McLEAN AND CO. Chartered Accountants

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 P.O. Box 10 , Clive         133 Main Rd, Clive           Tel. (06) 8700952          Fax. (06) 8700955 

Email murray@mcleanandco.co.nz                                  Website www.mcleanandco.co.nz

 
 
EMAIL NEWSLETTER  JUNE 2010
 
 

Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. We trust you find it informative.  

 

NEW CLIENTS

We are happy to accept new clients.  We would be happy to assist colleagues and acquaintances as new clients.

 

INDEX

  1. Key Changes in the 2010 Budget

  2. The Size of the Hidden Economy

  3. Do Payments to Volunteers need to be taxed?

 

KEY CHANGES IN THE 2010 BUDGET

 

Key changes in the recently announced Budget were:
  • Cuts to personal tax cuts at every threshold level, effective from 1 October 2010, as illustrated in the following table:.
Income Current rate New rate
$0 - $14,000 12.5% 10.5%
$14,001 - $48,000 21.0% 17.5%
$48,001 - $70,000 33.0% 30.0%
Over $70,000 38.0% 33.0%
  • A rise in the rate of GST from 12.5% to 15%, with a 2.002% compensating increase for beneficiaries, pensioners and recipients of Working for Families tax credits to offset the rise on October 1
  • The company tax rate has been decreased from 30% to 28% from the 2011-2012 income year
  • An end to depreciation allowances on buildings deemed to have more than a 50 year life, to net around $1 billion a year in additional tax, from the 2011-2012 income year.
  • Immediate abolition of the 20% automatic depreciation loading available for newly purchased assets
  • A change to the tax treatment of loss attributing qualifying companies to become "flow through entities", similar to limited partnerships, expected to raise around $65 million a year.
  • A cut in the rate for portfolio investment entities (PIEs) to 28%, to align with the new company tax rate, kicking in from October 1 for PIEs taxed at investors' marginal tax rates, and 2011/12 for other savings vehicles.
  • GST base-broadening to prevent so-called "phoenix" scheme frauds, where GST is reclaimed by an entity which liquidates before paying  GST owed
  • An end to the redundancy tax credit from October 1.
  • The appropriatriation of  $120 million over four years to give Inland Revenue extra resources to focus on audit and compliance activity in relation to property transactions, debt collection and the hidden economy.

 

THE SIZE OF THE HIDDEN ECONOMY

The size of New Zealandís hidden economy, an area where IRD are looking at putting particular emphasis on in their future audit activity as indicated above,  has been estimated by David Giles, in his paper entitled Modelling the Hidden Economy and Tax-Gap in New Zealand, to be in the order of 6.8% to 11.3% of our GDP. In turn this is estimated to cost in the order of 6.4% to 10.2% of New Zealandersí total tax liability. 

 

 

DO PAYMENTS TO VOLUNTEERS NEED TO BE TAXED?

If your organisation has volunteers you reimburse, pay to attend meetings or make any other kind of payments to, you may need to deduct tax from these payments. .

A volunteer is someone who freely undertakes an activity in New Zealand, chosen either by them or a group they belong to that benefits others without financially benefiting them.

The types of payments volunteers may receive are reimbursements for expenses and honoraria for services.

Reimbursements

Reimbursements are payments made for actual expenses incurred during volunteer activities and are tax free. Reimbursement payments may be based on actual expenditure or a reasonable estimate of an expense likely to be incurred by a volunteer.  It is important to keep the receipts or a record of the expenses because the organisation may be able to claim these as an expense.

Honoraria

Honoraria are payments given in return for a service and:

  • are less than the market rate if you paid someone to do that job, and
  • no fixed payment is expected for doing the job.

Deducting tax if you make payments to volunteers

If the payment is made to an employee as part of their normal employment duties you'll need to deduct tax. You can use our PAYE tables to help you calculate the correct amount. The IR340 and IR341 PAYE tables can be found under "Work it out" on  www.ird.govt.nz

Before you make a payment to a volunteer they'll need to complete a Tax code declaration (IR330) and you'll need to deduct tax at 33%. Show the details on your Employer monthly schedule (IR348) and send your payments with the Employer deductions (IR345) form the same as you would for any other employee.

If you're not an employer you'll need to either:

  • register as an employer - go to "Get it done online" on www.ird.govt.nz   ,  or
  • complete an Employer registration (IR334) form and post it to IRD.

Sometimes a person receives both honoraria and reimbursement payments. When the payment is a combination, and the honoraria and reimbursement portions are clearly identified and recorded, the honoraria will be taxable and the reimbursement will be tax free. However, if there's no distinction between the honoraria and the reimbursement then the entire payment is treated as an honorarium and needs to have tax deducted.

Example

Miriama is a voluntary regional coordinator for a national sports organisation, SportCo. Some travel to local centres as well as attendance at tournaments is involved. Miriama uses her own car.

SportCo pays Miriama an honorarium of $50 per month for six months of the year. This will be subject to tax at 33% ($16.50 per month).

SportCo estimates that Miriama travels an average of 250 kilometres per month in the course of her voluntary activities, including her travel to and from her home.

SportCo decides to reimburse Miriama's travel expenses by paying her a travel allowance of 70 cents per kilometre. As this is considered a reasonable estimate of the cost Miriama will incur it's classed as a reimbursement and is not taxable.

The honorarium and travel allowance are paid together. Miriama receives a total payment of $225 (250 km at 70c = $175, plus $50) for each month of the six months.

The amount of $50 is shown on the employer monthly schedule as a schedular payment and the $16.50 is paid to Inland Revenue with any other PAYE deductions for the month with the employer deduction form.

 

 

McLEAN AND CO KNOWLEDGE CENTRE AND ARTICLES ABOUT TAXATION AND BUSINESS IN GENERAL PRESS HERE FOR BUSINESS STARTUP KNOWLEDGE CENTRE PRESS HERE
FOR INFORMATION ABOUT COMPANY INCORPORATION PRESS HERE FOR PREVIOUS MONTH EMAIL NEWSLETTERS PRESS HERE

FOR PROPERTY INVESTMENT AND TAX INFORMATION PRESS HERE

FOR FRANCHISE INVESTMENT AND TAX INFORMATION PRESS HERE


The information provided in this email newsletter is for informational purposes only.   McLean and Co. accept no responsibility for the opinions and information expressed in the information provided and it is provided "as is" without warranty of any kind.    The user assumes the entire risk as to the accuracy and use of this document.   Readers are asked to seek professional advice pertaining to their own circumstances.    The McLean and Co. email newsletter may be copied and distributed subject to the following conditions:
  • All text must be copied without modification and all pages must be included.
  • This document must not be distributed for profit.    

 

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