The Government intends changing the Employment Relations Act 2000 to prevent employers paying less to their employees who are members of KiwiSaver than to their employees who are not members of KiwiSaver.
The law change will come into force on the date the amendments are introduced into Parliament (expected to be this week) but will not affect employment agreements entered into before that date.
Current KiwiSaver legislation allows employers and employees to take employer KiwiSaver contributions into account for employment agreements negotiated after 13 December 2007.
It seems that a few employers have used employment review negotiations as an opportunity to reduce the salaries of employees who are KiwiSaver members. It appears that some employers have reduced employees’ salaries or wages to cover the compulsory employer contributions, despite the Government providing employers with a $20 per employee per week tax credit.
There have been mixed reactions to the announcement. One view is that employees should receive what they are entitled to and should not effectively be required to pay the employer contribution from their salary entitlement. An alternative view is that there is inconsistency in treating KiwiSaver member benefits in a different way to other forms of remuneration, including non-KiwiSaver workplace superannuation schemes.
An employee who does not join KiwiSaver may be disadvantaged if their employer does not increase their total remuneration package to the same level as that enjoyed by an employee who does join KiwiSaver. It is also unclear whether the changes will make it unlawful to discriminate against potential employees based on their membership of KiwiSaver.
On the positive side, some employers have recognised KiwiSaver as an effective staff recruitment and retention tool. Some have offered staff increased benefits including:
agreeing to count the employer's contribution towards the employee's minimum 4% contribution rate to make KiwiSaver more affordable; and
making voluntary employer contributions. This can be done at little or no cost where the Government's employer tax credit of $20 per week has not been fully utilised.
Tax pooling
The recently introduced Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill amends the provisional tax pooling rules to ensure that they reflect the original policy intent of Government and extends tax pooling to include reassessments of all tax types.
The tax pooling rules enable taxpayers to pool their provisional tax payments with those of other taxpayers via commercial intermediaries. The rules are intended to allow provisional taxpayers, who meet their provisional tax obligations during the year but who end up with tax to pay at the end of the year, to purchase funds from other taxpayers within the pool so that they can settle their liabilities within 60 days of terminal tax date. The matching of over-and under-payments by taxpayers reduces the UOMI exposure for both taxpayers.
The Bill proposes amending the rules to limit the use of pooled funds to provisional tax and terminal tax. Taxpayers will not be able to use pooled funds to meet regular payments such as GST and PAYE. This is because for these taxes the amount due is known by the due date.
Other changes clarify that:
transfers of provisional or terminal tax with an effective date after the terminal tax date are to be applied first to the interest outstanding and then to the core tax; and
a transfer of tax can be made from any tax type to a tax pooling account. The effective date of the transfer will be the date of the request.
The Bill also extends the rules so that they apply to reassessments of all taxes, including reassessments that result from voluntary disclosures and the disputes resolution process. For example, where, as a result of an audit, the Commissioner reassesses a taxpayer for additional tax, the taxpayer will be able to purchase tax with an earlier effective date to satisfy the additional liability. The request for pooling funds must be made within 60 days of the taxpayer being notified of the reassessed amount by the Commissioner and the pooling funds will be available only for the difference between the previously assessed amount and the new assessed amount. This move is positive for taxpayers considering making a voluntary disclosure.
In a move intended to foster competition between tax pooling intermediaries, the Bill proposes that taxpayers who change tax pooling intermediaries will be able to transfer their funds from one intermediary to another while still retaining the original effective deposit date. The change will apply to both new and existing deposits.
The amendments are to apply from 1 April 2009.
Company tax return (IR 4) – changes ahead
The IRD has released an issues paper inviting feedback on proposed changes to the company income tax return. The proposals are intended to reduce significantly the cost and complexity of filing income tax returns for most companies.
Feedback is sought on how the IRD can:
rationalise the income tax forms that companies need to complete, including the company income tax return (IR 4), the annual imputation return (IR 4J) and accounts information (IR 10);
tailor information requirements for different-sized companies to reduce overall compliance costs;
rely more on financial information compiled by companies for financial reporting purposes; and
enhance electronic filings systems to reduce common errors.
