BUSINESS TAX UPDATE
Inland Revenue’s tax news for businesses
Issue No 24 • October 2011 • IR 381
Taxation (Tax Administration and Remedial
Matters) Act 2011
The Taxation (Tax Administration and Remedial Matters) Act 2011 was Welcome to
enacted on 29 August 2011. Key features of this Act are the introduction Business Tax Update
of rollover depreciation for Canterbury earthquake relief, the abolition of
In this issue: Taxation (Tax
gift duty and changes to the PIE rules around non-residents. Administration and Remedial
Matters) Act 2011, changes to
The Act also includes various
student loan scheme, claiming
amendments to the tax disputes process,
depreciation, KiwiSaver scheme
and how certain taxpayer information
may be shared between Inland Revenue
provider annual meeting, Approved
and other Government agencies. The issuer levy (IR 67A) form, refunds
following is a summary of some of the we’ve sent in error, cash deals
main changes. More information can be aren’t tax-free income, tax schemes
found in our Tax Information Bulletin and aggressive tax planning,
Vol 23, No 8 (October 2011) at employing temporary staff.
www.ird.govt.nz “Newsletters and
If you have any suggestions for topics
Canterbury earthquakes tax changes
you’d like covered in this newsletter,
Further changes have been made to provide relief and certainty for customers email BusinessTax.Update@ird.govt.nz
affected by the earthquakes:
• rollover of depreciation recovered—if replacing an asset, a taxpayer may elect
to rollover any depreciation recovered on the old asset to offset the tax value
of the replacement asset REMINDERS
• foreign workers—as many foreign workers assisting with the earthquake recovery
are spending more time in New Zealand than expected, any use-of-money 20 October: Payment due for
interest they may be charged on overdue New Zealand tax will be cancelled. September quarterly FBT.
The following changes will apply to any future events as well as the Canterbury 28 October: Payment due for
earthquakes: GST and provisional tax.
• loss on disposal of buildings—a change has been made from being classed as New double taxation
“irreparably damaged” to “rendered useless” for the purposes of deriving income agreement in force: The
double tax agreement between
• income from insurance, indemnity or compensation for interruption or
New Zealand and Turkey signed
impairment of business activities—this will be assessable in the income year
on 22 April 2010 came into
it’s received, or the income year when the amount is reasonably able to be
force on 28 July 2011. This
brings withholding tax rates on
• rules on disposal of assets for depreciation—changed from the date the event dividends, interest and royalties
occurred to the date when payment of insurance proceeds can be reasonably more in line with New Zealand’s
expected. new standard treaty rates.
Use-of-money interest (UOMI) Find out more at
Previously UOMI had only been an expense when you had business income.
Now, if you’re charged or have received UOMI, it’s an expense whether or not
you have business income. You will need to: Rugby World Cup: If you have
• claim UOMI as an expense in the year you pay it activities relating to the Rugby
World Cup and you’re wondering
• show UOMI as income in the year you receive it.
whether they may affect your
This is effective from the 1997–98 and later income years, subject to certain rules. tax obligations, go to
(continued on next page)
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Tax pooling received from the PIE. This means they’re taxed at
a higher tax rate than if they invested directly in the
Tax pooling allows you to use funds deposited in or
same assets as the PIE. Two new types of PIE have
purchased from a tax pooling intermediary to better
manage your provisional tax and/or income tax
obligations. It can also help minimise any UOMI you • foreign investment zero-rate PIE
may incur. • foreign investment variable-rate PIE.
Tax pooling can also be used if your tax liability These new PIE types will allow qualifying non-resident
increases unexpectedly. This could happen, for investors’ attributed PIE income to be taxed at similar
instance, because of: rates to those that would apply if they invested
• an amended assessment (including from an audit) directly.
• a voluntary disclosure New rules have also been introduced for transitional
residents and new residents.
• a disputes case where tax has been deferred.
A special report on foreign investment PIEs can be
The rules have been amended to clarify the use of tax
found at taxpolicy.ird.govt.nz
pooling, effective from 29 August 2011. If you want
to use tax pooling to pay a tax bill, please discuss Donee status – Schedule 32 requests
these changes with a tax pooling intermediary. The following organisations have been granted donee
Definition of “book and document” status and added to Schedule 32 of the Income Tax Act
2007, effective from 1 April 2012 (2012–13 tax year):
The definition of “book and document” has been
repealed. A new definition of “document” has • The Unions Aotearoa International Development
been inserted and covers the medium on which Trust
information is held, the information itself and any • Ruel Foundation
device associated with the medium which allows the • RNZWCS Limited
information to he held or communicated.
