McLEAN AND CO.
Late Penalties Add Up
Tax Treatment when Cashing Up Annual Holidays
Employing Students or Casual Staff over the Holidays
IRD COMPLIANCE FOCUS 2012-2013
IRD released their compliance focus for 2012-2013 in August 2012, and which sets out their compliance priorities and risk areas for the 12 months thereafter. A consistent theme is that IRD uses increasingly sophisticated information and intelligence capabilities to identify and target what they perceive as unacceptable tax behaviour. IRD can, and does, access data from a wide range of New Zealand and international agencies and matches it against the information they hold to assist their enquiries
RISK AREAS IDENTIFIED
IRD details the high risk areas as being aggressive tax planning, fraud and identity theft, and under-reporting or operating outside the tax system. Some of the specific areas identified are as follows:
Diverting Personal Income- Specifically mentioned is the use of Trusts or Companies in divert personal income, in order to avoid paying the full amount of tax, or to claim Working for Families Tax Credits, or reduce Child Support obligations
Loss Generation- Investigative actity has been signalled for Trusts in a perpectual loss position and the creation and uses of Trusts, plus shareholder continuity for companies where losses are carried forward
Misuse of Charities- IRD report that some taxpayers are using Charities (many of which are not liable for income tax) as tax saving devices.
Offshore and International Issues- IRD reports the continuing use of offshore schemes and Bank Accounts to evade tax. IRD advises that they get a lot more information and detail from overseas than ever before and are intent on removing opportunities to exploit the use of investments or transactions in tax havens.
Fraud and Identity Theft- IRD are targeting taxpayers who fraudently claim refunds for GST, Income Tax, Working for Families Tax Credits, or credits for donations.
The Hidden Economy- This encompasses cash jobs to avoid the GST content, skimming takings from the till, not declaring offshore income and not declaring income from property trading. In April 2012 IRD published benchmark data for 16 industries. They will be reviewing those that are performing outside industry standards. IRD identifies individuals and businesses who conduct business through online trading and not declaring income, as a particular target. They are looking at individuals providing short term rentals and accommodation for big events. They have identified the hospitality sector and scrap metal merchants as an area where compliance may be lacking.
Income from Property- IRD continue to concentrate on property development and aspects of property ownership/ selling where taxable income is derived.
Getting it Right at the Source- IRD identifies the following areas where taxpayers continue to make errors:
LATE PENALTIES ADD UP
Paying taxes late is not a good way to save money. Payments must reach IRD by the due date otherwise they'll incur late payment penalties. If you're paying from overseas please do keep in mind time differences and mail delays.
Use-of-money interest (UOMI) will also apply to amounts over $100. UOMI is calculated daily at 8.40% per annum.
The following examples show how costly it can be if late payment penalties (LPP) accrue.
GST for October 2012, due 28 November = $25,604.50
29 November 1% LPP = $256.04
6 December 4% LPP for non-payment after 7 calendar days = $1,034.42
Total late payment on 15 December = $26,998.51 incl. $103.55 UOMI
Extra cost for late payment = $1,394.01
FBT for September 2012 quarter due 20 October = $42,851.35
21 October 1% LPP = $428.51
28 October 4% LPP = $1,731.19
21 November 1% incremental LPP = $450.11
Total late payment on 30 November = $45,884.11 incl. $422.95 UOMI
Extra cost for late payment = $3,032.76
NRWT for November 2012 = $1,805,333.92
Due on 20 December but not paid until 31 January 2013
21 December 1% LPP = $18,053.33
28 December 4% LPP = $72,935.49
21 January 2013 1% incremental LPP = $18,963.22
Total late payment on 31 January = $1,933,546.09 incl. $18,260.13 UOMI
Extra cost for late payment = $128,212.17
(The fact the office was closed for Christmas in between the due date and the payment date does not change the calculation.)
PAYE for the period 16-31 December 2012 due on 15 January 2013 = $500,000.00
16 January 1% LPP = $5,000.00
Total late payment on 22 January = $505,813.54 incl. $813.54 UOMI
No 4% LPP was charged as payment was made on the seventh calendar day before midnight. If that payment had been posted on the 22nd, 4% would have been charged as it wouldn't have been received by the seventh calendar day.
Extra cost for late payment = $5,813.54
The Holidays Act 2003 allows employees to "cash in" up to one week of their annual leave entitlement.
If an employee and employer agree to cash up a week's annual leave it should be treated as an extra pay or unexpected bonus. As this is taxable income, PAYE should be calculated using the rates for extra pays. The employee may need to check the correct amount of PAYE has been withheld over the tax year.
An employee's child support liabilities and Working for Families Tax Credits entitlement may also need to be adjusted if their family income has changed.
EMPLOYING STUDENTS OR CASUAL STAFF OVER THE HOLIDAY PERIOD
With the Christmas break approaching it is timely to be aware of your obligations if you employ students or casual staff over this period.
As part of the Government's Budget this year, the tax credit for children has been repealed, which may change how you tax students. The new legislation affects the current tax year (1 April 2012 to 31 March 2013) so some transitional rules apply.
Children who earn less than $2,340 for a tax year and have no tax deducted from their wages can continue to have no tax deducted until 31 March 2013. From 1 April 2013 they'll need to complete a Tax code declaration (IR330) and give it to their employer so tax can be deducted from their wages.
If your employees file a return or request a personal tax summary they may be assessed as having tax to pay, as the tax credit already received will no longer be taken into account. If they think they need to file a return they can complete an IR330 now to change their tax code, so their employer can start deducting tax at the correct rate. This will help avoid or reduce any tax bill at the end of the year.
All other staff, including any university, polytechnic or other tertiary students, must complete an IR330 and give it to you so you can deduct the correct PAYE or tax on schedular payments from their pay.
If you employ anyone on a temporary contract for less than 28 days you don't have to enrol them for KiwiSaver. If they're already KiwiSaver members and they want you to make KiwiSaver deductions they must give you a KiwiSaver deduction notice (KS2).
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