Business Tax Update - 2010

Business Tax Update Issue 12 September 2010

• Reminders
• Update on the Budget 2010 changes
• GST changes
• FBT and ESCT rate changes
• RWT interest and prescribed investor rates
• Need more help with the Budget changes?
• Do you offer payroll giving?
• Options for GST on annual contracts
• Penalty for non-electronic filing of employer monthly schedules
• Employees with a shortfall of PAYE
• Have your say on options to change the child support scheme
• Making it easy to pay online
• Updated publications
• Footnote

Welcome to Business Tax Update

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

Reminders

Special tax code earnings: If you're paying staff (not contractors) who have a Special Tax Code Certificate for a special rate, the gross earnings are still liable for the ACC earners' levy up to the maximum liable earnings for the income year. You don't need to enter this income as "Earnings not liable" on your Employer monthly schedule (IR348).

Redundancy tax credit: The redundancy tax credit can't be claimed on redundancy payments received on or after 1 October 2010.

The credit has been removed because from 1 October the 38% tax rate will reduce to 33%, so the gap will be smaller to the next rate of 30%.

Updating your address: It's important we have your correct address. It's quick and easy to update your address online.

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Update on the Budget 2010 changes

Our series on the Budget continues in this issue. The following articles outline how these changes will affect you and your employees from 1 October.

PAYE rates will reduce from 1 October. The key income-related changes are described below.

PAYE changes

The changes to personal income tax rates mean the new PAYE rates come into effect from 1 October. You must start using the new rates to calculate the correct amount of PAYE to deduct from your employees' salary and wages for pay periods ending on or after 1 October 2010. The updated PAYE tables will include the new secondary tax rates for employees who use a secondary tax code. Employees with a special tax code will give you a new certificate prior to 1 October with the new tax rate.

We'll be sending most employers the updated 2011 PAYE tables in mid-September, unless you've previously told us you don't need them or you use a payroll intermediary or tax agent.

The updated tables are available on our website now.

If you already use the online tables and have bookmarked them you'll need to refresh the bookmark to link to the updated 2011 PAYE tables.

You'll find the updated online 'PAYE/KiwiSaver calculator" under "Work it out".

If you use a payroll package and haven't heard from your payroll software provider when the changes will be ready for your system, we suggest you contact them to ensure it's updated and ready to use from 1 October.

ACC earners' levy

The current ACC earners' levy is 2% (GST-inclusive). It increases to 2.04% on 1 October 2010 because of the GST increase to 15% on that date. We've included the increase in the updated PAYE tables and calculators.

Handling extra pays

When you make a lump sum payment to employees this is known as "extra pays". These rates and thresholds are changing from the first pay period that ends on or after 1 October 2010.

PAYE rates

The table below shows the new PAYE rates (excluding the ACC earners' levy) from 1 October 2010 to 31 March 2011.

Income range	PAYE rates 1 October 2010 to 31 March 2011
Total income to $14,000	10.5%
$14,001 - $48,000	17.5%
$48,001 - $70,000	30%
$70,001 and over	33%

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GST changes

In last month's issue of Business Tax Update we focused on the GST transition as the GST rate changes from 12.5% to 15% from 1 October. This issue includes examples showing how the rate change will affect various businesses.

First, check the 1 October business checklist to see if you're ready for the change.

GST rate change adjustment - for payments basis

If you use the payments (or cash) accounting basis you may need to complete a GST rate change adjustment sheet (GST105) as part of your GST return that spans 30 September.

You'll need to make an adjustment for any sales and purchases you made on or before 30 September 2010 that haven't been paid for by this date. This is because when you include these sales and purchases in the GST period that you receive or make the payment in, the returns will only let you calculate 15% GST.

Follow these steps when making the adjustment:

1. List all your debtors (people who owe you money).
2. List all your creditors (people you owe money to).
3. Subtract the total debtors amount from the total creditors amount.
4. Divide that figure by 51.75 to find your GST rate change adjustment.

There are no extensions of time for GST returns, including the GST rate change adjustment return. Make sure you file your GST return by the due date. You can make an adjustment in a later return if you receive late invoices.

September invoices received in October

The date of the tax invoice determines the GST that can be claimed. Generally the GST is claimed in the return period it relates to. However, late claims are possible.

Credit and debit notes

When issuing credit or debit notes you'll need to make sure the GST rate is the same as the original tax invoice.

If you issue or receive a credit or debit note after 1 October for an invoice that was originally at 12.5%, don't enter the difference between the tax invoice and the credit or debit note as either income or an expense on your GST return. You'll need to account for this difference as an "other" adjustment in either the Box 9 or Box 13 sections of the GST adjustments calculation sheet (IR372).

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FBT and ESCT rate changes

The Budget changes also impact other aspects of our tax system that may affect your business, such as FBT and ESCT.

FBT changes

When calculating FBT you can use either a single rate or the alternate rate - both these rates are changing.

The single rate changes from 61% to 49.25% from the quarter ending 31 December 2010.

On 1 October 2010, for quarterly filers, the single rate will change from 61% to 49.25% and the alternate rate will change from 49% to 43%.

For annual or income year filers not using an alternate rate calculation, the FBT rate for 2011 has changed to 55.04%.

