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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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Australia jumps ahead of NZ in taxing digital commerce

The Australian Government has released draft legislation proposing to apply GST to downloads and streaming of digital content and other services supplied from offshore to Australian consumers.

This will affect media such as games, movies, e-books and music downloaded over the internet by Australian resident consumers. GST will also apply where an Australian consumer buys other services from offshore such as legal, accounting, architectural, medical or other similar services.

There will be measures to allow the GST to be collected from operators of electronic distribution services in addition to the offshore supplier and a simplified registration regime appears on offer. A lot of the detail will appear later in Regulations.

The States of Australia still need to approve the legislation but it is intended to apply from 1 July 2017.

So Australia gets an early jump on NZ. Bets are on something similar being announced in the NZ Government’s Budget this month.

The practical issues with these measures have been well debated now and no complete or ideal solution has been found. Australia is essentially following the EU lead.

The Australian approach tilts the playing field completely in the opposite direction. At the moment, products sold electronically from offshore (such as e-books) are not taxed as highly as goods purchased online and imported into the country.

When this measure comes into force the preference shifts in favour of goods purchased online. That is because, for goods bought over the internet and imported into Australia there is a threshold of $1,000 below which no tax is payable. There is no suggestion at this stage to apply a similar threshold to imported services. How this impacts consumer choices (such as buying hard copy books over the internet rather than an e-book) remains to be seen.

The thorny issue of the low value import threshold just won’t go away.

 

 

Iain

 

 

 

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Governments using lotteries to collect tax

Tax collectors in the EU are looking more closely at the use of lotteries to tackle VAT evasion.

This paper, just published, discusses how existing lottery schemes work and reveals there could be upside for governments. It concludes more empirical evidence is needed to confirm the benefits of tax lotteries but they may be a useful weapon in the fight against VAT (GST) evasion. http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_papers/taxation_paper_51.pdf

They might also be a useful tool for governments looking to reverse the revenue lost as a result of increased online shopping.

The challenges for governments from the growing digital economy have been widely discussed. The OECD is consulting on a possible multilateral solution, http://www.oecd.org/ctp/consumption/discussion-draft-oecd-international-vat-gst-guidelines.pdf. I wouldn’t be surprised if tax lotteries are considered as a tool to encourage compliance with laws requiring non-residents to register for VAT in countries where they are selling online products to consumers.

The paper on tax lotteries is the product of a recent workshop attended by 39 EU member states. They discussed lottery schemes already running in Malta, Slovakia, Portugal and Georgia. They also heard from experts in Greece looking at a scheme there.

Tax lotteries have been around for a while. Taiwan has used them since the 1950’s and there was some evidence they experienced up to 20% improved compliance as a result.

They’ve been used to encourage consumers to ask for receipts when buying goods and services. The receipts are then sent to a central agency (by post, text or email) or some other electronic system is used so the receipts become entries in a lottery. There are then regular draws and cash prizes. In Malta for example the draws take place each month and are done manually i.e. the receipts are sent to the central lottery agency and put into a large barrel from which the draws are made.

The idea is consumers are incentivized to ask for receipts and this discourages evasion by creating a paper trail which the tax authorities can use to monitor compliance.

Some data collected so far suggests these lotteries do have an initial impact on compliance with increased revenues for the government. However, it seems over time the benefits fade. The EU workshop found that the main difference occurred as a sharp increase in reported sales by very small retailers but little difference in the reported sales of large retailers. One study reported increased tax revenues of Euro 8m against administrative costs of Euro 1.6m.

There have been some interesting reactions, including the emergence of “professional players” in these lotteries, being people who devote a large amount of time to them and who have even been found to be submitting receipts into the lottery for expenses they did not themselves incur.

The EU is committing resources to better quantify the potential upside for states in running these sorts of lotteries.

Another overseas development for the NZ Inland Revenue Department to watch.

 

Cheers

 

Iain

 

 

 

 

 

 

 

 

 

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Australian Tax Office rules on Bitcoin

The ATO has just issued a ruling on the GST treatment of Bitcoin. Here: http://law.ato.gov.au/atolaw/view.htm?docid=%22GST%2FGSTR20143%2FNAT%2FATO%2F00001%22

In brief:

1. A transfer of bitcoin is a “supply” for GST purposes.
2. Bitcoin is not “money” under the GST legislation.
3. A supply of bitcoin is not a “financial supply”.
4. If bitcoin are supplied in exchange for goods or services the transfer will be treated as a barter.
5. A bitcoin is not a “voucher” for GST purposes.
6. A secondhand goods input credit is not available on the acquisition of bitcoin.

No real surprises there. This had been well signposted.

We await the NZ IRD view which I wouldn’t expect to be much different.

Iain

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12 GST thoughts of Christmas

12 GST thoughts of Christmas:

1. There’s no GST on gifts (so Santa is probably not GST registered).
2. GST registered businesses can claim back the GST on gifts they buy for staff, suppliers and customers.
3. If you buy someone a gift voucher for Christmas it’s quite likely the IRD won’t get any GST until the person redeems it.
4. If the person you gave the voucher to loses it the IRD might never get any GST.
5. On Boxing Day when you go to the shop to return the present you don’t want the retailer will be able to get a refund of GST from the IRD provided they credit you for the return.
6. However, the retailer will have to pay GST if you use the credit to buy something else.
7. The government gets a double whammy of GST when you buy alcohol for your Christmas festivities or petrol for that family road trip (because GST applies to excise taxes on alcohol and fuel).
8. If you order an expensive gift online from overseas for someone in New Zealand and have it delivered directly to them you may be giving them a GST bill because chances are they’ll have to pay GST on the value of the present before they can pick it up from Customs.
9. Businesses are given an automatic extension of time to file their November GST return so they don’t have to file it on 28 December.
10. GST registered businesses with 31 December balance dates which make exempt supplies may have to come back early from their holidays so they can calculate their annual GST adjustment due on 28 January.
11. If you’re booking an overseas holiday and have to take a domestic flight to get to your departure airport it’s best to book both flights together if you want to save the GST on the domestic flight.
12. There’s no GST on gifts but if someone gives you something expensive while overseas you might have to pay GST when you bring it back with you.

