Making tax Simpler! by Dale Adamson
17 May 2016
Making tax simpler - Is it possible? The Government believes so and issued its first Green Paper in March 2015 seeking public feedback. It was the Government’s initial thoughts on ways to modernise and simplify the tax administration system. It was said that: “We want to cut the costs to taxpayers of complying with the tax system…… We want businesses to be able to focus on running their businesses with tax as a secondary consideration”.
Last month, a new document was released – Better Business Tax : an officials’ issue paper. Submissions are closing on 30 May 2016. Plans are to introduce legislation in August with the implementation date of 1 April 2017 for all proposals apart from the provisional tax payment timing proposals (2 below) which is 1 April 2018.
Some interesting stats from the paper are that 97% of businesses have fewer than 20 employees and they produce 27% of NZ’s GDP. “Small businesses play a critical role in the NZ economy.” The paper recognises that a particular challenge for these businesses is the relative level of compliance costs they face. There are 6 main proposals in the paper:
1.Changes to provisional tax to increase certainty
Increase the safe harbour threshold for use of money interest (UOMI) from $50,000 residual tax to $60,000 AND include non-individuals (i.e. companies and trusts) as well.
For taxpayers over the threshold who use the standard uplift method, remove UOMI from the first two provisional tax instalments, as long as payments required under that option are paid. (i.e. no longer have to estimate taxable income for the full year when only a fraction of the way through it).
2.More timely payment of provisional tax for some taxpayers.
Introduction of a new option for calculating provisional tax – the accounting income method (AIM), which allows some taxpayers to pay tax as they earn their income. (We will cover this in more detail in a later article.)
Allow closely held companies (those controlled by 5 or fewer shareholders) to pay tax as agent for shareholder-employees in respect of their salary at the same time as paying company provisional tax, thus enabling some shareholders to be removed from the provisional tax regime.
3.Self Management & Integrity
Allowing contractors to elect their own withholding tax rate to more accurately reflect the tax payable on income earned and reduce the impact of provisional tax (though minimum rates will still apply).
Extending withholding tax to cover contractors working for labour-hire firms to better reflect their working arrangements.
Introducing voluntary withholding agreements where contractors and principals can agree to withholding tax as income is earned to reduce the impact of provisional tax on the contractor.
4.Making the system fairer
Removal of the monthly incremental penalty for new debt for GST, income tax & working for families tax credits. The initial penalties of 1% (1 day after due date) and 4% (7 days after) will still apply as will UOMI. The application of this will be staggered as taxpayers and the various tax types are tarnsferred to the IRD’s new computer system (START), which is due to be introduced over the next couple of years.
5.Improving the operation of markets through greater tax transparency.
Permit disclosure of tax debt information for the most serious cases of non-compliance to credit reporting agencies. Criteria defining “significant debt” will be included in the legislation.
Information sharing with the Companies Office, but only in the case of serious offences with a potential maximum penalty of 4 years imprisonment.
6.Making the system simpler
Other proposals include replacement of FBT on vehicles in close companies, standard rates for use of home and private vehicles, removal of the requirement to renew withholding tax exemption certificates annually, and an increase in the threshold for later correction of errors in returns from $500 to $1000.
More detailed information can be found through the links on the IRD website https://www.makingtaxsimpler.ird.govt.nz/