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Large enterprises update (formerly Corporates contact) - 2010

Large Enterprises Update - Number 13: November 2010

Welcome to Large Enterprises Update

If you have any suggestions for topics you'd like covered in this newsletter, email us at LargeEnterprises.Update@ird.govt.nz

Reminders

Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010: Received Royal assent on 7 September 2010.

Late filing penalties: These penalties do apply to GST returns. The first time a customer files a late GST return they receive a letter requesting the overdue return and telling them a late filing penalty may be charged on any future GST return filed.

If in the next 12 months a GST return is filed late, an automatic late filing penalty will be charged. The penalty is $50 for those on the payments basis or $250 for those on the invoice or hybrid basis at the date the GST return is due.

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Common errors with tax losses

An area we focus on in our compliance programme Helping you get it right: Inland Revenue's compliance focus 2010-11 is tax losses.

Most taxpayers correctly calculate and use their losses, but a number of common errors do crop up. This year we're working to educate taxpayers about the loss rules and how to avoid mistakes. We'll also be following up with taxpayers who make mistakes.

We recently sent letters to tax agents who had substantial numbers of clients with losses to carry forward from the 2009 income year. The letters highlighted those common loss errors made by all types of taxpayers.

Now we'd like to draw your attention to some mistakes more commonly made by larger enterprises:

  • In the "net losses brought forward" box of the company tax return (box 27A of the 2010 IR4) sometimes the loss of another group company is entered rather than that of the taxpayer.
  • Losses of companies can only be carried forward if there is sufficient shareholder continuity. Subject to the tracing concessions, shareholder continuity is measured at ultimate owner level. Some taxpayers don't monitor ownership changes at ultimate owner level and incorrectly carry forward losses after a shareholder continuity breach.
  • For taxpayers transferring losses by way of subvention payment, the payment must be made before 31 March following the year of offset (eg, for a subvention payment made in relation to the 2010 income year, payment must be made by 31 March 2011). If payment is made after the year of offset it's important that the subvention payment isn't also claimed in the subsequent year, ie, that the same payment isn't claimed twice.

We'd also like to remind you that when tax returns are being prepared it's important to complete all the boxes in the return including the IR4S details on page 5. When we run searches to detect particular common errors, an uncompleted box may falsely indicate that an error has been made.

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Financing questionnaire

The Commissioner has recently issued financing questionnaires to a number of taxpayers. The questionnaire is intended to gather information about cross-border financing arrangements.

Tax risks associated with financing remain a high priority area for us and this questionnaire has been issued as part of our compliance focus initiatives for the 2010-11 year. If your group has received one of these questionnaires a prompt response would be appreciated.

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Filing GST returns

Please note any GST returns for the period ending 31 October 2010 are due on 28 November but because this falls on a Sunday you have until the next working day (Monday 29 November) to make a payment and file.

Monthly GST returns for period ending 31 October 2010

For monthly GST filers, this will be your first GST return with the new 15% GST rate. There are a couple of points to remember for this return.

The GST calculation will be different - you'll now calculate the GST on your total sales and income, or purchases and expenditure, by multiplying the GST-inclusive total by 3 then dividing by 23.

Include any transactions still at the 12.5% rate, such as late claimed expenditure (ie, expenditure not claimed in the GST rate change adjustment), income (eg, receiving finance lease payments) or debit and credit notes, as an adjustment on your return. Only include the GST component of the transactions on the return, this can be calculated by dividing the GST-inclusive amount by 9.

GST transitional returns

You'll need to file a one-off GST transitional return if you're due to file a two-monthly return for the period ending 31 October 2010, or a six-monthly return for one of these period end dates:

  • 31 October 2010
  • 30 November 2010
  • 31 December 2010
  • 31 January 2011
  • 28 February 2011.

You'll receive either a GST transitional return (GST104A), or a GST transitional and provisional tax return (GST104B) if you pay provisional tax. The return is divided into two parts to account for the different GST rates.

