Paid parental leave increases to 18 weeks

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Paid parental leave will increase from 16 to 18 weeks in April. To be eligible for this increase, the baby must be due or born on or after 1 April 2016.

If you have pregnant employees due on or after 1 April, who intend to take parental leave, check they’re aware of the:

  • increase in the length of payments
  • form they need to complete and send to IRD

If they’ve already applied and their due date is on or after 1 April, IRD will make sure they receive 18 weeks of payments. If their baby is due before 1 April but arrives late, they need to let IRD know so they can pay the correct entitlement.

IRD Compliance Focus

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Each year IRD target a few specific issues relating to tax payer compliance, carrying out investigation and audit activities to recover unpaid tax and penalties.

For every $1 spent by Inland Revenue on compliance focus activities they are recovering approximately $8 from non-compliant tax payers.

In the next year they will receive a funding boost from the government to increase their compliance focus work, which is likely to increase the scope and frequency of IRD investigations and audits.

IRD have indicated that key areas which they will be targeting over the coming year include:

 

The Hidden Economy

This includes any illegal activities or income earned outside of tax system (i.e. “cashies”). The IRD have signalled they have recently had success prosecuting several industries that deal largely in cash, such as takeaway restaurants, beauty salons and builders.

With increased funding Inland Revenue will have greater resources to identify offenders and conduct more investigations into these types of businesses.

 

Property Investment

Previously, residential property sales were only regarded as taxable if it was the purchasers “intention” at the time the property was purchased to resell it for a profit.

However, with the introduction of the Bright Line legislation in October this year, IRD now have an objective test to supplement the intention test, to help determine whether the sale of a residential property is taxable.

Therefore, Inland Revenue are ramping up audit activity in this area to try and catch any property speculators who in the past have hidden their intentions to make tax-free gains on the sale of property.

 

GST Refunds

Inland Revenue will be focusing on tax payers who receive large GST refunds and those who receive GST refunds on an ongoing basis.

For large GST refunds they are likely to request documentation (such as copies of invoices and receipts) to verify the GST claim.

The risk with taxpayers who consistently receive GST refunds is that they may no longer be eligible to be GST registered and should therefore have deregistered for GST (e.g. if the business has ceased or it has slowed down so much that it is a “hobby” rather than a taxable activity).

For any clients who think they might be at risk of audit by the IRD, we urge you to make sure that you are declaring all of your income and complying with all relevant tax laws.

 

It is never too late to come clean to IRD, as up until an audit notification is received from them, taxpayers can make a voluntary disclosure of any mistakes or omissions from tax returns, which can significantly reduce the amount of penalties and interest Inland Revenue will charge on any underpaid tax.

If you are not sure you have met all of your tax obligations or have any questions about Inland Revenue’s compliance focus please contact our office.

 

IRD bright line test

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The new bright line test for buying and selling residential property has been passed into law. The rule says that  you’ll pay tax on the profits when you buy and sell a residential property within two years, unless:

  • it’s your main home and you have used it as your main home for 50% or more of the time you have owned it and you have used more than 50% of the area of the property as your main home, or
  • you have inherited the property, or
  • the property has been transferred to you as part of a relationship settlement agreement (however, if you go on to sell this property within two years of its original purchase date, the bright line rule will apply), or
  • the property is held in a trust and it was the main home of the principal settlor of the trust, or the principal settlor doesn’t have a main home and it was the main home of a beneficiary of the trust.

Remember that these rules will apply to all property owners even if only part owner in a property.

Foreign superannuation audit activity has begun

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If you have moved to New Zealand from another country you should be aware of the concession IRD put in place whereby taxpayers who transferred their foreign superannuation interests to New Zealand and did not address the taxation implications were given the opportunity to include 15% of the amount transferred in their 2014 or 2015 Tax Returns.

If the sum was correctly included in either Tax Return no further action would result.

Inland Revenue has now begun to send audit letters to people who have not returned foreign superannuation income under the concession but Inland Revenue has information that a transfer was made.

They said they would – and they are!

As Inland Revenue is now sending Audit notification letters penalties can apply so if you have foreign pension income you need to talk to us so we can ensure you are declaring the income correctly for taxation purposes in New Zealand.

IRD and Tax Refunds

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IRD are now only paying refunds you may be due for into a bank account, they are no longer issuing cheques.

This means it is vital we have your correct bank account number on record for the account you want refunds paid to. Please ensure you advise us of the preferred bank account number(s) when you deliver your accounts information to us.

If you do not provide us with your bank account number there will be a delay in preparing your tax return while we confirm the information with you.

