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IRD leniency

The IRD is to be commended for quickly responding to the tragic events in Christchurch and reassuring residents there they will not be faced with penalties if they are unable to keep up with their tax obligations as a result of the earthquake.

This will be welcome by those who would otherwise have had to get their GST returns filed on 28 February or have to work on their tax returns for 31 March 2011.

You can see the Minister of Revenue’s statement here:

Statement by Hon. Peter Dunne


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The great New Zealand GST myth?

“Single rate, broad based” is the catch phrase of New Zealand’s GST system but is it really true?

There are now 9 GST rates applying in New Zealand as determined in the legislation or by IRD decree.

They are 0%, 7.5%, 9%, 10.25%, 10.75%, 12.3%, 12.5%, 12.9% and 15%.

Sure some of these rates apply only in pretty specific situations but most businesses need to have systems capable of handling at least 3 of them at any time.

As for “broad based”; financial services, residential accommodation and fine metals are current exemptions and with Labour’s promise to remove GST from “fresh fruit and vegetables” this too could become a misnomer.


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Cloud computing tax risks

Cloud computing is predicted to become increasingly popular with businesses looking for a complete outsourcing solution to their IT needs. It allows access to computer infrastructure, software and storage (amongst other things) over the internet.

New Zealand’s Inland Revenue Department has concerns about the “storage” part of cloud services. They’ve just issued a Revenue Alert warning businesses using cloud storage services to be careful. The Department has concerns because NZ businesses are required to keep all tax records in New Zealand, unless they get specific approval not to.

According to the Department’s Alert businesses using cloud storage services should ensure their tax records are stored on data centres physically located in New Zealand or they must seek approval to hold records offshore. They point out, failure to do so is an offence which could result in a conviction and fine.

Sometimes our tax legislation struggles to keep up to date with technological advances. The Department is to be commended for alerting people to the issues with cloud computing and I’m sure officials are also looking at whether our legislation and international tax agreements need to be modernised to reflect these sorts of business practices.


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New rules fly in under urgency

The Government had Parliament sit under urgency at the end of last week to help get away some pretty significant legislation.

New GST law was passed on Friday and now awaits the GG’s signature, expected this week.

Once enacted the new law means:

– Transactions involving land (excluding most leases) between GST registered businesses will be subject to GST at 0% from 1 April 2011.
– A new code for transactions involving nominees.
– Clarification of what a “dwelling” and “commercial dwelling” are.
– A completely new regime for how many finance companies, life insurers, charities and residential landlords claim GST on their expenses.

Having just got over the implementation of the new GST rate there’s now a lot more work to be done for some organisations.

If you’re GST registered and getting into an agreement involving land which goes unconditional or settles after 1 April 2011 you might want to have a close look at the special transitional provisions.



Interesting stats from the Australian Tax Office

According to a document on the integrity of GST systems in small to medium enterprises issued by the Australian Tax Office recently:

– In 2009-10 the ATO identified on average $AUD42,000 of under reported GST for every small to medium enterprise they investigated.
– A quarter of all discrepancies arose in the retail sector and 19% in wholesale trades.
– 32% of discrepancies arose from mistakes in GST returns.
– 27% arose from technical misunderstandings.
– 24% were system related issues.

Not surprisingly the Australian Tax Office recommend regular GST systems checks.

It wouldn’t be surprising if similar results are being achieved by the New Zealand IRD.



What not to do when dealing with the tax department

A recent case is littered with examples of how not to handle your tax affairs. Case 2 2011 NZTRA 11

The taxpayer wanted to challenge assessments issued by the IRD. The court said she couldn’t because of the way she managed her tax affairs. She didn’t even get a chance to try to prove the IRD wrong.

The decision highlights these lessons:-

1. File your tax returns and pay tax on time.
2. If you rely on accountants or lawyers to handle your tax affairs make sure they do what is required because ultimately it’s your responsibility and it is you who will be penalised if you don’t meet timeframes.
3. Don’t allow someone else (even your partner) to conduct business activities using your name.
4. Make sure you understand the tax implications of what you do.
5. If you receive correspondence from the IRD read it and understand what you are required to do.
6. If the IRD give you time limits to do things comply with those time limits or, if you can’t, communicate with the IRD before the time limit expires to arrange an extension of time.
7. If you have to send formal documents to the IRD take whatever steps you can to ensure you can prove when and by whom those documents were received on behalf of the IRD.
8. Do not ignore dispute notices, notices of assessment or demands for payment sent to you by the IRD.
9. Don’t wait 1 1/2 years before you get around to trying to challenge an assessment made by the IRD if you don’t agree with that assessment.

The harsh reality of this case is we don’t know whether the amount of tax this taxpayer was held liable to pay is correct. Quite simply, because she didn’t comply with time limits for disputing assessments she lost the opportunity to challenge those assessments. Potentially a very expensive price to pay for inaction.

This is a brand new decision so of course we don’t know yet whether the taxpayer will appeal.



What the IRD is up to

The GST boffins at the IRD have a lot in store for us over the next few months.

The Department’s latest work programme (updated 6 October) indicates they expect to finalise their GST views on retirement villages in December and over coming months will release consultative documents on the GST treatment of immigration services and matrimonial property agreements.

On hold for the time being is a project dealing with GST issues for non-profit bodies.

The schedule of work published by the IRD is an insight into how busy they are and which tax issues they are prioritising. You can find a copy of the work programme here:

A few other projects have a GST component. They include: –

Review of the guidelines for determining whether someone is an employee or independent contractor.
Independent contractors are more impacted by GST than employees.

Trade bonuses and gift programmes for businesses receiving in kind benefits
GST has to be considered here. In kind benefits received in consideration for trade loyalty could be subject to GST.

Barter transactions
Barter transactions can be a compliance headache for businesses and often get overlooked. In kind sponsorships are a classic example.

Tax treatment of costs of holding AGM, shareholder meetings and maintaining share register
Hopefully the IRD cover GST here. There is uncertainty over the ability of businesses to recover GST on these sorts of costs.

On top of all this we’ve got new rules in April for land transactions and partial input tax recovery.

Busy busy busy