The basic rates of attributed fringe benefits for the year 1 April 2010 - 31 March 2011 are as follows.

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%

The basic rates of attributed fringe benefits change again for the 2011-12 year. We'll keep you updated closer to the time.

ESCT changes

The rates and thresholds for ESCT (employer superannuation contribution tax) are changing. You'll need to apply the new rates from the first pay period that ends on or after 1 October 2010.

The following rates apply if you're paying ESCT based on your employee's salary or wages plus gross employer contributions.

Income range	ESCT rate
$0 - $16,800	10.5%
$16,801 - $57,600	17.5%
$57,601 - $84,000	30%
$84,001 and over	33%

The flat ESCT rate remains at 33%.

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RWT interest and prescribed investor rates

From 1 October 2010 RWT rates on interest and prescribed investor rates, which apply to income from portfolio investment entities (PIEs), will be aligned with the new income tax rates.

You don't need to do anything to have the new rates applied. Banks, financial institutions and PIEs will change your rate automatically from 1 October.

You only need to update your rate if changes in your circumstances mean you go on to a higher or lower rate.

The new RWT rates will apply to interest payments made on or after 1 October 2010, regardless of the term the investment runs. The no-notification rate will drop from 38% to 33% to align with the new highest personal tax rate.

For PIE income or losses, the old rates apply to income attributed up to 30 September 2010 and the new rates apply to income attributed each day from 1 October 2010.

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Need more help with the Budget changes?

A new section on our website explains the Budget 2010 changes, and you can also find:

• a Budget calculator
• the GST Advisory Panel website
• the handy checklist to make sure you're ready for the Budget changes.

Free tax seminars and workshops

We're holding free Budget 2010 tax change seminars around the country for people in business.

The seminars cover preparing for the Budget tax changes, including GST increasing and PAYE reducing, updating your accounting and payroll software systems and training staff.

Booking is essential. Find a list of dates and locations.

GST Advisory Panel

This panel has been set up so you can ask questions or send feedback relating to the GST rate increase. Go to the GST Advisory Panel's website or phone 0800 387 783.

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Do you offer payroll giving?

Payroll giving is a voluntary scheme where employees make donations from their pay to support an approved donee organisation.

Employers choose whether to offer payroll giving and how it will run, but you need to be filing your Employer monthly schedule (IR348) and Employer deductions (IR345) form electronically using ir-File.

Find out more about payroll giving.

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Options for GST on annual contracts

Proposed amendments to the Goods and Services Act 1985 allow the 12.5% GST rate to be applied in certain situations, such as finance leases, annual contracts and successive supplies.

Check how your suppliers are applying GST to these types of payments before 30 September as you may need to notify your customers.

Find out more information for businesses

The GST Advisory Panel's website has useful examples.

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Penalty for non-electronic filing of employer monthly schedules

If you deducted more than $100,000 of PAYE and ESCT in the previous tax year you must file your Employer monthly schedule (IR348) electronically.

We'll work with all employers to help in the transition to electronic filing. However, if you're required to file in a prescribed electronic format but choose not to, we may impose a non-electronic filing penalty. The penalty is the greater of $250 or $1 for each person employed at any time during the month of the employer schedule.

View a demonstration if you're not yet registered for ir-File.

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Employees with a shortfall of PAYE

If your employees ask why they've not had enough PAYE and/or student loan repayments deducted throughout the year it may be a result of 27 fortnightly pays or 53 weeks within the tax year.

The PAYE system and PAYE tables are calculated on 52 weeks or 26 fortnights in a year. So your employee may have had a shortfall of PAYE because of when their wages were paid.

Your employees can find out if they're due for a tax refund or have tax to pay by using our "Personal tax summary calculation for 2010" calculator under "Work it out".

Have your say on options to change the child support scheme

The Government has released a discussion document to seek people's feedback on options to change New Zealand's child support scheme.

The Minister of Revenue Peter Dunne encourages you to use our online consultation.

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Making it easy to pay online

You'll find it quicker and easier to pay online with our new online payment service:

• You can use the new "Make a payment" button to go directly to the improved payments page.
• You can link directly to your bank to make a secure payment.
• You will find it quicker and easier to find the information you need to make any payment.

You can pay by credit or debit card, make an electronic payment or set up a direct credit payment. Paying online can be done where and when you want.

See how to make a payment.

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Updated publications

We regularly update our publications with the latest rate or legislation changes, so it's important to only use the latest forms and guides. If you keep copies on hand, check our website to make sure you have the latest version.

Below are some publications we've recently reviewed.

Publication	What we've done
KiwiSaver - employee information (KS3)	reduced to a 2-page factsheet
Student loans - interest-free student loans (IR222)	discontinued it
Student loans - going overseas (IR223)	reduced to a 2-page factsheet
Student loans - making repayments (IR224)	reduced to 16 pages and now a DL size
Bankruptcy - your tax obligations (IR244)	reduced to a 2-page factsheet and now includes information on the no asset procedure

These are all available to view or download at "Forms and guides", or they can be ordered by calling 0800 257 773.

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Footnote

Business Tax Update comments generally on topical tax issues relevant to businesses. 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: 09 Sep 2010

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