Gilmore Taylor Associates Ltd Blog

Inland Revenue firmly focused on bright-line – Richard Owen

Any suggestion that Inland Revenue has taken its eye off the ball when it comes to property investors is thoroughly misleading.

Just under 100 Inland Revenue compliance specialists are focussed on making sure property investors are aware of their tax obligations – including the bright-line test.

The Property Compliance Programme was first established back in 2008. Some big changes this year in the way we work saw many of the job titles changed but the focus has stayed the same.

Enforcing the bright-line rule is a priority among those working on property compliance and they're following a comprehensive strategy designed both to help customers meet their obligations from the start and to catch the cases where no profit is declared from a sale.

We find that in the majority of cases our customers want to get their tax affairs properly in order. Inland Revenue compliance staff aim to make it as easy as possible for customers to comply by focusing on supporting them upfront, before issues arise, rather than just responding to non-compliance when it happens.

Unfortunately, there will still be some customers who ignore those messages and fail to comply. It's highly likely those people will be picked up in our audit work, which is intensifying over the next year.

Customer awareness

The bright-line rules came into effect in October 2015 and we're finding many customers remain unsure of their obligations. 

Awareness appears to be building all the time. Following the government's decision to extend the bright-line period from two to five years, Inland Revenue ran social media promotions and newsletter drops pointing to updated information on our website. The marketing was specifically targeted so that customers with a property interest knew about the change.

During the month-long campaign our social media content reached over 200,000 people and approximately 40,000 people visited the bright-line campaign webpages, which has links to all the information they need to know.

Focus areas

Property speculation is a centre of attention, especially in and around new developments, infill housing, regional hot spots and properties that have been sold within a short duration. Additional revenue of $117 million was assessed in the 12 months to June 30 2018 as a result of audit activities on property compliance issues.

Bright-line, is of course, an area of particular focus and along with ongoing audit activity, data analytics techniques are being used to identify our bright-line cases early. This allows us to target our interventions to help our customers get it right from the start.

In 2017–18, over $7 million of Resident Land Withholding tax was deducted and paid from properties sold by overseas-based vendors who are subject to the bright-line test.

Using real time data to help customers comply

New processes have been developed to allow property transactions to be monitored in real time. This helps compliance staff develop an early reading of trends and hot spots so they can monitor and make initial judgements about whether a customer is complying with tax rules.

Data from Land Information New Zealand help us determine the amount of tax that's likely to be due. This information is then used to remind property owners so they can understand what to put on their tax return.

The data also reveals the customers who have bought and sold residential properties within two years and have not claimed an exemption on the tax statement provided with the sale. Again, contact is made with these customers to discuss their filing requirements so that they comply with the bright-line obligations voluntarily.

Bringing in the tax revenue from a property transaction is a long game. Depending on the point at which a property is sold, it can be up to three years before Inland Revenue receives the payment. Separating out the revenue that's collected from a bright-line transaction is difficult to report as currently the taxpayer is only required to list it as amongst 'other income' on their tax return.

Compliance with the bright-line rules is improving all the time. We expect this to continue as more customers have greater certainty about their obligations and our property compliance specialists will remain on hand to help them get it right.

 

Be ready to shift to payday filing

Be ready to shift to payday filing

The time is now for New Zealand employers to get ready to shift to payday filing.

From April 1 2019 all employers will have to file their employment information every payday.

Inland Revenue customer segment lead Richard Owen says the easiest way to comply is through payroll software.

"The first step is for all employers to start asking their software providers when they expect to be ready so planning can begin.

"This is the sort of task where it pays to be ready early rather than scrambling at the last minute.

"Inland Revenue's systems for receiving payday information are up and running, so companies who want to can start filing straight away. If they're using software they need to make sure it's compatible first."

More than 400 employers are already payday filing but there are many thousands more that will need to join them before April 1.

Payday filing will replace the employer monthly schedule (EMS), which currently needs to be filed either in my-IR or through the post.

Those with compatible software will be able to securely submit their information directly to Inland Revenue instead of having to do a separate file upload in myIR.

Employers who deduct $50,000 or less in PAYE and Employer Superannuation Contribution Tax (ESCT) will be able to file on paper, though only from April 2019. All other employers will need to file electronically.

Mr Owen says payday filing will have a transformative effect both on businesses and their staff.

"Businesses will be able to integrate their tax obligations into their regular payroll cycles, while the more timely information will allow Inland Revenue to provide certainty around an employee's social entitlements such as Working for Families Tax Credits."

