Don't Let the IRD Nail You

Rural Business Accountants • November 26, 2018

Published by The Small Business Institute Limited

Market rental value of employer – provided accommodation on school grounds

Inland Revenue has produced CS 18/01. It is a supplement to CS 16/02. It is to be used for determining market rental value of employee provided accommodation in boarding schools. CS 16/02 will apply to accommodation provided off the school grounds. However, where the accommodation is provided on the school grounds there could be restrictions which would generally not occur in a residential tenancy. On page 2 you will find a table setting out the accommodation type and the percentage reduction of the market rental value.
The paper goes on to provide explanations and examples.

Transferring Scheduled Payments for companies to shareholders

Inland Revenue has produced a statement in which it sets out the rules and method to be used. Click hereto see the statement. As a rough guide, you can transfer as much as you like to the shareholder employee provided you leave sufficient tax for the company’s liability, regardless of how this arose. Reduce the amount of tax credits in box 12A by the sum being transferred and send a note to Inland Revenue showing the allocation of tax credits to the company’s shareholder employees.

Donations

Inland Revenue has become concerned about how you define a donee organisation and produced IS 18/05 and a Fact sheet. A charity is required to apply its funds wholly or mainly to charitable, benevolent, philanthropic or cultural purposes. Some charities have applied just over 50% of their funds in this way. The Commissioner has, for administrative convenience, usually assented to this practice. Inland Revenue has now decided this practice is not entirely acceptable and has produced Interpretation Statement IS 18/05. There are going to be cases where a distribution of a little over 50% of funds is reasonable. There are also going to be many cases where it is not. Inland Revenue has now decided to create a safe harbour. If 75% of funds are distributed for charitable purposes, Inland Revenue is likely to accept this. Anything less may be disputed. The interpretation statement also goes into an explanation of what “Funds” means and what “Applied” means. Generally, this is not going to be of much concern to most of us, unless we have a client that is a charity. However, it could have unfortunate consequences for our clients as donors. Some of them are very generous. Before donating large sums to a charity, clients should be warned to make sure the charity is complying by clicking on this linkand downloading the complete donee list. If Inland Revenue were to deem the organisation not to be a charity, there would be no donation rebate.

Life Style Blocks and Bright Line Test

Inland Revenue has produced PUB00314for comment. It explains how to treat lifestyle blocks when considering the bright line test. The main home exclusion will apply when more than 50% of the area of the land has been used for the seller’s main home and the land has been used in that manner for more than 50% of the time the seller owned it. If it can be shown the lifestyle block is farmland, the sale will not be subject to the bright line test. Page 3 contains a flowchart to assist you.

Schedular payment rules applying to nonresident directors’ fees

PUB 00302is an exposure draft which sets out when fees paid to non-resident directors are to be subject to schedular payments. The steps to deciding whether schedular payments apply are:
 Identify who you contracted with
 Determine the source of directors’ fees
You will find some useful flowcharts in this document and a number of worked examples.

Zero Rating of Services Related to Land

Inland Revenue has produced PUB00299for comment. It results from a change to the GST Act effective from 1 April 2017. The paper sets out the Commissioner’s interpretation of when services related to land in New Zealand and supplied to a non-resident can be zero rated. There is a corresponding rule for services supplied in relation to land outside New Zealand.

Attribution Rule

The purpose of IS 18/03, which has just been finalised, is to provide guidance on the application of each of the threshold tests and exemptions to assist in determining whether the income attribution rule applies. On page 4 you will find a flowchart to help you to determine if the
attribution rule applies and a second flowchart on page 14 to help you determine what is a substantial business asset.
The statement walks you through each step starting with “Identify the parties”. The paper includes 18 worked examples. Even if the attribution rules do not apply, if the principal is providing personal services they need to be rewarded appropriately for those services in accordance with the principles established in Penny and Hooper

Options for relief from tax debt

Standard practice statement SPS 18/04describes how Inland Revenue will exercise its statutory discretion when it comes to writing off bad debts. Inland Revenue can be inconsistent with its application of the rules so you may find this useful reference material

Employee Housing

By Alli Burrough • July 3, 2024
It is always worth reviewing your employee accommodation allowances and preparing for the next contract negotiations.

