Issue No 155 March 2013 IR 787

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1 AGENTS ANSWERS Inland Revenue s tax agents update Are you ready for the 1 April changes? Issue No 155 March 2013 IR 787 Government announced several tax-related changes as part of Budget 2011 and Budget With the new tax year fast approaching, there are some important messages you and your employer clients may need to know about. The key changes you need to be aware of are to KiwiSaver, student loans and some tax codes. Employers with payroll systems will need to check they re ready for the changes. KiwiSaver contribution rate change For all pay periods starting on or after 1 April 2013, the contribution rate for employers and employees increases from 2% to 3% of gross salary or wages. A minimum of 3% will need to be deducted from each contributing employee s pay. You don t need to change the employee contribution rate if it s either 4% or 8%. If no rate is selected use the default rate of 3%. The rate change will also apply to employees who belong to a complying fund. Employee and net employer contributions to a complying fund are paid directly to the complying fund. You ll also need to contribute a minimum of 3% as your compulsory employer contribution for all eligible employees. Example of when the KiwiSaver rate will take effect Rick receives a fortnightly salary of $1,160 and contributes 2% to his KiwiSaver scheme. For the pay period 28 March 2013 to 10 April 2013 the KiwiSaver rate is 2%. Gross earnings $ 1, KiwiSaver employee deduction (2%) $ Gross KiwiSaver employer contribution (2%) $ For the pay period 11 April 2013 to 24 April 2013 the KiwiSaver rate is 3%. Gross earnings $ 1, KiwiSaver employee deduction (3%) $ Gross KiwiSaver employer contribution (3%) $ All employer cash contributions to a superannuation fund (including KiwiSaver schemes and complying funds) are liable for ESCT (employer superannuation contribution tax). The exception is if the employee and employer have agreed to treat some or all of the employer contribution as salary or wages under the PAYE rules. (continued on next page) Welcome to Agents Answers In this issue: Are you ready for the 1 April changes, changing your FBT filing date, certificate of exemption from tax on schedular payments, follow us on Twitter, when to expect 2013 annual returns, RWT form can now be filed, child support rates released, tax pooling and voluntary disclosures, calculating student loan compulsory extra deductions, imputation account balances, treatment of accommodation allowances, avoiding E-Filing delays, 2013 national standard costs for specified livestock. If you have any suggestions for topics you d like covered in this newsletter, agents.answers@ird.govt.nz REMINDERS 31 March: Student loan repayments are due for overseas-based borrowers. This is also the final date for electing to use the ratio option to calculate provisional tax for your clients in the 2013 tax year. It s also the due date to have filed all your 2012 income tax returns. However, because 31 March falls during Easter you have until 2 April to file. 31 March: Imputation returns are due. Any late deliveries will have imputation credit account implications affecting refund and transfer activity. 7 April: End-of-year tax payments for clients with an extension of time and student loan payments for the previous year are due. This year 7 April is a Sunday so payments will be accepted on Monday 8 April. 1

2 (continued from previous page) Note: The Employer monthly schedule (EMS/ IR 348) and Employer deductions (EDF/IR 345) form have had a wording change. KiwiSaver employer contributions has changed to Net KiwiSaver employer contributions. Remember only the net amount of employer contributions should be entered in Box 7 for both the IR 348 and IR 345. Employing primary and secondary school children From 1 April 2013 employers must deduct PAYE from salary or wages or deduct tax from schedular payments made to school children. The details will need to be included on the Employer monthly schedule (EMS/IR 348). They will need to complete a Tax code declaration (IR 330) form by 1 April 2013 and give it to their employer so tax can be deducted at the correct rate. Note: The automatic enrolment rules for KiwiSaver don t apply to employees under 18 years of age. If the employee is already a KiwiSaver member the minimum employee deduction from 1 April is 3% of gross salary or wages. There s no change if they have a higher rate. If the employee is under 18 years of age, employers don t need to make employer contributions. Employers don t have to make KiwiSaver deductions from schedular payments. ML and ML SL tax codes can no longer be used From 1 April 2013 employees using either the ML or ML SL tax code need to have PAYE deducted using the tax codes M or M SL (if they have a student loan), unless they ve given their employer a new IR 330. Student loan repayment rate increase The student loan repayment rate changes from 10 cents to 12 cents from 1 April Changing your FBT filing date If you or your clients provide fringe benefits to staff or shareholders you must file regular FBT returns. There are set dates when you can change from quarterly filing (the default) to another method. The three filing options are: quarterly annual income year. Quarterly returns Employers are required to file FBT returns quarterly unless they meet the criteria outlined in the Fringe benefit tax guide (IR 409) and then elect to file yearly returns. The return periods and due dates for quarterly returns are outlined here. Quarter Return period Due date 1 1 April to 30 June 20 July 2 1 July to 30 September 20 October 3 1 October to 31 December 20 January 4 1 January to 31 March 31 May Annual returns If you re a current employer and want to change from quarterly filing, you must make your election by 30 June in the year the election first applies. For example, if you want to file your first annual return for the year ended 31 March 2014, you must make an election by 30 June New employers must make their election by the last day of the first quarter after starting to employ. For example, if you started employing on 31 October 2012, you must have made an election by 31 December 2012 to be able to file a first annual return to 31 March Income year returns Existing companies with shareholder-employees can elect to file income year returns by the last day of the first FBT quarter in the income year for which the election applies. For example, a company with a 30 September balance date would have to have elected by 31 December 2012 to file a return for the year ended 30 September Companies that are new employers must elect by the last day of the first quarter in which they started employing, within the income year the election applies for. For example, if a company with a 30 June balance date starts employing on 31 July 2013, it must make an election by 30 September Section RD 60(2) of the Income Tax Act 2007 sets out the dates by which a close company that meets the requirements of RD 60(1) must make its election if it wants to file its FBT returns on an income year basis. Section RD 61(2) also sets out the dates by which a small business that meets the requirements of section 61(1) must make its election if it wants to file its FBT returns on an annual basis. Because the dates are set we can t accept late FBT return elections. Returns received where no election has been made or the election is outside the time allowed will be treated as invalid and your client will be asked to file FBT quarterly returns. This may make them liable for penalties and interest because of different due dates. You can make your election online at Get it done online, Fringe benefit tax election. This service allows employers to change how often they file FBT returns or elect not to file FBT returns. However, you can t request to file your FBT returns quarterly using this service, you must call us on to do this. AGENTS ANSWERS Issue No 155 March