Part 1 is for supplies at the 12.5% GST rate. This is where you record your sales and income, and purchases and expenses, plus any adjustments (including the GST rate change adjustment), from the start of your return period until 30 September 2010.

Since the GST calculation is at the 12.5% rate, you'll calculate the GST component by dividing by 9.

Part 2 is for supplies at the new GST rate of 15%. This is where you record your sales and income, purchases and expenses, and any adjustments from 1 October 2010 until the end of your return period.

As this GST calculation is at the new 15% rate, you'll calculate the GST component by multiplying by 3 then dividing by 23.

Then add together the amounts from Parts 1 and 2 to get:

  • the total GST collected on sales and income, and
  • any GST credit for purchases and expenses.

The difference between these two amounts shows whether you'll have GST to pay, or will receive a refund.

If you normally file a GST and provisional tax return you'll receive a GST transitional and provisional tax return (GST104B). The return has three pages you need to complete:

  • pages 1 and 2 will have the GST parts of the return
  • page 3 will have the provisional tax calculation.

The provisional tax calculation part of your return won't have been tailored for the transitional period - just complete the same boxes as in your usual return.

Need help completing your transitional return?

We'll send you a flyer Completing your GST transitional return (GST107) with each transitional return. There are also online demonstrations to help when completing your transitional return. These demonstrations guide you through the return completion process for both the paper and online returns. Find out more about our online demonstrations.

You can also file your transitional return online - go to "Get it done online".

GST rate change adjustment

If you're completing the GST rate change adjustment, which is included in Part 1 of the GST transitional return, please use the GST rate change adjustment calculation sheet (GST105) to record the adjustment. There's also an online demonstration to help you understand and complete the GST rate change adjustment.

We've been asked why the GST rate change adjustment is worked out by dividing by 51.75. This is the mathematical difference between the two GST rates and it's expressed as a number not a percentage.

To calculate the GST rate change adjustments requires multiplying your qualifying supplies by the 15% GST tax fraction of 3/23 subtracted from the 12.5% GST tax fraction of 1/9, eg:

  • 1/9 − 3/23 = 4/207

Multiplying an amount by 4 then dividing by 207 will obtain the same result as dividing the amount by 51.75, eg:

  • 1000 × (4 ÷ 207) = 19.32
  •  
  • 1000 ÷ 51.75 = 19.32

It's simpler to divide by 51.75 than to multiply by 4 and divide by 207.

Amendments to help businesses transition to the new GST rate

Legislation enacted on 7 September 2010 made a number of amendments to help businesses during the transition to the new GST rate.

The amendments related to certain situations where the supply of goods or services spanned the GST rate change, including:

  • annual contracts involving successive supplies
  • subrogation payments received by an insurer
  • finance leases
  • lay-by sales
  • payments to private training establishments.

These changes also aligned legislation with normal business practice when issuing tax invoices or replacement tax invoices during the period of the GST rate change.

Your business may have elected to use some of the transitional amendments to keep certain supplies at the GST rate of 12.5%, or some of your suppliers may have elected to keep some payments you're required to make at the old GST rate, eg, payments towards a finance lease.

If you're unsure if a supplier has elected to use these transitional amendments, get in touch with them to make sure you're including your expenses correctly in your GST returns for periods that begin on or after 1 October 2010.

Find out more about the new rules.

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Revised international guidelines on transfer pricing

The OECD's Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations provides guidance on applying the "arm's-length principle", which is the international consensus on the valuation for tax purposes of cross-border transactions between associated parties. In a global economy where multinational enterprises (MNEs) play an increasingly prominent role, consistent application of the arm's-length principle helps ensure:

  • taxable profits reported by MNEs in the countries where they operate reflect the economic activity undertaken there
  • taxpayers avoid the risk of double taxation as a result of a dispute between two countries when determining the arm's-length remuneration for their cross-border transactions.

The 2010 revision of the OECD guidelines (published 18 August 2010) is the first major revision since the guidelines were originally approved in 1995. It contains new, more detailed guidance for performing comparability analyses in practice to compare the conditions of transactions between associated enterprises with those of independent enterprises.

