WHAT'S AHEAD FOR 2012?
Reflecting on last year's tax programme, there are a number of policies that are likely to come into force this year, and some that are not.
Capital gains tax and the R&D tax credit are not likely to be introduced in 2012, but will no doubt continue to be debated.
What is likely is the Taxation (International Investment and Remedial Matters) Bill will be passed. It contains significant changes to the tax treatment of inward and outward cross-border investment. We are also likely to see an extension of the active income exemption to interests in non-controlled foreign entities (foreign investment funds), or FIFs.
The Taxation (Annual Rates, Returns Filing and Remedial Matters) Bill is also likely to be passed early in the year. Proposed changes of note in this Bill include:
• Allowing an immediate income tax deduction for the costs of an unsuccessful software development project; and
• Treating a profit distribution plan as giving rise to a taxable dividend.
The Taxation (Income-sharing Tax Credit) Bill, which allows spouses, civil union and de facto partners with dependent children, to split their income, reducing their joint effective tax by having more income taxed at lower marginal rates, will be put back on the table as part of National's coalition agreement with United Future.
The Inland Revenue Department's ("IRD") discussion document on the GST treatment of certain services provided by New Zealand businesses to non-resident businesses is likely to be progressed. Currently neutrality is compromised where a New Zealand business provides a service to a non-resident business, but another person, such as an employee of the non-resident, receives the services in New Zealand. The most favoured solution is a relaxation of GST registration requirements for non-resident businesses. This would enable the overseas business to register for GST (and claim back the GST content).
The tax treatment of interests held by New Zealand tax residents in overseas superannuation schemes is to be reviewed.
The application of the IRD's interpretation statement on the general anti-avoidance provision will no doubt be seen this year.
How it affects you
Many of these changes will impact on how we do business. If you would like more detail on any of the proposals, please contact your advisor.
DEBT RELIEF FROM THE IRD FOR
THE NEW YEAR?
We have previously considered the powers of the IRD to grant relief to taxpayers that cannot meet their tax obligations. At this time of year people often find it hard to juggle between keeping their business in the black, having provided their family with a great Christmas, and paying their tax. It seems timely, therefore, to revisit some of the options available.
A taxpayer that cannot meet their tax bill on time because they are under financial pressure can contact the IRD (by phone or in writing) and ask to pay the tax off over time (an instalment arrangement). If you meet the requirements of being in "financial hardship", an arrangement can be made to pay a lump sum at a specified time, a regular amount until the bill is cleared, or a combination of the two.
Although use of money interest will still accrue on the amount outstanding, penalties will not be applied. This will have the effect of reducing the total amount that you have to pay, but allow you to pay as and when money is available.
It is also possible to ask for some or all of the debt to be written off. There are very strict criteria for this type of relief, but the IRD does have the ability to combine this with an instalment arrangement, under which you would pay the tax over time, and at the end of that arrangement, provided that you have met your obligations, any balance outstanding will be written off.
The relief provisions are designed to assist those that are making a real and genuine attempt to comply with their obligations, but find themselves in a position where they simply cannot.
That, therefore, requires good faith on the part of the taxpayer.
In a recent Court case the taxpayer had made a proposal to the IRD which the IRD did not accept. They applied to the Court to ask the Court to make the IRD reconsider. The Court refused to do so on the basis that the taxpayer had misled the IRD as to the true worth of the proposal, and had not approached the process with "clean hands". Furthermore, their circumstances had changed and a new proposal would be required in any event.
This case highlights the need for taxpayers to be honest and up front when seeking relief from the IRD.
How it affects you
If you find now that you may not be able to meet your tax obligations in the next month or so, contact your advisor to discuss the possibility of entering into an arrangement or seeking other relief.
POINTS OF INTEREST…
The sale of shares in a company is not a going concern for GST purposes, even if the purchaser is taking on the business operation of the company.
The IRD says that the number of taxpayers in debt since 2007 has increased by 39% and insolvency debt has more than tripled.
The IRD has advised that, for taxpayers affected by the Nelson floods in December, the IRD may consider waiving late filing penalties for GST and PAYE returns; or provide relief in relation to outstanding tax payments; or arrange the early repayment of overpaid provisional tax. Contact the IRD or your advisor if you are affected.
TO THE POINT…
"Just because you haven't found your talent yet, it doesn't mean you haven't got one".
- Kermit the Frog