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.

IRD Website

IRD have developed a new website called ‘Changing for You’ which outlines IRD’s ideas on how managing your tax may become simpler for small businesses in the future

Please visit www.changingforyou.ird.govt.nz to have a look as IRD would appreciate your feedback on the site

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.

Modernising Parental Leave

The Employment Standards Legislation Bill which came into effect on 1 April 2016 brings some changes to Parental Leave, including:

  • Parental leave payment period extended to 18 weeks
  • Parental leave payment extended to non-standard workers and those who have recently changed jobs
  • Entitlements extended to a wider range of permanent arrangement carers with primary responsibility of a child under 6 years
  • Unpaid leave can be taken flexibly within the first year
  • Introducing “Keeping in Touch” hours of work – for example to do training, hand overs and ease back into work
  • Extending unpaid leave to workers who have been with their employer for more than six months but less than 12
  • Allowing workers to resign and still receive payments
  • Increasing penalties for fraud
  • Providing additional parental leave payments for parents of preterm babies

Some of the above requires certain eligibility criteria be met and some are by mutual agreement with the Employer, so it pays to communicate your plans. To read more about the changes and to find out the details about leave entitlements and criteria visit one of these sites:

Ministry of Business, Innovation & Employment

IRD

Minimum wage increase

The Government announced that the adult minimum wage will go up by 50 cents to $15.25 an hour from 1 April 2016.

The starting-out and training hourly minimum wages rates will also increase from $11.80 to $12.20 per hour from 1 April 2016.

Paid parental leave increases to 18 weeks

Paid parental leave will increase from 16 to 18 weeks in April. To be eligible for this increase, the baby must be due or born on or after 1 April 2016.

If you have pregnant employees due on or after 1 April, who intend to take parental leave, check they’re aware of the:

  • increase in the length of payments
  • form they need to complete and send to IRD

If they’ve already applied and their due date is on or after 1 April, IRD will make sure they receive 18 weeks of payments. If their baby is due before 1 April but arrives late, they need to let IRD know so they can pay the correct entitlement.

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.

 

IRD bright line test

The new bright line test for buying and selling residential property has been passed into law. The rule says that  you’ll pay tax on the profits when you buy and sell a residential property within two years, unless:

  • it’s your main home and you have used it as your main home for 50% or more of the time you have owned it and you have used more than 50% of the area of the property as your main home, or
  • you have inherited the property, or
  • the property has been transferred to you as part of a relationship settlement agreement (however, if you go on to sell this property within two years of its original purchase date, the bright line rule will apply), or
  • the property is held in a trust and it was the main home of the principal settlor of the trust, or the principal settlor doesn’t have a main home and it was the main home of a beneficiary of the trust.

Remember that these rules will apply to all property owners even if only part owner in a property.

Foreign superannuation audit activity has begun

If you have moved to New Zealand from another country you should be aware of the concession IRD put in place whereby taxpayers who transferred their foreign superannuation interests to New Zealand and did not address the taxation implications were given the opportunity to include 15% of the amount transferred in their 2014 or 2015 Tax Returns.

If the sum was correctly included in either Tax Return no further action would result.

Inland Revenue has now begun to send audit letters to people who have not returned foreign superannuation income under the concession but Inland Revenue has information that a transfer was made.

They said they would – and they are!

As Inland Revenue is now sending Audit notification letters penalties can apply so if you have foreign pension income you need to talk to us so we can ensure you are declaring the income correctly for taxation purposes in New Zealand.