TAX TIPS SEPTEMBER 2018 - IN THIS ISSUE: PWC
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pwc.co.nz Tax Tips September 2018 In this issue: Inland Revenue’s business transformation – what does it mean for you? Inland Revenue releases draft guidance on the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018
Inland Revenue’s business transformation – what does it mean for you? Inland Revenue’s business transformation is broader than a technology upgrade. Rather, it involves a complete rethink as to how New Zealand’s tax administration system can be modernised and simplified for businesses, individuals, and social policy recipients. The Government has consulted on a wide range of tax administration changes since 2015, and in February 2017 we saw the first tranche of changes being released, including moving GST into MyIR Secure Online Services so returns and payments can be made at the same time. The second tranche of changes in April this year focused on business income taxes and included the introduction of the accounting income method (AIM) for paying provisional tax. In addition to the ‘system’ changes, the Government has also made a number of more substantive legislative changes. The key focus of these changes is to modernise and simplify tax administration for taxpayers including enabling real-time provision of income information. In our view, some of these changes will have a significant impact on businesses. It is therefore important to start preparing for these. We discuss these changes in more detail below. Summary However, payment dates remain ‘Payday’ reporting unchanged. This means that employers Currently, employers file an Employer will continue to pay their PAYE as they From 1 April 2019, all employers will have monthly schedule (IR348) with Inland to move away from the current practice currently do. Further, in the short-term, Revenue monthly. Depending on the size employers will be required to file employer of filing the Employer monthly schedule of employer, they will also file an Employer (IR348) once a month and adopt ‘payday’ deduction forms until Inland Revenue’s deductions (IR345) form once or twice a system developments have been fully reporting, which effectively requires month, which accompanies their payment. employers to provide income information completed. of employees on a real-time basis. The new rules move away from monthly There are also changes to the information reporting to ‘payday’ reporting. The that employers will have to provide to It is critical that all employers consider intention is that the provision of the changes that are required and start Inland Revenue about new and departing information will simply become part of an employees. executing them now to ensure they are employer’s general payday process rather able to comply with the new rules, which than an additional task that is required to are compulsory from 1 April next year. be undertaken separately at a later date from processing the payroll. PwC Tax Tips September 2018 2
Detail What is a payday? Schedular payments The new rules divide employers into A payday is the day on which an employer Schedular payments include payments three groups with different requirements makes a PAYE income payment to an made to certain classes of contractors, applying for each. Therefore, it is employee. This is the day the employer company directors, and commission sales important for employers to determine instructs the bank to make the funds people. Many organisations often pay which group they belong to. available to employees. these individuals outside of the payroll system, and may pay them irregularly The online group For an employer in the online group, throughout the month. this would mean that they have to report The online group is the default group. employment information within two For an employer in the online group, the Most employers will fall into this group. working days of each time they make a options are to report: Payroll intermediaries are also included PAYE income payment to an employee. in the online group. • within two working days of the However, the rules do provide some schedular payment; or This group of employers must concessions to reduce the compliance electronically report employment costs for reporting special types of pay • twice monthly – this allows the information within two working days (special payments). employer to report payments made after each payday (except for special between the 1st and the 15th of the ‘Special payments’ are: payments). month as if they had been made on • out-of-cycle pays the 15th of the month. For the second The Commissioner can exempt some half of the month, the payments can be employers in this group from the • schedular payments reported as if they were made on the requirement to deliver their employment • payments to employees on shadow last day of the month. income information electronically. payrolls, and Shadow payrolls and employee share The non-electronic group • employee share benefits. benefits An employer will be included in the non- Out-of-cycle pays For both shadow payrolls and employee electronic group if: share benefits, employers are allowed a Out-of-cycle pays may occur, for example, • they withheld less than $50,000 of 20 day deferral period which means that where timesheets