It also includes new guidance on how to select the most appropriate transfer pricing method for the circumstances of the case and how to apply in practice two of the OECD-approved transfer pricing methods ("transactional profit methods") - the transactional net margin method and the transactional profit split method. There's also a new chapter providing detailed guidance on the transfer pricing aspects of business restructurings.

We fully endorse this new international guidance, which supplements our own Transfer Pricing Guidelines issued in October 2000. Apart from a small revision to administrative practice for services, we won't update our October 2000 guidelines but will apply the latest OECD guidelines, which are consistent with New Zealand's transfer pricing legislation and double taxation treaties.

Transfer pricing administrative practice for services and small-value loans

We've updated the de minimis threshold for services (see paragraphs 559, 561 and Table 8 of our October 2000 Transfer Pricing Guidelines). In view of the extent of trans-Tasman trade and investment between associated parties, we're raising the de minimis threshold from NZ$100,000 to NZ$600,000 to align with the Australian Taxation Office to further minimise compliance costs for MNEs.

For small-value loans (ie, less than NZ$1 million principal), our advice since October 2009 has been that 300 basis points (3.0%) over the relevant base indicator (generally the bank bill rate for variable rate loans or the swap rate for fixed rate loans) is broadly indicative of an arm's-length rate, in the absence of a readily available market rate for a debt instrument with similar terms and risk characteristics. After considering the current state of financial markets, we're reconfirming this rate until our next review scheduled for mid-2011. Taking into account compliance costs, we're also raising the small-value loan threshold from NZ$1 million to NZ$2 million.

If you have any queries about these issues, contact our Principal 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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Redundancy tax credit extended

Revenue Minister Peter Dunne has announced an extension to the redundancy tax credit.

Although the May 2010 Budget repealed the tax credit from 1 October 2010, he has proposed to extend it to 31 March 2011.

The intention to extend the credit is in response to the Christchurch earthquake. Mr Dunne said: "Without the tax credit, in some situations, people could be taxed too highly if they had worked part of the year".

The redundancy tax credit was originally introduced to provide some tax relief to those who received a redundancy payment. In these situations, the payment often moved the person into a higher tax bracket. This was perceived to be an unfair outcome and the tax credit rectified that situation.

The extension will apply to all redundancies received before 1 April 2011. If a Redundancy tax credit (IR524) form is lodged now, claims for redundancy payments received on or after 1 October 2010 will be processed after the legislation is passed, which is expected in early December 2010. It will be paid at the rate of 6 cents in the dollar to a maximum of $3,600 for each redundancy payment.

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Budget 2010 RWT rate change for trustees and Māori authorities

The RWT rates for individuals were aligned with the 1 October 2010 income tax rate changes in the Budget. The RWT rate change also changes the rates for trustees and Māori authorities.

For the 2011-12 income year, this will align the RWT rate with the beneficiaries' marginal tax rates where trustees allocate trust income to beneficiaries. However, for trusts that treat the trust income as trustee income, the trustee income tax rate isn't changing. For trustees of most trusts, such as family trusts, there's likely to be a tax shortfall.

Most Māori authorities will have their RWT rate reduced from 21% to 17.5%. This will result in less RWT credit to offset their 2011 income tax.

Trustees and Māori authorities need to consider how the reduced tax credit affects their end-of-year income tax and provisional tax, and trustees may want to change their RWT rate back to 33% to avoid any shortfall.

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Repeal of fund withdrawal tax

The changes to fund withdrawal tax in the Taxation (Budget Measures) Act 2010 have been repealed. In their place the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 repeals fund withdrawal tax with effect to withdrawals made on or after 1 April 2011. Withdrawals made before 1 April 2011 will continue to be included as assessable income in your tax return.

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Our new-look GST guides and factsheet

Some customers have told us they don't understand our guides and that some of our information is long-winded and repetitive. We agreed, and decided to improve our GST guide (IR375) and GST - do you need to register (IR365).