Once assessed by IRD, we will check your assessment and notify you that the refund has been issued, but sometimes the refund goes through before we receive the assessment. Please await our confirmation that the assessment has been checked before you spend the money. In the case of an incorrect refund we will notify you and advise you how to pay the money back to IRD.

IRD and tax free allowances

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IRD are currently looking at tax free allowances paid to employees and whether they are actually tax free. To be a tax free allowance it has to be a reimbursement of an employment related expense, this can be actual cost or a reasonable estimate (however if it includes a portion above the employment related cost that part is taxable). There are also new rules and time limits to tax free allowances for accommodation, meals, clothing and relocation.

IRD are initially targeting the forestry sector and if that proves successful they are likely to extend their investigations. If  you pay your employees allowances now is a good time to revisit the tax status. If you get it wrong, the employer may need to pay backdated PAYE with added interest and the employee could end up with extra income affecting their Working for Families Tax Credits or Student Loan repayments.

IRD and Cash Jobs

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You will most likely have seen the item on the news lately about IRD targeting cash jobs in some areas of Auckland and while IRD are concentrating on Auckland they will not be ignoring other parts of New Zealand and they certainly are looking at certain industries such as construction, hospitality and similar industries where cash payments are not unusual.

An example of this was highlighted in the Nelson Mail recently. A restaurant was sued for tens of thousands of dollars by IRD for significantly under-reporting income and failing to pay GST and Income Tax. The owners have been found guilty but haven’t been sentenced yet, we will update this when they have been.

And, don’t forget about Trade Me.  IRD are keeping a close eye on those that buy and sell on Trade Me, so if you are doing this on a regular basis (regular enough that IRD consider it to be you are a business) then you should be declaring the income from sales and claiming the purchases and other expenses.

IRD refund changes

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IRD have removed the option to request an income tax refund by cheque and they will now issue refunds by direct credit where they have a valid bank account number on file. If IRD do not have a valid bank account number the refund will be issued by cheque.

There are a couple of potential issues that clients need to be aware of, the first being in the case of an incorrect assessment. As the refund will reach your bank account at the same time as we receive the assessment from IRD, we won’t have time to stop an incorrect refund before it is direct credited. This means we would have to ask the client to make a payment of the refund amount back to IRD to return the funds and this will take time and therefore have a cost attached. Secondly, if your bank account details change but are not updated with IRD, the refund might be issued to a valid but not preferential bank account  (if the bank account has been closed IRD would be alerted to that fact). This could result in the funds sitting in an old bank account for some time, before your check the balance and notice the refund has been received.

 

 

Working for Families 2016

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If you receive weekly or fortnightly Working for Families payments and you or your spouse / partner have received business income (ie income other than wages and bank interest) you need to send IRD evidence of your business income for the 2015/16 year before 31 March 2015 or your payments will stop after this date. Your income evidence can be one of the following:

– 2014 income (only if you expect it to be similar in 2016). Contact IRD and ask them to use this information.

– 2015 year financial accounts (can only be done after 31 March ie end of financial year)

– 2016 budgeted accounts

If you need to provide budgeted accounts and find it a bit tricky, give us a call and we can prepare budgeted accounts for this purpose. We will use your latest annual accounts, ask you some questions about what has changed and incorporate those changes.

If you or your spouse or partner have stopped operating a business you need to call IRD so they can update their records.

You can contact IRD by phone 0800 227 773, through your myIR secure mail or post to Inland Revenue, PO Box 39090, Wellington Mail Centre, Lower Hutt 5040.

If you do not get the information to IRD in time and they stop your payments, you need to ask them to re-start your payments when you send them the information required.

Child Support Changes

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Child support laws will change from 1 April 2015 and if you’re paying or receiving child support you should have received your new assessment or entitlement by now.

The formula that IRD uses to calculate child support now takes into account both parents income which in theory is a good thing, however the way it is calculated and apportioned has meant many child support assessments come with an unexpected significant increase.

The formula now takes into account shared care when it is 28% (102 nights a year) and over however you must provide a minimum of 35% (128 nights a year) care to receive child support payments.

The living allowance has also changed and from 1 April 2015 no longer include an amount for new partners. However, if others do rely on your financial support, for example a new partner and their children,  you can apply to IRD to have your living allowance reviewed.

It is worth checking that the income  and shared care IRD has based your assessment on is correct. If your income has dropped by more than 15% from the amount you were assessed on, you can now estimate your income and IRD will reassess your payments.

If your child support changes from 1 April 2015 it may also affect your Working for Families entitlement.

To sum it up the results are quite different from how IRD portrayed it, and whilst we can’t change the formula we recommend you check that the information included in your assessment is correct.