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30 Mar 2017
As 1 April is the beginning of most taxpayers’ financial year, it is often the effective date for IRD tax changes. This year is no exception.
There have been no changes in annual income tax rates, but the IRD’s focus has been on trying to close loopholes, fix irregularities and encourage improved taxpayer voluntary compliance. Some good news, some not quite so favourable.
Contractors subject to the schedular payment rules can now select their own rate of withholding tax, with a minimum of 10% (or 15% for non residents). A contractor wishing to use a rate less than the minimum, will have to apply for a special tax rate certificate. If a contractor has not selected a rate, the old default rates apply. Where no contractor IRD number is provided, the rate defaults to 48% (or 20% for a company.) Contractors wishing to elect a new tax rate need to complete a new form IR330C available on he IRD website.
The schedular payment rules have been extended to contractors (including companies) that work for labour hire firms, regardless of the type of work performed.
Contractors not subject to the schedular payment rules can now opt into them if the payer consents.
These changes enable a contractor to pay the appropriate amount of tax on their earnings during the year, avoiding the need to find large lump sum tax payments. Your accountant will be able to assist with selecting an appropriate rate.
Provisional Tax safe harbour rules have changed to increase the residual income tax threshold for application of use of money interest (UOMI) from $50,000 to $60,000 and to also apply the safe harbour rules to non-individuals. UOMI will not be charged on the first two instalments where the correct safe harbour amount is paid, but UOMI will apply to the third instalment.
The 1% incremental late payment penalty is to be removed from income tax, GST and working for families overpayments. The 1% on the day after due date and 4% a week later will still remain and UOMI will still apply.
Currently a genuine minor error in a return of up to $500 can be self-corrected when it is discovered. This threshold has been increased to $1000 and applies to income tax, FBT and GST.
The IRD will be able to disclose tax debt information for serious cases of non-compliance to credit reporting agencies. They can also disclose information to the Companies Office. Legislation was passed some time ago to allow the interchange of information with other tax agencies world wide regarding foreign investments and financial assets.
There are also new rules regarding motor vehicle rates, based on total annual mileage, not just business mileage for self employed taxpayers. Some close companies will be able to use these rates as alternative to the FBT calculation. Calculations for use of home and free rental to employees have also been amended and tightened. These changes will be detailed in a separate article.
For those entering the Look Through Company (LTC) regime, the first year taxable income calculation has been altered.
Remember minimum wage from 1st April increases by 50 cents to $15.75 per hour.
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