Large enterprises update (formerly Corporates contact) - 2009
Large Enterprises Update - Number nine: November 2009
- Reminders
- Major tax bill passed
- Donating through the new "payroll giving" scheme
- The July 2009 Taxation (Consequential Rate Alignment and Remedial Matters) Bill
- Our opening hours over Christmas and New Year
- New features for 0800 number
- Footnote
Reminders
Filing dates for tax agents
November 13 guidelines:
- 60% of clients under standard guidelines/targets
- 57.5% of clients under E-File
- 50% of clients with late balance dates.
February 12 guidelines:
- 80% of clients under standard guidelines/targets
- 78.5% of clients under E-File
- 50% of clients with late balance dates.
These dates are filing guidelines in most cases. They're only a target or monitored if you're currently being monitored by your agent account manager. If you're having difficulty maintaining a reasonable level of return filing, call and discuss solutions with your agent account manager. They're here to help.
Major tax bill passed
The Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 introduces a number of business tax reforms.
The new Act makes some important changes to taxation law, such as the reform of the tax rules relating to offshore income of controlled foreign companies, reform of the taxation of the life insurance business, introduction of a "payroll giving" scheme for charitable donations, updating the petroleum mining tax rules, clarifying the law relating to employer payments for relocation and overtime meal allowances, and strengthening the definitions of "associated persons" in income tax law.
We comment here on:
- changes to controlled foreign companies
- portfolio investment entities
- tax treatment of relocation payments, overtime meal allowances and sustenance allowances.
Changes to controlled foreign companies (CFCs)
The following are only some of the changes to CFCs brought about by the new Act:
- only the "passive income" earned by CFCs will be taxed
- some dividends paid will no longer be subject to foreign dividend payments
- some dividends will now be subject to income tax
- foreign dividend payment accounts (FDPAs) and branch equivalent tax accounts (BETAs) will no longer be required.
These changes, as well as other international tax rules, have been made to improve the competitiveness of New Zealand businesses. They apply from the beginning of the 2010 income year for all entities with balance dates between 30 June and 30 September (inclusive), and from the beginning of the 2011 income year for all other entities. You'll find an in-depth discussion of all amendments to the international tax rules in the October/November issue of the Tax Information Bulletin.
Passive income: This includes interest, rent, royalties, dividends and certain types of income earned from provision of services.
Dividends: Foreign dividend payments (FDP) will no longer be payable on dividends paid by CFCs and non-portfolio investment funds to New Zealand companies. Foreign dividends that are tax deductible for the foreign company and dividends on fixed-rate shares will now be subject to income tax and not FDP.
FDPAs and BETAs: BETA credit balances will be written off under the new rules and the accounts phased out over a transitional period of two years. FDPA credit balances can be used for a transitional period of five years.
Disclosure form and the new rules: We've introduced a new electronic CFC disclosure form (IR458) for filing under the new rules - go to "Get it done online".
Portfolio investment entities (PIEs)
The changes to PIEs include the following:
- The Commissioner has discretion to extend the time limit on an interest adjustment for tax liability or credit for an investor.
- Expenditure from a member superannuation fund can be transferred to a PIE that the fund has invested in.
- Community trusts have been added to the list of investors for the purposes of the investor membership and investor interest size requirements.
- Lease income from land derived from an associated or stapled entity is excluded.
- Listed PIEs can choose to be a portfolio tax rate entity.
- Trustees are able to choose 19.5% prescribed investor rate (does not include charities).
- Investor membership and investor interest size requirements have been adjusted for public unit trusts.
The Act also includes the rewritten PIE rules using the rewrite style now included under subpart HM of the Income Tax Act 2007, which replaces subpart ML.
Further information on the changes is available in the October/November 2009 Tax Information Bulletin.
Two documents have recently been issued to PIEs:
- the continued use of an investor's notified prescribed investor rate from year to year
- an introduction from the Project Team working on the changes to the PIE return filing obligations.
If you wish to receive a copy of these documents, please email 2010.RWTChanges@ird.govt.nz.
Tax treatment of relocation payments, overtime meal allowances and sustenance allowances
Rules around the tax treatment of relocation payments, overtime meal allowances and sustenance allowances have been clarified to remove uncertainty about whether these payments are exempt income of the employee.
Relocation payments
Work-related relocation payments made to employees by employers, when relocating employees, are exempt income of the employee provided all of the following conditions are met:
- The employee's relocation is required as the result of:
- taking up new employment with a new employer, or
- taking up new duties at a new location with their existing employer, or
- continuing in their current position but at a new location.
- The employee's existing home is not within reasonable daily travelling distance of the new workplace (unless accommodation is provided as an integral part of the job).