Our redesign focused on making them more user-friendly. To ensure we were on the right track we talked to our customers and staff. We also undertook research on customer needs, such as the small/medium enterprise customer perspectives, which provided findings about how customers want to interact with us and receive information.

We used this feedback to redesign our products. Then we created prototypes and presented them to a selected group of customers. We asked them how the prototypes met their needs, reviewed their feedback and produced our new-look GST publications.

The redesign has meant we now have three new-look products:

  1. GST - do you need to register (IR365)
  2. GST guide: Working with GST (IR375)
  3. GST plus: Working out specific GST issues (IR546).

A factsheet (the IR365) helps people decide if they should register for GST or not, and the two guides help explain GST in more detail. The IR375 has the basic information all customers need to know and the IR546 has more complex GST situations and less common GST scenarios.

The information is now simpler, clearer and easier to understand for customers who just need the basics of GST. We've included flow charts and summaries of key points, and encourage customers to file online.

They're all are available under "Forms and guides". The new IR365 and IR375 can be ordered by calling 0800 257 773. If you have any feedback about these products please email customerinformation@ird.govt.nz

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Refunds we've sent in error

If you receive a refund for payments or credits we've released in error, please return it to us in one of these ways:

  • For cheque refunds, please return our cheque and tell us where the payment or credit should have gone.
  • For direct credit refunds, please send your cheque or electronic payment for the exact amount of the refund and tell us where the payment or credit should have gone. If the payment is returned within 15 days, then no penalty and interest charges will be applied.

When we get the full amount of the refund we'll update the payment or credit at the date originally received.

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ACC CoverPlus Extra premiums deductible

Many Large Enterprise customers don't have personal shareholders, but for those that do this may be something you need to know.

Previously, premiums for ACC CoverPlus Extra (CPX) haven't been tax deductible for shareholder-employees. Now, when an employer company pays a shareholder-employee's CPX levy, or reimburses them for payment of those levies, the amount paid or reimbursed (excluding the earners' levy) will be tax deductible as an expense by the employer company.

You can find out how to work out the earners' levy component of the CPX premium on the ACC website (keywords: earners' levy calculator).

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Binding rulings update

Full details of the following recently published rulings can be found in our Public rulings section.

BR Pub 10/09: Legal services provided to non-residents relating to transactions involving land in New Zealand

This ruling considers the GST position when certain legal services are provided by a registered person to a non-resident at a time when the non-resident is not present in New Zealand. It states that the following legal services are zero-rated pursuant to section 11A(1)(k) of the Goods and Services Tax Act 1985:

  • legal services relating to transactions involving the sale and purchase of land in New Zealand
  • legal services relating to transactions involving the lease, licence, or mortgage of land in New Zealand
  • legal services relating to easements, management agreements, construction agreements, trust deeds, guarantees and other agreements relating to land in New Zealand
  • legal services relating to disputes arising in relation to land in New Zealand (including drafting court documents, court appearances, representation in negotiations and settlements and general advise in relation to these disputes).

BR Pub 10/10-10/13: Local authority rates apportionments on property transactions - goods and services tax implications

These rulings address the question of how apportionments of local authority rates made in property transactions should be treated for GST. BR Pub 10/10 and 10/11 apply to situations where the rates have been prepaid by the vendor beyond settlement.

BR Pub 10/12 and 10/13 apply to situations where the local authority rates for the property are in arrears on the settlement date and the parties have agreed that the purchaser will pay the outstanding amount, in exchange for a credit against the settlement amount for the vendor's share of the outstanding amount.

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Unclaimed monies

As a service we provide a list of owners of unclaimed money left untouched for six or more years in businesses such as financial institutions and insurance companies.

Unclaimed money is not income tax refunds or any other unpaid tax refunds. Under the Unclaimed Monies Act 1971, funds left untouched for more than six years are required to be paid to Inland Revenue.

Most unclaimed money is from deposits left in banks and other financial institutions. It includes insurance proceeds, cheques and wages.

In October 2010 we had 18,498 names on this list, who were owed a total of $17,310,553. The sums involved can range from just over $100 to several thousand dollars.