have been received PAYE and employer’s superannuation their reporting happens 20 actual days late or an employee’s employment is contribution tax (ESCT) in the after the taxing point (on the deferral terminated. previous tax year (or have an date). exemption from the online group); and For an employer in the online group, the An employer in the online group then has options are to report: • they submit their employment income the option of reporting: information on paper. • within two working days of the out-of- • within two working days of deferral cycle payment; or The new employer group date (e.g. up to 22 days after the taxing • with the next regular payment of point); or New employers have a six month salary and wages. transitional period in which they can • twice-monthly using the deferral date apply the non-electronic group rules. However, the option to report with the (in the same way as for schedular next regular payment of salary and wages payments). The non-electronic group (including the is only available where the out-of-cycle new employer subset) have the option to The rules for each of these special payment will be reported within the either: payments can be complex. We urge PAYE ‘payment period’. employers to consider how they will use • report employment information within and implement the concessions. ten working days after payday (except for special payments); or • treat the 15th and the last day of the month as their paydays, then report within ten working days of those dates. This group must file their information on paper, and if they choose to file online, they will move into the online group (and have to report within two working days of payday). To reiterate, anyone who files online will be in the online group, regardless of whether they are below the $50,000 threshold. PwC Tax Tips September 2018 3
Employee information Where to from here Further, at a minimum, by now you should have: Employers will be required to provide The onus is on employers to ensure that Inland Revenue with prescribed they will be ready for these changes. • identified a driver responsible for information on new and departing You should be considering the changes managing the change; and employees. This is to ensure that new and the impact they will have on your • been in contact with your payroll employees are set up correctly from the business. Below are some questions that vendor. beginning, and also to prevent Inland will help you assess your readiness for the Revenue from contacting employers payday reporting changes: As noted above, there are penalties for about former employees. non-compliance with the new rules. • Have you reviewed your current PAYE However, non-compliance could also Employers will be encouraged to provide reporting processes and considered result in additional Inland Revenue new employee information as early as how these will need to change? scrutiny over your payroll. possible, but are not required to provide • Is there someone responsible for it until the first time payday information We can help managing the change? is filed for each new employee. Similarly, information on departing employees is We have been assisting a number of • Have you been in contact with your required at the time of the last payment our clients to ensure they are ready for payroll provider on this? to the employee, but it can be supplied in payday reporting including an assessment • If you have purpose built software, of their readiness, development of new advance. have you started working on the processes and procedures and assisting Those employers in the online group will required updates? with technology build. Please get in touch provide this information electronically, with our payroll specialists, Phil Fisher • Do you know when the updated but paper forms will still be available for and Josie Goddard or your usual PwC payroll software will be ready? the non-electronic group to communicate advisers if you have any questions. this information. • Have you considered early adopting? How does this fit in with year-end, etc? Penalties Are you willing to leave this until it The penalty regime will remain largely becomes mandatory? the same, and the late filing and non- • Do you make any special payments, Phil Fisher electronic filing penalties will remain and have you considered how you will T: +64 4 462 7159 monthly. report these? E: phil.j.fisher@pwc.com As such, an employer will not be • Have you reviewed the employee on- penalised for filing late or non- boarding process and considered what electronically more than once in a the changes will mean for this? month. For example, an employer with weekly paydays who files late twice in any given month will pay the same late Josie Goddard filing penalty as an employer who has a T:+64 4 462 7160 monthly payday and files late. E: josie.r.goddard@pwc.com PwC Tax Tips September 2018 4
