Business Tax Update - 2010

Business Tax Update Issue 13 October 2010

• Reminders
• Tax help for businesses affected by the earthquake
• Amendments to KiwiSaver
• Retirement savings portability with Australia
• GST is now 15%
• Business.govt.nz is your website for Kiwi businesses
• Small businesses spend less time and money doing tax now than in 2004
• New donee organisation added
• Change to immigration requirements
• Emissions Trading Scheme legislation changes
• New gift duty exemptions
• Reminder about 1 October tax changes

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

Budget 2010 tax changes

Are your systems in place for the 1 October changes?

• GST is now 15% - have you increased your charge rates?
• Tax rates have reduced - are you using the right PAYE tables/calculations?
• RWT - are you using the new rates?

The first GST transitional forms for the period ending 31 October will need to be filed in November.

See our online demonstrations on how to fill out the forms.

Free tax seminars and workshops:

We hold free tax seminars and workshops around the country for people in business. Booking is essential.

Find a list of dates and locations and book a seminar.

Back to top

Tax help for businesses affected by the earthquake

Inland Revenue will take a sympathetic but realistic approach with businesses that are unable to meet their tax obligations as a result of the Canterbury earthquake.

After the earthquake we understand that tax isn't the first thing on your mind. We've put some tax relief measures in place to help you at this time.

If you think you'll have difficulty meeting your tax payments, please call our disaster response line on 0800 473 566.

Read the latest tax information for people affected by the earthquake.

Returns and payments

Please file your returns and make payments if you can. You can pay online, by cheque or at any branch of Westpac. If you can't file your return or make your payment on time, that's okay.

You won't have to pay any late penalties or interest on the unpaid amount. If you do get a letter from us charging late penalties and interest you'll need to call us on 0800 227 771, or write to us and we'll cancel them.

If you can't:

• file your return because you've lost your business records, please call us on 0800 227 771
• afford to make a payment, please call us on 0800 227 771 to discuss your options.

Financial hardship

We understand it may take some time for you to be able to pay your tax. We offer a range of options for paying overdue tax, such as setting up an instalment arrangement. In some circumstances we may be able to write off your debt.

GST refunds

If you're expecting a refund and urgently need the money, please call us on 0800 473 566.

If you're expecting GST refunds over the next few months you may want to file either monthly or two-monthly returns. This way you'll get your refunds more regularly. You can change your GST filing frequency by calling us on 0800 377 776.

Provisional tax estimation/re-estimation

You may want to consider your provisional tax payments at the next due date. Depending on your circumstances, your taxable income may have changed. You may want to:

• talk to your tax agent
• re-estimate your provisional tax
• arrange an early refund if provisional tax has been overpaid.

Earthquake support subsidy for employers

You may be entitled to the earthquake support subsidy available through Work and Income. This is a payment for employers with fewer than 20 employees. You can receive $350 (GST-inclusive) a week for each employee for up to four weeks.

If you receive this payment and you're registered for GST, you'll need to include it as income in your GST return. You'll need to make PAYE and any other deductions from any wages you pay to staff, eg, child support, student loan and KiwiSaver.

You'll also need to continue making your employer contributions to us if your employee is a KiwiSaver member.

Find out more about the subsidy on the Work and Income website.

Businesses receiving insurance payments

If you receive an insurance payment for loss or damage to buildings or other business assets and you're registered for GST, you'll need to include these payments as income in your GST return.

Payments received on or before 30 September will include GST at 12.5%. Those received on or after 1 October will include GST at 15%.

Insurance payments for loss of earnings don't need to be included in your GST return.

Large enterprise customers

If your business has over $100 million turnover call Large Enterprises on 0800 443 773, Monday to Friday 8 am to 4.30 pm.

Back to top

Amendments to KiwiSaver

New legislation came into effect on 7 September 2010. Here's a summary of the amendments.

PAYE and KiwiSaver deductions for school children

If employers aren't required to deduct PAYE from the salary or wages of a school child because the child is entitled to the tax credit for children, then KiwiSaver deductions aren't required.

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

KiwiSaver enrolments for under-18 year olds

Children under 16 years may only be enrolled with the consent from all their legal guardians - they may not enrol themselves in KiwiSaver.

Children aged 16 to 17 must co-sign with one of their legal guardian(s) to enrol in KiwiSaver. They won't be able to enrol themselves and a legal guardian may not 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 KiwiSaver scheme provider and therefore won't need a co-signed application.

Electronic provision of annual reports

A KiwiSaver scheme provider can now provide an annual report by emailing a hyperlink to it. This will only apply to those members who have given their provider an email address and have specifically agreed in writing to receive the annual report by hyperlink.

Leasehold estates

From 1 July 2010 KiwiSaver members who currently have, or have held, an interest in a leasehold estate may now apply for a first-home withdrawal from their KiwiSaver savings.

