McLEAN AND CO MARCH 2008 NEWSLETTER  PAGE 2     

TAX RATE CHANGES

The company tax rate (CTR) will reduce from 33 to 30% from the beginning of the 2008/2009 income year- 1 April 2008 for companies with a standard balance date.   This applies to companies, and other entities defined as companies by the Income Tax Act, including incorporated societies and unit trusts.

The change also applies to some savings industry entities.   In addition, the top rate for portfolio investment entities (PIEs) has been capped at 30%.

Business Structure Changes

The CTR change may prompt you to consider changing your business structure.  McLean and Co can assist in company incorporation. 

When the new Tax Rate becomes Payable

Use the new CTR when calculating your company's income tax payable for the 2008-09 income year onward. The first payment to which the new rate applies is the first provisional tax instalment for 2008-09.

TAX RATE CHANGES FOR CHARITABLE GIVING

The changes, effective from the 2008/09 income year, include:

The changes recognise the significant contribution made by the charitable and non-profit sectors to the well-being of our communities, and foster a stronger culture of charitable giving in New Zealand .

How will the changes work?

For Individuals

For example:

Indira donates $3,000 to various charities and other non-profit organisations, including her local church. Her taxable income for the 2009 year ( 1 April 2008 - 31 March 2009 ) is $35,000.

In the past Indira could only claim a maximum of $630. With the removal of the threshold Indira will now receive $1,000, a gain of $370.

For Indira to claim her rebate she will need to complete the Rebate claim form (IR526). Indira will need to include her receipts from the approved charitable organisations with her rebate claim form.

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For Companies

The 5% limit on deductions that companies can claim for cash donations to donee organisations will be removed

For example:

Company Ltd is a publicly-listed company. In the 2009 tax year ( 1 April 2008 - 31 March 2009 ) Company Ltd supported the local community charities, donating $20,000. The Company Ltd net income before taking into account its donations was $200,000.

Under the current law, Company Ltd is entitled to a tax deduction of $10,000.

Under the new rules, the full $20,000 can be deducted. The tax deduction will be included in the company's income tax return (IR4). 

Maori Authorities

The change will operate in exactly the same way as the change to the company deduction and the donation deduction will be included in the Maori authority's income tax return (IR8).

NEW WAYS TO GET AN IRD NUMBER

From 18 February 2008, people can apply in person for an individual IRD Number at any Automobile Association (AA) Driver Licencing Agent, PostShop, or selected New Zealand Post retail outlet. These agencies are Inland Revenue Appointed Verifiers.   They confirm the originals.   Taxpayers need to bring in one current original document from Category A below and one current original document from Category B below, plus photocopies of these documents.  Applications should be processed within 8-10 working days:

Category A

Category B

       McLEAN AND CO MARCH 2008  NEWSLETTER PAGE 4     

The new process does not apply to IRD umbers for non-individual customers such as companies, trusts and partnerships, and does not affect people who already have an IRD Number.

THE NEW GST AND PROVISIONAL TAX RETURN

From the start of the 2008/09 tax year, IRD will be sending out the new GST and Provisional Tax Return (GST 103).  The GST 103 combines payment of GST and Provisional Tax onto one return.  It has been developed as a result of aligning the GST and Provisional Tax due dates.

Key Features of the GST 103

There are eight versions of the GST 103, tailored to taxpayer’ individual circumstances, and only including the fields they need to complete.   The version taxpayers will receive depends on their balance date, GST filing frequency, if they use the ratio method to calculate their provisional tax payments and whether they file GST Returns for more than one location or branch.   There is also a non-tailored GST 103 version which can be downloaded from www.ird.govt.nz.

Who will Receive the GST 103?

Taxpayers will receive the GST 103 when they have a  GST payment due, regardless of whether a provisional tax payment is due for a particular period or not.   As long as they remain registered for GST and liable for provisional tax, they’ll continue to receive the GST 103 from IRD.   However, if they’re no longer for provisional tax (as a result of their residual income tax falling below $2500) IRD will send out the GST 101.   The GST 103 should be received around the same time as the current GST 101, which is near the end of the taxable period for which the return applies.

GST DUE DATES AND THE NUMBER OF PAYMENTS YOU NEED TO MAKE

GST periods haven’t changed at all- only the due date you need to file and pay your GST has changed. This means that you’ll still continue to pay your GST the same number of times each year you have in the past.  If you file your GST Returns every two months, return dates are as follows:

You should refer to the GST taxable period and the GST date printed on the GST Return that IRD send to you.

GST RETURNS AND LATE FILING FEES

A late filing fee is to be charged on late filing of GST Returns from 1 April 2008 .  This is $250 for filing a GST Return late where the taxpayer is invoice basis registered and $50 where the taxpayer is payments basis registered.

So do remember to file your GST Return by due date, even if it is a Nil Return.