Happy Christmas everyone

Iain

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Time to tidy up the GST Act?

The GST Act needs to be tidied up and made more user-friendly in my view.

I read the GST Act every day. Sad, I know.

Anyway, it used to be pretty simple to navigate around but lately I’ve been finding it a bit more of a challenge. (No smart comments about aging please).

In the copy I have the first 20 sections take up more than half of the total pages. The remaining 67 sections the other half. There are some very long sections in that first part and confusing numbering because of amendments over the years.

There are seven sections numbered 15, six numbered 19, eight numbered 20, twelve numbered 21 and nine numbered 78.

Section 5 has fifty-two subsections!

I know it’s not earth shattering stuff, and doesn’t change the substance of the law, but it just would be nice if, for its thirtieth birthday (2015) this dearly loved piece of NZ tax legislation were rewritten and tidied up.

Cheers

Iain

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28 October deadline for non-residents

Non-residents wishing to register under the special GST registration system have until 28 October to ensure their registration (and refund claims) are backdated to 1 April 2014.

All non-resident businesses who have incurred costs in New Zealand and who are not already registered for GST in New Zealand should consider registering under the new scheme so they can claim refunds of GST.

It’s not necessarily a straightforward process but it can be worthwhile.

Iain

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Election 2014 – your GST vote

This weekend’s New Zealand general election offers some choice in GST policy.

So, if you’re a GST geek like me you might be swayed by what the different parties intend doing about GST.

Here’s what I’ve been able to find out about some of the main parties’ GST policies:

Labour Party – no change to base or rates. Committed to simplifying compliance and supports “one hour, one return, one payment” principle for monthly GST and income tax compliance.

Green Party – no change to base or rates. Propose extra ecological taxes but will leave detail to a commission. Also, propose financial transaction tax. [comment – subject to seeing the detail, the existing GST system could be one way of achieving these new tax imposts].

National Party – no change to base or rates.

Mana Party – propose abolition of GST and replace with “Hone Heke Tax” on financial speculation.

Maori Party – will revisit removing GST on healthy food (fruit and veges) and also increasing GST on sugary drinks.

I couldn’t find any detail from other parties. If anyone knows any more feel free to comment.

Cheers and happy voting on Saturday Kiwis

Iain

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What’s the IRD working on?

IRD has published its Public Rulings work programme for 2014/15.

You can find the full document here:

http://www.ird.govt.nz/resources/7/7/77d3ecdd-6305-408a-8b88-541e509f487b/download-pr-work-programme-2014-2015.pdf

Given GST is by far the most interesting tax here are the key points from the programme:

Currently consulting on (consultation period closed)
Time of supply when no supply made. This ruling covers when, if at all, GST has to be accounted for if a supply does not proceed. It’s pretty esoteric stuff but does have some practical implications for land transactions especially.

Currently consulting on (consultation period still open)
GST treatment of payments made to state schools. This covers school “donations” and other payments to schools and discusses when GST applies. Mainly affects state schools and provides more clarity over the treatment of what is a bit of a minefield.

Items currently in progress (nothing publicly available yet)
Secondhand goods claims for fishing quota/coastal permits and certificates of compliance.
Late return fees for hired goods.
Lotteries, raffles, sweepstakes and prize competitions.
Retirement villages Interpretation Statement update.
Non-profit bodies and section 20(3K).
GST and relationship property agreements.

Watch out for something to be published on the above. Fishing companies, secondhand goods traders, hire businesses, charities, aged care providers and relationship property lawyers will be particularly interested in these.

Known issues but NOT currently being worked on
GST and parking fines.
Partnership capital contributions.
GST under the Project to Reduce Emissions programme.
Single versus multiple supplies.
Directors’ fees and fees for board members.
GST and bare trusts.
Legal services provided to non-residents relating to transactions involving NZ land (a political hot potato).

If these issues concern you then it looks like you’ll be waiting until after 2015 before seeing progress.

It’s a pretty comprehensive work programme, especially when all the other (less interesting) taxes are added in. The IRD will have had to fix priority areas based on internal and taxpayer feedback.

Some of these issues are pretty important and when finalised will go a long way to improving the integrity of the tax system for many taxpayers. It’s a pity some of the not insignificant extra resources given to the IRD in recent years to audit taxpayers could not be diverted to allow this work to be completed more quickly.

Cheers

Iain

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Visiting sports teams

The recent publicity about AFL players being pinged for income tax as “entertainers” when they played the Anzac Day matches here is interesting. See here:

http://www.3news.co.nz/Wellington-AFL-game-hit-with-tax/tabid/415/articleID/355731/Default.aspx

Like everything in life there’s a GST overtone to this.

The players would have spent money on food, accommodation, transport and other stuff when in New Zealand, all of which would have been subject to GST.

The interesting question is how these players would get on if they sought GST refunds for the costs they incurred here as non-resident “entertainers”. It seems possible under the new GST non-resident registration rules but there are some reasonably strict criteria.

Still, could be a case of the Government taking with one hand and paying back with another?

Iain