IRD focus on cash jobs continues

IRD are continuing to focus on cash jobs among builders and other tradespeople. They are looking into record keeping and tax compliance in these industries with the most recent focus being on Christchurch. It’s never too late to voluntary disclose income that might not have been declared previously in your tax returns. A voluntary disclosure to IRD will generally reduce the amount of short fall penalties applied, especially if this is before IRD notifies you of a pending tax audit.

If you are paying cash for a job, keep in mind that you then have no record of the work being done in the event of something going wrong.

Tax Refund Services

Tax Refund Services are advertising heavily at the moment. Rest assured, that if you are a client of ours that we prepare tax return(s) for, we will calculate your tax refund/payment due. If you believe you are owed a tax refund for past years, before you became a client but within the last 5 years, we can look this up for you too.

If you are a client, please contact us first if you have any queries as applying online with another company will cause you to be delinked from our tax agent list with IRD and linked to theirs. When it comes time to prepare your accounts and/or tax return, we will need to relink you to our list, causing an unnecessary charge.

 

Changes to Provisional Tax

The Government has recently announced a proposal to change the way provisional tax is calculated and paid. The new method is called the Accounting Income Method and is based on accounting income per a business’ software and payments would be made more regularly throughout the year. Implementation is not due until 1 April 2018, so we expect some further development and will keep  you posted.

IRD Compliance Focus

Each year IRD target a few specific issues relating to tax payer compliance, carrying out investigation and audit activities to recover unpaid tax and penalties.

For every $1 spent by Inland Revenue on compliance focus activities they are recovering approximately $8 from non-compliant tax payers.

In the next year they will receive a funding boost from the government to increase their compliance focus work, which is likely to increase the scope and frequency of IRD investigations and audits.

IRD have indicated that key areas which they will be targeting over the coming year include:

 

The Hidden Economy

This includes any illegal activities or income earned outside of tax system (i.e. “cashies”). The IRD have signalled they have recently had success prosecuting several industries that deal largely in cash, such as takeaway restaurants, beauty salons and builders.

With increased funding Inland Revenue will have greater resources to identify offenders and conduct more investigations into these types of businesses.

 

Property Investment

Previously, residential property sales were only regarded as taxable if it was the purchasers “intention” at the time the property was purchased to resell it for a profit.

However, with the introduction of the Bright Line legislation in October this year, IRD now have an objective test to supplement the intention test, to help determine whether the sale of a residential property is taxable.

Therefore, Inland Revenue are ramping up audit activity in this area to try and catch any property speculators who in the past have hidden their intentions to make tax-free gains on the sale of property.

 

GST Refunds

Inland Revenue will be focusing on tax payers who receive large GST refunds and those who receive GST refunds on an ongoing basis.

For large GST refunds they are likely to request documentation (such as copies of invoices and receipts) to verify the GST claim.

The risk with taxpayers who consistently receive GST refunds is that they may no longer be eligible to be GST registered and should therefore have deregistered for GST (e.g. if the business has ceased or it has slowed down so much that it is a “hobby” rather than a taxable activity).

For any clients who think they might be at risk of audit by the IRD, we urge you to make sure that you are declaring all of your income and complying with all relevant tax laws.

 

It is never too late to come clean to IRD, as up until an audit notification is received from them, taxpayers can make a voluntary disclosure of any mistakes or omissions from tax returns, which can significantly reduce the amount of penalties and interest Inland Revenue will charge on any underpaid tax.

If you are not sure you have met all of your tax obligations or have any questions about Inland Revenue’s compliance focus please contact our office.

 

Changes to Property Rules & Bright-Line Test

From the 1st October 2015 new rules come in to force surrounding the buying and selling of property in New Zealand, including a new test designed to catch and tax individuals making profits from the sale of properties that they have owned for only a short period of time.

From October 1 all NZ residents and citizens must supply their IRD number when they buy or sell any NZ property that is not their main home.

For non-NZ residents or citizens, they must supply their IRD number and taxpayer identification number (if they have one) when purchasing any property in NZ, regardless of whether or not it will be their main home.

There is also a “Bright Line Test” (which is currently awaiting its second reading in Parliament) which has been designed to help IRD identify residential property speculators and tax them accordingly.

