Changes for individuals

Video: Changes for individuals Video information

Audio transcript

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Presenter

Kia ora everyone and welcome to this webinar my name is Rata Kamau and I’m an Account Manager at Inland Revenue.

There are a number of changes which are proposed to come into effect on or before 1 April 2023, today I’ll be taking you through the ones that may be of interest to individuals, this includes changes for:

Property
Income tax returns, and
Other changes

The information in this presentation is correct as of 16 March 2023.

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Presenter

Last year, the Government introduced the Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill and this introduced a number of proposed changes and clarifications for property rules, including:

build-to-rent exclusion for interest limitation
extinguishing losses carried forward
rollover relief clarifications, and
changes to the 2023 income tax returns

I’ll only be covering the rollover relief clarifications and changes to the 2023 income tax returns. If you’d like to hear more about the build-to-rent exclusion or extinguishing losses carried forward, I recommend you watch our webinar on the property and trust changes.

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Remedial amendments are proposed to clarify rollover relief for the bright-line property rule and interest limitation rules for:

trusts,
Māori authorities,
Te Tiriti o Waitangi settlements,
look-through companies,
partnerships, and
transfers within companies.

The extent of relief under the bright-line property rule generally depends on the amount of consideration paid for the transfer to determine if full or partial relief is provided within the relevant bright-line period.

The Bill also includes clarifications and amendments to ensure various rules work as intended for the Bright-line property rule. These include the rules for inherited property and co-ownership.

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Presenter

To reflect the changes, we have made an update to the 2023 income tax returns.

The ‘Total residential income’ key point, that was included in the 2022 returns, has been separated into the following 3 key points for 2023:

Gross residential rental income
Net bright-line profit (excluding losses)
Other residential income.

This impacts all income tax returns for all entity types.

Further changes will be made to the 2024 returns to make it easier for you to report property information.

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In addition to the new key points for property, there are a number of other changes being made to income tax returns.

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From the 2023 tax year onwards, individual income tax returns will capture more information regarding foreign sourced income and foreign tax residency. This information will be required across all channels.

For IR3 filers, there will be a new IR1261 Overseas Income Summary attachment. This will need to be filed with Individual income tax returns that include overseas income and/or tax paid.

The IR1261 will include a repeated table to capture the following information for multiple income types and jurisdictions:

Income type
Jurisdiction
Gross amount, and
Tax credit (which is the lesser amount of the tax paid or the tax credit claimable based on the total taxable income).

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If your income profile includes overseas income, or you select that you received overseas income, then the overseas income summary will automatically be included as part of your return when filing through myIR.

Unlike with other attachments like the IR3R for rental income, you will not need to select to include the IR1261.

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When you reach the overseas income section of the return, you will need to click ‘Add record’.

You will then be able to add the overseas income details. There are drop down boxes for the income type and jurisdiction fields.

You will need to add a record for each income type.

The ‘Allowable overseas tax credit’ field displayed auto calculates based on the values you enter in the ‘Gross amount’ and ‘Tax credit’ boxes and the total income.

If you add multiple records of overseas income, the ‘Allowable overseas tax credit’ value may recalculate if there is an increase in the Total income. For this reason, the overseas income section will be displayed last on the IR3 return in myIR, rather than in the order on the paper IR3 return.

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In this example $900 has been entered as the tax credit for the Australian Foreign employment/Service income.

Based on the total income of $70,000 the system has calculated that their allowable overseas tax credit for this income is $600.86.

As a result, a warning is displayed to advise that the “Tax credit is greater than the allowable overseas tax credit. You can attach documents to support this at the end of the return.”

If you believe the amount entered, in this case $900, is accurate you can submit the return with supporting information.

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If you’re completing paper IR1261’s you will need to attach the completed form to the individual income tax return.

This is what the paper IR1261 form will look like. There is space for five income types on the paper form.

If you will require more forms, you will be able to download and print them from the IR website, or order forms through their normal stationary channels.

IR3 filers who have overseas income active in their income profile and who do not have a myIR account, will be issued the IR1261 paper form in their IR3 tax pack.

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We are also updating the income tax return for non-resident individual taxpayers, the IR3NR, to capture foreign tax residency details, including jurisdiction of tax residency, as well as foreign tax identification number.

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As we approach the 31st of March, we are looking at how we can improve your experience when it comes to end of year assessments and filing individual income tax returns.

As part of this, we have updated the wording on the alert that IR3 customers will receive. If you are an IR3 filer, you will still receive an alert in April to let you know that you are required to file an individual income tax return. But the alert will suggest that you wait until June to file your return if you receive any reportable income, for example:

salary and wages,
interest,
dividends, or
Portfolio investment entity income such as Kiwisaver.

This is to increase the likelihood of us having all of your income details when you complete the return.

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I’ll now take you through the assortment of other proposed changes, starting with the rate and threshold changes.

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From 1 April 2023, the following rates and thresholds are expected to increase.

The student loan repayment threshold will increase from $21,268 to $22,828.

The family tax credit entitlement rate will increase from $6,642 per year to $7,121 per year for the eldest child, and from $5,412 to $5,802 per year for any subsequent children.

The best start tax credit entitlement rate will increase from up to $3,388 per year to up to $3,632 per year – an increase of up to $4 per week.

The minimum family tax credit threshold will increase from $32,864 (after tax) to $34,216 (after tax), and the ACC earners levy will increase from 1.46% to 1.53%.

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Currently, income received after a person's death is generally considered income of the trustee of the person’s estate. This requires the estate of the deceased person to register for an IRD number and file a separate tax return for the estate.

For some, this requirement can seem excessive, particularly in situations where the amount received was reportable income, such as superannuation, wages, interest etc, and the income has already been fully taxed at source.

From 1 April, an Executor will be able to choose if reportable income received within 28 days of a person’s date of death is included in the individual’s income tax return to date of death or, as currently, in an estate income tax return.

It is important to mention, that there may be social policy implications depending on what return the income is included in.

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A 4-year time bar will apply for student loans. As with other time bars, this will prevent the Commissioner of Inland Revenue from amending assessments including salary or wages deductions for student loans after 4 years. Exceptions may apply for fraud or if it would have a significant adverse event on a borrower.

The aim of the change is to provide increased certainty for a borrower.

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A fringe benefit tax exemption will be introduced for certain public transport fares (bus, train, ferry and cable car) when these are subsidised by an employer for the main purpose of their employee travelling between home and work.

The proposed amendments would have effect for fringe benefits provided on and after 1 April 2023.

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Various rules are also being clarified or amended to ensure they work as intended.

This includes the following changes for provisional tax.

Provisional tax customers, who have elected to use the standard option, will not be able to calculate their second provisional tax instalment using their residential income tax from two years ago plus 10% if their preceding years return is filed on or before the second instalments due date.

Adding to this, there is a further related clarification – if a provisional tax instalment due date falls on a weekend or public holiday, payments received or returns filed on the next working day will be deemed to be received on time.

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That brings us to the end of today’s presentation. Thank you for taking time out of your day to watch this webinar.

If you want to know more about the other webinars that we’re running, go to www.ird.govt.nz/aprilchanges.

If you have any questions about our webinar, please email [email protected]