This means that KiwiSaver members who have been, or currently are, in a residential tenancy agreement will not be excluded from the KiwiSaver first-home buyer or KiwiSaver deposit subsidy schemes.

The deposit subsidy isn't administered by Inland Revenue. KiwiSaver members should contact Housing New Zealand for more information.

Find out more on the Housing New Zealand website, or call them on 0508 935 266.

For more information on applying for a first-home withdrawal, contact your KiwiSaver provider.

Temporary employees

If a KiwiSaver member who begins temporary employment requests an employer to make deductions, the employer will be obliged to do so and pay compulsory employer contributions for that employee.

Back to top

Retirement savings portability with Australia

A person who has retirement savings in both Australia and New Zealand will be able 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 at any time after permanent emigration. 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 transfer the money to New Zealand if they join KiwiSaver.

Funds transferred to Australia will continue to be subject to the withdrawal rules under the KiwiSaver Act (this will only apply to the principal funds transferred, and not to any future accumulated interest). Similarly, funds transferred from Australia to KiwiSaver will be subject to the Australian rules for withdrawal.

Back to top

GST is now 15%

Now that 1 October has been and gone the 15% GST rate applies to your sales and purchases.

All the income and expenses you record on your GST returns for periods that begin on or after 1 October 2010 will be treated as including GST at 15%. However, depending on your accounting basis, you might be including in your post-1 October GST return payments made or received for invoices with GST charged at 12.5%. You'll make a one-off GST rate change adjustment in your return that includes 30 September 2010 to account for these invoices. That means you won't need to make any further adjustments when the payments are made.

You'll either have received the GST rate change adjustment calculation sheet (GST105) with your GST return for the period ending 30 September 2010, or it'll be included with your GST transitional return (GST104) if your GST return period didn't end on 30 September 2010. Use the calculation sheet when preparing your return for the period that includes 30 September 2010.

To reduce the adjustments you may have to make in later GST returns, it's important to include as many "qualifying supplies" as possible in your GST rate change adjustment.

It shouldn't be difficult to establish from your normal sales records if you've sold goods or services that need to be included in your list of debtor qualifying supplies. However, it's possible you may not have received tax invoices for all the purchases you've made for your list of creditor qualifying supplies.

We encourage you to get as many of these tax invoices as you can before working out the GST rate change adjustment and filing your GST return, but don't let a few missing invoices stop you filing your GST return by the normal due date.

If invoices are received after you've filed the return then you can simply account for those purchases in a later GST return. However, because you weren't able to include these invoices in your one-off GST rate change adjustment, you'll need to include the GST portion of the invoice (at 12.5%) as a credit adjustment in Box 13 of the GST adjustments calculation sheet (IR372), rather than including them as an expense in Box 11 of the GST return.

Find out more about the GST rate change adjustment.

Use our decision tool to help you decide if any sale or purchase needs to be included in the adjustment.

Expect some leniency with GST returns

Although there are no extensions of time for GST returns, you can expect some leniency for late filing if there are genuine mistakes made over the GST rate change period.

GST returns for the period ending 30 September 2010 are due Thursday 28 October 2010. Returns ending 31 October 2010 are due Monday 29 November 2010 (as the 28th falls on a Sunday).

GST-registered businesses and their tax advisors need to take reasonable steps to be prepared for the changes, and file and pay on time. Shortfall penalties can be imposed if errors occur due to not taking reasonable care during the transition to the new GST rate.

Ongoing adjustments at 12.5%

As well as purchases you weren't able to include in your GST rate change adjustment, a few other transactions will need to be accounted for at the 12.5% rate rather than 15%. These include:

• payments towards a finance lease entered into before 1 October 2010 where the lessor has elected to have payments continue to include GST at 12.5%. The lessor is required to notify you by 31 October 2010 that they're electing to continue using the old GST rate, but if you're making payments towards such a lease and haven't heard from the lessor it may be worth checking with them before including the payments on a GST return at 15%.
• late claims of GST for invoices that include GST at 12.5%. Don't include these claims as an expense on your return; instead make an adjustment for the GST portion.
• replacement invoices, and credit or debit notes issued or received where the original invoice was at 12.5%. When a replacement invoice or a credit or debit note is issued, the GST rate must be the same as that of the original invoice. Instead of including these as income or an expense in your return, make an adjustment for the GST portion.

We've redesigned the GST adjustments calculation sheet (IR372) to allow for adjustments at the 12.5% GST rate.

Replacement tax invoices

Normally only one tax invoice can be issued for a supply; if the price later changes then a credit or debit note will need to be issued.

