Sharp-As Tax
Volume 6 Issue 18
8 June 2011
TAX CONSEQUENCES OF BUMPER DAIRY PAY-OUTS
Two week ago, Fonterra announced an Taxpayers with an extension of time POINTS OF INTEREST...
increase in its forecast pay-out for the 2010/11 arrangement with the IRD have until 31 March
season. As a result, many dairy farmers will 2012 to make a deposit into the income From 1 July 2011, wineries with
need to give consideration to their income tax equalisation scheme for the 2011 income year. an excise tax liability of $50,000
liabilities for both the 2011 and 2012 income or less will be able to pay the
tax years. It is important to note that there are limits
on the amount of a deposit that can be excise tax annually rather than
Dairy farmers with a May or later balance date made in any one income year. The maximum monthly. Those with excise tax
have an opportunity to increase their third deposit is limited to an amount equal to to pay of between $50,000 and
provisional tax payment or make a voluntary the net income from either forestry, fishing, $100,000 can pay six monthly.
payment to reduce any use of money interest farming, or agriculture in that year. Thus,
liability that may arise with respect to the investment income and other types of income An international report issued
2011 year. are not available to be included as an income by the Global Forum on
equalisation deposit.
There are, however, some alternative options Transparency in Exchange of
that can be used. The first is taking advantage Generally, deposits must be retained in the Information for Tax Purposes
of tax pooling, whereby provisional tax can be scheme for between 12 and 60 months, gives New Zealand’s tax
purchased effective as at the due dates that however, an early refund can be obtained administration system a high
it should have been paid (in hindsight). The in some circumstances, including serious pass mark. The report did
advantage of doing this is that the interest hardship. suggest some minor issues and
cost is less than the use of money interest made some recommendations
payable to the IRD, and any penalties payable How it affects you on how to improve the New
for failing to make provisional tax payments
can be eliminated. Those in the dairy industry should be carefully Zealand tax system, and the
considering their tax obligations for the Government will be looking at
The second alternative is to take advantage 2011 and future income tax years given the this in due course.
of the income equalisation scheme, which increased level of pay-out announced by
effectively allows a farmer to defer income to Fonterra. There are a number of options
a later income year. available to meet the increased income tax
liability, and all of these have pros and cons
The income equalisation scheme is generally that need to be carefully weighed up. In all
available to a taxpayer engaged in any cases, it is best to review these consequences
farming or agricultural business. now, rather than getting a nasty surprise in
the future. TO THE POINT...
“Winter is the season in which
REIMBURSEMENT OF EMPLOYEE EXPENDITURE people try to keep the house
as warm as it was in Summer,
An amount that an employer pays to an mileage rate published by the IRD had when they complained about
employee in connection with the employees’ increased to 74 cents per kilometer for the
employment is exempt income of the 2011 income year. Instead of using the 74 the heat”
employee to the extent to which it reimburses cent mileage rate, an employer can reimburse
the employee for expenditure the employee an employee on the basis of actual costs Anonymous
has incurred on behalf of the employer. incurred, and this could include a depreciation
loss, as mentioned above.
This would include situations where the
employee has purchased assets which are If an employer chooses to pay a reasonable better advice
used in the employers business. estimate of the amount of expenditure
In the past, this exemption was limited to
likely to be incurred, then we suggest that
the employer keep adequate records to
for a better life
the actual expenditure incurred, or the
employer could make a reasonable estimate
determine how the estimate was established
should the IRD ever query the tax-free nature CONTACT
of the amount of expenditure likely to be of the allowance.
incurred by the employee for which the
reimbursement is payable. In effect, it was for To the extent that the allowance paid is in
cash costs only. excess of either the actual costs incurred or
a reasonable estimate, the amount of excess
However, an amendment to the rules in is subject to PAYE and that excess amount
October 2009 effective from 1 April 2008 should be included in the employees earnings
expanded the definition of expenditure to in the relevant period.
include a depreciation loss.
How it affects you
Thus, if an employee was to provide their
own computer when undertaking duties If you are paying tax-free allowances to
for the employer and the employer paid employees, the changes mentioned above Sharp-AsTax@whk.co.nz
a reimbursing allowance with respect to
that computer, the tax-free allowance can
may give cause to review the amount of
allowance paid. It may also make it more 0800 4WHKNZ
include the depreciation deduction that the
employee would have been allowed but for
attractive for employers to reimburse
employees for business use of motor vehicles, www.whk.co.nz
the employment limitation. rather than providing the employee with the This information is of a general nature
motor vehicle and paying FBT. only and should not be used as a
A few weeks ago we mentioned that the substitute for detailed professional advice