• The Cambodia Charitable Trust
Portfolio investment entities (PIEs) • Jasmine Charitable Trust No. 2
There have been a number of changes to the PIE rules • New Zealand Good Samaritan Heart Mission to
around non-residents. Samoa Trust
Non-residents who invest in a PIE have a prescribed • NZ-Iraqi Relief Charitable Trust.
investor rate (PIR) of 28% applied to all income
Changes to student loan scheme
A number of changes to student loans are underway main income is less than the pay-period repayment
after the enactment of the Student Loan Scheme Act threshold. We’ll provide a special deduction rate
2011. Most of these take effect from 1 April 2012. certificate they can give their secondary employers to
If you have an employee with a student loan, you’ll reduce their deduction rate below 10%.
find that some of the changes will be variations to Full-time students earning above the pay-period
current processes, while others will be new rules you’ll threshold ($367 a week for the 2012–13 tax year)
need to become familiar with. may be eligible for an exemption from repayment
All student loan borrowers will need to use an “SL” deductions. If the student expects to earn below the
repayment code regardless of their income. You’ll annual repayment threshold ($19,084) they can apply
continue to make student loan deductions for all for a repayment deduction exemption certificate to
employees using an SL code, unless they give you an give you.
exemption certificate. Your employee may ask you to make extra
The repayment deductions you make from your deductions, on top of their compulsory deductions,
employee’s salary or wage every pay period will be from their salary or wage. You’ll need to use the
considered their repayment obligation for the pay new “SLBOR” repayment code to identify this extra
period, unless there’s significant over- or under- deduction.
deduction. Over the next few months we’ll publish more
If there’s a significant under-deduction, we’ll notify information on how these specific changes impact you
you to make extra deductions from your employee’s as an employer. We’ll also be working with software
pay to recover the shortfall. You’ll need to use the developer companies to amend their payroll and
new “SLCIR” repayment code to identify this extra related products.
deduction. This will be in addition to their compulsory For more information on these and other changes go
repayment deduction. to www.ird.govt.nz/studentloans
Borrowers can continue to apply for a reduced
deduction rate for their secondary employment if their
BUSINESS TAX UPDATE • Issue No 24 • October 2011 2
Depreciation is an allowance for the wear and tear on • are used 100% for business, or are liable for FBT if
most of the fixed assets in your business. If the asset the business use is less than 100%.
has a life expectancy of more than 12 months you Each pool is depreciated using the diminishing value
need to claim depreciation—this is an expense you method, at the lowest rate applying to any asset in
can use to reduce your income. There are some fixed the pool.
assets you can’t claim depreciation on, such as land.
Assets which cost $500 or less can simply be
deducted as an expense in the first year and don’t You can use either the straight line method (SL) or
need to be depreciated, if they meet certain criteria. diminishing value method (DV).
Using the DV method you calculate the amount of
Steps to claiming depreciation
depreciation claimable on the adjusted tax value each
If you need to claim depreciation, setting up a process year (original cost price less depreciation already
will help you claim the correct amount. claimed). The amount of depreciation claimed each
1. Set up an asset register to show the assets you’re year will be less.
depreciating and their value. Each year you’ll use Using the SL method you calculate the amount of
this to work out the depreciation claimable and depreciation claimable on the original cost price each
the adjusted tax value of the asset—cost price less year. The amount of depreciation claimed each year
total depreciation claimed since purchase. is the same.
2. Work out which depreciation method you want to Electing not to depreciate
use to depreciate the assets (see below).
If you don’t want to claim depreciation on an asset you
3. Use our Depreciation rates (IR 265) guide to need to elect to treat the asset as not depreciable. Let
work out the depreciation rate of the assets being us know you’re making the election by notifying us in
depreciated (see example below). your income tax return for that income year.
4. Each year calculate the depreciation—use our If you haven’t told us that you’re not depreciating
“Depreciation claim” calculator at www.ird.govt.nz the asset, the difference between the depreciated
under “Work it out”. value and what you sell it for when you dispose of it
5. Update your asset register with the new adjusted is treated as income. This difference is taxable even
tax value and add the amount of depreciation though you haven’t claimed depreciation.
claimable to your list of expenses.
Adding the 20% loading
Pooling assets A 20% loading was added to the depreciation rate in
If you have a number of low-value assets, you can the early 1990s. This allowed you to claim a higher
choose to pool these rather than depreciate them rate of depreciation for assets bought after the date
separately. Depreciation is then claimed on the total it was introduced, subject to certain criteria. The
value of the assets as though they were a single asset. loading was removed on 20 May 2010. However, it
You can pool assets that: can still be applied for assets acquired before this date
if they meet the criteria.