This proposed test will require taxpayers to pay tax on any capital gain made from the sale of a residential property that has been purchased and sold within two years, unless that property was the taxpayer’s main home, inherited or transferred as part of relationship property.

If you are in the process of purchasing a property or plan to in the future and would like advice regarding the new rules please contact our office.

Xero Pricing Update

Accounting software company Xero have announced they will be increasing their subscription prices come 1st December 2015 to help support the ongoing development and innovation of their software.

What this means for Xero users is that most will be required to increase their monthly subscription payments from between $2-5 (plus GST) per month – depending on the plan they are subscribing to.

The new monthly subscription costs for each Xero plan will be as follows:

Xero Plan

Current Price     (GST Incl.)

New Price (GST Incl.)

Ledger $5.75 $5.75
Non-GST Cashbook $11.50 $13.80
GST Cashbook $21.85 $24.15
Business Starter $28.75 $31.63
Standard $57.50 $63.25
Premium $86.25 $86.25

For Xero users who subscribe through Savage and Savage we will be sending out an email later on in the month informing you of the new monthly subscription cost for your Xero ledger and asking you to update your automatic payment by the 1st of December.

If you would like to read more about why Xero are changing their prices you can visit their blog here: https://www.xero.com/blog/2015/09/pricing-plan-changes-for-new-zealand/

IRD and Tax Refunds

IRD are now only paying refunds you may be due for into a bank account, they are no longer issuing cheques.

This means it is vital we have your correct bank account number on record for the account you want refunds paid to. Please ensure you advise us of the preferred bank account number(s) when you deliver your accounts information to us.

If you do not provide us with your bank account number there will be a delay in preparing your tax return while we confirm the information with you.

Once assessed by IRD, we will check your assessment and notify you that the refund has been issued, but sometimes the refund goes through before we receive the assessment. Please await our confirmation that the assessment has been checked before you spend the money. In the case of an incorrect refund we will notify you and advise you how to pay the money back to IRD.

IRD and tax free allowances

IRD are currently looking at tax free allowances paid to employees and whether they are actually tax free. To be a tax free allowance it has to be a reimbursement of an employment related expense, this can be actual cost or a reasonable estimate (however if it includes a portion above the employment related cost that part is taxable). There are also new rules and time limits to tax free allowances for accommodation, meals, clothing and relocation.

IRD are initially targeting the forestry sector and if that proves successful they are likely to extend their investigations. If  you pay your employees allowances now is a good time to revisit the tax status. If you get it wrong, the employer may need to pay backdated PAYE with added interest and the employee could end up with extra income affecting their Working for Families Tax Credits or Student Loan repayments.

IRD and Cash Jobs

You will most likely have seen the item on the news lately about IRD targeting cash jobs in some areas of Auckland and while IRD are concentrating on Auckland they will not be ignoring other parts of New Zealand and they certainly are looking at certain industries such as construction, hospitality and similar industries where cash payments are not unusual.

An example of this was highlighted in the Nelson Mail recently. A restaurant was sued for tens of thousands of dollars by IRD for significantly under-reporting income and failing to pay GST and Income Tax. The owners have been found guilty but haven’t been sentenced yet, we will update this when they have been.

And, don’t forget about Trade Me.  IRD are keeping a close eye on those that buy and sell on Trade Me, so if you are doing this on a regular basis (regular enough that IRD consider it to be you are a business) then you should be declaring the income from sales and claiming the purchases and other expenses.

IRD refund changes

IRD have removed the option to request an income tax refund by cheque and they will now issue refunds by direct credit where they have a valid bank account number on file. If IRD do not have a valid bank account number the refund will be issued by cheque.

There are a couple of potential issues that clients need to be aware of, the first being in the case of an incorrect assessment. As the refund will reach your bank account at the same time as we receive the assessment from IRD, we won’t have time to stop an incorrect refund before it is direct credited. This means we would have to ask the client to make a payment of the refund amount back to IRD to return the funds and this will take time and therefore have a cost attached. Secondly, if your bank account details change but are not updated with IRD, the refund might be issued to a valid but not preferential bank account  (if the bank account has been closed IRD would be alerted to that fact). This could result in the funds sitting in an old bank account for some time, before your check the balance and notice the refund has been received.