- The expense is on the list of eligible relocation expenses.
- The payment reflects actual expenditure incurred.
- The expenditure is incurred before the end of the tax year following that in which the employee relocates.
Overtime meal allowances
For these payments to be exempt income of the employee, all of the following conditions must be met:
- Either the employee's employment contract must specify that the employee is eligible for a payment in relation to overtime hours worked, or an employer must have a policy or practice of paying an overtime meal allowance.
- The amount paid must be the actual cost incurred by the employee, with receipts/invoices for amounts over $20 per meal, or a reasonable estimate of the expenditure likely to be incurred by the employee.
- The employee is required to have worked at least 2 hours overtime on the day of the meal.
Sustenance allowances
For sustenance allowances to be exempt income of the employee, all of the following conditions must be met:
- The employer has an established policy or practice of paying sustenance allowances.
- The employee must work a minimum of 7 hours on the day.
- Their employment requires them to:
- work outdoors and away from their employment base for most of the day, and
- undertake a long period of physical activity in travelling through a neighbourhood or district on foot or by bicycle.
- It's not practicable for the employer to provide sufficient sustenance on the day for the period when the employee is working outdoors.
- The allowance recognises:
- the demanding physical nature of the employee's work as described above, and
- the employer would normally provide tea, coffee, water, or similar refreshments at the employment base in the course of their business.
If you have taxed payments of relocation payments, overtime meal allowances or sustenance allowances that meet all the requirements as above anytime from the 2002-2003 income year, you may be entitled to a credit for overpaid PAYE. Similarly, an adjustment to your corresponding income tax return may be necessary as you would have claimed these PAYE payments as an expense to your business.
To make the PAYE adjustment you'll need to complete an Employer monthly schedule amendments (IR344) form for the affected return periods. You'll also need to advise us in writing about any adjustments required to your income tax returns where you may have claimed these payments or allowances as an expense.
If your volume of adjustments is more than 6-10 staff per period and/or multiple periods from the 2003 year, please ring us first on 0800 443 773. We'll let you know who to email a spreadsheet to, in the same format as the IR344, rather than having to send the IR344 for each period.
Donating through the new "payroll giving" scheme
From 7 January 2010, "payroll giving" will allow your employees to donate a portion of their income to approved donee organisations.
Your employees can make donations from their salary or wages to their chosen donee organisations and receive immediate tax relief through tax credits for payroll donations on their PAYE. These tax credits are 33.3333% for every dollar donated.
For example, if an employee donates $30 dollars they will receive immediate tax credits for payroll donations of $10, reflected in their PAYE.
Payroll giving is voluntary
It's up to you whether to offer payroll giving to your employees. If you choose to offer payroll giving, it's then up to each of your employees to decide if they want to donate using payroll giving.
Donations can only be made to approved donee organisations.
If your scheme allows, the frequency, amount and donee organisations chosen by your individual employees can change at their discretion. However, you decide how payroll giving will run in your workplace.
You need to be using ir-File
You can only offer payroll giving to your employees if you file your Employer monthly schedule (EMS/IR348) and Employer deduction (EDF/IR345) form using ir-File.
If you haven't already, you'll need to register for an online services account through our website before you can use ir-File. Go to "Secure online services" and watch the online demonstration or just register. Have your organisation's IRD number handy. You'll need to answer a few questions and call us to verify your identity, then you can be up and running with ir-File right away.
What do I do next?
If you decide to introduce payroll giving in your work place, you'll need to collect the donations from your employees' pay and pass the donations directly on to the donee organisations your employees choose. You'll need to advise us of the tax credits for payroll donations for each employee and the total tax credits for payroll donations for all your employees using your EMS/IR348.
You can pass the donations on to the chosen donee organisations in many ways, for example through your payroll provider or using online banking.
Donations have to be passed to the donee organisation on or before the due date for your EDF/IR345 that is closest to the end of the two months from the last day of the pay period the donation was deducted from.
Calculating the due date
As an example, if the pay covers 14-30 January, the last day of the pay period is 30 January (Date A).
Add two months to Date A. This will be 30 March (Date B).
From Date B, find the nearest PAYE payment date (Date C). This could either be before or after Date B.
| PAYE filing frequency | Date A - last day of pay period | Date B - two months from Date A | Date C - nearest PAYE payment due date to Date B |
|---|---|---|---|
| Monthly filer | 7 January | 7 March | 20 March |
| Twice monthly filer | 7 January | 7 March | 5 March |
| Monthly filer | 30 January | 30 March | 20 March |
| Twice monthly filer | 30 January | 30 March | 5 April |
| Monthly filer | 12 February | 12 April | 20 April |
| Twice monthly filer | 12 February | 12 April | 5 April |
Date C is the last day you can pass the donation to the donee organisation. You can pass the donation at any time up to and including this date.
