Kia ora everyone and welcome to this webinar.
My name is Rian Shearman and with me today is Vicki Cronin.
We are both External Relationship Managers at Inland Revenue.
In this webinar we’ll be covering off the remaining changes that are proposed to take effect on or before 1 April 2023. This will include taking you through the following topics:
- income tax returns
- cross-border workers
- dual resident companies, and
- other changes.
There are a number of changes being made to our income tax returns. The new key points for residential income were covered in our property and trusts webinar so I won’t cover these again. Instead, I’ll take you through the other changes that will impact income tax returns, and the information that you, or your client, will be required to provide in them.
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
- gross amount
- tax credit (which is the lesser amount of the tax paid or the tax credit claimable based on the total taxable income).
If a customer’s income profile includes overseas income, or you select that they received overseas income, then the overseas income summary will automatically be included as part of their 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.
Instead, 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. As you can see, 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 client’s 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).
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.
If you’re completing paper IR1261s 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 our 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.
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.
A further change that will impact income tax returns is the change around income received after date of death.
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’s important to mention that there may be social policy implications depending on what return the income is included in.
As we approach the 31st of March, we’re also looking at how we can improve our customers' experience when it comes to their end of year assessment and filing their individual income tax returns.
As part of this, we’ve identified a number of individuals who appear to have incorrect income sources active in their income profile. Over the weekend of 11 March, we’re running a programme to remove any incorrect income sources for these customers.
We’ve also updated the wording on the alert that IR3 customers will receive. Customers who receive these alerts will still receive an alert in April to let them know that they’re required to file an individual income tax return. But the alert will suggest that they wait until June to file their return if they receive any reportable income, for example:
- salary and wages
- dividends, or
- portfolio investment entity income such as KiwiSaver.
This is to increase the likelihood of us having all of their income details when they complete the return.
Our final return change will allow tax intermediaries filing through gateway services to update the correct prescribed investor rate if the pre-populated rate showing in your client’s return is incorrect. You will be able to update the rate to 0%, 10.5%, 17.5% or 28%.
That covers all of our income tax return changes. I will now hand you over to Vicki, she will take you through the changes for dual resident companies.
In 2019, the Australian Tax Office issued new technical interpretations of Australia’s corporate tax residence rules. In particular, new guidance was provided on how to apply the central management and control test, a key element for determining whether a company has tax residence in Australia.
This new interpretation effectively meant that companies with Australian directors could now be Australian tax resident, even if the company’s commercial activities are carried on outside Australia.
This change may affect New Zealand companies with Australian-based directors, by potentially making them a tax resident in both countries.
Three New Zealand tax regimes have been identified as needing changes to resolve concerns with the application of Australia’s residence rules.
If enacted, these proposed changes will be applied retrospectively from 15 March 2017.
The first tax regime is the loss grouping rules.
The proposed changes would repeal the section that requires that a New Zealand resident company must not be either a:
- double tax agreement non-resident company, or
- liable for tax in another jurisdiction for the duration of the commonality period.
This would mean a company that is both a New Zealand tax resident and tax resident in another jurisdiction would be able to use the loss grouping rules and offset its losses against the profits of another company in the same group of companies for New Zealand tax purposes.
This is provided the company still satisfies the other requirements, including that it is either incorporated in New Zealand or carrying on a business through a fixed establishment in New Zealand.
The second regime is imputation credit accounts.
A New Zealand resident company is required to maintain an imputation credit account. An Australian resident company can choose to maintain an imputation credit account, but it cannot do so until it makes an election to the Commissioner of Inland Revenue. This requirement can result in a New Zealand resident company losing its imputation credit account credit balance if it becomes Australian tax resident before making the relevant election.
The proposed changes would automatically make a New Zealand resident company an Australian imputation credit account company when it becomes an Australian tax resident under the Australia/New Zealand double tax agreement. The company would be required to continue to maintain an imputation credit account.
A further proposed change would ensure that the company’s ICA balance, at the point of becoming an Australian imputation credit account company, is preserved and consequently any accumulated imputation credits up until the point of becoming an Australian imputation credit account company are retained.
This is consistent with the overall approach of allowing both New Zealand and Australian tax resident companies to maintain an imputation credit account.
The proposed changes would also allow an Australian imputation credit account company to preserve its imputation credit account balance if the company’s residence was to revert to New Zealand.
These changes would not apply where a New Zealand resident company becomes tax resident in any country other than Australia.
The third regime is imputation groups.
The proposed changes also include a consequential change to the eligibility rules for imputation groups.
