Given the importance of keeping your PAYE and GST record-keeping and payments in order, it might be tempting to think that Fringe Benefit Tax, or FBT, is a relatively minor thing. But don’t be fooled. In 2017, Inland Revenue created a dedicated audit team to focus on this issue.
One of the team’s aims is to ensure employers have the right business structures and documentation in place. And it turns out that many don’t.
If this sounds like you, now’s a good time to put things right. Regardless of whether you’re acting correctly or not around FBT, a lack of proper records leaves you in a weak position and liable to negotiated settlements (that is, having to pay more than you expected) or, worse, serious penalties.
Most FBT revolves around company vehicles, so let’s look at what IRD expect from you if you provide one to any of your staff:
• The employee’s job description and employment contract
• The company policy on motor vehicles
• Any private use restriction letter in place, signed by the Directors and the employee
• Documentation that shows regular checks on the vehicle to ensure it’s not being used for private matters
• The employee’s performance review notes confirming they’re sticking to company policies.
FBT… SO, WHAT CAN YOU DO?
For an SME owner, that’s quite a daunting list, and a good reason to talk to your accountant. An expert, independent set of eyes will help you determine what you need to do in all cases, what you don’t need to do, and also how to go about doing it (including creating proper documentation).
The value of expert advice is heightened by some of the finer points of FBT legislation. For example, did you know that if an employee takes a vehicle home one evening and returns to work with it the next morning, the laws says it’s been available for private use on two days?
Did you know that IRD expects you to check that employees are adhering to restricted use policies at least once every quarter?
Did you know that just because a vehicle has your company logo on it, that doesn’t automatically make it a work-related vehicle, which then means it doesn’t automatically become exempt from the usual requirements of FBT?
Did you know there is also a new option for some companies that have one or two vehicles to elect to use the motor vehicle expenditure rules rather than pay FBT in certain circumstances?
If you didn’t know all those things, take a bow – you’re in great company! FBT is complex, to say the least!
The good news is that IRD also recognises this and will work closely with you to help you comply. The best approach is to get professional advice (that’s us) and, where appropriate, go to IRD for a written opinion on any matters that aren’t crystal clear.
That way, even if IRD disagrees with your FBT return, they’ll see that you’ve taken reasonable care to get things right and may not impose penalties.
So, when are you liable for FBT? Any time you provide non-cash benefits to your staff – which means the list is potentially endless. In practice, however, most non-cash benefits fall into one of these categories:
“Our tax system will be fairer and more balanced to encourage investment in the productive economy.” Grant Robertson
The budget position on tax is something of a watching brief. The Tax Working Group (TWG) was a tangible presence while the Budget was read but their interim report is not due out until September this year, their final recommendations coming out early 2019. In the meantime, the measures announced include:
• Ring-fencing investors’ tax losses on rental properties so they cannot be offset against other taxable income to reduce net tax paid
• Tax credits for research and development
• Changes to bloodstock tax rules for the New Zealand racing industry attracting new investment to the breeding industry.
There is a drive to widen the tax base. With that in mind, the Government will provide extra operating funds to Inland Revenue to collect more taxes and, in particular, to ensure outstanding company tax returns are filed. At a proposed cost of $31.3 million this is expected to raise revenues in excess of $183 million over the next four years. Taken with Inland Revenue’s tax policy work programme, there’s a strong compliance agenda to plug leaks and stop rorts to the system.
There has been a perception amongst some commentators that with the abolition of gift duty, the need to have annual trustee meetings for a trust is no longer important.
Nothing could be further from the truth as the regime post gift duty and the current Law Commission Review of the Law of Trusts has, in our view, increased the need for trusts to be properly established and managed.
Good record keeping is essential. Where we prepare annual financial statements for the Trust, we also prepare Annual Minutes.
On 29 March 2018 Inland Revenue released the officials’ issues paper on the subject of ring fencing rental losses.
These are the main proposals:
• It will apply to residential land.
• It will not apply to mixed use assets or land held on revenue account.
• It may be applied on a portfolio basis.
• To apply from the start of the 2020 income tax year.
• Rules may be applied from the outset or phased in over two or three years.
Parliament has passed legislation enabling payday filing. This requires employers and payroll intermediaries to file employment information (similar to an Employer Monthly Schedule) every payday instead of monthly.
Payday filing is voluntary from April 2018 and compulsory from April 2019, so you don’t have to do anything now. But we recommend you start thinking about how you’ll make payday filing part of your payroll processes well before this becomes a requirement. From April 2019, payday filing will replace EMS filing.
With payday filing, payment dates and methods of payment remain the same – all that is changing is how often you provide your employment information.
There are three ways you can payday file electronically:
• Direct from software (if supported by your software provider).
• By file upload via myIR under a new Payroll Returns account (if supported by your software provider).
• Onscreen via myIR under a new Payroll Returns account.
If you use software, talk to your software provider about which method is best for you.
Onscreen filing is similar to the current process for onscreen filing an EMS in myIR, but is completed and submitted every payday. If you want to start payday filing using the on-screen form phone Inland Revenue on 0800 377 772 or 0800 443 553 for large enterprises.
Payday filing will integrate Inland Revenue’s requirements into employers’ payroll processes, rather than being a separate step. This could reduce compliance costs for employers, particularly those using payroll software.
From 29 March 2018 the bright-line test for residential property has been extended from 2 years to 5 years. The extended bright-line test only applies to properties for which an agreement to purchase the property was entered into on or after 29 March 2018. If an agreement to purchase a property was entered into before that date, the 2-year bright-line test will still apply.
The 5-year bright-line test applies in the same way as the 2-year bright-line test.
The residential land withholding tax (RLWT) rules have been extended from 2 years to 5 years as a result of extending the bright-line test. An offshore person will be liable for RLWT on residential land sold within five years of purchase, if the purchase date was on or after 29 March 2018.
Johnston Associates’ goal is to provide tools and services that benefit you. In light of Inland Revenue’s increasingly vigorous audit activity, we offer our Audit Shield Master Policy as an effective mechanism to protect you against unplanned professional fees which can arise as a result of such activity.
Details of the offer were recently sent out to clients – if you didn’t receive the offer or would like to know more please contact us at either our Nelson or Auckland offices. Alternatively click here for further information on our website.
Our Virtual Cabinet Portal is now up and running! We have published the 2018 Terms of Engagement to all our Auckland clients via the portal and we have been very pleased with the uptake – around 50% of clients have already set up their accounts and returned the electronically signed document by simply clicking the “sign” button.
If you haven’t yet opened your Virtual Cabinet Portal account you will likely receive a further notification prompting you to do so (at some point prior to us commencing your annual work). This will be an email from firstname.lastname@example.org saying Johnston Associates has sent you a document. You can simply follow the very easy steps to log in, read the document, and “sign” it by clicking a button.
Johnston Associates has decided to provide more regular information via social media channels – namely Facebook and LinkedIn. We will continue to publish our quarterly newsletter, but you will find more regular and timely information through these channels.
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Disclaimer – While all care has been taken, Johnston Associates Chartered Accountants Ltd and its staff accept no liability for the content of this newsletter; always see your professional advisor before taking any action that you are unsure about.