3 Certificate of exemption from tax on schedular payments If you apply for a certificate of exemption (COE) on behalf of a client the following criteria must be met. Individuals, trusts, partnerships and companies are eligible to apply for a COE if they: are in business, and receive schedular payments that are subject to a prescribed rate of tax under Schedule 4 of the Income Tax Act 2007, and have a good tax compliance history with us. A good compliance history means: returns are filed on time payments are made on time employers are using the correct tax codes for employees, ie, if an employee doesn t provide a tax code declaration then tax is deducted at the no-notification rate of 30 cents in the dollar. The COE is the size of a credit card with a holographic covering and can be issued for up to five tax years. The length of time it s issued for is based on the tax record of the applicant. Clients who already have a COE can t use it to exempt an employee s salary or wages from PAYE deductions, but if a contractor has this exemption they can receive contract payments without having tax on schedular payments deducted. Once the time period has expired, without the COE being renewed, employers must start deducting tax from schedular payments. If your client subsequently doesn t file returns or make payments on time we may contact you. The exemption may be withdrawn if tax debt isn t paid or outstanding returns remain unfiled. You can request or renew a COE online at Get it done online, Apply for or renew a certificate of exemption from PAYE on schedular payments. Follow us on Twitter Our official Twitter has been up and running since mid We tweet daily about a wide range of topics including due dates, media releases from us and Revenue Minister Peter Dunne, and where to find information on our website. We cover everything from KiwiSaver to student loans to warnings about hoax s. We hope putting our information on Twitter will help people self-manage their tax and social policy affairs and raise awareness about how our tax system works. We can t answer personal queries over Twitter, so if you have a question please contact us by secure through your myir account or phone us. Follow us at When to expect 2013 annual returns With the 2013 tax year coming to a close you ll be hearing questions like: when will tax returns be sent out? when will I get my summary of earnings? what about my Working for Families change of circumstances letter? To help you plan for the peak period we ve put together a list of when we ll be sending annual returns and supporting notices. Return type Sent Income tax return: Companies (IR 4) end of March Income tax return: Estate or trust end of March (IR 6) Income tax return: Partnerships and mid-march look-through companies (LTCs) (IR 7) Income tax return: Māori authorities end of March (IR 8) Income tax return: Clubs or societies end of March (IR 9) Income tax return: Registered end of March superannuation funds (IR 44) RWT on interest reconciliation end of March statement (IR 15S) NRWT on interest, dividends and end of March royalties reconciliation statement (IR 67S) Working for Families change of end of April circumstances letter Summary of earnings (IR 544)* end of May Individual tax return (IR 3A) letter** end of April customers not requiring summary of earnings Individual tax return (IR 3A) letter** end of May customers requiring summary of earnings Income tax return: Non-resident mid-april individual taxpayers (IR 3NR) Tax credit claim form (IR 526) end of April (Note: This has been updated to only allow claims for donations.) Personal tax summary (IR 537) and end of July (IR 538) * Summary of earnings available through E-File mid-may. ** Letters will contain a list of clients that need to file and the DLN. RWT form can now be filed Application for exemption from resident withholding tax (RWT) on interest and dividends (IR 451) forms for the year ended 31 March 2014 can be filed in March 2013, but we won t be able to start processing them until 2 April AGENTS ANSWERS Issue No 155 March