You don't need to tell us the amount of the donations your employees choose to make or who the donee organisations are. But keep this information for your own records.
Is there anything else I need to know?
- If employees choose to donate through payroll giving they can't claim further tax credits for these donations using the end of year IR526 process. However, the IR526 will still be available for people who donate not using payroll giving or make donations in addition to their payroll giving donations.
- Tax credits for payroll donations are for PAYE and can't be transferred to any other tax type.
- Employees are responsible for checking the organisation is in fact a donee one.
Note
You don't need to update your software if you're not offering payroll giving. If you do, you can download the new specification document or contact your software developer.
The rules for the new payroll giving scheme are largely contained in new sections LD 4 to LD 8 of the Income Tax Act 2007 and in new section 24Q of the Tax Administration Act 1994.
The July 2009 Taxation (Consequential Rate Alignment and Remedial Matters) Bill
We have set up a team to implement the changes from this Bill once it becomes law. Please email us on 2010.RWTChanges@ird.govt.nz if you have any queries about the Bill. The team's Relationship Manager, Nick Bradley, can also be contacted on 04 978 6293.
If you'd like other people from your organisation to receive communications and/or requirements, please email us their names and email addresses and we'll add them to the distribution list.
What's included in the Bill?
The main elements of the Bill are to:
- align RWT and PIE tax rates with income tax rates and associated measures, including changes to the default RWT rate
- implement a new power for Inland Revenue to instruct financial institutions to change a person's RWT rate
- introduce a new, low secondary tax code
- make consequential changes to extra pays and the retirement scheme contribution tax (RSCT).
The majority of these changes are proposed to take effect from 1 April 2010.
The team's main areas of focus are to:
- coordinate and oversee the alignment of the PIE tax rates with the personal tax rates
- implement the remedial PIE rewrite changes
- coordinate and oversee the alignment of the RWT rates with the personal tax rates and the introduction of a 38% RWT default rate
- coordinate and oversee the introduction of the new, low (12.5%) secondary tax code
- implement consequential changes to RSCT
- implement consequential changes to extra pays and the new 12.5% rate for extra pays
- communicate these changes.
Our opening hours over Christmas and New Year
Contact centres (excluding KiwiSaver)
| Monday 21 December | 8am - 8pm |
| Tuesday 22 December | 8am - 8pm |
| Wednesday 23 December | 8am - 8pm |
| Thursday 24 December | 8am - 5pm |
| Friday 25 December to Monday 4 January (inclusive) |
Closed |
Our normal hours (8am - 8pm weekdays and 9am - 1pm Saturdays) resume on Tuesday 5 January 2010.
KiwiSaver Contact Centre
| Monday 21 December | 8am - 6:30pm |
| Tuesday 22 December | 8am - 6:30pm |
| Wednesday 23 December | 8am - 6:30pm |
| Thursday 24 December | 8am - 5pm |
| Friday 25 December to Monday 4 January (inclusive) |
Closed |
Our normal hours (8am - 6:30pm Monday to Friday) resume on Tuesday 5 January 2010.
Large Enterprises
| Monday 21 December | 8am - 4.30pm |
| Tuesday 22 December | 8am - 4.30pm |
| Wednesday 23 December | 8am - 4.30pm |
| Thursday 24 December | 8am - 2.00pm |
| Friday 25 December to Monday 4 January (inclusive) |
Closed |
Our normal hours (8am - 4.30pm Monday to Friday) resume on Tuesday 5 January 2010.
E-file availability
The E-file system and helpdesk will be unavailable from midday Thursday 24 December 2009 to 8am Tuesday 5 January 2010.
INFOexpress
INFOexpress will be unavailable from 25 - 28 December inclusive. It will be available again as usual from 6am on Tuesday 29 December.
New features for 0800 number
From this month you may notice a few changes when you phone us, including a change in the voice welcoming you to Inland Revenue. That's because we've been gradually introducing a new voice recognition system to most of our contact centre 0800 numbers.
The new features allow our phone system to understand people's natural speech and identify key words from a caller's request. So, if you're calling with a payroll-related query, for instance, the details of your call will be provided to the staff member who will help with your request.
We've also upgraded existing self-service features but without removing any of your current capability, such as requesting account information.
Our current callback service will still be available at all times during normal business hours.
Footnote
Large Enterprises Update comments generally on topical tax issues relevant to large enterprises. 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: 27 Nov 2009
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