‘re likely to have a debit in your imputation account, put your account into credit again, to stop any penalty taxes.
Wednesday 1 April	This is the first day Inland Revenue can action Application for exemption from resident withholding tax on interest and dividends (IR451) for the 2010 year.
Monday 6 April	Final payment for the year of PA YE and associated taxes, and ir-File for large employers. Check running totals and PAYE etc are correct. Remember, this affects your ACC calculations as well. Check all previous 11 months are balanced.
Tuesday 7 April	If you are a client of a tax agent with a balance date between March and September, 2008 end-of-year tax is due today.
Thursday 30 April	All 2009 employers’ taxes should be fully balanced because summary of earnings for staff will be produced in early May 2009.
Tuesday 2 June	Last day to lodge all reconciliations with certificates with: Operations Delivery Christchurch, 224 Cashel Street, PO Box 3753, Christchurch 8140 Resident withholding tax (RWT) on interest reconciliation statement (IR15S) Resident withholding tax reconciliation (RWT) statement (IR17S) Non-resident withholding tax on interest, dividends and royalties reconciliation statement (IR67S) Final day to file FBT quarterly or annual returns to 31 March 2009, including alternate rate option (previously multi-rate) calculations at 49%.

Ready to send in your return? Stop! Check you have:

• Signed it. Unsigned returns can't be processed. If you file electronically (through E-File or online) keep a signed hard copy of the return.
• Answered every question, including completing the disclosures section of the Income tax return companies (IR4).

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KiwiSaver reminders

Some employers are forgetting to complete the KiwiSaver employee details (KS1) form or aren't automatically enrolling all their employees in KiwiSaver. Others are unsure of the opt-out rules. So, here's a quick refresh of what you need to know.

KiwiSaver employee details (KS1)

Please fill out a KS1 form every time 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. When you have new employees, you don't have to wait until the due date. If you want to file online using ir-File, then you will need to register for online services.

You can get more copies of the KS1 form from the KiwiSaver website or by calling INFOexpress on 0800 257 773. Have your IRD number handy.

Opting out

If you automatically enrol an eligible new employee in KiwiSaver, they can opt out after they've been employed for two weeks. The cut-off point for opting out is when they've been employed for eight weeks. After this period, employees may still be able to opt out through the late opt-out process, but they'll need to meet certain criteria. You'll still need to send us the KS1 form if your employee decides to opt out.

Existing employees who have voluntarily enrolled in KiwiSaver can't opt-out. Anyone who has been a member of KiwiSaver for 12 months may apply for a contributions holiday though. 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).

Find out more about KiwiSaver for employers.

Employees exempt from automatic enrolment

You don't have to automatically enrol your employee in KiwiSaver if they:

• are under 18 years old (they can join voluntarily)
• are a casual agricultural worker, election day worker or private domestic worker
• are employed on a temporary employment contract of 28 days or less
• are a casual employee engaged on an irregular and intermittent basis who receives holiday pay with their wages (in accordance with the Holidays Act 2003)
• are on paid parental leave or ACC
• stay on the same payroll:
  • when a business is taken over or amalgamated, or
  • if they relocate with the same employer
• only receive schedular payments* subject to tax (WT tax code)
• aren't a New Zealand resident
• don't normally live here (unless they're a government employee working overseas)
• aren't required to have PAYE deducted from their salary or wages
• are over the New Zealand Superannuation qualification age, currently 65
• revert to an employer from whom they were seconded, straight after that secondment.

* Formerly withholding payments.

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Ceasing or restructuring companies or branches

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

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

Tell us beforehand about any proposed cessation or restructuring. This will help the process go smoothly, especially where organisations are filing monthly and/or quarterly returns, eg PAYE, FBT, child support, RWT on interest or GST.

If you're considering a change in your company structure, please consider the following payroll issues:

• If a new IRD number is required, either for a new company or a new branch, application forms must be completed and sufficient time allowed for us to process the application (it can take up to five working days to allocate an IRD number). If GST is involved, allow time for the new IRD number to appear on invoices.
• The bank account details we hold may become invalid and you may need to provide us with new bank account details for any new IRD number(s).
• If you are decentralising your payroll and getting more IRD numbers for branches, you'll need to consider the FBT implications. Individual FBT returns for each branch may not be the most cost-effective option for your company.
• The best time to cease a payroll is the end of the financial year (31 March), but this may not be the company's balance date or when the restructuring or amalgamation takes place.

If the cessation date is other than 31 March, consider how and when to advise your staff. They may think they are still working for the same firm, but will receive a summary of earnings showing more than one employer. You also need to consider what trade names are used, as this will appear on your employees' summaries of earnings.

• When ceasing an IRD number, the final employer monthly schedule for that IRD number must include an end date for all employees. If you don't do this, your staff may receive notices from us suggesting they are working for more than one employer and recommending they change their personal tax code.
• As most corporate employers file electronically using ir-File, allow time to register any new IRD numbers for ir-File and cancel the existing numbers. Our systems are currently being streamlined and we hope to give you more information in the next issue of Large Enterprises Update. If you have problems please call your account manager or 0800 443 773.
• If you use a payroll bureau, allow time for them to register as your agent.
• The first employer monthly schedule for the new employer must show a start date for all employees.
• If the restructure is major we may require new Tax code declaration (IR330) forms from employees.
• Most large enterprise employers are required to pay PAYE on a twice-monthly basis, so the first schedule and payment may be due on the 20th of the month of change.
• If you're splitting wages and salaries accounts, consider the timing of payments to staff. Salaries are often paid monthly and you may qualify for payment of PAYE once a month as well. If staff are paid on a day that falls on the 1st - 15th of the month, PAYE payment is due on the 20th of the same month. But if staff are paid on a day that falls on the 16th - 31st of the month, payment is due on the 5th of the following month.
• Tell us if you deduct any arrears (eg for overdue tax) from any of your employees' salaries or wages, because we may need to reissue deduction letters to the "new" employer.
• If employees have child support deductions, we need up to three months' prior notification of changes.
• If you pay ESCT we can only close your account after the 16th of the month, but preferably the end of the month. As a large employer, we require two IR345 forms each month to get the ESCT assessment included.
• Please give us a listing of all staff paying KiwiSaver so we can transfer them from one IRD number to another. Please also advise us if any have complying funds exemptions so we can recode them.
• If you have an ACC account manager we suggest you ask them what they need. Or call their enquiry line, 0800 222 776, for employers. ACC numbers are IRD numbers scrambled so your ACC number changes when your IRD number does.
• Employees with special tax code certificates should reapply for new ones under the correct employer name to remain accurate and show up-to-date earnings details.
• Please send us a completed Elect someone to act on your behalf (IR597) form if the company has changed its nominated person.

If you have any questions, please call Large Enterprises on 0800 443 773 or your account manager. If your proposed restructuring is major, we may make an appointment with you to discuss the issues involved.

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A correction

The article "Imputation credit accounts (ICAs)" that appeared in the November 2008 issue of Large Enterprises Update contained some errors. We're sorry about that, and we hope no inconvenience was caused. Here is the corrected version:

Imputation credit accounts (ICAs)

If your IR4 company return results in a tax refund, your credit UOMI (use-of-money interest) is calculated on your ICA (imputation credit account) balance if this is less than the amount of your refund.

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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: 26 Mar 2009

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