IRD Compliance Focus for 2014-15

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Inland Revenue tell us they want to make tax simpler, more open and more certain for everyone.

One way they do that is by sharing their compliance focus, so that it’s clear for everyone the key areas they’re looking at and key things people need to do to get their tax and entitlements right.

Now’s the time to share the Compliance Focus booklet and help you understand what you need to do to get your taxes right and avoid penalties and interest.

At Savage & Savage we put a strong focus on ensuring your accounts comply with tax regulations and while some of the things we ask you for may seem irrelevant we need ALL of your financial information to help you stay on the right side of the tax man.

You can download the latest IRD Compliance Focus booklet here for full details.

In summary here are some (but not all)  key compliance points IRD will be focusing on in 2014-15 (extracts from IRD Compliance Focus Booklet 2014-15)

Paying your tax on time

Whether we’re talking tax, student loans or child support—most people pay on time. Most people also file on time. We know that when it comes to tax, if a customer doesn’t file a return on time, they may also struggle to pay the tax they owe on time. In all cases, paying what you owe by the due date means avoiding penalties and interest. That’s why we work hard to make it as easy as possible for you to file and pay on time and contact us quickly if you miss a due date.

People with high wealth or high income

People who have significant assets or high income often have complex tax affairs. Like everyone else, most people with high wealth pay the right amount of tax at the right time, but sometimes people make mistakes and don’t get their taxes quite right. We have a dedicated team that helps these customers get back on track.

The property business

Whether you’re buying or selling property for profit, renting out a property you own or having boarders stay in your family home, it pays to know the rules. That way you won’t end up with an unexpected tax bill to pay.

Trusts

People can choose to use trusts in their personal or business affairs. If you set up, manage, or receive income from a trust, make sure you understand and meet your tax responsibilities. Otherwise, you might face penalties or end up with an unexpected tax bill.

It’s not worth the risk

We know that sometimes people make honest mistakes with their tax or entitlements. When this happens, we’re here to help them get back on track. It’s rare, but sometimes people try to avoid paying the tax they owe or get more entitlements than they should. We’re always working to improve our systems and processes, so that we can spot when this happens and take action. For people who don’t do what they’re meant to, the consequences can be serious. They could end up in prison or with substantial financial penalties. It’s just not worth the risk.

Fraud and identity theft

It’s infrequent, but people sometimes: • create fake documents or identities or intentionally provide incorrect information to pay less tax or get money from us—and that’s fraud • use another person’s IRD number to get money from us—and that’s identity theft, which is a form of fraud.

Under-reporting income and operating outside the system

Most people report their income correctly and pay the right amount of tax. But a small number intentionally underreport their income and pay less tax than they should.

This means:

• some businesses may get an unfair competitive advantage over other businesses that pay the right amount of tax

• government has less to spend on services that make New Zealand a great place to live, like schools and hospitals

Aggressive tax planning

A small number of people try to avoid paying the tax they should or boost entitlements to social benefits by using inappropriate or unlawful tax structures. We call this aggressive tax planning (ATP)

Paid Parental Leave increase

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Paid parental leave for a baby expected or born, or for a child adopted, on or after 1 April 2015 can now be taken for up to a maximum of 16 weeks (previously 14 weeks). This means if baby is expected before 1 April 2015, but arrives on or after 1 April 2015, parent(s) are entitled to the extra two weeks. If baby is expected on or after 1 April 2015 but arrives before 1 April 2015, parent(s) are entitled to the extra two weeks.

Updated forms for self-employed, employees and employers will be available on IRD’s website from 18 December 2014.

IRD System Changes

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Due to planned system changes all IRD services will be unavailable from 6 am Saturday 15 November to 6 pm Sunday 16 November. This includes myIR, B2B and the contact centres.

IRD Look Alike Email

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There is currently a phishing email (again) being sent out that claims to be from Inland Revenue. It suggests you have a tax refund due and a link to click on. Do not click on any links, as this in itself may trigger a virus download. Inland Revenue will never send an email that asks you to provide personal Inland Revenue information such, as your myIR account, userID and password. Neither will Inland Revenue send emails containing a direct link to a page to submit information and ask you to log in.

Child Support reform changes are coming

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IRD have announced that major changes are being made to the child support scheme, starting next year. These changes are the first major overhaul of the child support scheme in 20 years. They reflect that life has changed a lot for families during this time.

Currently child support payments are based on the paying parent’s income and living circumstances. Shared care is only recognised when a parent or carer looks after children for at least 40% of nights in a year.