If you think you might be entitled to unclaimed money please send us your name, address, IRD number and proof of identity, eg, a copy of a birth certificate, driver's licence or passport, by email to unclaimed.monies@ird.govt.nz or by mail to:

  • Unclaimed Money
    Inland Revenue
    PO Box 38222
    Wellington Mail Centre 5045

View the list of unclaimed monies (last updated in July 2010).

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Recent standard practice statements

We've recently released the following standard practice statements.

View all the current standard practice statements.

Imaging of electronic storage media

SPS 10/02 sets out our standard practice when taking an image of a taxpayer's electronic storage media. It covers a small part of our wider information-gathering powers provided by the Tax Administration Act 1994 and will be applied where no other appropriate or adequate means of obtaining information exists.

Electronic recording of our interviews

SPS 10/01 sets out our standard practice for using technology to record interviews where it's appropriate. It applies from 1 July 2010 and replaces SPS INV-330 Tape-recording Inland Revenue interviews which was published in the Tax Information Bulletin Vol 12, No 5 (May 2000).

SPS 10/01 doesn't apply to independent contractors conducting interviews on behalf of Inland Revenue, such as a research company contracted to carry out a customer survey, or an external solicitor contracted to carry out a child support review.

The full commentaries of both standard practice statements were published in the Tax Information Bulletin Vol 22, No 7 (August 2010).

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Lease terms as an estimated useful life for depreciation purposes

Interpretation statement IS 10/05 was issued on 16 August 2010 and addresses whether a lease term is a relevant factor in determining an item's estimated useful life (EUL) for the purposes of setting a special depreciation rate.

The conclusion is that the EUL is a necessary component in determining a special rate. The definition of EUL doesn't allow lease terms to be relevant factors for the Commissioner to take into account when determining a special rate, because they aren't consistent with the criteria for considering an EUL. Therefore, the Commissioner can't issue a special rate based on an EUL that has been determined by the length of a lease to which the item is subject.

There may be cases where the EUL coincides with the lease term. However, in such cases the EUL won't have been determined by the length of a lease. In all cases the EUL will be determined by reference to the applicable criteria, being: passage of time, likely wear and tear, exhaustion and obsolescence.

These criteria are restricted to considerations of deterioration, exhaustion and external factors that cause an item to no longer be of use to any business.

For the full commentary see the Tax Information Bulletin Vol 22, No 8 (September 2010).

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Gift duty exemption amended

Section 73 of the Estate and Gift Duties Act 1968 has been amended by the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 to exempt gift duty from gifts made to:

  • central government (excludes educational institutions)
  • organisations that are local authorities
  • council-controlled organisations and their subsidiaries

provided these organisations are not for the private pecuniary profit of any individual.

Also exempt under this section are gifts made to donee organisations approved and listed by Inland Revenue or approved by Parliament and listed in Schedule 32 of the Income Tax Act 2007.

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Student loan voluntary repayment bonus

You may have staff who have a student loan and are eligible for the voluntary repayment bonus. If they're not sure about receiving it, the bonus doesn't form part of the end of year repayment calculation and won't show on any notice of assessment but it will show on their statement once the bonus has been processed.

Find out more about the bonus.

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Special tax rate/exemption certificates for schedular payments

Amendments to both sections 24M and 24N of the Tax Administration Act 1994 (TAA) ensure that a person commits a knowledge offence, under section 143A of the TAA if the person:

  • alters an exemption certificate or special rate certificate in relation to schedular payments
  • uses an exemption certificate that has expired or been cancelled
  • uses a special tax rate certificate that has expired or been cancelled.

The amendments apply for the 2008-09 and later income years.

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Updated definition of "honoraria"

The previous definition of "honoraria" didn't sufficiently cover payments made to public office holders. The definition now includes schedular payments for services performed by:

  • a local government elected representative
  • an official of a community organisation, society or club
  • a chair or member of a committee, board or council
  • an official, chair or member of a body or organisation.

This applies to payments for work and services made in the 2008-09 and later income years, other than a payment:

  • for work or services performed before the day of royal assent, and
  • where the payer isn't required to withhold tax.

