Business Tax Update - 2010

Business Tax Update Issue 14 November 2010

• Reminders
• Budget 2010 changes - filing your GST returns
• Correction for October Business Tax Update
• RWT rate change for trustees and Māori authorities
• Holiday pay and child support deductions
• Are you completing the correct FBT return?
• New-look GST guides and factsheet
• Redundancy tax credit extended
• KiwiSaver deductions for over-65s
• 2010-11 personal income tax rates
• New PAYE rates now in place
• FBT prescribed interest rate changes (low-interest loans)
• Your bank account details for KiwiSaver credits

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

KiwiSaver contributions transferring to employee’s accounts: Your employees may ask about this. It can take 60-90 days for your employee’s contributions to reach their KiwiSaver account.

Employee tax codes: If your employee gives you a signed Tax code declaration (IR 330) form with a new tax code, you must change their tax code to the one on their signed declaration. This overrides any notification from us advising you to change their tax code. It ensures your employee has the correct amount of PAYE deducted.

Back to top

Budget 2010 changes - filing your GST returns

Our series on the Budget 2010 changes continues in this issue. We outline here some of the transitional changes that will affect your business if you file GST returns.

If you file your GST return monthly this will be your first GST return at the new GST rate of 15%. If you file a two-monthly or six-monthly return that spans 1 October, you’ll need to complete a transitional return.

The following explains when your GST returns are due and the forms you need to complete.

Note: GST returns for the period ending 31 October 2010 are due on 29 November 2010 (because the 28th is a Sunday).

Monthly GST returns ending 31 October 2010

The GST calculation will now be different. You’ll 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 part of the transactions on the return, this can be calculated by dividing the GST-inclusive amount by 9.

Two-monthly and six-monthly GST returns

You'll need to file a one-off GST transitional return if you file a two-monthly return for the period ending 31 October 2010.

If you file a six-monthly return you’ll also need to file a one-off GST transitional return if your end date is:

• 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. These returns are divided into two parts to account for the change in the GST rate.

The key difference between the usual GST return and the GST transitional return is that in the transitional return supplies made or received:

• up to and including 30 September 2010 will be accounted for on Part 1 at the 12.5% GST rate
• from 1 October 2010 will be accounted for on Part 2 at the 15% GST rate.

In Part 1 you record your sales and income, purchases and expenses, and any adjustments (including the GST rate change adjustment) from the start of your return period until 30 September 2010.

As the GST rate is at 12.5%, you’ll calculate the GST component by dividing by 9.

In Part 2 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 rate is at 15%, you’ll calculate the GST component by multiplying by three then dividing by 23.

You’ll need to add the amounts from Parts 1 and 2 to get the total GST:

• collected on sales and income
• paid for purchases and expenses.

The difference between these two amounts will let you know if 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 and certain boxes may not apply to your situation - just complete the same boxes as in your usual return.

We'll send a flyer Completing your GST transitional return (GST107) with each transitional return.

Find out how to complete your transitional return (for both online or paper returns) and see a demonstration.

GST rate change adjustment

If you’re completing the GST rate change adjustment in Part 1 of the GST transitional return, please use the GST rate change adjustment calculation sheet (GST105) to record the adjustment.

See a demonstration on completing the GST rate change adjustment sheet.

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.

Normally the time of supply for these payments is on the day you receive the payment. You must include the GST content as an adjustment in Box 9 of your return covering the time you received the payment. For payments that were paid in September 2010 but not received until October 2010 the transitional rule applies.

Find out more about this transitional rule on insurance.

Compensation payments received for loss of profits insurance are liable for GST. However, any compensation payment received from ACC for loss of earnings doesn’t need to be included in your GST return.

Back to top

Correction for October Business Tax Update

There was an error in the “GST is now 15%” article in the October 2010 issue of Business Tax Update. On page 3, paragraph 4, the words “creditors” and “debtors” should be interchanged.

The paragraph should read:

"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 apologise for this error.

We've corrected the online version of the October issue of the newsletter.

Back to top

RWT rate change for trustees and Māori authorities

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

Where trustees allocate the trust income to beneficiaries and choose an RWT that matches a beneficiary’s marginal tax rate, for the 2012 income year, the rate changes will align the RWT rate with the marginal tax rate.

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. For example, a trust treats the income as trustee income that’s liable for income tax at 33%. The trustees had chosen the 33% RWT rate to align with the trust tax rate. On 1 October 2010 the interest payer would have reduced the RWT rate to 30%.

Most Māori authorities would have had their RWT rate reduced from 21% to 17.5%. This will result in less RWT credit to offset against 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. Trustees may want to change their RWT rate back to 33% to avoid any shortfall.

Back to top

Holiday pay and child support deductions

If you make child support deductions for an employee, you need to deduct it at the usual rate from their holiday pay.

If your employee requests their holiday pay before going on leave, you still need to deduct child support. This also applies to KiwiSaver and student loan deductions.

When you complete the child support box in your Employer monthly schedule (IR348) (EMS), use the child support code “A” to show a deduction made in advance. If the child support deducted is less than expected, use the child support code “D” to show a shortfall.

For questions about child support and tax on holiday pay, please call us on 0800 220 222. If any of your employees have questions about child support they can call us on 0800 221 221.

For more information about the rules for holiday pay and how to calculate it, go to the Department of Labour's employment relations website  or call them on 0800 20 90 20.

