Recent IRD Updates

From 1^st April 2011 Inland Revenue have widened the definition of “family income” that is calculated to work out your entitlement to receive Working for Families Tax Credit payment. If you think you may be receiving any of the following types of payments listed below you should inform IRD so they can adjust your entitlement accordingly to ensure you aren’t overpaid.

The following will now be counted as family income for Working for Families Tax Credit purposes:

• Attributable trustee income – all of a trusts income for the year which hasn’t been distributed to beneficiaries
• Attributable fringe benefits – when received from a company in which the employee and/or associated persons of the employee (e.g. spouse) have a combined 50% or greater share in the company
• PIE income (excludes superannuation and retirement savings schemes)
• Passive income of children above $500 a year per child (e.g. interest and dividends)
• Income of non-resident spouse (includes non-resident income)
• Certain pensions and annuities – includes 50% of pensions or life insurance policy and superannuation fund payments (excludes NZ super)
• Other payments used for families day-to-day living expenses if total payments exceed $5000 (e.g. insurance payments for loss of earnings, someone paying bills on your behalf, “soft” loans – no interest etc

Kiwisaver:

• The member tax credit rate will halve to 50c for every $1 contributed by members – up to a maximum of $521 per year
• From 1^st April next year employer contributions to kiwisaver will now be taxed at the employees marginal tax rate
• Both employer and employee minimum contribution rates will rise from 2 to 3% from 1 April 2013.
• The government will continue to provide the $1000 kick-start payment

Working for Families:

• For the next four years the abatement threshold will decrease slightly so that it starts at $35,000 in April 2015 rather than the $36,827 it starts at now
• The abatement will increase slightly for the next four years so it reaches 25c per dollar in 2015 rather than the 20c/$1 it is currently
• Family Tax Credit payments for children aged 16 and over will not be increased until payment rates for 13 to 15 year olds catch up

Income Tax:

• Changes to thin capitalization rules for banks, reducing their deductions and increasing NZ profits
• Review of farmers ability to change livestock valuation methods for tax purposes
• Review of the tax treatment of mixed-use assets used for both private and business purposes (e.g. holiday homes)

On the 1st of April 2011 there was a slight change to the rules for calculating the GST claimable on asset you purchase to be used both in business and privately (e.g. vehicles).

Under the old rules you could claim GST on the full purchase price in the purchase period GST Return and then make adjustments for GST relating to the private use in subsequent GST Returns. Or you could claim only the percentage (if you knew it) that you would use for business – we always recommended this option to clients.

The new rules require that the business percentage of the good or service be calculated at the time of purchase and only the GST on that percentage is able to be claimed in the GST Return.

You must then make adjustments in subsequent GST Returns if the business percentage changes by more than 10% or $1,000.

What this means for you if you purchase assets for mixed use after 1 April 2011 and claim the GST on them is that you will need to provide us with records of your business usage each year to validate your initial GST claim or for us to calculate a GST adjustment if your rate of usage has changed.

For more information on how this will affect you please contact our office.

A change to the GST Act which came into effect on the 1^st of April 2011 that you may not be aware of is the compulsory zero-rating of land transactions between two GST registered entities.

For such a transaction to be deemed zero-rated the following conditions must be met:

1. the GST registered entity acquiring the land must do so with the intention of using the land for the purpose of making taxable supplies; and
2. the land is not intended to be used as a principal place of residence by the purchaser or associated person of the purchaser.

The effect of this change is to prevent GST registered parties deriving benefit from timing differences between paying/receiving monies for land and receiving GST refunds or paying GST amounts to Inland Revenue.

What this means for GST registered persons purchasing and selling property is that before including any amounts relating to the sale/purchase of such land in your GST Return you first must check if the above conditions apply and if in fact the transaction should be zero-rated.

IRD are currently making changes to the Working for Families Tax Credit annual rollover process for business customers that receive weekly or fortnightly payments. These people will need to provide verification of their annual income in order for IRD to have an up-to-date income estimate to base the WfFTC payments on.

Verification of income can be done through:

• Previous years Income Tax Return
• Budgeted set of Accounts for current year
• Detailed Accounts projecting income for next year

If this applies to you, IRD will send out a letter in March next year advising what your requirements are in order to be able to continue receiving Working for Family Tax Credit payments on a weekly or fortnightly basis. If sufficient information is not provided by the end of March 2011 the payments will be stopped until verification is received.

As of April 1 2010 several changes will come into effect regarding the rules surrounding contractors hired for work in the horticulture of viticulture industries. The specific areas in the industry that these changes affect are:

• fruit crops
• orchards
• vegetables
• vineyards

Contractors hired for work in these fields will be subject to a withholding tax deduction of 15 cents in the dollar – unless they hold a certificate of exemption or certificate authorising tax be deducted at a specified rate.

There are currently two exemptions to the activities performed by contractors which are not subject to the new withholding tax:

• Post harvest facilities for work or services provided, e.g. bottling or packaging products.
• A Management entity under a formal management agreement under which the entity is responsible for payment for the work or services provided, e.g. an orchard owner contracts a manager to run the day to day operations of the orchard.

What this means for people that hire contractors in these industries who perform activities on the land that do not fall into the two categories above and are not exempt is that they will now need to complete Employer Monthly Schedules showing the withholding tax deduction of 15 cents per dollar and deduct the tax from the contractors wages to pass on to the IRD.

For more information on the new rules please visit the IRD website.