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					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
                                         bulletins”.
                                                                                       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
   estimated
                                                                                       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
                                                                                       www.taxpolicy.ird.govt.nz/
Previously UOMI had only been an expense when you had business income.
                                                                                       tax-treaties/turkey
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
                                                                                       www.ird.govt.nz/rwc

(continued on next page)
                                                                                                                           1
(continued from previous page)

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
                                                           been introduced:
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
Claiming depreciation
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.
                                                                          Depreciation methods
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
   less, and
                                       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
                              Part 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,
collective fashion.

                                                           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
follows:
                                                           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
                                                           purchases.
   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	
rate.
                                                                            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.
                                                                                                       www.ird.govt.nz
                                                                            BUSINESS TAX UPDATE • Issue No 24 • October 2011           5

				
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