Key changes at a glance

From 1 April 2015, child support will be based on the following:

  • The incomes of both parents will be used.
  • More account will be taken of the amount of care provided by both parents and carers. Currently most child support only takes into account whether you care for a child for 40% of the time. After 1 April 2015 this threshold will lower to 28% (103 nights or more a year, or two nights a week).
  • Both parents will receive assessments, which may include allowances for any other children of their own who live with them. This allowance will be based on the children’s ages and the estimated average costs of raising children in New Zealand.
  • Parents will receive assessments that may include an allowance for any of their own children living with them, but not for a new partner, or any children who aren’t their own.

This means in some cases the amount of child support parents or carers pay or receive may change.

IRD will be contacting child support customers between July and December this year to either confirm the information they already have or to ask for more information if they need it.

Find out more

What happens if you don’t pay IRD?

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You are likely to have seen the recent news coverage about the arrest, at the airport, of Terry Seripisos when he arrived back in New Zealand after being overseas for a number of months.

It appears his arrest was for unpaid Child Support payments he was supposed to pay several years ago.

While most people may not like paying tax this is the main source of income for the government to pay for things like hospitals, schools and everything else the government does; we may not like or agree with some of the things they spend our tax money on but we still have an obligation to pay our fair share.

At Savage & Savage our job is to make sure you account for the correct amount of tax without paying too much or too little.

If you owe IRD money it is important (as Terry Seripisos found out) that you pay it. If you can’t afford to pay it when due you can enter into an arrangement with IRD to pay it off but they will most likely add interest and then if you don’t keep to the arrangement they will add penalties as well as compounding interest. The amount owing can compound very quickly into a large sum of money, often many times the amount of the original debt.

And as Terry Seripisos found out you can be arrested at IRD’s request if you owe the tax man money. IRD have more powers than the police when it comes to tax matters.

IRD Payments

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From 1 October 2014 you’ll need to make sure Inland Revenue receives your payment on or before the due date to avoid penalties and interest. Posting it on the due date is no longer good enough; IRD must have your payment on or before the due date.

New Zealand Tax Residency

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To be treated as a New Zealand Tax Resident an individual needs to be in NZ for 183 days in a 12-month period or have a permanent place of abode.

There has been some recent development around the issue of permanent place of abode to establish New Zealand Tax Residency. If you are leaving NZ but still have ties to NZ and a place hypothetically available to stay (even if not immediately available, for example an investment property or holiday home) you could still be classed as a NZ tax resident and therefore need to pay tax on your worldwide income in NZ.

Furthermore tax residency can be backdated, for example a person coming to NZ on a holiday, then coming back a month later with family to settle, could be a NZ tax resident from the first time they stepped of the plane.

While needing to file two tax returns in different countries can be a hassle the good news is that for countries that NZ has a double tax agreement with you will be able to claim overseas tax paid to the level of the NZ tax due here on that income. You can go to IRD’s website and see which countries these are.

If you are leaving or entering NZ for more than a holiday it is important to talk this through with your Chartered Accountant and advise them of your intentions, your business interest and interests in trusts and companies as these can also be affected by your NZ tax residency status. We will help you meet your tax obligations and ensure correct disclosures are filed with the IRD.

If you are leaving NZ permanently and meet the criteria for being a non-resident for tax purposes, you would only be taxed in NZ on your NZ sourced income. To cease being a tax resident an individual needs to no longer have a permanent place of abode and be absent from NZ for more than 325 days in a 12-month period.

 

IRD changes to payment dates

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We recently received the following notice from IRD

 

“Changes to the Inland Revenue payment service at Westpac

From 1 October 2014 customers will no longer be able to make cheque payments or drop off returns or forms at a Westpac branch. They will be able to continue making cash and eftpos payments at Westpac.

Customers can post cheque payments, returns and forms directly to Inland Revenue so we’re removing these services at Westpac. Customers can continue to make payments using online banking, credit and debit cards and international money transfers.

Inland Revenue encourages customers to make payments online. Digital payment channels are secure and faster than traditional payment methods, and are available 24 hours, seven days a week.

Paying on time

From 1 October 2014, payments posted to Inland Revenue need to be received by Inland Revenue on or before the due date to avoid payment penalties and interest. This means cheque payments can no longer be posted on the due date.

Over 70% of our payments are currently made online and we want to encourage more customers to pay electronically. Removing the unintended advantage to customers who post cheque payments on the due date enables us to treat all customers equally, regardless of their payment method.

 

It is obvious IRD want to encourage as many people as possible to use on-line payment services, these are easy to set up and we can help you if you are unsure. The main point is you can’t rely on the post to get your payment there on time so if you want to post cheques you will need to put them in the post at least 10 days prior to the due date or about 3 working days if you send them fast post.

Parental leave payment increase

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From the 1st July 2014, the maximum parental leave payment for eligible employees and self-employed people is now $504.10 gross per week, while the minimum payment is $142.50.

To learn about parental leave in more detail or to find out more information visit the Department of Labour website.