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Welcome to the latest newsletter from Stewart & Co Limited
           

In this newsletter:

 

 
Christmas Gifts            

The rules regarding Christmas gifts differ depending on whether or not your gift is for an employee or for a business contact or customer.

With regards to gifts to customers these will be 100% deductible.  The Inland Revenue Department have recently confirmed that gifts to clients of food and/or alcohol are not subject to the entertainment regime.  Previously, the general understanding was that gifts of food or alcohol to clients were only 50% deductible. 

Gifts for an employee that the employee can enjoy at a time of their choosing are 100% deductible.  However, they do come under the fringe benefit rules (in the un-classified benefits section).

It is likely however that you may come under the FBT exemption limits and not need to include these in your FBT return.  The current limits are $300 per employee per quarter (to a maximum of $1,200 per year) or $22,500 per year for all employees.  The relevant cost is their GST inclusive value of the gift.

If you are unsure as to the tax treatment of any of your Christmas gifts then please do not hesitate to contact us.  Also remember that in general, Christmas functions come under the entertainment rules and are only 50% deductible for tax purposes.
                       

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Taxation – who pays?
 
Some recent Inland Revenue Department statistics show the following:

  • For household incomes of $50,000 or less, no net taxation is paid. This group pays $1.7 billion in tax and receives $7.7 billion in welfare (excluding National Superannuation).
  • 44% of households are net tax recipients. 17% of tax payers (those with a household income of$120,000 or greater), pay 97% of net taxation.

 

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New Copyright Law

New copyright legislation that came into force some months ago (September 2011) places employers in a vulnerable situation. The Internet Service Providers in New Zealand have acknowledged a requirement to serve notice on account holders who are responsible for infringements.

The effect and danger is where an employee downloads material and infringes copyright law using the employer’s computer. The employer may not be aware of the misuse of the internet but could become liable regardless. The legal fees, fines and awards could be considerable. The Internet Service Provider can close the employer's account.

Apart from the infringement of copyright, an employee who cares to access sites that leave the employer’s broadband open can cause a massive invoice for the employer through exceeding their current broadband plan. Then there’s the exposure to viruses, worms and a multitude of seriously undesirable infections.

Employers need to be able to prove to the Copyright Tribunal they have taken every reasonable step to prevent an employee from infringing copyright and a punitive fine would be ‘manifestly unjust’. This is a defence.

What to do

1. Ensure your employment agreements refer to ‘file sharing’ and consequences for employees who
    infringe copyright law (the employee needs to be made liable).

2. Develop a strict password and access procedure.

3. Put in place the technology allowing you to identify individual users.

4. Ensure all employees know and understand their use of business computers is monitored and they will be personally liable to any costs caused by their misuse of the internet.

5. Identify and quantify what costs could be a possibility in the event of an employee’s misuse of the
    internet – this is to ensure employees know what misuse can cost the business and the amount of
    money you will be looking to recover from the employee as well.

6. Employees must know that disciplinary action will follow any breach of the internet policy and such
    actions could justify dismissal as well as having to pay the costs involved.

7. Put in place restrictions and block the inappropriate websites.

If employers are uncertain of the protection offered by their existing employment agreements or have in place very old agreements that will not offer any protection, then a policy statement should be originated, promulgated and signed off by each employee. If you require a copy of a simple policy, please contact us.


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Declaring Off-shore Income

The Inland Revenue's Compliant Focus document released last year stated that Inland Revenue will increase its focus on New Zealand tax residents who haven't declared income received from offshore sources. As part of this focus, the Inland Revenue Department has recently obtained information from 16 treaty partners under exchange of information agreements identifying New Zealand residents who have earned overseas income but may not have declared that income in New Zealand tax returns.  

At a recent Inland Revenue Department seminar, the local District Commissioner outlined how the Inland Revenue Department are now able to monitor transactions from within New Zealand to foreign bank and credit card accounts. They look for transactions which are atypical of a tourist, and when they see an account being used for purposes more like a resident, they investigate.

We think that in most cases not declaring income is likely caused by a lack of understanding about the international tax rules that apply. Nonetheless, taxpayers with international investments need to be aware that the Inland Revenue Department is now actually obtaining information about taxpayers' offshore income and assets through exchange of information agreements with treaty partners and expects to be provided with accurate information in tax returns.

An article from Deloittes  

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Working for Families Tax Credits and Trust Income             

From the 2011 year onwards, there have been significant changes come into effect with regards to what is family income for determining Working For Families tax credits.  In particular, income generated in Trusts may now be considered in the calculation as follows:                     

  • Trust income is attributed to a person who is a settlor of the Trust. The total Trust income is divided by the number of settlors. A settlor is broadly defined as anyone who has provided value to the Trust for less than market value.
  • Trust income is attributed to a person who is a settlor of the Trust. The total Trust income is divided by the number of settlors. A settlor is broadly defined as anyone who has provided value to the Trust for less than market value.
  • If the Trust owns a Company then the Trusts portion of the income in the Company will also be attributed less the amount of any dividends) – note that the company has to be 50% owned by the Trust and associated persons.
  • Fringe Benefits received by an employee from a company which they and their associates control will also be added as income. For example, the Fringe Benefit Tax (FBT) paid on the taxable value of a motor vehicle available for private use.
  • Passive income of children over $500 is added to Family income.
  • Unlocked PIE income (i.e. funds that can be accessed but excluding Kiwisaver), is also added.
  • Income of non-resident spouses is included.
  • Exempt income is included.

Perhaps the most significant of these changes is the inclusion of Trust income in the calculation of family scheme income.  Although however in some cases, the FBT on a vehicle (which incidentally is the value of the benefit plus the FBT tax amount) may also be significant.

If you have been receiving regular Working for Families tax credit payments and are concerned that given the new rules you may have been receiving more than you are entitled to, then please contact us and we can look into this for you.           

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GST Update

As a result of a GST investigation for a client, we noted shortfalls in the documentation to support GST claims.

Remember that for supplies between $50 and $1,000 (including GST) a simplified tax invoice is acceptable. It must show the words ‘Tax Invoice’, have the name and GST number of the supplier, the date of the tax invoice, a description of the goods or services supplied and the total amount payable for the supply stating that GST is included.

  • The booking receipt that is issued from some websites for accommodation (e.g., Wotif.com) is not  an acceptable GST invoice. In these cases, you will need to ask the accommodation provider to   supply a GST invoice.
  • For supplies of more than $1,000, additional information is required - the name and address of the recipient of the supply and the quantity or volume of the goods/services supplied. The amount also  needs to either have the GST charged separately with the total amount for the supply shown or a  statement that the GST is included in the final price.
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