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IRD wants to hear from employers

IRD wants to know what employers think of their proposals for correcting and adjusting PAYE filings.

This recently released officials’ paper sets out the background and proposals: http://taxpolicy.ird.govt.nz/publications/2017-ip-paye-error-correction/overview

A tax bill currently before Parliament will change how employers meet their PAYE reporting and payment obligations. The entire bill is here: http://taxpolicy.ird.govt.nz/bills/51-249. Employers will be able to use their payroll software to file their PAYE information directly. The objective is to reduce paper based compliance and make it easier for those who have payroll systems that support digital filing.

The officials’ paper on correcting payroll reporting errors follows on from the changes intended in the bill and deals with how calculation, transposition and interpretation errors would be corrected and adjustments made. Depending on the nature of the error the correction may be to the original reporting period or an adjustment could be made in a later reporting period. The officials have set out a number of options under different scenarios.

Getting PAYE right all the time is extremely difficult. There are many complex variables and the officials at IRD recognise this in the approach they’ve taken. Overall the proposals appear balanced and pragmatic. However, not all options will appeal to all employers and it’s important you have your say if you are concerned about the impact on you.

The proposals include clarifying what happens when an employee is mistakenly overpaid and does not repay the employer. There is some uncertainty whether the overpayment is actually income of the employee that should be subject to PAYE. IRD intends to make it clear PAYE remains payable on overpayments of salary and wages when the employee has not refunded the overpayment. This could be a contentious. It some cases it could seem as though the tax collector is benefitting from an error by the employer and the employer is bearing an added cost of their mistake solely because the employee refuses to repay the overpayment (and may even have become uncontactable). There will be lots of scenarios to consider and I’d be surprised if there weren’t some strong submissions on this point.

If you want to make a submission you have until 15 September. Don’t be shy now!

 

Iain

 

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Vat audits- the whole story

EY’s digitally interactive report on managing indirect tax disputes is definitely worth a read.

http://www.ey.com/indirectcontroversy

The report has a host of useful information about modern indirect tax audits, common errors and how smart businesses are managing their indirect taxes to stay clear of nasty surprises.
Iain

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Fishing quota and coastal permits

Inland Revenue has confirmed GST second hand goods credits cannot be claimed on the purchase of fishing quota, coastal permits and certificates of compliance.

Two binding rulings (BR 15/01 and 15/02) just released by the tax department conclude fishing quota, coastal permits and certificates of compliance are not “goods” under the GST Act and therefore a “second hand goods” input tax deduction cannot be claimed when a non-GST registered vendor transfers these items to a GST registered purchaser.

Fishing quota are not “goods” because they are choses in action which are expressly excluded from the definition of “goods” in the GST Act. Coastal permits and certificates of compliance are granted under the Resource Management Act which provides they are not personal or real property and, therefore, they too do not fall within the definition on “goods” in the GST Act.

This will come as no surprise to most people because these new rulings reach the same conclusion previously published by the Department in earlier and now expired rulings.

The rulings are effective indefinitely.

A copy is attached.BR 15 fishing quota second hand goods

 

cheers

 

Iain

 

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Charges for failing to turn up to parties

A parent in the UK invoiced the parents of a five year old GBP15.95 because their son failed to turn up to a birthday party after they had accepted the invitation on his behalf.

See the story here: http://www.bbc.com/news/uk-england-cornwall-30876360

They’re threatening to sue to recover the money!

So what are the VAT implications here, even if the claimant has only a snowball’s chance of recovering the money?

VAT probably wouldn’t apply because it’s likely to be viewed as a “compensatory” payment rather than consideration for goods or services.

Also, the claimant probably isn’t registered for VAT in relation to the birthday party activity.

However, if the claimant were a professional birthday party organiser VAT might apply. It would have to be established there were legal relations intended between the organiser and the invitee and a term of that contract was that the invitee, having accepted the invitation, would pay a fee if they failed to show up.

So, there was a contract, the customer failed to honour their side of it and a fee is charged. In New Zealand that fee might be subject to GST if the fee effectively is an adjustment to the originally agreed price. However, if it’s to “compensate” the organiser for a loss suffered because of the no-show then GST probably wouldn’t apply.

The IRD recently stated their view on the GST treatment of late hire charges and certain fines:http://www.ird.govt.nz/resources/1/5/1552acab-6838-4617-817d-86bfe0ab86b4/qb1414.pdf

The statement illustrates some of the same principles.

These things get complicated when you scratch beneath the surface don’t they?

cheers

Iain

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IRD comments on short term Christchurch rentals

Inland Revenue’s latest Business Tax Update reminds us people renting out houses in Christchurch short-term have to pay income tax on the rent, less deductions. It’s a pity they don’t mention GST because that’s more interesting.

The update is here: http://www.ird.govt.nz/aboutir/newsletters/business-tax-update/2014/btu-issue-057-11-14.html#06

An extract of the relevant section is quoted at the bottom of this post.

So, in a nutshell, if you own a house in Christchurch and someone rents it of you for, say, one month, fully furnished while their own home is repaired you have to declare the income from that and pay any income tax due. Not exactly a bombshell is it? Sure, a few people might genuinely be stunned by the revelation they have to pay income tax on income they receive from renting out their house, even for a short term. But my guess is for most people the Update might as well be telling them how to extract nutrient from eggs by suction.

The really interesting, and more contentious, point is how GST applies.

Providing residential accommodation in “dwellings” is not subject to GST. However, providing accommodation in “commercial dwellings” is subject to GST (assuming the registration threshold is satisfied).

A “dwelling” is a place the person occupies as their “principal place of residence” and excludes any “commercial dwelling”.

A “principal place of residence” is a place the person occupies as their “main residence for the period to which the agreement for the supply of accommodation relates”.

A “commercial dwelling” includes hotels, motels, boarding houses, hostels, B&B’s and similar premises.

If you rent a house out to someone for, say one month, fully furnished, while they have their own place repaired, are you providing anything more than accommodation that is similar to hotel or motel accommodation, i.e. short term furnished accommodation? Is the tenant occupying your place as their “main residence” during the rental period or is it secondary temporary accommodation while their “main residence” is repaired?

I think there is some doubt over how the GST Act applies in these situations. Sure, most will not be within the annual $60,000 GST registration threshold. However, some of the house owners may be registered for GST in their own right for other purposes, or may even wish to register for GST in relation to the temporary rental activity. Whether they should or can is unclear.

I’d like to see clarity on less obvious issues like these when the IRD is publishing notices telling taxpayers of their obligations.

Cheers

Iain

Extract from Business Tax Update November 2014

Renting out your own home short term

There’s a demand for temporary rental properties in Canterbury because of thousands of families needing accommodation while they wait for earthquake repairs on their homes. Some homeowners are meeting this need by offering furnished homes for short-term rental.

If you rent out your own home, even for a short time, any income you receive is liable for income tax, so you must include it in your tax return.

However, you can claim a deduction for any expenses you incur while your property is rented out. But you can only claim that proportion of ongoing costs for the time your property is rented out. For example, if you rent your home out for three months, you can claim the rates, insurance, interest and any agent’s fees you incurred during that period.

Find out more on what expenses you can claim”