CORRECTING MINOR ERRORS IN A RETURN
If you have made minor errors in completing your income tax, fringe benefit tax, or goods and services tax returns, it is possible to make minor adjustments for errors in the period in which the errors are indentified. For an adjustment to be allowed, the error or errors made must result in an assessment of tax of $500 or less for a single return. A minor error is defined as an error that was caused by a clear mistake, simple oversight, or mistaken understanding on the taxpayers part.
Errors for income tax, fringe benefit tax, and goods and services tax are treated separately when determining whether the $500 threshold has been met.
If the taxpayer is taking advantage of the $500 threshold, no specific notification is required to be made to the Inland Revenue Department (IRD), however, sufficient records should be retained by the taxpayer to substantiate the adjustments made in the return period.
Whilst the $500 concession is allowed, the IRD may, if a taxpayer makes a number of habitual adjustments to a number of return periods for similar errors, determine that the compliance and penalties provisions should be applied.
Where a taxpayer has made an error greater than the $500 threshold, those amounts should be dealt with by way of voluntary disclosure to the IRD detailing the nature of the error, the return period in which the error was made, how the error was identified, and the steps taken to ensure that the error does not occur again. Where a voluntary disclosure is made, use of money interest will apply and penalties may be applied depending on the circumstances and the previous behavior of the taxpayer.
In relation to GST specifically, if a taxpayer fails to include an item of expenditure in their GST return, that expenditure can generally be claimed in a later period provided that it is within a two year timeframe from the invoice being issued or payment being made under the invoice. The IRD will generally not allow the amendment of the return period in which the expenditure should have been claimed and instead, will allow the expenditure to be claimed in the current return period.
How it affects you
It is important to understand your obligations with respect to correcting minor errors, in particular in relation to GST returns, and the timeframes that must be met when correcting the errors. If more significant errors and made, then a voluntary disclosure should be undertaken. We suggest that you contact your accountant to discuss the matter prior to making any disclosure to the IRD.
PIE CHANGES TO BENEFIT NON-RESIDENT INVESTORS
In the past, investing in an unlisted Portfolio Investment Entity (PIE) was not a tax efficient investment decision for a non-resident investor. PIE tax is paid at a flat rate of 28% for non-residents. Investors in interest bearing investments are subject to Non Resident Withholding Tax at a typically much lower rate.
In an effort to remove this barrier to attract non-resident investment into New Zealand managed funds, changes have been proposed to the way non-residents investing in PIEs are taxed, commencing from the start of the 2012-13 income year.
The proposed changes are included in the Supplementary Order paper No. 220 to the Taxation (Tax Administration and Remedial Matters) Bill, which is currently before Parliament.
The Supplementary Order paper introduces two new categories of PIEs.
The first category is for PIEs with non-resident and resident investors that only derive foreign sourced income, subject to a 5% de minimis for New Zealand sourced interest income, and a 1% de minimis for New Zealand sourced income from equities. A 0% prescribed investor rate would be applied to the income received from the PIE.
Category 2 PIES are PIEs with non-resident and resident investors with foreign sourced and New Zealand sourced income. The PIE would be required to track each type of income derived and apply a variety of different rates to the income derived by the PIE. The applicable rates depend on whether the investor resides in a country with which New Zealand has a Double Tax Agreement and the type of income derived by the investor.
In relation to both categories of PIE, the non-resident investor will be required to provide sufficient information to the PIE to satisfy New Zealand’s requirements under the OECD Exchange of Information Agreements, for example, the tax file number of the non-resident in their home jurisdiction.
How it affects you
If you are a non-resident investing in New Zealand, the proposed changes to the PIE rules from the 2013 income tax year will provide an opportunity to utilise a different class of investment that will be more tax effective than is currently available. It will be up to existing PIEs and fund providers to elect to become a category 1 or category 2 PIE in accordance with the proposed rules.
If you are uncertain as to how these new tax rules will apply to you, we suggest that you contact your tax advisor to discuss further.
POINTS OF INTEREST…
The Inland Revenue Department has confirmed that the mileage rate for expenditure incurred for the business use of a motor vehicle has been increased to 74 cents per kilometre for both petrol and diesel fuel vehicles for the 2011 income year. Taxpayers are not obliged to use the Inland Revenue Department mileage rate and may use actual cost if they consider that the Commissioner’s mileage rate does not reflect their true cost.
TO THE POINT…
“Osama bin Laden is dead, which means the No.1 threat to America is now the KFC Double Down”
- Conan O’Brien