• individually cost $2,000 or less, or have been
depreciated so the adjusted tax value is $2,000 or
56 GENERAL DEPRECIATION RATES
Example: Working out the rate of
depreciation for Motor vehicles The 20% depreciation loading doesn’t apply to Est DV DV SL SL
assets acquired after 20 May 2010. useful depn + 20% depn + 20%
(for transporting light goods, gross life rate loading rate loading
vehicle mass up to 3.5 tonnes) Transportation (TRAN) – continued
(years) (%) (%) (%) (%)
Maintenance cars (rail) 25 8 9.6 6 7.2
Find the rate in the Depreciation rates Maintenance cars (tramway) 25 8 9.6 6 7.2
Metal detectors 8 25 30.0 17.5 21.0
(IR 265) guide (as shown here). Microlites 3 67 80.4 67 80.4
Military type vehicles 15.5 13 15.6 8.5 10.2
If you’ve decided on the DV method, Minibuses (up to and including 12 seats)
(residual value has been estimated at 25%) 5 30 36.0 21 25.2
you’d be able to depreciate your Monorail vehicles 15.5 13 15.6 8.5 10.2
motor vehicle for 10 years, using the Mopeds 6.66 30 36.0 21 25.2
Motor launches 20 10 12.0 7 8.4
DV rate of 20%. You could then go Motorcycles 6.66 30 36.0 21 25.2
Motorhomes acquired during or after the 2010/11 income year 8 18 12.5
to our website and use the Motor scooters 6.66 30 36.0 21 25.2
Motor vehicles (for transporting people, up to
depreciation calculator to work out and including 12 seats) (residual value has been
estimated at 25%) 5 30 36.0 21 25.2
how much depreciation you could Motor vehicles—class NA (for transporting light goods,
claim over the next 10 years if you gross vehicle mass up to 3.5 tonnes)
Motor vehicles—class NB (for transporting medium goods,
10 20 24.0 13.5 16.2
remain on the DV method. gross vehicle mass over 3.5 tonnes but not over 12 tonnes) 12.5 16 19.2 10.5 12.6
Motor vehicles—class NC (for transporting heavy goods,
gross vehicle mass over 12 tonnes) 10 20 24.0 13.5 16.2
Motor vehicles (for transporting people, up to and
including 12 seats and used for short-term hire of
1 month or less only) 4 50 60.0 40 48.0
Motor vehicles—class NA (for transporting light goods,
gross vehicle mass not over 3.5 tonnes and used for
short-term hire of 1 month or less only) 6.66 30 36.0 21 25.2
Motor vehicles—class NB (for transporting medium goods,
BUSINESS TAX UPDATE • Issue No 24 • October 2011
gross vehicle mass over 3.5 but not over 12 tonnes and 3
used for short-term hire of 1 month or less only) 8 25 30.0 17.5 21.0
Motor vehicles—class NC (for transporting heavy goods,
KiwiSaver scheme provider annual Cash deals aren’t tax-free income
meeting The government uses taxpayers’ money to pay for
services we all need, such as healthcare, education,
Inland Revenue recently hosted the fourth KiwiSaver
roads, environmental protection and recreation.
scheme provider annual meeting at the Amora
Hotel in Wellington attended by 45 scheme provider How the government spent our taxes in 2009–10
representatives and 20 Inland Revenue staff.
KiwiSaver scheme providers and Inland Revenue
are continually working together to see how we
can improve KiwiSaver services and enhance the
experience for members. This meeting allows both
groups to reflect on the past 12 months and maintain
and develop the partnership.
Constructive feedback was received from the providers
who acknowledged the meeting was a way to drive
positive changes to KiwiSaver in a coordinated,
If you ever wondered how your own tax dollars are
Approved issuer levy (IR 67A) form divvied out, there’s a simple calculator at
tax.southgatelabs.com that shows you just where
Unfortunately in August we issued an incorrect
your tax dollars go. Enter your income (without
Approved issuer levy (IR 67A) form.
commas) and the site calculates what your tax dollars
If you received one of these forms, please: go to (these are indicative figures only).
• show your gross interest in the “Total interest paid” While most people pay the right amount of tax, we
box (key point 3 on the new form) know some people think they don’t have to pay tax
• calculate the levy at 2% of the gross interest as if they’re paid in cash. By not declaring all their
you’ve done in the past income, people who do un-taxed “cashies” are taking
• show the levy figure in the “Approved issuer levy” unfair advantage of honest businesses and cheating
box (key point 6 on the new form). those who pay their right amount of tax.
If you need help, please contact our Non-resident If you’re not doing the right thing we can help you get
Centre on 03 951 2020. back on track.
You can download the correct form (version date If you’re not declaring your income
December 2008) from our website www.ird.govt.nz You can make a voluntary disclosure. There are
under “Forms and guides”. incentives for letting us know you haven’t returned all
your income before we find out, eg reduced penalties.