Christmas Hours

By Rural Business Accountants • December 8, 2021
Office hours over the Holiday Season

IRD Update on Covid Support

By Rural Business Accountants • August 22, 2021
Please follow the link for IRD update regarding Covid support - https://www.ird.govt.nz/updates/news-folder/resurgence-support-payment

IRD To No Longer Accept Cheques

By Rural Business Accountants • February 23, 2020
As the end of another financial year is quickly approaching we want to remind everyone that Inland Revenue and Accident Compensation Corporation will no longer be accepting cheques. 1 March 2020 will be the last date you can pay be cheque. There are however other ways to pay: Inland Revenue - Options for payment: • Electronic via internet banking or direct debit in MyIR. Paying this way minimises delays and includes a formal notification of the date and time the payment was made to Inland Revenue. • Customers can make payment by debit/credit card over the phone, through the unauthenticated payment page on the Inland Revenue website, and through myIR. • Taxpayers can also set up direct debits in myIR. • Cash or eftpos are still payment options but only at Westpac branches. They’re not accepted at Inland Revenue offices. Accident Compensation Corporation – Options for payment: • Electronic payment via internet banking. • Direct debit payments and monthly instalments can be set up via MyACC for Business. • Payment by debit/credit card over the phone, through the unauthenticated payment page on the ACC website, and through MyACC for Business. • Cash or Eftpos are still payment options but only at Westpac branches. They’re not accepted at ACC offices. If you are struggling with payments or would like any advice going forward, please contact us and we will be happy to advise the best way forward for you.

Entertainment Expenses

By Rural Business Accountants • June 17, 2019
An entertainment expense where the benefits are enjoyed or received by employees may be subject to fringe benefit tax (FBT). There are 4 major types of business entertainment expenses: 100% deductible, not liable for FBT 50% deductible, not liable for FBT 100% deductible, liable for FBT 50% deductible, liable for FBT. These are summarised briefly below. Read our Entertainment expenses guide (IR268) to find out more about entertainment expenses. 100% deductible, not liable for FBT Entertainment expenses will be 100% deductible and not liable for FBT if they’re completely business related. This includes: meals an employee buys while travelling on business (unless it is with an existing or potential business contact, or the meal is a celebration, reception or similar event – in these situations it would only be 50% deductible) food and drink provided at a conference, education course or similar event that lasts at least 4 hours (unless the conference is mainly for entertainment – in which case it would only be 50% deductible) light meals provided in a dining room for senior managers and consumed as part of their duties (such as sandwiches provided during a board meeting) entertainment that promotes your business (as long as the public has the same access to this as your employees, business contacts or people associated with the business – if the public has less access it would only be 50% deductible) entertainment that is only a secondary part of either a function that is open to the public, or any trade display (for example, serving coffee at your business’s trade display) freebies promoting your business (such as branded stationery, but excluding any given to employees or people associated with you – these are only 50% deductible) entertainment provided to someone who’s going to review it for publication (such as giving a free meal to food critics) entertainment provided at a discount, if your business regularly provides entertainment at market prices (for example, offering half-price meals at your restaurant) entertainment enjoyed outside of New Zealand. 50% deductible, not liable for FBT Entertainment expenses will be 50% deductible and not liable for FBT if they are not completely business related. This includes entertainment that is away from work or out of usual working hours, so it has a 'significant private element'. The expense will be 50% deductible even if you think the private element was more or less than 50%. Examples of this include: entertainment at sports or cultural events (for example, a corporate box) business use of a holiday home hiring a boat, and providing food and drink to people on it food and drink you provide for social events (such as parties) or in an area set aside for senior employees (though there is an exception for 'light meals' consumed as part of the manager’s duties, which are 100% deductible) gifts of food and drink that benefit your business and are enjoyed privately by the person who receives them (for example, if you give a bottle of wine to each customer who buys a car off you) 'supporting expenses' for other entertainment that’s 50% deductible, such as hire of wine glasses and wait staff for a party 100% deductible, liable for FBT Entertainment expenses will be 100% deductible and liable for FBT if they are received by employees because of the work they do. Examples of this include rewards for good performance, such as a restaurant gift voucher or weekend away. 50% deductible, liable for FBT Entertainment expenses will be 50% deductible and liable for FBT if the benefit is not provided while the employee is working, or because of the work they do. This includes situations that would usually be 50% deductible and not liable for FBT (see above), except that in this situation the employee: can choose when and where they receive the benefit, or will receive the benefit outside of New Zealand. To download the Ir268 - Entertainment expenses form click here Please note that this information has been extracted from the IRD website.