The IRD proposes that electronic filing be made compulsory for all companies from the 2010-2011 income tax year. This is consistent with the Companies Office requirement from 1 July 2008 for the majority of company information to be provided electronically.
The deadline for submissions on the paper is 30 September 2008.
Mutual recognition of imputation credits
The Australian and New Zealand Governments have agreed to consider proposals for the mutual recognition of imputation and franking credits between companies that invest in the other country. The decision to investigate mutual recognition acknowledges that current arrangements subject investors to double taxation and distort investment flows between Australia and New Zealand.
Mutual recognition would allow a New Zealand resident to claim a tax credit for franking credits attached to dividends received from Australian companies. Similarly, Australian residents would receive a tax credit in Australia for imputation credits attached to dividends paid by New Zealand companies.
The Australian Treasurer, Wayne Swan, has invited the New Zealand Treasury to make a formal submission on mutual recognition to Australia's Future Tax System review, which was recently established by the Federal Government. The Review Panel is not expected to issue a final report until the end of 2009.
The first formal meeting between Minister of Finance Michael Cullen and Wayne Swan also confirmed that:
Officials are expected to conclude negotiations for a new tax treaty between Australia and New Zealand by the end of 2008;
negotiations will continue on an Investment Protocol to encourage investment in both countries; and
a new arrangement on private retirement savings portability will be finalised by October 2008.
R&D tax credit: capital expenditure
To qualify for the R&D tax credit, a business must have eligible R&D expenditure. To be eligible R&D expenditure the expenditure must be:
listed as eligible expenditure and not be excluded expenditure per Schedule 21 of the Income Tax Act;
deductible for tax purposes in the year the expenditure is incurred; and
total a minimum of $20,000, unless the R&D is conducted by an unassociated listed research provider.
Capital expenditure
As capital expenditure is not deductible for tax purposes, prima facie it will not be eligible for the R&D tax credit. However, there are two exceptions to the capital limitation. These are for capital expenditure incurred in seeking to create:
a depreciable tangible asset (such as a prototype) to be used solely in the R&D process; and
a depreciable intangible asset (such as software).
Prototypes
In order to be eligible for the R&D tax credit a depreciable tangible asset must only ever be used in the R&D process. Therefore, if a business builds a prototype as part of its R&D activity and, after the testing has been completed, the asset is rolled out and used commercially, the capital expenditure will not be eligible for the R&D tax credit.
This requirement is likely to limit the amount of capital expenditure eligible for the tax credit, as it is common business practice in New Zealand to develop and build one asset, being the prototype, and then use that asset commercially.
Intangible asset
Capital expenditure incurred in relation to the development of a depreciable intangible asset is eligible for the tax credit.
Depreciable intangible asset is a defined term in the legislation and includes:
the right to use a design or model, plan, secret formula or process or other like property or right;
the copyright in software, the right to use the copyright in software, or the right to use software; and
a patent or the right to use a patent.
If the capital expenditure relates to the development of internal software that is a depreciable intangible asset the expenditure will still be subject to the $3 million cap.
Seasonal migrant workers
The Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill introduces several remedial amendments aimed at reducing compliance costs incurred by migrant workers who come to New Zealand to work under the Government’s Recognised Seasonal Employer (RSE) policy.
Currently seasonal migrant workers can work in New Zealand for seven to nine months. Migrant workers are treated as resident for tax purposes, as they are present in New Zealand for more than 183 days. Under the current PAYE system, migrant workers are over-taxed on their income as they only work part of the year, requiring them to file an end of year tax return to receive their refund.
The Bill includes a definition of “non-resident seasonal worker”, which will enable migrant workers to be treated as non-residents in future. A new tax deduction code, “NSW”, will be introduced, requiring tax to be deducted at a full and final rate of 19%. The Bill also removes the requirement for migrant workers to file an income tax return.