Back to top

Are you completing the correct FBT return?

We’ve noticed some FBT returns have been filed incorrectly. The following should help you give us the correct FBT return and data.

Three FBT returns can be completed:

1. Fringe benefit tax quarterly return (IR420), for employers who must file every quarter, and those who choose to do so
2. Fringe benefit shareholder/employee income year tax return (IR421), for companies with shareholder-employees
3. Fringe benefit ordinary employee annual tax return (IR422), for employers who elect to file returns for the year ended 31 March.

You can file an income year or annual return if one of the following applies:

• Total annual gross PAYE and ESCT (employer superannuation contribution tax) for the previous year is $500,000 or less.
• The employer is a close company and the only benefit was the provision of one or two vehicles for private use of shareholder - employees (option B).
• You weren't an employer in the previous year.

It's important the correct form is completed for the circumstances, based on the appropriate election.

The election options are:

• Option A - employers with ordinary employees (not shareholder-employees)
• Options B, C, D or E are for close companies only:  
  • B income year returns for shareholder-employees only 
  • C annual returns for ordinary employees and quarterly returns for shareholder-employees 
  • D income year returns for shareholder-employees and quarterly returns for ordinary employees 
  • E annual returns for ordinary employees and income year returns for shareholder-employees.

Remember you must file your election by the appropriate due date.

Find out more about the FBT and the election due dates.

Back to top

New-look GST guides and factsheet

Customers have told us they don’t understand our guides and that some of our information is long-winded and repetitive. We agree, so we 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 small and 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 explain GST in more detail. The IR375 has basic information 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 for each chapter, and encourage customers to file online.

The new IR365 and IR375 can be ordered by calling 0800 257 773 and all three are under “Forms and guides”. If you have any feedback about these products, please email customerinformation@ird.govt.nz

Back to top

Redundancy tax credit extended

The redundancy tax credit was repealed from 1 October 2010 in the May Budget. Revenue Minister Peter Dunne has now 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 your employees lodge a Redundancy tax credit (IR524) form with us 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.

Back to top

KiwiSaver deductions for over-65s

We’ve been asked by employers whether they need to continue compulsory employer contributions when their employees reach 65. Here’s a quick refresher of what you need to do with KiwiSaver contributions in this case.

KiwiSaver eligibility for employees over 65 years

You need to make compulsory employer contributions until your employee reaches the age of eligibility for New Zealand Superannuation (currently 65), or has been a member of a KiwiSaver scheme or complying fund for five years, whichever comes later.

For example, if an employee is 64 years old and joins KiwiSaver on 1 July 2010, the employer must continue making compulsory employer contributions until 1 July 2015 as this is later than the employee turning 65.

Starting and stopping deductions for existing employees

You must make KiwiSaver deductions from all payments of salary and wages after your employee joins KiwiSaver until you’re advised by us to stop making deductions. Do not stop making deductions because your employee asks you to.

However, if your employee has been a member for 12 months they may be eligible to take a break from saving - this is called a contributions holiday. Your employee needs to apply for a contributions holiday and if it’s granted we’ll contact you.

Find out more on the KiwiSaver website.

Back to top

2010 - 11 personal income tax rates

Personal income tax is calculated based on a person’s annual income. Because the tax rates are changing part-way through the 2010-11 income year, the new tax rates that apply for the whole of the 2010-11 income year are "composite tax rates", ie, they're an average of the two income tax rates used during the year.

The table below shows the income tax rates to be used during the 2010 - 11 income year as well as the full year or composite tax rates for the year.

Back to top

New PAYE rates now in place

Employees will be checking their pay packets this month so make sure you’ve paid them the right amount and deducted the correct amount of PAYE using the new lower PAYE rates that came into effect from 1 October.

You can check what PAYE to deduct and your employees can check what they should be getting in the hand with our online PAYE/KiwiSaver calculator under "Work it out".

As well as PAYE rates reducing from 1 October, the ACC earners' levy increased to 2.04% as a result of the GST increase. These changes are reflected in the updated PAYE deduction tables (IR340 and IR341) available under "Forms and guides".

Don’t forget the rates and thresholds for ESCT and FBT have also changed.

Back to top

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.

Your bank account details for KiwiSaver credits

We’re required by legislation to refund any employer contributions we have when an employee opts out of the automatic enrolment process. But we need your bank account details to refund your employer contributions to.

A quick way to give us your bank account details is to:

1. download a Fast refunds (IR587) form under "Forms and guides"   
2. fill the form in online   
3. print it   
4. post it to the address given on the form.

The form lets you select various tax types, so all future refunds for those tax types can be direct credited to your bank account as well.

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 | 455kb | 5 pages

Download Acrobat Reader to view PDF files

Report an accessibility problem for this page

Other issues this year

Business Tax Update Issue 15 December 2010
Business Tax Update Issue 13 October 2010
Business Tax Update Issue 12 September 2010
Business Tax Update Issue 11 August 2010
Business Tax Update Issue 10 July 2010
Business Tax Update Issue 9 June 2010
Business Tax Update Issue 8 May 2010
Business Tax Update Issue 7 April 2010
Business Tax Update Issue 6 March 2010
Business Tax Update Issue 5 January/February 2010

Date published: 10 Nov 2010

Back to top