 

750,000 automatic tax refunds for wage and salary earners next year – the biggest tax change in 20 years

Inland Revenue (IR) expects that next year, about 750,000 tax refunds will be automatically generated for wage and salary earners who don't usually apply to get their tax back.

Speaking to the Finance and Expenditure Select Committee (last Wednesday), Inland Revenue Commissioner Naomi Ferguson said that, subject to legislation before the committee being passed, this would be the biggest change to individual tax in nearly 20 years.

Ms Ferguson said it hasn't been mandatory for wage and salary earners to fill out an IR personal tax summary (PTS) but if they had and it had indicated a refund, they could have filed a return and received that refund.

"In the new system all wage and salary earners' tax will be calculated and refunds sent automatically," she said. "About 110,000 more, who also haven't been filing, will have an amount to pay – they'll be notified automatically."

"Getting a refund, if you're entitled to one, will be a whole lot simpler because it will be done for you," she said. "The only reason for contacting IR now will be to tell us about any additional income information that we need to know.

"Put simply, IR will now look at the information we have about an individual and if we're confident we have all their information, we'll calculate and finalise their tax position for the year and generate an automatic refund - so there's no need for a PTS, making it a very simple process for wage and salary earners.

"But it's still a big change from what so many people have become used to.

"It will be very important that everyone has made sure the details we hold about them – bank account number, contact details and so on – are fully up to date so the new system works well for them. We'll be communicating widely to make sure customers know what's changing, when, and what they need to do," she said.

Other changes that will come into effect from April 2019 include:

  • making it easier to manage income tax and Working for Families, which includes some changes to myIR for both businesses and individuals
  • reporting of PAYE information every payday for employers – which is now voluntary – becomes compulsory, and
  • more regular reporting of investment income information becomes voluntary – and then mandatory a year later.

 

Domestic Violence - Victims Protection Bill becomes law

The Domestic Violence - Victims Protection Bill has passed its third reading in Parliament. It aims to enhance legal protections in the workplace for people affected by domestic violence.

The changes will come into effect on 1 April 2019.

The new law entitles employees affected by domestic violence to up to 10 days of paid domestic violence leave per year, in order to deal with the effects of domestic violence. Employees will be able to take this leave as needed – similar to the existing sick leave and bereavement leave provisions.

They will also be able to request a short-term variation to their working arrangements (up to two months or shorter) to which the employer must respond to urgently and within 10 working days. The variation can include changes to hours of work, location and duties of work. This is similar, and in addition to, the existing rights employees have to make a flexible working request.

The law also explicitly prohibits an employee being treated adversely in their employment on the grounds that they are, or are suspected to be, a person affected by domestic violence.

Employees will be able to raise a dispute if they believe that their employer unreasonably refused a request made under the new provisions, and must do so within six months.

 

Beware of sophisticated email scam

Beware of sophisticated email scam

A sophisticated email scam is doing the rounds using Inland Revenue branding to trick people into giving up their credit card details.

The email usually claims the recipient is due a large tax refund and then asks them to click on a link to another website where their money can supposedly be claimed.

Inland Revenue Chief Information Security Officer Doug Hammond says the email looks very convincing but there are a couple of important details that give their game away.

"Firstly look where the email is from. If it doesn't come from an address that ends with ird.govt.nz then be very suspicious.

"Secondly look at the link where they are trying to direct people to claim the refund. Hover over the link with your mouse and make sure the web address is for a real Inland Revenue website. Don't click on it.

"We send out emails all the time but customers should be aware what a fraudulent one looks like."

 

Paid parental leave extension comes into effect

Paid parental leave extends from 18 weeks to 22 weeks from 1 July. This is the first step in the Government's plan to extend paid parental leave to 26 weeks by 2020.

Maximum weekly payments are also increasing by 4.7 percent, in line with an increase in the nation's average weekly earnings. The maximum rate for eligible employees and self-employed parents will rise from $538.55 to $563.83 gross per week. 

The paid parental leave extension aims to support working families with newborns and young children and help reduce financial stress. It will allow more time for bonding with their children for those carers who are not in a position to take additional unpaid leave. It will also help to ensure babies can be breastfed for the first six months, as recommended by the World Health Organisation. 

Parents of babies due or delivered from 1 July 2018 are eligible for the increased paid parental leave. The Inland Revenue Department processes paid parental leave payments. For more information and to apply, visit the Inland Revenue. 