To find out how to make a voluntary disclosure go to
Refunds we’ve sent in error www.ird.govt.nz (keywords: voluntary disclosure) or
If you receive a refund for payments or credits we’ve see the article in the September Business Tax Update.
released in error, please return it to us, within If you deal in cash
15 days of receiving it. You need to return it as
Keep good records of all your business transactions
and provide your customers with receipts. Go to
• For refunds made by cheque, please return our www.ird.govt.nz (keyword: records) for some helpful
cheque, and attach a note saying where the tips.
payment or credit should have gone.
Bank all cash you received—don’t use it to make small
• For refunds made by direct credit, please send
payment (cheque or electronic) for the exact
amount of the refund and advise us where the Encourage your customers to make a direct credit or
payment or credit should have gone. When we internet banking payment rather than paying in cash.
get the full amount of the refund we’ll update the If you have information about tax evasion and fraud
payment or credit at the date originally received,
giving you the best advantage date for any The entire community is impacted by businesses
transfers. cheating on their taxes. You can play your part if
you have concerns about those getting an unfair
If the refund isn’t returned within 15 days of receiving advantage. Report this to us anonymously, it’s easy—
it you may be charged late payment penalties and just use our secure online form at www.ird.govt.nz/
interest on the amount. anonymous
Please provide as much detail as possible when you
fill it out.
BUSINESS TAX UPDATE • Issue No 24 • October 2011 4
Tax schemes and aggressive tax planning
As part of our ongoing compliance programme, we’re Risks of investing in a tax scheme
continuing to identify inappropriate schemes, tax
Participating in aggressive tax planning has risks
planning and structures that unlawfully minimise
and potentially significant consequences. As well
tax. We’re also focusing on those few individuals and
as information you’ve filed in tax returns, we use
businesses that use and promote them.
information from many different external sources
Whether or not an arrangement is tax avoidance to identify suspicious transactions, structures and
depends on how an entity is managed, and whether arrangements. The more risk indicators we identify,
companies and trusts are deliberately used to divert the more likely we’ll investigate your scheme or
income and reduce a person’s tax obligations. investment. This could mean:
The recent Supreme Court decision in Penny and • we overturn a tax avoidance arrangement and
Hooper v Commissioner of Inland Revenue confirms you’ll be required to pay your correct tax liability,
that income allocation or diversion arrangements may as well as use-of-money interest and possibly
constitute tax avoidance. In this case, two people shortfall penalties
incorporated their businesses then drew low salaries, • you lose your whole investment
letting the bulk of their income be taxed at a lower
• you may have significant other costs such as
accountants’ and lawyers’ fees to deal with the
While Inland Revenue has welcomed the Supreme investigation or litigation.
Court decision, we’ll be taking a measured approach
The actual financial cost of participating in a tax
as to how it’s applied. The decision doesn’t mean that
avoidance scheme can be much higher than any
every incorporated business or one that’s managed
potential tax savings.
through a family or trading trust is a tax avoidance
arrangement. What you can do to get it right
The Court also confirmed that avoidance doesn’t If you have any concerns regarding your own
arise, despite a low salary being set, if particular commercial or business structure we advise you to
circumstances are present, such as a business being contact us or your tax agent.
in financial difficulty or where there are capital If you’re aware of any aggressive tax planning
investment requirements. activities you can let us know anonymously at
The best way to ensure the tax aspects of www.ird.govt.nz (keyword: anonymous).
arrangements you’re entering into are safe is to Read more about our compliance programme, and
give us all the facts and obtain a ruling from us. An what you can do to avoid getting it wrong at
investment should not depend on any estimated tax www.ird.govt.nz “Getting it right”.
savings to make it worthwhile.
Our revenue alert RA 11/02 further clarifies the
Commissioner’s view on this issue, you can read it at
www.ird.govt.nz (keyword: RA11/02).
Employing temporary staff
Are you taking on extra staff for a special occasion, or Taking on temporary staff could be an indication that
expecting a higher than normal workload? If so, don’t your business turnover is increasing, even for a short
forget you’ll need to adjust your records to show this. period of time. If you’re not already registered for
You’ll need to: GST, remember to check if your turnover is likely to be:
make sure you get a completed Tax code • more than $60,000 for this month and the last
declaration (IR 330) from the employees or deduct 11 months, or
tax at the no-notification rate • more than $60,000 for this month and the next
deduct PAYE from their wages and show this on 11 months.
your employer monthly schedule, including their If your turnover exceeds this amount you’ll need to
start date, tax code and amount of deductions register for GST.
show an end date on your employer schedule for
each employee as they finish with you.
Business Tax Update comments generally on topical tax issues
relevant to businesses. Every attempt is made to ensure the law is Email: BusinessTax.Update@ird.govt.nz
correctly interpreted, but articles are intended as a brief overview
only. The examples provided are not intended to cover every
possible factual situation.
BUSINESS TAX UPDATE • Issue No 24 • October 2011 5