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REFUND OF EXCISE DUTY

In a previous Tax Update we suggested that taxpayers should take advantage of the ability to obtain a refund of excise duty where vehicles or machinery that use petrol, compressed natural gas (CNG) or liquefied petroleum gas (LPG) are used outside of New Zealand’s public roading network.

With the increase in fuel prices in the last few years, the refund available could be substantial.

At present, the rates of excise duty are 56 cents per litre for petrol, 12 cents per litre for LPG, and 3.65 cents per gigajoule for CNG.

For farmers, the obvious situations where this has relevance is in relation to farm bikes, chain saws, and brush cutters.

To claim a rebate of excise duty, a claim form must be completed, which is available from the New Zealand Transport Authority, who can also provide you with information as to the excise duty refund process.

In order to obtain a full refund of any excise duty paid, an applicant must file a claim within three months of the close of a calendar quarter. Thus, for the quarter ending 31 March 2011, the applicant has until 30 June 2011 to file its return. It is possible to claim rebates as far back as two years ago, however, a 10% reduction in the refund amount is applied for any refund not relating to the current filing period.

The refund of excise duty is subject to GST, and any rebates received should be included as outputs for the GST period in question. Any rebate received is also taxable income of the recipient and should be included in the appropriate income tax return.

In the case of farm bikes, where the bike is used both on and off road an apportionment in its use would be required to determine the extent to which an excise duty rebate is allowed.

How it affects you

For farmers in particular, the ability to obtain a refund of excise duty in relation to off road petrol costs provides an opportunity to offset the increasing costs associated with operating farm bikes, chain saws, brush cutters, and the likes.

The refund process is relatively straight-forward and, as such, the cost associated with obtaining a refund should be minimal. If you have any queries as to how to obtain a refund of excise duty or to determine whether you qualify, we suggest you contact your tax advisor.

EARTHQUAKE DEPRECIATION ISSUES

With yet another significant earthquake in the Canterbury region, it is timely to revisit some of the issues that are arising out of assets being destroyed, insurance proceeds not being finalised, and the proposed tax relief that will apply from 4 September 2010.

Under the ordinary rules that apply to depreciation recovery income, the insurance proceeds received as a result of the Canterbury earthquake are deemed to be the sale proceeds associated with the sale of the destroyed asset as if it had been sold. This creates issues as, for many business owners, the insurance proceeds that they will receive have not yet been determined and they may only have received a part-payment prior to balance date pending determination of a final payout. This creates uncertainty when you are trying to complete the 2011 income tax returns as you have the disposal of the asset occurring on the date of the earthquake, but the amount of income to be returned in relation to the deemed sale of the asset is not yet known.

The proposed changes to the depreciation rules, which we expect to see in the coming months, will instead deem the date of disposal to be in the income year in which the insurance proceeds can be reasonably estimated. As such, a deemed disposal would not occur in the 2011 year. The difficulty with this is that legislation has not yet been passed and, as such, 2011 tax returns affected by the Canterbury earthquake cannot be filed correctly until either the legislation is passed or the actual amount of insurance proceeds has been received so that any depreciation recovery income could be calculated in the 2011 income tax return.

The new changes to the depreciation rules will also provide for rollover relief, whereby the replacement asset’s value will be adjusted by the amount of depreciation recovered on the destroyed assets to effectively defer any depreciation recovery income until the replaced asset is eventually disposed of.

Unfortunately, if you want to rely on the rollover relief, you do need to defer filing the 2011 income tax return until the legislation has been finalised.

How it affects you

If you did suffer a loss as a result of the Canterbury earthquakes and insurance proceeds have been received or are to be received, you need to consider carefully whether it is worth waiting on the rollover relief provisions to be enacted to enable you to apply those provisions from 4 September 2010. We suggest that you talk to your usual accounting advisor if you have any queries regarding the application of depreciation relief.

POINTS OF INTEREST…

The Inland Revenue Department has published two Determinations regarding the Canterbury earthquake to declare the earthquake that occurred on 4 September 2010 and the earthquake that occurred on 22 February 2011 as an emergency event for the purpose of the family scheme income calculation of a person’s Working for Families tax credit entitlement.

Both Determinations provide that certain income received will not be included in the family scheme income calculation for a period of 12 months from the date of each event.

A further Determination may be issued in relation to the 13 June 2011 earthquake.

TO THE POINT…

“I’m not into this detail stuff. I’m more concepty”

Donald Rumsfeld




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