4 child support rates released The formula components for the child support year are as follows: inflation factor 0.9% minimum formula assessment annual rate $871 maximum assessable income $130,822. The new living allowances are as follows: L1 Single person with no dependants $14,960 L2 Partnered with no dependants $20,343 L3 Single/partnered with one dependant $28,734 L4 Single/partnered with two dependants $31,743 L5 Single/partnered with three dependants $34,753 L6 Single/partnered with four dependants $37,762. The Australian default income has been set at NZ$70,553. The minimum annual assessment of $871 equates to a monthly amount of $72.60 and an approximate weekly amount of $ Calculating student loan compulsory extra deductions When the student loan repayment rate changes from 10 cents to 12 cents from 1 April 2013, you ll need to adjust any compulsory extra deductions. We ll send you a letter explaining the change but if you don t receive it in time, here s what you ll need to do. The compulsory extra deduction will have to be calculated at a reduced percentage so the amount stays the same. Current compulsory extra deduction After 1 April, this changes to 50% 41.67% 40% 33.33% 30% 25.00% 20% 16.67% 10% 8.33% Example Your employee has a weekly gross income of $700 and we ve asked you to make compulsory extra deductions at 50% of their standard student loan deduction. Deduction Rate Amount Current standard deduction Current compulsory extra deduction 10% $ % $16.65 Tax pooling and voluntary disclosures Section RP 17B(10) of the Income Tax Act 2007 lets the Commissioner allow the use of tax pooling funds in situations where a voluntary disclosure of income tax or resident withholding tax (RWT) is made and a return hasn t previously been filed (ie, the return is provided when the voluntary disclosure is made). Taxpayers are advised to ask the Commissioner to exercise her discretion at the same time they make their voluntary disclosure. These requests must be posted to the Manager, Legal and Technical Services, PO Box 1462, Wellington Please don t attach them to the voluntary disclosure. The ability to use tax pooling funds must be confirmed in writing before you use backdated tax pooling funds. You ll also need to arrange to purchase tax pooling funds. Tax pooling intermediaries must request the transfer within 60 days of the date the Commissioner accepts the self-assessment (or within 60 days of the date of issue of the notice of assessment). Total $49.95 New standard deduction from 1 April 2013 New compulsory extra deduction from 1 April % $ % $16.65 Total $56.61 Imputation account balances With 31 March 2013 approaching, now s a good time to check company imputation account balances. If your company s imputation credit account is in debit after 31 March, you re required to pay further income tax equal to the debit balance. You ll also be charged imputation penalty tax. The penalty tax can be avoided by paying enough income tax by 31 March to clear any imputation account debit. If the account is in debit, payment is due 20 June 2013 for any further 2013 income tax and imputation penalty tax. AGENTS ANSWERS Issue No 155 March

5 Treatment of accommodation allowances We ve had a number of questions about the tax treatment of accommodation allowances and have published a Commissioner s statement to clarify this point. The Commissioner s view is that an accommodation allowance counts toward an employee s income and is subject to PAYE. This is the case whether it s paid by an employer on behalf of an employee, paid through an allowance or directly provided by the employer. However, in certain circumstances, overnight and temporary accommodation related to an employee s job won t be taxable. We ll be providing some examples to illustrate the Commissioner s view on what is a temporary shift, including what must be taken into account. These examples will illustrate that, in certain circumstances, Inland Revenue accepts a temporary shift can be several months in duration. When these examples are finalised they ll be added as an appendix to the Commissioner s statement. You can read the Commissioner s statement CS 12/01 Income tax treatment of accommodation payments, employer-provided accommodation and accommodation allowances at (keyword: CS 12/01). If you have any questions about CS 12/01 please accommodation@ird.govt.nz Avoiding E-Filing delays Now we re approaching the end of the tax year and you re getting ready to file those last returns, we d like to encourage you to try and get them in well before the deadline. The volume of E-Filed returns increases dramatically on the last filing day, which can cause delays. If you E-File on the last day you may find it takes up to 60 minutes to receive a confirmation of filing acknowledgement. Please don t press the submit button again this only compounds the problem. The best way to avoid lengthy delays is to file your clients returns as early as possible. The final day for filing a return this year is 2 April because of Easter, but you must still have linked all your clients to your agent list by 31 March. If they aren t linked by 31 March your agency s final filing percentages will be impacted national standard costs for specified livestock The national standard costs (NSCs) have been released for specified livestock for the income year. These costs apply where your client has elected to value livestock under the national standard cost scheme for that income year. The NSCs for the income year are given below. Category of livestock Sheep NSC Rising 1 year $34.70 Rising 2 year $22.60 Dairy cattle Purchased bobby calves $ Rising 1 year $ Rising 2 year $ Beef cattle Rising 1 year $ Rising 2 year $ Rising 3 year male non-breeding cattle (all breeds) Deer $ Rising 1 year $ Rising 2 year $56.50 Goats (meat and fibre) Rising 1 year $26.50 Rising 2 year $18.20 Goats (dairy) Rising 1 year $ Rising 2 year $26.40 Pigs Weaners to 10 weeks of age $ Growing pigs 10 to 17 weeks of age $87.20 The full commentary will be available in the Tax Information Bulletin Vol 25, No 2 (March 2013) at Agents Answers comments generally on topical tax issues relevant to tax agents. 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. agents.answers@ird.govt.nz AGENTS ANSWERS Issue No 155 March