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Compliance issues are many-fold. The Chamber has access to a wide variety of resources that may be of help to you.
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TAX UPDATES
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Sharp-As Tax updates WHK Sharp-As Tax volume 6 issue 18
WHK SHarp-As Tax volume 7 issue 2 |
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IRD
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April 2012 changes for employers: what you need to know
Do you have an employee with a student loan? Do you make superannuation contributions for your employee? There are a number of changes underway regarding student loans and employer superannuation contribution tax (ESCT), and some of the changes will impact on you as an employer.
In both cases, you will need to upgrade your software by 1 April 2012 if you use a payroll package. Inland Revenue is working with software developer companies to amend their payroll and related products to enable these changes.
In this article, Inland Revenue explains the key facts so you can be prepared when the changes come into effect.
Student loans changes
The Government has enacted the Student Loan Scheme Act 2011 to improve the way student loans are managed, repaid, and administered.
While these changes are designed to make life easier for borrowers, employers must also be aware of what’s happening. An employee may have new requirements that you’ll need to take into account when you do the payroll.
Here’s what you need to know. All the student loan changes described below will take effect from April 2012.
Pay period repayment obligations
Generally borrowers must use the ‘SL’ repayment code. Borrowers earning over the pay period repayment threshold, eg $367 a week, must make student loan repayments. You’ll need to deduct student loan repayments from your employee’s salary or wage as is current practice.
The standard student loan deductions you make from your employee’s salary or wages are generally treated as their repayment obligation, unless there’s an over- or under-deduction. Make sure your deductions are correct and properly identified on your EMS.
A full-time student may qualify for an exemption from deductions. Please see ‘Repayment deduction exemption’ below.
Over- and under-deductions
Borrowers who have significant over-deductions can ask us for a refund, or they can put the extra repayments towards their loan.
If there’s a significant under-deduction, we’ll ask the borrower and their employer to make additional deductions from the employee’s salary or wage to catch up this under-deduction.
If your employee is in this situation, we’ll tell you how much the catch-up deductions will be. Please use the repayment code ‘SLCIR’ to identify these extra repayments in your employer monthly schedule.
The student loan system is designed to help borrowers repay their loan ‘as they go’ so please make sure you’re deducting the right amounts every payday – not too much and not too little.
Voluntary repayments
A borrower wanting to pay more towards their loan can ask you to make additional deductions from their salary or wage.
Please identify these additional deductions in your employer monthly schedule by using the repayment code ‘SLBOR’.
Repayment deduction exemption
Full-time students can apply for a ‘repayment deduction exemption’ (RDE) if they expect to earn less than the annual repayment threshold ($19,084) over the coming year, even if they earn more than $367 a week from time to time.
If your employee qualifies for the exemption, they can apply for this through our online services from March 2012. They’ll present you with the RDE certificate, authorising you to stop making student loan deductions for the period covered. Please take the RDE certificate and file it with your records.
Secondary employment
Borrowers who have more than one job can apply to us for a special deduction rate for their secondary jobs if they expect to earn less than the pay-period repayment threshold (eg, $367 a week) from their main job, but their total earnings will be greater than the pay-period repayment threshold. They need to review their estimated earnings every quarter.
If your employee qualifies, they can apply for the reduced rate through our online services from March 2012. They’ll present you with the special deduction rate (SDR) certificate showing the rate of student loan deductions you’ll need to take from the employee’s salary or wage for the period covered. Please take the SDR certificate and file it with your records.
For more information about the student loan changes, please go to www.ird.govt.nz/studentloans
Kiwisaver - ESCT changes
As announced in Budget 2011, the employer superannuation contribution tax (ESCT) exemption that applied to employer superannuation contributions made to KiwiSaver and/or Complying Funds will be removed from 1 April 2012. If you’re making a contribution to your employees’ KiwiSaver scheme or a complying fund, then all your superannuation contributions will be liable for ESCT.
The way ESCT is calculated has also changed. From 1 April 2012, the flat rate option of 33% can no longer be used unless the employer contributions are being paid to a defined benefit fund. If your contributions are not being paid to a defined benefit fund then the ESCT will need to be calculated:
o at the employee's marginal rate, or
o you can treat their employer contribution as salary or wages and tax them through PAYE (with the agreement of the employee).
We’ll be updating the online PAYE calculator to reflect the changes. We’re currently working with payroll software providers to get the rates updated to payroll software packages.
For more information about the ESCT changes, please go to www.ird.govt.nz/changes
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Inland Revenue has launched its Voice Identification system; which uses an individual’s unique voice print to identify the caller.
Voice ID is an enhancement to Inland Revenue’s existing identity and verification system, and provides you with a faster and highly secure way of identifying yourself when contacting Inland Revenue by phone. You can now access even more services as voice ID enables you to use self-service which is available 24 hours, seven days a week.
The technology is state of the art and has been extensively customised to meet high standards for reliability, accuracy and future-proofing. Within New Zealand, the Ministry of Social Development is currently using a similar system, while overseas, a number of Australian banks have recently started using voice biometrics systems for customer identification.
You can enrol by calling 0800 257 843. Please have your Inland Revenue number handy.
Further information is available on the Inland Revenue website at www.ird.govt.nz/voiceid.
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Inland Revenue's focus over the coming year
Tax schemes and aggressive tax planning
In this article, Inland Revenue explains its approach to tax avoidance, in light of the recent Penny & Hooper case...
As part of our ongoing compliance programme we are continuing to identify inappropriate schemes, tax planning and structures that unlawfully minimise tax. We are also focusing on the small group of individuals and businesses that use and promote them.
