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23 Jun 2016
Our taxation system has derived, by and large, from the English system, and in the Middle Ages in England, the tax man literally did cometh. He came knocking on your door to count the heads in the household, crops or sheep in the field or whatever tax collection was based on at the time, and would extricate the required contribution. For quite a few years now the tax man hasn’t often come calling, as we now have a self assessment system. However, at a tax update that I attended recently, it was reported that accountants across New Zealand are seeing an increase in reviews, audits, and visits from the tax man. We believe that our IRD has found that for every $1 spent on tax investigator salaries, they can collect on average $70 in underpaid taxes. So that’s making tax investigations pretty good business for IRD.
Areas that investigations have been looking at, have included:
Undeclared cash income is of course an old favourite, and now IRD are becoming more sophisticated in this game. They are developing industry specific ratios, so that they believe that they know what gross profit a corner dairy, or a plumber, for example, should be showing in their tax return. No doubt they will also be developing software which throws out exception reports of all the taxpayers in a chosen industry who’s results don’t fit the norm determined by the IRD analysts. As mentioned in one of our previous articles, IRD are investing over a billion dollars in a new IT system. Whether you have something to hide or not, be afraid.
Fringe benefit tax on work vehicles. The work vehicle FBT monster has been asleep for years, and it’s so troublesome and difficult to manage, that we wish it’d stay asleep. Indeed, death would be a better option, but alas, we have heard reports of reviews and silly questions, so it might be a good time to check with your accountant to get your FBT compliance up to scratch, just in case. And don’t forget that FBT can sometimes be managed to produce quite good outcomes.
The Panama Papers were expected by many to reveal widespread involvement by NZ lawyers and accountants with South American car and drug dealers. We believe that it has turned out to be nowhere near as exciting as that, with an IRD search finding less than 200 Mossack Fonseca offshore trusts with a link to New Zealand.
The 2016 Omnibus Tax Bill is expected to become effective from April 2017. Tax is usually bad news, but this Bill actually has some good news, and a couple of the more straightforward items follow:
Remuneration for shareholder employees: For several years we have been plagued by a silly rule around the means of calculating remuneration for shareholder employees of companies. Basically, if a shareholder has been on a PAYE taxed salary throughout the year, we haven’t been able to allocate any more income to them at year end. This is changing, so that we will be able to determine how much of a company profit to allocate to shareholders, once we know how much the profit is. It makes sense and is a good change.
RWT on dividends: Currently, a closely held company that pays a dividend to a shareholder which is also a company, must pay witholding tax of 5% on top of the company tax paid (imputation credits). When the receiving company declares the dividend income, it’s common to have to claim the extra 5% back. Another good change and helpful for business cashflow.
If you have any concerns or queries, contact your tax advisor.
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