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TaxTalk Newsletter Apr / May 15
Do you provide accommodation & meals to employees?
- New rules, effective from 1 April 2015, clarify the tax treatment of accommodation and meals you provide to employees. The rules also cover allowances paid to reimburse employees for accommodation and meal expenses. Some employers can backdate the new rules to January 2011 for accommodation and 1 April 2011 for meals, if they meet certain conditions.
Key changes
Accommodation and accommodation payments are tax-exempt for employees:
On out-of-town secondments for up to two years
On capital projects for up to three years
Who work at multiple workplaces on an ongoing basis
Who attend meetings, training courses or conferences as part of their job.
Some employees have longer tax-exempt time periods. Specific rules apply to:
People working on Canterbury earthquake recovery projects
New Zealand Defence Force personnel
Ministers of religion
People working overseas
Meals and meal allowances are tax exempt for employees:
On work-related travel for up to three months
Who attend meetings, training courses or conferences as part of their job.
What you need to do
Employers must ensure they tax their employees’ accommodation or meals correctly. Receiving accommodation or meals can affect their employees’ Working for Families Tax Credits entitlements, child support payments and student loan obligations. Please tell any of your employees who may be affected.
Find out more
The IRD will have an online decision tool available on their website from 1 April 2015 to help you work out whether the accommodation or meals you provide are taxable.
In the meantime, go to www.ird.govt.nz (search keywords: employee allowances).
You can email the IRD at accommodations@ird.govt.nz if you have any questions about backdating, requesting amendments or voluntary disclosures or relating to specific cases.
Online instalment arrangements save time and money
With 7 April just around the corner and the New Year just behind us, you may be concerned about meeting your tax payments. If a payment can't be made in full on or before the due date and you have exhausted other options to find the money, paying by instalment might be the best solution.
The Inland Revenue Department’s online instalment proposal service lets you make a repayment proposal in the comfort of your own home or office, whenever it suits. All you need is your IRD number and financial information, like the tax amount, the date it's due, your income details and why you can't pay the amount in full.
You then simply offer to repay the amount either by:
a lump sum at a later date, or
Recurring payments until the debt is cleared, or
A combination of lump sum and recurring payments.
The repayment offer needs to be reasonable or the IRD won't accept it. It also needs to be affordable for you. The IRD don't want you to not be able to clear the debt because you've put too much financial pressure on yourself.
Setting up an instalment arrangement online before a tax debt is due will save you time and may save some penalties being added.
Take care when setting remuneration
Rules exist to stop people paying too much salary or profit share to a family member, as a way of paying less tax.
Make sure any income you want to allocate to a relative, working in your business, can be justified.
If you get caught paying amounts you can't justify, the IRD can reallocate the income. In most cases the consequence will probably be a Use of Money Interest charge going back three or four years and potentially penalties.
For small companies, the company income is increased by the amount deemed excessive and the shareholder is deemed to have received a dividend, with no Imputation credits attached.
A defence against excess remuneration in a partnership or Look Through Company is to have an agreement, which must comply with these rules:
Be in writing and signed by all partners.
Binding for at least three years.
All partners or owners must be over the age of 20 when the contract was signed.
For partnerships, each partner must have control over their share of profits and be liable for their share of losses.
Working for families
Tougher new rules to determine family income started from 1 April 2014.
The objective is to include in family income anything received regularly which is used to meet regular living expenses. For example, if you take a lower salary and get a car in lieu, the salary reduction has to be included in family income. Similarly, the legislation is designed to stop people sheltering their income in a company or family trust.
The list of adjustments is long and the rules are complicated. If you have a claim for Working for Families, the IRD will need more information from you. If you download form IR215 from the Inland Revenue website, you’ll get a good idea of what they need to know. You’ll also find a calculator on the IRD website.
First home buyers
From 1 April 2015 you'll be able to draw all your money out of your KiwiSaver account, except the Government’s kick-start payment. That includes the annual government subsidy and employer’s contributions. On top of this, you may take a holiday from making KiwiSaver contributions if you wish. Be aware there will be no employer subsidy or government contributions while your payments are stopped.
Companies Amendment Act 2014
From 1 July 2015 annual returns filed for New Zealand companies will have to meet new compliance obligations set out in the Companies Amendment Act 2014.
This means that you will have to provide some additional information consisting of:
The date & place of birth of every director (these will not be publicly available)
Details of the Ultimate Holding Company, if applicable
By 28 October 2015 all New Zealand Companies must have at least one director who:
Lives in New Zealand; or
Lives in Australia & is a director of a company incorporated in Australia.
Get in first with terms to avoid embarrassment
Recently, a health professional was invited to deliver a speech. He assumed, as it was part of his professional activity, he would be paid.
When he finished, the organiser rose to thank the speaker and gave him a small gift in appreciation for his time. The speaker was furious.
What did he do wrong? He should have set out his terms in writing and asked the organisation to confirm this was acceptable before he spoke.
When a customer doesn’t want to pay for your services after the event, it's you who's in trouble unless you have a signed agreement on terms. Always get your terms of trading to the customer, including the basis on which you're going to be paid, before you tackle the assignment. A signed agreement reduces the risk of a misunderstanding later.
Understanding grace periods
Grace periods apply to all tax types registered under any IRD number or entity, except child support, student loan repayments, donation tax credits and any late paid provisional tax instalments. They are calculated per customer not tax type and cover all eligible taxes due on the same day.
Grace periods are considered when remission requests are made but use-of-money interest (UOMI) remains payable.
If you deal with entities that have several divisions or branches, i.e., multiple IRD numbers, the entity is eligible for only one grace period across the whole entity.
Important: This is not advice. Clients should not act solely on the basis of the material contained in the Tax Talk Newsletter. Items herein are general comments only and do not constitute nor convey advice per se. Changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Tax Talk Newsletter is issued as a helpful guide to our clients and for their private information. Therefore it should be regarded as confidential and should not be made available to any person without our prior approval.