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Our services over the holiday season

Over the holiday season our services will be reduced. You can still get information during the holidays, and all year round, on our website.

Large Enterprises contact centre hours
Holiday dates Availability
Friday 24 December 2010 8am to 2pm
Saturday 25 December 2010 to Tuesday 4 January 2011 Closed
Wednesday 5 January 2011 8am to 4.30pm

Secure online services, ir-File and our 0800 self-service will be unavailable from Saturday 25 December until Tuesday 28 December 2010 and will start again at 6am on Wednesday 29 December.

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KiwiSaver amendments effective 7 September 2010

The Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (the Act) contains a number of amendments to KiwiSaver for potential and existing members, employers and scheme providers.

PAYE and KiwiSaver deductions for school children

Current inconsistencies between PAYE and KiwiSaver deductions for school children have been addressed.

The Act ensures that if employers aren't required to make PAYE deductions from the salary or wage of a school child because they receive the tax credit for children, no KiwiSaver deductions need be made either.

School children whose total earnings from all employment are less than $45 a week don't have to complete a Tax code declaration (IR330) form.

Enrolment of under 18-year-olds into KiwiSaver

The rules around the enrolment of minors into KiwiSaver have been changed to include the following:

  • Children under 16 years old can only be enrolled with all their legal guardians' consent, and can't enrol themselves in KiwiSaver.
  • Children aged 16 to 17 must co-sign with one of their legal guardians to enrol in KiwiSaver. They can't enrol themselves, and a legal guardian can't enrol a child aged 16 to 17 without the child's consent.
  • Children aged 16 to 17 without a legal guardian, but who are married, in a civil union or living with a de facto partner, may opt-in to KiwiSaver by contracting directly with a scheme provider. This means that such children won't need a co-signed application to opt-in to KiwiSaver.

Electronic provision of annual reports

The requirement for KiwiSaver scheme providers to send an annual report to all KiwiSaver members in their scheme has been amended.

The Act lets providers fulfil the annual report provision requirements by sending a hyperlink, which links to the annual report, via email. This will only apply to those members who have supplied their provider with their email address and have specifically agreed in writing to receive the annual report by hyperlink.

Leasehold estate

The Act amends clause 8 of schedule I of the KiwiSaver Scheme Rules and the eligibility for the first-home withdrawal.

These rules have been amended to allow KiwiSaver members who currently have, or have held, an interest in a leasehold estate to apply for a first-home withdrawal from their KiwiSaver savings. The previous definition of a leasehold estate included an interest under a residential tenancy agreement.

This amendment ensures KiwiSaver members, who have been or currently are in a rental tenancy agreement, won't be excluded from the KiwiSaver first-home buyer or KiwiSaver deposit subsidy schemes.

The first-home withdrawal and deposit subsidy aren't administered by Inland Revenue. KiwiSaver members should contact Housing New Zealand for more information about the eligibility criteria and subsidy entitlements.

Temporary employees

The Act addresses the current inconsistencies for existing KiwiSaver members who want their employer to make KiwiSaver deductions and contributions when the employee is on a temporary employment contract.

This means that if a KiwiSaver member, who begins temporary employment, requests an employer to make deductions and contributions, the employer is obliged to do so.

Retirement savings portability with Australia

Note

It may take up to two months after Australia passes the necessary legislation for the portability arrangements discussed below to come into effect. Australian legislation may not be finalised until 2011.

The Act amends the Income Tax Act 2007 to allow a person who has retirement savings in both Australia and New Zealand to consolidate those savings into one account in their country of residence.

KiwiSaver members who permanently emigrate to Australia will be able to transfer their KiwiSaver funds, including all Government contributions, to an approved Australian superannuation scheme. They'll no longer be able to withdraw their savings after one year when emigrating to Australia.

Members of an approved Australian superannuation scheme who are eligible to join KiwiSaver will be able to transfer their Australian funds to a KiwiSaver scheme. This will mean that New Zealanders who have worked in Australia in the past and have superannuation funds there, will be able to repatriate the money to New Zealand if they join the New Zealand KiwiSaver scheme.