The recent Court of Appeal decision in CIR v Penny & Hooper confirms that income allocation or diversion arrangements can constitute tax avoidance. In this case orthopaedic surgeons Mr Ian David Penny and Mr Gary John Hooper had entered into a tax avoidance arrangement, where they incorporated their businesses and drew a salary that enabled them to pay tax on the bulk of their income at a lower rate.
While Inland Revenue has welcomed the Supreme Court decision, we will be taking a measured approach as to how it is applied. The decision does not mean that every incorporated business or one that is managed through a family or trading trust, is a tax avoidance arrangement.
The Court also confirmed that avoidance does not arise, despite a low salary being set, if particular circumstances are present - such as a business being in financial difficulty, or where there are capital investment requirements.
Whether or not an arrangement is tax avoidance depends on how an entity is managed, and whether there has been deliberate use of companies and trusts to divert income and reduce a person’s tax obligations
The best way to ensure the tax aspects of arrangements you are entering into are safe is to give us all the facts and obtain a ruling from us. Any investment should not depend on the estimated tax savings to make it worthwhile.
Risks of investing in a tax scheme
Participating in aggressive tax planning does have risks and potentially significant consequences. In addition to the information you've filed in tax returns, we use information from many different external sources to identify suspicious transactions, structures and arrangements. The more risk indicators we identify, the more likely we will investigate your scheme or investment.
• If we overturn a tax avoidance arrangement you will still pay your correct tax liability, as well as use-of-money interest and possibly shortfall penalties.
• You can lose your whole investment.
• There may be significant other costs such as accountants’ and lawyers' fees to deal with the investigation or litigation.
The actual financial cost of participating in a tax avoidance scheme can be much higher than the potential tax savings.
What you can do to get it right
• If you have any concerns regarding your own commercial or business structure we advise you to contact Inland Revenue or your tax agent.
• If you know of any aggressive tax planning activities you can let us know anonymously through our website, www.ird.govt.nz (keyword: anonymous).
• Read Helping you get it right: Inland Revenue’s compliance focus 2011-12. You can download a copy from our website www.ird.govt.nz
To find out about more about aggressive tax planning, the risks of investing in tax schemes and what you can do to avoid getting it wrong, visit our website, www.ird.govt.nz (keyword: tax schemes).
ACC
Since July 2011 there has been an increasing capability for Employers (as well as Self-employed, Tax agents & Financial advisors) to register for access to manage ACC levy information online.
ACC On-line enables employers to give delegated members of staff differing levels of access to check ACC account details, sign up for automated alerts, maintain their business details and view their work claims reports.
This secure 24-hour online access makes it much easier for employers to:
• update your contact details;
• update your policy details;
• register for special alerts (for example, when levies are due);
• estimate your levies;
• view your invoice;
• pay your levies using online banking;
• provide access for your accountant who can log on as your agent;
• view your workplace claim history (employers only).
You can register for Online access at: www.acc.co.nz/acconline
External Reporting Board (XRB)
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The new Crown Entity, the External Reporting Board (XRB) came into existence on 1 July 2011 when amendments to the Financial Reporting Act 1993 came into force.
The XRB is an independent Crown Entity responsible for developing and issuing accounting standards and auditing and assurance standards in New Zealand. The XRB is also responsible for establishing the overall strategy for financial reporting standards (both accounting and assurance). The new arrangements are significantly different from those operating in the past whereby accounting and assurance standards were developed by the New Zealand Institute of Chartered Accountants and approved by the Accounting Standards Review Board (ASRB).
To find out more about the changes and the role of the XRB, click here for an information flyer. visit http://www.xrb.govt.nz/
The XRB has just released a Position Paper and two Consultation Papers outlining proposals for a new Accounting Standards Framework.
The Position Paper outlines the rationale for the ASRB/XRB’s decision to adopt a multi-standards accounting standards framework with one set of standards for for-profit entities and another for public benefit entities. This decision, which was announced in April 2011, was endorsed and confirmed by the XRB at its first meeting in July 2011. The Position Paper is for the information of constituents and the Board is not seeking comments on it.
The two Consultation Papers outline the XRB's specific proposals for the new accounting standards framework for for-profit and public benefit entities respectively. These documents outline the proposed tier structure for each sector, together with the proposed accounting standards that will apply to each tier in each sector. The Board welcomes feedback on the consultation papers. Respondents should feel free to comment on either or both of the papers as they see fit. Submissions can take whatever form is easiest for respondents. The closing date for submissions is Friday 16 December 2011. .
The Position Paper is available for download from the XRB website using the following link: http://www.xrb.govt.nz/Site/Financial_Reporting_Strategy/default.aspx. The Consultation Papers can be downloaded using this link: http://www.xrb.govt.nz/Site/Financial_Reporting_Strategy/Consultation_Documents.aspx
The XRB plans to run seminars in Auckland, Hamilton, Wellington and Christchurch in early November 2011 to outline its proposals and discuss them with interested parties from all sectors. Arrangements for those seminars will be posted on our website in due course. The release of the Accounting Standards Framework documents follows the Government's announcement yesterday of changes to the financial reporting framework. The announcement can be found at http://www.beehive.govt.nz/release/simplified-financial-reporting-proposed-smes-charities
The new legislative framework will involve a number of significant changes from the status quo including the removal of the statutory requirement on most small to medium companies to prepare financial reports that comply with generally accepted accounting practice; and a requirement for registered charities to prepare general purpose financial reports. |
