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releases draft
guidance on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 3Employee 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 4Other 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 5Inland 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 6Contributors
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
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Email us
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