      McLEAN AND CO MARCH 2008  NEWSLETTER PAGE 5     

CHANGE OF DUE DATES FOR PROVISIONAL TAX INSTALMENTS

The dates for your provisional tax instalments are changing from the beginning of the 2008-2009 and are based on your income tax balance date.  They will be the same as to due dates for GST so that businesses only need to file one return and  make one payment for both taxes

Whether you’re registered for GST or not, you’ll benefit from the changes as you’ll have more time to pay your provisional tax instalments

The number of provisional tax instalments will depend on the option you use to calculate your provisional tax payments and your GST filing frequency, (if you have one)

·          If you pay GST six monthly you’ll need to make two provisional tax instalments

·          If you use the ratio option, you’ll make six provisional instalments

·          Everyone else will make three provisional tax instalments

The new provisional tax due dates will be:

There is no change to end of year due dates.

RATIO METHOD OF GST

To use the GST ratio method, you will need to make an election to IRD before the beginning of the year.  For example, an election must be made before 1 April 2008 for the 2009 tax year.  Once you choose the ratio method, the IRD will calculate the ratio and let you know.  The GST ratio is calculated on the percentage of Residual Income Tax (RIT) for the previous tax year, divided by the total sal es for GST for the same year.   You only need to multiply your GST sal es for every two months by the ratio to get your provisional tax payment amount.   Applying the ratio method correctly will “safe harbour” you from being charged use of money interest even if your actual tax liability is bigger than the provisional tax that you have paid.   The ratio can be changed by IRD at anytime so care will be required as penalties apply if the wrong ratio is used.

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The ratio method applies to taxpayers who:

·          have operated a business and have been GST registered for two full tax years

·          the RIT is more than $2,500 but less than $150,000

·          file their GST Returns monthly or two monthly

·          have made an election (in writing or by telephone call) by the first day of the income year ( 1 April 2008 for 2008-09 year for taxpayers with a 31 March balance date)

A taxpayer may fall out of the ratio method if:

·          GST registration ceases

·          a GST Return is overdue by 60 days

·          the taxpayer ceases to be a provisional taxpayer (e.g. makes a loss) and RIT is less than $2500

·          the taxpayer changes to six monthly filing.

Advantages of the ratio method include:

·          provisional tax is paid in line with sal es which will assist cashflow particularly for seasonal businesses and businesses with variable incomes during the year

·          the dreaded use of money will not apply to taxpayers who qualify for the method

Disadvantages of the ratio method include:

·          missed ratio changes could invoke penalties

·          falling out could expose the taxpayer to use of money interest

·          does not apply to shareholder employees

·          does not apply to partners in a partnership

·          asset sal es could mean that too much tax is paid and use of money interest is not receivable either.

·          Six payments of provisional tax are payable during the year instead of the previous three.

KIWISAVER FROM 1 APRIL 2008 FOR EMPLOYERS

From 1 April 2008 , all employers will be required to contribute to their employees KiwiSaver scheme or complying fund. The level of contribution will be phased in over four years starting at  1% of an employees gross sal ary or wages, rising to 4% from 1 April 2011 as shown in the table below:

To help offset this contribution. Employers can claim an employer tax credit through the PAYE system of up to $20 per week per employee.  The employer tax credit can be claimed for both compulsory and voluntary contributions to KiwiSaver and complying funds.

To find out more about the compulsory employer contributions and employer tax credits , go to www.ird.govt.nz/kiwisaver and look at ”Employer Guide”

You claim the employer tax credit when you file your PAYE returns using a new version of the IR345 PAYE Employer Deductions Form. You offset the tax credit against the payment due and pay the net amount to Inland Revenue.  

Alternatively you can claim a full tax deductible expense ( relating to  the employer contribution) of 4% of gross wages and sal ary of an employee) against your income tax return. You may only claim a tax deduction for employer contributions for which you have not claimed an employer tax credit

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McLEAN AND CO MARCH 2008  NEWSLETTER PAGE 7     

Employer contributions to KiwiSaver schemes and complying funds are exempt from specified superannuation contribution with-holding tax  (SSCWT) subject to certain limits.  This applies to both compulsory and voluntary employer contributions.  The exemption applies to the lesser of :

·          an amount equal to the employer contribution, or

·          4% of the employee’s gross sal ary and wages

It is important that you keep copies of all PAYE Returns (including the Employer Monthly Schedule) for production to the Accountant at the end of the year, so that any tax deductions that may be claimable for employer contributions to KiwiSaver schemes and complying funds may be calculated.

VOLUNTARY DISCLOSURE PENALTY REDUCTIONS

If someone has a tax shortfall due to “not taking reasonable care”,  “making an unacceptable interpretation”, or “taking an unacceptable tax position”  and they make a voluntary disclosure before IRD advise them of a pending tax audit or investigation, any shortfall penalty can be reduced by 100%.   Previously the maximum reduction in penalties was 75%.

Voluntary disclosures made on or after 17 May 2007 may also be eligible for 100% reduction in penalties

Penalty reductions are regarded as a good incentive for taxpayers to come forward and put their tax returns in order.

9 DIGIT IR NUMBERS

Between April and May this year the 8 digit range will run out and IRD will begin issuing 9 digit numbers to all new taxpayers.

Some points to note are:

·          all current 8 digit IR/GST numbers remain unchanged (12-346-678)

·          once the 8 digit range runs out, new taxpayers will be issued with nine digit numbers (123-456-789)

·          when you complete forms with 9 boxes and you have an 8 digit number, leave the first box blank

·          if you have an 8 digit GST number you will only have to display the current GST number.   If you set up a new company or subsidiary and get a 9 digit number, you will have to display this.