The rules that apply to the host scheme provider will continue to apply to the funds that are transferred. In other words, funds transferred to Australia will continue to be subject to the withdrawal rules under the KiwiSaver Act 2006. Funds transferred from Australia to KiwiSaver will be subject to the Australian rules for withdrawal.

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Your send and receive mail is changing

From November you'll see some enhancements to "Send and receive mail". It will have a new look, more functions and a new name - Secure mail.

This means you'll have the ability to:

  • choose whether you're sending a new message for yourself or for one of your associated entities
  • filter which mail messages you're viewing by All, Received, Sent or Drafts
  • save a draft message before sending it to Inland Revenue.

Access to Secure mail will also change. You'll access it via a new tab, like "Submit returns" and "Manage clients", at the top of your online services account.

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Lump sum payments to employees and end-of-year income tax

When calculating personal income tax at the end of the tax year an average of the pre- and post-1 October rates will be applied to annual income. This is because personal income tax rates changed on 1 October 2010, halfway through the 2010-11 tax year.

Income range Personal income tax rates for 1 April 2010 - 30 September 2010 Personal income tax rates for 1 October 2010 - 31 March 2011 Full year personal income tax rates for the 2010-11 tax year
$0-$14,000 12.5% 10.5% 11.5%
$14,001-$48,000 21% 17.5% 19.25%
$48,001-$70,000 33% 30% 31.5%
$70,001 and over 38% 33% 35.5%

If an employee receives a large one-off or lump sum payment between 1 October 2010 and 31 March 2011 the tax rate applied may not be enough to cover their annual income tax liability. However, this can depend on other factors, such as income from other sources.

A personal tax summary (PTS) with an end of year income tax calculation is sent automatically to some employees, if they meet certain criteria. If they don't receive a PTS they won't need to do anything, even if the tax rate applied by their employer means they may have a tax bill at the end of the year.

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New FBT rates from 1 October

When calculating FBT you can use either a single rate or the alternate rate - both these rates changed on 1 October 2010.

The single rate for quarterly filers changed from 61% to 49.25%. This new rate applies to the quarter ending 31 December 2010, due by 20 January 2011, and all later quarters.

The alternate rate changed from 49% to 43%.

If you used the 49% alternate rate in quarters 1 or 2, or the new 43% rate for quarter 3, when you file your fourth quarter return you must use either a "full" or "short form" alternate rate calculation.

If using a "full" alternate rate calculation, the rates in the table below apply to fringe benefit inclusive cash remuneration for the 2010-11 year.

Income range FBT rate
$0-$12,390 12.99%
$12,391-$39,845 23.84%
$39,846-$54,915 45.99%
$54,916 and over 55.04%

If using a "short form" alternate rate calculation, the rates in the table below apply to fringe benefits for the 2010-11 year.

Fringe benefit type FBT rate
Attributed 55.04%
Non-attributed - major shareholder-employees 55.04%
Non-attributed - other employees 45.99%

The alternate FBT rates change again for the 2011-12 year. We'll keep you updated closer to the time.

If you file an annual or income year return the flat rate changed from 61% to 55.04% for the 2010-11 income year and this changes to 49.25% for the 2011-12 income year. You also have the option of using an alternate rate calculation.

We've updated all FBT forms, guides and calculators with the new rates and they're available now.

FBT prescribed interest rate changes (low-interest loans)

FBT prescribed interest rates are used to determine the fringe benefit value of low-interest loans provided to employees. New rates are set periodically and went up from 6.00% to 6.24% from 1 October 2010.

Once the prescribed interest rate is set, it applies to all future quarters until it's altered. If a new rate is not set for the current quarter then the previous quarter's rate still applies.

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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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Other issues this year

Large Enterprises Update - Number 12: August 2010
Large Enterprises Update - Number 11: May 2010
Large Enterprises Update - Number 10: February 2010

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Date published: 23 Nov 2010

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