If any one word sums up 2016, it would be change. Change in politics, change in technology and unprecedented change in the tax world as well.
Inland Revenue is in the midst of a technology transformation project, aimed at modernising tax administration and making it easier for us to meet our obligations. Eventually, we should be able to transmit information from our businesses' computer systems to the tax department electronically and in real time.
While this might seem terrifying, it will significantly reduce costs.
To ensure you start 2017 on the right foot, here are my top tax tips:
1. Get up to speed with Inland Revenue's recent changes to the PAYE system.
IRD has simplified and widened PAYE so it can accommodate more types of payments. For example, from April 1, employers can use the PAYE system to withhold tax on income an employee receives under an employee share purchase arrangement.
Contractors can choose a contractor withholding tax rate that suits its individual circumstances (with the minimum being 10 per cent).
If you are not aware of these changes, get some advice or consult Inland Revenue's website for more information.
2. Understand the well-publicised difficulties with holiday pay calculations which, of course, have flow-on tax implications.
These payments are calculated under the Holidays Act 2003, which is notoriously difficult to follow. This has resulted in some overpayments and many underpayments for employees. Employers should look for latent problems lurking around and employees may consider asking their employers whether their payments are correctly calculated.
Even if you use a third-party payroll provider, there can still be holiday pay problems because the payroll systems are only as good as the information within them.
Many businesses have a lag time between changes in working arrangements for their employees, and those changes registering with payroll (if they get updated at all). This can arise with irregular working arrangements such as shiftwork or flexible working arrangements.
Tackle the problem sooner rather than later as the cost can add up and once you know there is an issue, you can work through any tax tidy-ups. I've found Inland Revenue to be quite helpful with dealing with the tax fallout from this problem.
4. Update yourself on law changes around GST. From February, GST- registered individuals and businesses will get refunds within two days via direct crediting of bank accounts. No more waiting for a cheque to arrive in the post, which normally takes 10 days.
5. Note a change to the commissioner's policy on amending incorrect assessments in the taxpayer's favour. It is now easier to get your overpaid tax back.
In the bad old days, if you made a call to pay tax and then later changed your mind, the commissioner deemed that to be a "regretted choice" and would usually not refund your tax.
"Regretted choice" will no longer apply. Inland Revenue will, in most cases, exercise its discretion to refund your tax if it agrees your changed position is correct. To maximise your chances of success, be sure to include all relevant details in an easy-to-read format when you apply to the commissioner.
Look out for an increase in Inland Revenue risk reviews. These are different from audits.
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Look out for an increase in Inland Revenue risk reviews. These are different from audits. While you must still provide information, if you realise during a risk review that an error has been made, you can make a voluntary disclosure, meaning you have more protection from shortfall penalties than may otherwise apply to increases in your tax bill.
This gives you the chance to review your tax affairs and come clean if there is a mistake. It also saves Inland Revenue from using its resources to find your mistakes.
7. Businesses with patchy and/or seasonal cash flows should consider using tax pooling to reduce the risk of inadvertent short payment of provisional tax. Some providers offer special financing options. These can save use-of-money interest from increasing your bill if you accidentally fall short.
8. If you owe money on your student loan, make arrangements to continue payments if you are headed across the ditch.
A new information-sharing agreement has tracked down more than 50,000 defaulters, meaning the chances of sneaking off to Australia and ignoring your debt are slimmer than ever.
9. Good records are essential.
If you are running a paperless office and want to hold your records offshore, you need Inland Revenue's permission. It is not difficult to get but your records must be readily accessible if the department wants to do an audit or risk review.
Changes are afoot and many will contribute positively to reducing compliance costs for businesses in New Zealand. But you must stay abreast of these changes and understand exactly what they mean for your business.