However, legislation enacted in September 2010 will now allow the issuing of a replacement tax invoice in two situations:

1. A replacement tax invoice that includes GST at 12.5% can be issued after 1 October 2010 instead of a credit note to correct a price reduction for an invoice that originally included GST at 12.5%.
2. A replacement tax invoice that includes GST at 15% can be issued if there is a price increase after 1 October for an invoice that originally included GST at 12.5%. This may be useful when notifying a customer of the increase in the amount payable for successive supplies or periodic payments due after 1 October because of the GST increase.

Contracts involving successive supplies and periodic payments

Legislation was also enacted in September 2010 to ease the transition to 15% GST rate for goods supplied under an agreement to hire, or services supplied under an agreement that provides for periodic payments.

Suppliers can now choose to keep the 12.5% GST rate until the contract ends, or for the rest of the period of the contract up to the next annual review date (or less if the contract is for a lesser period) provided the following conditions are met:

• the agreement must begin before 1 October 2010 and end after that date, and
• payments for the goods or services supplied under the agreement must be set to end, or due to be reviewed, within a period of 396 days or less, and
• the supplier must notify the customer by 31 October 2010 that all payments due on or after 1 October 2010 will be treated as including 12.5% GST.

If you're supplying goods or services and choose to keep the 12.5% GST rate for such contracts, you'll need to include all payments due on or after 1 October as income in the GST return that includes 30 September 2010, regardless of your accounting basis. The time of supply for all payments on or after 1 October 2010 will be treated as being 30 September 2010, as if you had issued a tax invoice on that date.

If you use the invoice accounting basis and purchase goods or services under a contract, and the supplier has chosen to keep the 12.5% GST rate, then you'll also need to include all payments due on or after 1 October 2010 as an expense in your GST return that includes 30 September 2010.

If you use the payments or hybrid accounting basis, then all the payments for the contract due on or after 1 October 2010 will need to be included in your list of debtor qualifying supplies for your GST rate change adjustment. Including these payments in the one-off GST rate change adjustment will mean you can simply enter the payments in your future GST returns as expenses when they're made without any further adjustments.

If you didn't know the supplier kept the payments at 12.5% until after you'd completed and filed your GST return including 30 September 2010, don't worry. It just means you'll need to adjust for the GST portion of each payment at 12.5% when you make the payment, similar to a late GST claim.

It's a good idea to check with your supplier if they're choosing to keep payments for such contracts at 12.5% GST before completing the GST return in which you make the GST rate change adjustment.

Transitional returns

Remember that if your GST return period did not end on 30 September 2010, you'll file a GST transitional return for the first period ending after 1 October 2010.

Find out more about the GST transitional returns, and how to complete them.

Invoices showing incorrect GST rate - can you claim GST at 15%?

Despite the best intentions, one of your suppliers might issue you a tax invoice showing 12.5% GST for a good or service purchased on or after 1 October 2010.

Any supply made on or after 1 October 2010 by a GST-registered business will be deemed to include 15% GST, even if a different rate shows on the invoice. Before claiming the expense on your GST return, you need to make sure the tax invoice is valid. However, an incorrect GST rate will not always make a tax invoice invalid.

Find out what information a valid tax invoice must show.

If the invoice you hold is valid, then you'll be able to record the expense on your GST return.

Although it's a good idea to contact the supplier to let them know of the mistake and to ask for an invoice showing the correct information, you'll still be able to claim the GST at 15%, if the tax invoice is valid.

Back to top

Business.govt.nz is your website for Kiwi businesses

Business.govt.nz provides the latest expert advice, business tips and information from government to help you start, manage and grow your business.

The site is designed to help you save time and money by having one place where you can find everything you need, and it's all free.

You will find:

• practical tools and resources to help build your own business plan
• information on the rules and regulations you need to comply with
• direct access to government transactions you need to perform.

Visit the business.govt.nz website.

Back to top

Small businesses spend less time and money doing tax now than in 2004

Ever wondered how much a business spends on its tax affairs?

• The number of hours spent on doing tax? Down by 16.3 hours to 77 hours a year.
• Stress level associated with meeting tax requirements? Down by 0.2 points to 3.2 points (on a 7-point scale).
• Dollars spent on doing tax? Down by $71 to $5,557, annually.
• The reduction in tax compliance cost for small business? Priceless.

In 2004, Inland Revenue surveyed small businesses around New Zealand to find out how much time and money they spent doing their tax. This exercise was repeated in 2009 to compare tax compliance costs for these two years.

Launching the report, Revenue Minister Peter Dunne said, "These findings are particularly significant when businesses are operating in a very tough world today". These positive changes are the result of Government's focus on minimising compliance costs over the past five years. He added, "We want businesses focused on doing business and succeeding for themselves and for the New Zealand economy".

For all New Zealand small businesses on average, internal costs in 2009 were $3,995, down from $4,075 in 2004. External costs, the amount paid to tax agents/advisors, were unchanged at $1,639. Overall, the combined tax compliance cost for small businesses in 2009 was $5,557, down from $5,628 in 2004.