From the 1st July there will also see an increase in the number of Keeping in Touch days. These allow parents to do limited work while on parental leave, if they choose to, for example to attend a team day or change announcement. The number of Keeping in Touch days will increase from 40 to 52 hours from 1st July. 

For employers, the changes have minimal impact. Businesses are already required to provide a minimum 26 weeks in job-protected unpaid leave for eligible employees. 

  • More information about parental leave.
  • For more information about the planned extension to paid parental leave, see the MBIE Corporate website.
  • To apply for paid parental leave, see the Inland Revenue website.

Leniency to be applied on GST late filing penalties

Statement from the Commissioner of Inland Revenue Naomi Ferguson:

"Problems with Inland Revenue's GST processing system over the past couple of weeks have been largely resolved.

"I offer my apologies to our customers for the frustrations this has caused, and reiterate our undertaking to be reasonable if any customer has had difficulty meeting the filing date deadline of today because of issues with the online service.

"We will not apply late filing and late payment penalties for any GST returns due on June 28 if they are filed and payments made by Wednesday July 4.

"Again, I sincerely apologise to our customers for any negative impact these service issues have had."

GST system problem identified

GST system problem identified

Problems with Inland Revenue's GST processing system, we now believe are resolved, were tracked down to a network load rebalancer at IR's telecommunications provider.

Initially the problems had appeared to affect only a few customers, it had been growing, but it was thought the problem was with customer log-ins. However some very specific customer feedback yesterday led IR investigations to the problem with the provider's network load rebalancer. That was quickly fixed by the provider.

IR apologises to affected customers and we understand how frustrating it has been in the lead up to the GST filing date. Most customers are now managing to file their GST returns, for example 18,000 did yesterday, which is around what we would expect.

This hasn't impacted other types of tax, for example income tax or people seeking tax refunds.  Last week there were over 700,000 logins to our online services, with 98.9% within our service standard of 6 seconds.

Nor does it affect Best Start, which will be processed as planned from 1 July.

But if any customer has difficulty meeting their GST filing date because of issues with our online services, let us know, and we'll be reasonable about that.

 

Employers must comply with current Holidays Act

The Holidays Act review does not mean employers can avoid meeting their current obligations, says Labour Inspectorate national manager Stu Lumsden.

"While we understand the enthusiasm for the review, this in no way excuses employers from taking all necessary steps to comply with the current Act, and paying any arrears which are outstanding to their employees.

"Employers should note the Holidays Act Working Group has 12 months to report back to the Minister with options, and any adopted recommendation will need to go through the legislative process – so it may be some time before any new Act is effective.

"Employers must continue to be proactive in testing their compliance with Holidays Act requirements, and to undertake rectification and remediation process where issues are identified.

"The Labour Inspectorate's work assisting employers to achieve compliance with the Act and remediating historical underpayments will be continuing as one of our business as usual activities.

"We will also be targeting accurate and complete record keeping as a primary and critical element of compliance for all employers. 

"Proper record keeping is a longstanding and basic requirement for proper payment of workers. In the Holidays Act context, it is also the foundation for remediation of any calculation errors.

"Employers who have not maintained, and who are not continuing to maintain, necessary records are likely to face penalties."

 

Phone and email scams

Phone and Email Scams

 

 

 

We are receiving reports of phone scams relating to money owed to the IRD, see the recent story in the New Zealand Herald about similar cases:

 

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12048638

 

Another example of recent scams on the IRD website below:

 

The automated message is in a New Zealand accent and asks the caller for their name and IRD number. It states: "This is the Police, you owe money to Inland Revenue. If you don't pay you will be arrested. Please call 04 889 0505." This is not the New Zealand Police.

 

Please remember that government agencies will never call you to ask for your bank account or credit card details. If you receive a call like this and have any doubts about its legitimacy, double check their details or simply hang up the phone.

 

Anyone who believes they are a victim of any crime, in person or online, should report the matter to their local Police.

 

Fake forms supposedly from the IRD

 

There are several different phishing emails reported recently. Most contain links in them that take you to fake forms that are trying to make you believe they belong to IRD.  One email is asking for you to reply to it with personal and credit card details.

 

These emails are sent from a variety of addresses.  If you have clicked on the form and submitted any personal or credit card data please contact your bank immediately. We also recommend you contact IDcare at www.idcare.org or phone 0800 201 415.