Other changes Proposed changes to Our comment In addition to employment income tax administration All of these changes result in Inland information, real time reporting is for individuals Revenue having more timely information also required from 1 April 2020 for that enables them to better interact with investment income. The Taxation (Annual Rates for 2018–19, taxpayers. However, in our experience, Modernising Tax Administration, and many organisations are not aware of the The changes relate to improving the Remedial Matters) Bill proposes changes impending changes and therefore minimal frequency and level of information to simplify the way individuals engage actions have been undertaken to date to in relation to distributions, including with the tax system. ensure they are ready to implement the electronic filing and improving the required changes come 1 April next year administration of RWT exempt status. The provision of income information on a (which is only 7 months away). These changes will impact payers of timely basis underpins the proposals that interest, dividends, royalties, PIE income, are contained in the Bill. We strongly urge all taxpayers to consider and taxable Māori distributions. the impact Inland Revenue’s business At a high level, the proposed changes, if transformation will have on their business In summary, the key changes are: enacted, should achieve the following: and plan adequately as implementing any • Payers of interest (including interest • help to ensure individuals are taxed changes at short notice can be extremely on domestically issued debt subject to most appropriately through the tax disruptive. the approved issuer levy), dividends, year by ensuring the correct amount of and taxable Māori authority tax is withheld on income received. distributions to provide investment • make year-end obligations as simple income information to Inland Revenue as possible including pre-populating by the 20th of the month following the accounts and assessing all individuals, month in which the income was paid. with varying levels of engagement • A multi-rate PIE that is not a required from the individual. superannuation fund or retirement We discussed the proposed changes in savings scheme will be required to our Tax Tips released last month. report investment income information to Inland Revenue yearly by 15 May after the end of the tax year. • A transitional measure: payers of income subject to RWT and NRWT (apart from royalties) are to report the required year-end information by 15 May, rather than 31 May, for the tax years ending 31 March 2019 and 31 March 2020. • An investment income payer paying more than $5,000 of interest will only need to withhold RWT and report monthly on payments of interest where the payments relating to a taxable activity exceed $5,000, notwithstanding if total interest payments made by the payer (i.e. including payments not made in the course of a taxable activity) exceed $5,000. PwC Tax Tips September 2018 5
Inland Revenue releases draft guidance on the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 Inland Revenue has released draft guidance on the recently enacted Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018, which introduced significant changes to New Zealand’s tax regime for cross-border relationships and transactions. The materials are divided into draft reports on (i) hybrid and branch mismatches, (ii) transfer pricing, (iii), permanent establishments, (iv) interest limitation rules, and (v) administrative guidance. In the August edition of Tax Tips, we shared the six things you need to know about the new rules, including unexpected outcomes we have observed. The majority of the new rules apply for income years beginning on or after 1 July 2018. PwC and other submitters emphasised Inland Revenue has invited feedback It is encouraging that some concerns the need for comprehensive guidance on the draft guidance. Taxpayers now related to applying the rules have now throughout the submission process given have the opportunity to assess whether been addressed. However, the rules the complexity of the new rules and its sufficient clarification has been provided themselves remain complex even with effects on various existing tax regimes. We or whether further explanation is still guidance. We encourage you to seek are pleased to see the release of over 150 required. The closing date for feedback advice from your usual PwC adviser pages of guidance. We are reviewing these is 28 September 2018. The final version to confirm how your business may be insights and examples in the light of the of the guidance will be issued early next affected. scenarios that we have been discussing year. with Inland Revenue and, in particular, where queries were raised to clarify when situations are intended to be captured. PwC Tax Tips September 2018 6
Contributors Phil Fisher Briar Williams Partner Partner T: +64 4 462 7159 T: +64 9 355 8531 E: phil.j.fisher@pwc.com E: briar.s.williams@pwc.com Peter Boyce Erin Venter Partner Partner T: +64 9 355 8547 T: +64 9 355 8862 E: peter.boyce@pwc.com E: erin.l.venter@pwc.com Helen Johnson Briar Paterson Director Director T: +64 9 355 8501 T: +64 9 355 8236 E: helen.n.johnson@pwc.com E: briar.k.paterson@pwc.com Sandy Lau Josie Goddard Director Senior Manager T: +64 4 462 7523 T:+64 4 462 7160 E: sandy.m.lau@pwc.com E: josie.r.goddard@pwc.com Laura Lee Senior Associate T: +64 9 355 8346 E: laura.e.lee@pwc.com Connect with us Follow us on Twitter @PwC_NZ Visit us online at pwc.co.nz Email us tax@nz.pwc.com © 2018 PwC Legal. All rights reserved. PwC refers to the PwC Legal member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
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