Australian imputation credit account companies can continue to be members of an imputation group. But when these changes are enacted, they will no longer need to have elected to be an Australian imputation credit account company.
Further proposed changes would remove the domestic dividend exemption for certain dividends paid to New Zealand resident companies whose residence tie-breaks to another country under a double tax agreement and extend the corporate migration rules to certain companies whose residence tie-breaks from New Zealand.
These proposed amendments would not have the same effective date as the previous amendments, instead these would take effect from 30 August 2022.
That brings me to the end of the changes for dual resident companies. We’ll now move onto the changes for cross-border workers.
As I’m sure most of you are aware, the Income Tax Act and the Tax Administration Act impose obligations on persons who make payments subject to pay as you earn (PAYE) withholding tax – including non-resident contractor's tax, fringe benefit tax, or employer’s superannuation contribution tax.
In the past, concerns have been raised with Inland Revenue, as people feel that the current rules do not adequately reflect the complexities of cross-border work or the ways in which the work is changing.
In light of those concerns, a paper was published containing potential policy options for addressing issues faced by employers and payers of non-resident contractors.
Following consultation, proposed changes have been developed to respond to the issues raised. The changes aim to improve certainty, efficiency, and fairness.
The first proposed change will see a new definition ‘cross-border employee’ introduced.
The flexibility enabled by the proposed amendments would apply to cross-border employees only.
The definition is intended to apply to:
- cross-border secondees
- short-term business travellers
- remote workers (persons whose employer does not provide a workplace in New Zealand).
The definition would also extend to people who may work abroad but are a tax resident in New Zealand.
This new definition will ensure flexibility is appropriately applied to cross-border employees; it would also enable Inland Revenue to ensure correct application of the rules.
The second proposed change would mean that from 1 April 2023 a safe harbour provision is available for non-resident employers who have incorrectly determined that they do not have New Zealand PAYE, FBT and ESCT obligations.
Safe harbour would be available where the non-resident employer meets the following conditions:
- has either two or fewer employees present in New Zealand at any point in the income year, or pays $500,000 or less of gross employment-related taxes in New Zealand for the income year, and
- within 60 days of the failure, has taken reasonable measures to manage their employment-related tax obligations.
Where the conditions of the safe harbour are met, a non-resident employer who has incorrectly determined that they do not have a sufficient presence in New Zealand would be protected from penalties and interest on the unpaid tax.
There are further proposed changes that relate to how cross-border workers will account for non-cash benefits (fringe benefits) and superannuation. These are currently being considered by Parliament. We’ll give you more information on these once they’ve been finalised.
I will now hand you back to Rian.
Thanks, Vicki. I will now take you through the assortment of other proposed changes, starting with the rate and threshold changes.
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%.
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.
Businesses with a multi-year general approval for the RDTI will only need to notify the Commissioner when there is a material change to their pre-approved R&D activities and not each year as they currently must.
Businesses with a multi-year general approval, and who have material changes in their activities, or their criteria and methodologies approval will need to apply to the Commissioner for a variation if they want the change to be covered by their existing approval.
The due date to notify the Commissioner that there has been a material change is the 7th day of the 2nd month after the balance date for the corresponding income year.
Once passed, these changes will be effective for the 2020-21 and later income years.
The Research and Development Tax Incentive: Guidance, IR1240, will have further information.
A 4-year time bar will apply for student loans. As with other time bars, this will prevent the Commissioner 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.
Members of consolidated or income groups will only need to file an annual imputation return (IR4J) when they have a debit or credit balance during the imputation year.
Owners and admins of non-individual entities (i.e. directors or trustees) will be able to manage the entity’s myIR logons using their personal myIR logon.
This means they will not be required to log in to the entity’s myIR account to manage account access or change the level of access a logon has. Instead, they can navigate to ‘Manage third party access’ following the below.
- Log in using personal myIR logon
- Go to ‘Manage my profile’
- Select ‘I want to…’
- Select ‘Manage third party access’
- Select the logon you want to manage
However, they will not be able to create new logons using their personal myIR logon, they will still need to log in to the entities myIR account to create a new logon.
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.
Companies who elect to become a look-through company will need to keep the original acquisition date for assets acquired by the preceding company. This will be backdated to take effect from 1 April 2011.
The beginning of the period of measurement for shareholder continuity for a company carrying forward tax losses under the business continuity test (BCT) will be modified from the date the loss was incurred to the date the company became subject to BCT. This is to ensure the ownership continuity provisions work correctly in relation to the 5-year business continuity period requirement.