Posts

, , , , , , , ,

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

 

.

, , , , , , , , ,

NZ businesses are getting it wrong

I’m seeing increasing evidence of misunderstanding over how the zero rating rules apply.

From 1 April 2014 non-resident businesses can register for GST in NZ under a new system which allows them to claim GST refunds on business related costs. Historically a business had to supply goods or services in NZ before it could register and claim back GST on its costs here. That is no longer the case.

I’ve been working with a number of overseas businesses wanting to take advantage of the new system.

What’s starting to emerge is surprising. A number of these overseas businesses are looking to reclaim GST they should never have been charged in the first place.

The most common mistake I’ve seen is made by NZ service providers contracting with an overseas business. They’ve charged 15% GST when the transaction should have been zero rated.

To be fair, the zero rating rules are not the easiest in the legislation to follow. There’s quite a lot of case law on them which speaks to some of the complexities.

There seems to be a common misunderstanding that because services are performed in New Zealand (i.e. the work is done here) GST has to apply at 15%. That’s not necessarily the case. Only some services performed here and supplied contractually to a non-resident business are taxed at 15%.

If you’re providing services to overseas businesses I suggest you check how you are dealing with GST. If you’re incorrectly charging it at 15% you may find Inland Revenue comes knocking when your customer tries to register under the new system and claim back GST that should not have been charged.

Cheers

Iain

, , , , ,

Exporters beware!

There’s no GST on exports, right?

Wrong! Sometimes GST does apply to exports.

Here’s an example:

NZ Ltd agrees to sell products to UK Ltd. UK Ltd is going to use the parts in the creation of a sculpture in the UK.

NZ Ltd invoices UK Ltd and receives payment before the parts leave New Zealand. NZ Ltd delivers the parts to UK Ltd’s agent in New Zealand who uses them in initial design and fabrication of the sculpture in New Zealand.

UK Ltd’s agent then organises shipment of the partially completed sculpture at UK Ltd’s expense.

NZ Ltd wants to “zero rate” the sale of the parts to UK Ltd because they are exported and UK Ltd has bought them to use overseas. UK Ltd also wants the sale to be zero rated because they are not registered for GST in New Zealand and therefore couldn’t claim a refund of the GST. Will the IRD allow NZ Ltd to zero rate the sale?

No.

Even though exports as a general rule are not subject to GST, with some commercial arrangements that is not the case. The scenario outlined above is one example. In that case the IRD would be quite justified in insisting on having GST paid on the sale.

And so held the Taxation Review Authority in a decision released on 5 August dealing with almost identical facts.

Zero rating does not apply because NZ Ltd did not “enter the goods for export” and did not “export” them. Both are required. One refers to completing the Customs documentation as consignor and the other to the shipment of the goods.

Another problem for NZ Ltd was the parts were actually “consumed” in NZ because they were supplied to UK Ltd who then used them in NZ as part of initial fabrication of the sculpture here before shipping that partially completed sculpture. The product being exported was not the same product sold by NZ Ltd to UK Ltd.

There are lots of traps in the zero rating rules. Be careful.

The case is XX (An exporter) v CIR [2013] NZTRA 04

Iain

, , , , , , , ,

NZ tax department reveals its compliance focus

Our new tax Commissioner has just released a document outlining her department’s key compliance programmes for 2012/13.

http://www.ird.govt.nz/resources/6/6/661d18004c5fb8aea1cde57bdeadb8e8/our-compliance-focus-2012.pdf?CACHEID=661d18004c5fb8aea1cde57bdeadb8e8

The 32 page document discusses many risks tax investigators have identified for special attention.

In the GST area the focus is very much on the hidden (“black” or “cash”) economy where some recent wins have already been chalked up by the Commissioner. They’re looking for the traders who take cash and keep it outside of their business records so that it is not declared in tax returns.

Property transactions continue to be a big GST focus, although, as they point out in the document, many concerns have largely been resolved by the new requirement to “zero rate” most land transactions between GST registered entities.

There’s a strong message for central and local government entities that they can expect close scrutiny of their GST systems and processes. The document points to the restructuring and reorganisation in government bodies throughout the country and concludes there are added risks for GST compliance where implementation is lacking.  

If taxpayers believe they may be one of those targeted by these programmes the suggestion from the Department is that they review their own systems now and make sure they are compliant. If there are errors it’s better to deal with these up front with the Department before they come knocking on the door.

With the back drop of continuing pressure on the Government’s tax take and a few recent wins in the courts there’s little doubt in my mind tax collectors have a mandate for ongoing focus in these areas.

 

Iain

 

 

, , , , , , , ,

Emissions units

Receiving emissions units can cost you.

It’s easy to assume GST doesn’t apply to emissions units. The legislation has specific provisions which “zero rate” many supplies of emissions units so perhaps the natural presumption is, you don’t have to worry about GST whenever an emissions unit is involved.

That could be a costly mistake.

Some businesses receive emissions units as part payment for goods or services they supply as part of their business activity. This is a “barter” arrangement; goods or services are exchanged in return for other goods or services, rather than payments of money.

GST applies to barter arrangements just as it would if money were the payment method.

So, if you are a GST registered business and you supply goods or services to someone else who pays you with emissions units, you have to pay GST on the value of the emissions units you receive as payment in the same way you would had your customer paid you in cash. If you don’t you could incur penalties and interest not to mention the extra GST cost you probably didn’t factor in to your cash flows.

Tread carefully.

Iain

, , , , , , , , ,

Penny and Hooper decision carries GST lessons.

The Supreme Court ruled yesterday that orthopaedic surgeons Ian Penny and Gary Hooper avoided tax when they diverted income from their practices to lower tax rate entities such as companies and trusts. A significant issue was the below market salaries they paid themselves.

While it is an income tax case the Penny and Hooper decision is a reminder generally that those operating businesses through closely held entities need to pay careful attention to their tax obligations, including GST.

The Supreme Court found against the taxpayers even though the income tax legislation does not expressly state shareholders must be paid market salaries by the companies they control.

The GST legislation on the other hand does have express provisions requiring market prices to be paid when goods and services are exchanged between related parties. These provisions impact all closely held companies and trading trusts which carry on a GST taxable activity.

A GST registered company or trust which makes any of its property available to shareholders or beneficiaries is probably required to pay GST to Inland Revenue based on the market value of that property.

Similarly, a person providing services to a related Trust or Company may find they have a requirement under the GST legislation to register for GST and charge GST on the market value of the services they provide. Where the Trust or Company does not conduct a GST taxable activity [perhaps they are a residential landlord] this is a permanent GST impost.

It might be stretching the precedential value of the Supreme Court’s decision to claim it sets out principles which apply to GST. Nevertheless, it at least serves as a warning to all closely held trading entities that you need to be just as vigilant in your dealings with related parties under the GST law [and potentially more so] as you do for income tax purposes.

Iain

, ,

Refunds

A lot of refunds are changing hands at the moment. All sorts of arrangements are being cancelled because of mother nature and today we read Contact and Telecom have discovered billing errors which will require refunds being paid to customers.

A word of caution: if you are GST registered and paying or receiving a refund make sure you are on top of what you have to do for GST purposes. Whether you are entitled to a refund of GST previously accounted for or have to pay back GST already claimed you should make sure you understand the GST timing and documentation requirements.

Iain

, , ,

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

Iain

,

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.

Iain

,

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.

Iain