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.

 

 

Working for Families 2016

If you receive weekly or fortnightly Working for Families payments and you or your spouse / partner have received business income (ie income other than wages and bank interest) you need to send IRD evidence of your business income for the 2015/16 year before 31 March 2015 or your payments will stop after this date. Your income evidence can be one of the following:

– 2014 income (only if you expect it to be similar in 2016). Contact IRD and ask them to use this information.

– 2015 year financial accounts (can only be done after 31 March ie end of financial year)

– 2016 budgeted accounts

If you need to provide budgeted accounts and find it a bit tricky, give us a call and we can prepare budgeted accounts for this purpose. We will use your latest annual accounts, ask you some questions about what has changed and incorporate those changes.

If you or your spouse or partner have stopped operating a business you need to call IRD so they can update their records.

You can contact IRD by phone 0800 227 773, through your myIR secure mail or post to Inland Revenue, PO Box 39090, Wellington Mail Centre, Lower Hutt 5040.

If you do not get the information to IRD in time and they stop your payments, you need to ask them to re-start your payments when you send them the information required.

Child Support Changes

Child support laws will change from 1 April 2015 and if you’re paying or receiving child support you should have received your new assessment or entitlement by now.

The formula that IRD uses to calculate child support now takes into account both parents income which in theory is a good thing, however the way it is calculated and apportioned has meant many child support assessments come with an unexpected significant increase.

The formula now takes into account shared care when it is 28% (102 nights a year) and over however you must provide a minimum of 35% (128 nights a year) care to receive child support payments.

The living allowance has also changed and from 1 April 2015 no longer include an amount for new partners. However, if others do rely on your financial support, for example a new partner and their children,  you can apply to IRD to have your living allowance reviewed.

It is worth checking that the income  and shared care IRD has based your assessment on is correct. If your income has dropped by more than 15% from the amount you were assessed on, you can now estimate your income and IRD will reassess your payments.

If your child support changes from 1 April 2015 it may also affect your Working for Families entitlement.

To sum it up the results are quite different from how IRD portrayed it, and whilst we can’t change the formula we recommend you check that the information included in your assessment is correct.

IRD Compliance Focus for 2014-15

Inland Revenue tell us they want to make tax simpler, more open and more certain for everyone.

One way they do that is by sharing their compliance focus, so that it’s clear for everyone the key areas they’re looking at and key things people need to do to get their tax and entitlements right.

Now’s the time to share the Compliance Focus booklet and help you understand what you need to do to get your taxes right and avoid penalties and interest.

At Savage & Savage we put a strong focus on ensuring your accounts comply with tax regulations and while some of the things we ask you for may seem irrelevant we need ALL of your financial information to help you stay on the right side of the tax man.

You can download the latest IRD Compliance Focus booklet here for full details.

In summary here are some (but not all)  key compliance points IRD will be focusing on in 2014-15 (extracts from IRD Compliance Focus Booklet 2014-15)

Paying your tax on time

Whether we’re talking tax, student loans or child support—most people pay on time. Most people also file on time. We know that when it comes to tax, if a customer doesn’t file a return on time, they may also struggle to pay the tax they owe on time. In all cases, paying what you owe by the due date means avoiding penalties and interest. That’s why we work hard to make it as easy as possible for you to file and pay on time and contact us quickly if you miss a due date.

People with high wealth or high income

People who have significant assets or high income often have complex tax affairs. Like everyone else, most people with high wealth pay the right amount of tax at the right time, but sometimes people make mistakes and don’t get their taxes quite right. We have a dedicated team that helps these customers get back on track.

The property business

Whether you’re buying or selling property for profit, renting out a property you own or having boarders stay in your family home, it pays to know the rules. That way you won’t end up with an unexpected tax bill to pay.

Trusts

People can choose to use trusts in their personal or business affairs. If you set up, manage, or receive income from a trust, make sure you understand and meet your tax responsibilities. Otherwise, you might face penalties or end up with an unexpected tax bill.

It’s not worth the risk

We know that sometimes people make honest mistakes with their tax or entitlements. When this happens, we’re here to help them get back on track. It’s rare, but sometimes people try to avoid paying the tax they owe or get more entitlements than they should. We’re always working to improve our systems and processes, so that we can spot when this happens and take action. For people who don’t do what they’re meant to, the consequences can be serious. They could end up in prison or with substantial financial penalties. It’s just not worth the risk.

Fraud and identity theft

It’s infrequent, but people sometimes: • create fake documents or identities or intentionally provide incorrect information to pay less tax or get money from us—and that’s fraud • use another person’s IRD number to get money from us—and that’s identity theft, which is a form of fraud.

Under-reporting income and operating outside the system

Most people report their income correctly and pay the right amount of tax. But a small number intentionally underreport their income and pay less tax than they should.

This means:

• some businesses may get an unfair competitive advantage over other businesses that pay the right amount of tax

• government has less to spend on services that make New Zealand a great place to live, like schools and hospitals

Aggressive tax planning

A small number of people try to avoid paying the tax they should or boost entitlements to social benefits by using inappropriate or unlawful tax structures. We call this aggressive tax planning (ATP)

Paid Parental Leave increase

Paid parental leave for a baby expected or born, or for a child adopted, on or after 1 April 2015 can now be taken for up to a maximum of 16 weeks (previously 14 weeks). This means if baby is expected before 1 April 2015, but arrives on or after 1 April 2015, parent(s) are entitled to the extra two weeks. If baby is expected on or after 1 April 2015 but arrives before 1 April 2015, parent(s) are entitled to the extra two weeks.

Updated forms for self-employed, employees and employers will be available on IRD’s website from 18 December 2014.

IRD System Changes

Due to planned system changes all IRD services will be unavailable from 6 am Saturday 15 November to 6 pm Sunday 16 November. This includes myIR, B2B and the contact centres.

IRD Look Alike Email

There is currently a phishing email (again) being sent out that claims to be from Inland Revenue. It suggests you have a tax refund due and a link to click on. Do not click on any links, as this in itself may trigger a virus download. Inland Revenue will never send an email that asks you to provide personal Inland Revenue information such, as your myIR account, userID and password. Neither will Inland Revenue send emails containing a direct link to a page to submit information and ask you to log in.

Child Support reform changes are coming

IRD have announced that major changes are being made to the child support scheme, starting next year. These changes are the first major overhaul of the child support scheme in 20 years. They reflect that life has changed a lot for families during this time.

Currently child support payments are based on the paying parent’s income and living circumstances. Shared care is only recognised when a parent or carer looks after children for at least 40% of nights in a year.

Key changes at a glance

From 1 April 2015, child support will be based on the following:

  • The incomes of both parents will be used.
  • More account will be taken of the amount of care provided by both parents and carers. Currently most child support only takes into account whether you care for a child for 40% of the time. After 1 April 2015 this threshold will lower to 28% (103 nights or more a year, or two nights a week).
  • Both parents will receive assessments, which may include allowances for any other children of their own who live with them. This allowance will be based on the children’s ages and the estimated average costs of raising children in New Zealand.
  • Parents will receive assessments that may include an allowance for any of their own children living with them, but not for a new partner, or any children who aren’t their own.

This means in some cases the amount of child support parents or carers pay or receive may change.

IRD will be contacting child support customers between July and December this year to either confirm the information they already have or to ask for more information if they need it.

Find out more