ACC Coverplus Extra

By Rural Business Accountants • June 4, 2019
A brief look into ACC CoverPlus Extra

Monthly Newsletters

By Rural Business Accountants • May 20, 2019
2019 saw the beginning of Falloons' monthly Newsletter Accelerate. Each month clients will be emailed the newsletter which is full of key dates, interesting features and helpful tips. If you are a client and have not received a Newsletter but would like to please contact Emma at reception@falloons.co.nz We will also be posting links to the Newsletter on our website so look out.

IRD Scam Emails 

By Rural Business Accountants • March 11, 2019
Please be aware that scam IRD emails are circulating; we would hate for you to get caught out. If you are ever unsure of the email you have received you can forward us the email at reception@rbal.co.nz and we will let you know if it is real. Alternatively follow these steps: 1. Create new email 2. Insert the suspicious email as an attachment 3. Send the new email to IRD at phishing@ird.govt.nz Unfortunately a lot of scam emails are realistic and only minute details give them away. If you would like to visit the IRD website for more information on scams follow this link: https://www.ird.govt.nz/identity-security/scam/scam-alert.html

Minimum Wage to increase to $20 by 2021

By Emma Stock • January 14, 2019
This pay increase in April 2019 will be causing a bit of a stir among employees and employers alike. Employees and trainees will be celebrating the rise of minimum wage rise of $1.20 to $17.70 an hour, increasing full-time workers' weekly pay by $48 before tax. This leads to another raise taking it to $18.90 on 1 April 2020 and again to $20 on 1 April 2021, in line with the Labour/New Zealand First Coalition Agreement. Small businesses, however, may struggle to find the extra income and may need access to funding to ensure they could cover the cost increase, if they are not able to raise their prices. The higher minimum wage may also make it harder for some workers to enter the workforce due to stretched budgets. If you have any queries and would like some advice from one of our wage experts on how this might affect you as an employer or as an employee please don't hesitate to contact us either at wages@falloons.co.nz or on 03 308 9194.

Donations

By Rural Business Accountants • December 20, 2018
Some charities seek donations of livestock, indicating that in return they will provide a receipt for 'tax purposes'. However, donations of livestock create serious taxation difficulties for any farmer who tries to assist a charity this way.  - The charitable donations rebate only applies to gifts of money . Refer to the Income Tax Act 1994 here .  - It is not possible to claim a rebate for the donations of time or goods, only money.  - The donation of an animal is a taxable supply for GST purposes. the taxpayer must include the open market value (GST inclusive) of the donated animal in 'sales' in the relevant GST return and will therefore have to pay the GST output tax on that animal. Accordingly, the taxpayer must include the value of the donated animal in livestock sales for the year and account for income tax in the normal way. To conclude, donating livestock is a tax disaster. It would be better to sell the animal and account for income tax and GST in the normal, then consider giving a cash donation to the charitable
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