Image: Queenstown

Survey indicates property market cooling due to confusion

News release: Chartered Accountants Australia and New Zealand and Tax Management New Zealand

26 November 2021

A survey of chartered accountants and tax agents has revealed that incoming legislation intended to help cool New Zealand’s over-heated housing market is already having a major effect on investors – but largely because of confusion and lack of detail rather than clear policy. 

The annual survey, jointly run by Chartered Accountants Australia and New Zealand (CA ANZ) and Tax Management New Zealand (TMNZ), sought the views of 361 accountants in public practice, on recent tax policy developments. 

Among the findings, the survey revealed that 70% of respondents have already seen clients change or voice their intention to change their residential property investment behaviours due to ongoing changes to the extended bright-line test, and proposed changes to deny interest deductions.

CA ANZ NZ Tax Leader John Cuthbertson said that further results from the survey show to key factors in play; the complexity of the proposed rules, and uncertainty as the details could change before the legislation is enacted in March 2022, despite the bright-line and denial of interest deductions coming into play from earlier this year.

“The survey suggests that the housing market has been given a policy placebo, in the form of legislation that is influencing behaviour before it is fully developed and enacted.”

“Residential property purchasers and investors typically react to the specific detail of legislation. However, in this case the market appears to be reacting to the complexity of the proposed legislations carveouts and inconsistencies, and the fact that it won’t know exactly what is in place until March 2022, despite it being backdated to capture activity in 2021.”

“To be fair, the Government’s aim was to cool down the overheated housing market, which is causing a range of economic and social issues, but we’re not sure this is the best way to do it.”

The survey shows that over 21 per cent of the respondents, or 1 in 5, feel ‘not at all confident’ about advising clients on the proposed new build interest limitation rules, and over 65 per cent of participants felt the phase out and denial of interest deductions would be somewhat or extremely difficult to comply with.  

Similarly, almost 50% of respondents said they were either somewhat confident, or not at all confident on advising on the new build bright-line test. 

“Because this policy hasn’t been developed in line with the generic tax policy process (GTPP), there’s a much higher chance of unintended consequences and collateral damage.  The survey shows a considerable lack of confidence in how the legislation will work, and that will likely result in non-compliance and issues around who is captured and who isn’t.”

“It’s important to note that the level of complexity encountered will depend on the number of properties owned, banking arrangements in place and the mix of interest limitation rules and concessions in play,” added Mr Cuthbertson. 

TMNZ Chief Executive Chris Cunniffe said the survey provides a good indication of how the proposed rules would be rolled out. 

“In their current complex form, there’s likely to be a lot of variability in compliance with these laws. Especially as not everyone has a tax agent or accountant helping them.” 

“While the extension of the bright line test to 10 years might land well for most mum and dad property owners, the denial of interest deductions and how that relates to new builds is likely to be misunderstood.”

“There’s opportunity for Government to provide greater clarity on the law changes and simplify certain aspects to help owners and accountants alike.”


New Survey Shows Inland Revenue Helpful, But Hindered

Press Release: Chartered Accountants Australia and New Zealand and Tax Management New Zealand

24 November 2021

Helpful, but hindered is the overarching finding in a new survey digging into public practice accountants’ experiences with Inland Revenue (IR).

Conducted by Chartered Accountants Australia and New Zealand and Tax Management New Zealand, the survey of 361 members in public practice asked a range of questions about the timeliness of IR’s service, the quality of interaction, and the business support on offer.

“Over 80 per cent of those surveyed rated their agent account manager interactions positively over the last 12 months, which Inland Revenue should be pleased with,” said CA ANZ NZ Tax Leader John Cuthbertson.

“The flipside is that it is taking much longer for Inland Revenue to resolve queries. The number of public practitioners who say it’s taking more than 6 days to resolve their queries has risen from 5 per cent of respondents, to 47 per cent.”

Despite this, accountants and tax agents are positive about not only their interactions with account managers, but also the support measures that Inland Revenue has administered.

“Accountants and agents across New Zealand are telling us that the tax support provided by Inland Revenue has been as effective this year, as it was last year,” said Tax Management New Zealand Chief Executive, Chris Cunniffe.

“It’s been another turbulent year for businesses, and the tax relief and support measures have made a positive difference. It’s just that our survey shows it can take a while to get through to Inland Revenue, and to have queries resolved and assistance locked in.”

The appreciation of Inland Revenue’s support was illustrated by 85 per cent of participants reporting that they had clients who utilised the remission of interest and penalties for late payment of provisional tax due to COVID.

Additionally, over 71 per cent of participants have found it easy or not difficult, to enter into or assist clients with an instalment arrangement in the past 12 months. This covers all types of tax, including GST, PAYE and FBT, not just provisional tax.

The increased level of scrutiny and information required to access COVID support was also felt by survey respondents.

“Approximately half the survey respondents said that accessing COVID support was harder than in 2020. That’s not surprising, given the public’s desire for more scrutiny about who received support, and the declarations becoming more stringent during this year’s lockdowns,” concluded Mr Cuthbertson.


Chris Cunniffe, CEO TMNZ

Celebrating 10 years with TMNZ


CEO Chris Cunniffe shares his reflections

Chris Cunniffe, CEO TMNZ

I have recently marked 10 years with TMNZ, and as I passed that milestone I have taken time to reflect on what has changed over the decade. 