The reduced costs are inflation-adjusted and include the extra cost from the introduction of KiwiSaver.

The introduction of KiwiSaver saw an additional tax compliance cost of $705 annually for businesses with KiwiSaver members. These businesses also spent an extra 14.5 hours annually complying with KiwiSaver requirements.

Compliance costs went down for businesses dealing with GST and income tax but increased for those doing PAYE and FBT.

Advice was received from the business community (NZICA, Business New Zealand, and the Small Business Advisory Group), academia (the NZ Centre for SME Research), the Ministry of Economic Development and policy experts from Inland Revenue.

Find out more by reading the full report: "Changes in SME tax compliance costs 2004 to 2009: evaluation report 2".

For more information, please contact Evaluation@ird.govt.nz

Back to top

New donee organisation added

Cure Kids has been added to the list of approved donee organisations.

See the full list of donee organisations.

Back to top

Change to immigration requirements

A new Immigration Act will come into effect on 29 November 2010. As an employer, your obligations under the Immigration Act 2009 remain essentially the same as under the Immigration Act 1987 - you mustn't employ a non-New Zealand citizen who isn't entitled to work in New Zealand. The key change for employers in the Immigration Act 2009 is that holding a Tax code declaration (IR330) form will no longer be a "reasonable excuse" for employing a non-New Zealand citizen who isn't entitled to work in New Zealand. Instead, you'll have to show that you took "reasonable precautions and exercised due diligence" to check whether they're entitled to work in New Zealand.

The Department of Labour wants to help you meet your obligations and is doing this in a number of ways. A new online service, VisaView, lets employers in New Zealand find out the work entitlement of non-New Zealand citizens. This service has been launched well in advance of the Act coming into effect on 29 November 2010. This allows employers time to become familiar with their obligations and to review and, if necessary, change their practices. It also gives the Department time to refine the system based on users' feedback.

A work entitlement checklist and guide have also been produced to provide guidance on best practice. These products were developed after extensive consultation with employers around New Zealand. The Department of Labour recognises that many employers already have good practices in place and these practices have been incorporated into the guide and checklist. The Department welcomes employer feedback to help make VisaView and the supporting products as valuable as possible for employers.

Find out more about VisaView on the Immigration New Zealand website.

Back to top

Emissions Trading Scheme legislation changes

The Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 introduced a number of amendments to the provisions relating to the tax treatment of emissions units.

Treatment of owners of fishing quotas units

Emissions units allocated to compensate for an expected drop in fishing quotas capital value are now on capital account. Application is from 1 July 2010.

Treatment of Permanent Forest Sink Initiative (PFSI) units

This change makes the tax treatment for PFSI the same as the treatment for post-1989 foresters under the Emissions Trading Scheme. This means the receipt/allocation of emissions units is on revenue account and gives rise to income. Their surrender is deductible from 1 January 2009.

Market value transfer rules for emissions units

A specific rule has been introduced requiring any emissions unit transfer to be valued at market value for tax purposes. Certain specific exemptions have also been added. Application is from 26 September 2008.

Market value rules for forestry rights transfers

Any transfer in accordance with a forestry rights agreement (registered under the Forestry Rights Registration Act 1983) at market value will not trigger a tax liability. Application is from 1 January 2009.

Treatment of transfer of units to interim entities pending Treaty of Waitangi settlements

Where land is transferred under a Treaty settlement, the capital account treatment of emissions units allocated in relation to pre-1990 forestry is extended to the ultimate owner of the land. Application is from 1 April 2010.

Back to top

New gift duty exemptions

Legislation has been amended to exempt gift duty from gifts made to central government organisations (excluding educational institutions) that are local authorities, or council-controlled organisations and their subsidiaries, provided these organisations are not for the private profit of any individual.

Also from 1 April 2008, gifts made to donee organisations approved by Inland Revenue or by Parliament and listed in Schedule 32 of the Income Tax Act 2007 are now exempt from gift duty.

See a full list of donee organisations .

Back to top

Reminder about 1 October tax changes

If you're an employer you'll have received the updated PAYE tables or a letter from us outlining changes that affect you from 1 October 2010.

New PAYE rates have now come into effect and the updated PAYE tables and our online PAYE/KiwiSaver calculator are available for you to use now under "Work it out".

You need to use 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 include the new secondary tax rates for employees who use a secondary tax code. Employees with a special tax code should have given you a new certificate with their new tax rate.

If you use a payroll package this should have been updated with the new PAYE rates and ready to use for pay periods ending on or after 1 October 2010.

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.

Download ›

PDF | 377kb | 6 pages

 

Download Acrobat Reader to view PDF files

Report an accessibility problem for this page

 

 

Date published: 03 Nov 2010

Back to top