I joined TMNZ in September 2011 after 15 years working in large corporates with Air New Zealand and Bank of New Zealand.  There were just seven TMNZ staff at the time.  Ten years ago much of the tax pool offering was geared towards larger taxpayers, with a lot of time being spent assisting corporates which had come out on the wrong side of an Inland Revenue audit.

In 2013 we set a challenging strategy to deliver sustained growth, by increasing the number of clients we would assist and automating the way we would deliver our service to those clients. Three strategy cycles later, we have grown to a company of nearly 50 employees managing three times more tax in the pool, and helping hundreds of thousands of taxpayers pay tax on their terms. 

Our commitment to growth and development remains unwavering, but now there is an even greater purpose behind the work that we do.  When TMNZ’s owners, Ian and Wendy Kuperus, made the decision to commit all profits of TMNZ to philanthropic causes, I knew I absolutely had to keep working for this business. It‘s a unique opportunity to be able to lead a successful company which has purpose of dedicating 100% of profits to Whakatupu Aotearoa Foundation, to help restore New Zealand’s communities and the environment. 

I think the next stage of the TMNZ journey is going to be the most exciting yet. 


 

 


Image: Bart Taylor

Syncing provisional tax to cashflow

As a self-employed painter and decorator, Bart Taylor knows full well how business owners can get themselves into strife if they don’t plan for their tax obligations.

He speaks from his own personal experience.

That’s why Bart is happy to talk about how Tax Management NZ (TMNZ) enables him as a self-employed tradesperson to take the stress out of having to pay provisional tax on dates dictated by Inland Revenue (IRD).

TMNZ offers Bart the flexibility to make the payments when it suits his cashflow.

As someone who doesn’t always get paid every week, that’s important because it offers his business some breathing space while he waits for the money he’s earned from completed jobs to land in his bank account and ensures that other important invoices can be paid in the meantime.

A bit about Bart

Bart owns and operates his own business in Christchurch.

He’s a one-man band and that’s the way he likes it. Plus, most of his work means he does not require a crew, although he will occasionally use contractors when required or on larger jobs.

Bart has been his own boss since 2013, when, at the age of 24, he decided to make a go of this painting lark on his own. The market in the Garden City was awash with painting gigs during the rebuild and becoming self-employed seemed like a low-risk move.

Fast-forward nearly eight years and his gamble has paid off. He is enjoying the benefits that come with self-employment and, as a husband and father in a young family, the better work-life balance he has achieved.

Tough tax lessons

Yet that’s not say that everything has been a bed of roses during that time.

“Becoming self-employed has been a bit of a rollercoaster. Lots of learnings, lots of difficult times, hard times,” says Bart.

“First and foremost, I’m a tradesman, so I am a worker. The back office, the organisation, the financial side of things is not my strong point. With the tax side of self-employment, I managed it very poorly for years because I was so young.”

Like other business owners, Bart wasn’t as prepared as he should have been and was “stung” in his second year of trading. That was when two years’ worth of tax was due. Ouch.

He admits having to pay provisional tax was “rough for a little while”.

“In the trade industry, you don’t always get paid every week and you need cashflow to run your business,” explains Bart.

“My accountant saw there was a risk of if we paid that tax bill in full, that I might fall short in other areas and he wanted to make sure that my relationship with my trade suppliers stay good and that the invoices I need to pay get paid on time, not just the IRD ones.

“He recommended Tax Management NZ and that freed up cashflow.”

Breathing space from IRD to manage cashflow

That’s because TMNZ gives Bart the flexibility to pay his provisional tax when it suits his business, without the consequences of steep IRD interest and late payment penalties.

It operates with the blessing of the taxman, too.

TMNZ makes a date-stamped payment to IRD on Bart’s behalf on the date his provisional tax is due. Bart pays TMNZ at a time when it suits his cashflow.

TMNZ transfers the date-stamped payment to Bart’s IRD account and IRD treats it as if Bart himself has paid on time. This eliminates any IRD interest and late payment penalties showing on his account.

“Sometimes the option of TMNZ, to be able to borrow some money for a short period of time, to make sure you hit that IRD deadline, frees you up with your cashflow until that payment [you are waiting on] comes through,” says Bart.

“The fee of using Tax Management NZ is so low and affordable in comparison to the failings of if you ran out of money in that time, or the scramble and the stress, so it’s definitely worth it.

“It’s changed my perception around making these tax payments. It takes the stress off of it.”

And how does dealing with TMNZ compare to dealing with IRD?

“You get a bit more of a personal touch with Tax Management NZ because you get a prompt response and it’s not a cookie-cutter [reply].”

Bart is one of many small business owners throughout New Zealand who benefits from the provisional tax flexibility TMNZ offers. Feel free to contact us for more information about our service or if you have any questions. We're happy to help. Alternatively, you can register with TMNZ here.


Image: Flooded road

Cashflow relief for farmers impacted by flood or drought

Image: Flooded road

Those impacted by flooding in Canterbury or drought elsewhere in New Zealand have another option to manage their cashflow.

It’s called tax pooling.

It lets taxpayers defer their upcoming provisional tax payments to a time that suits them, without incurring interest (currently seven percent) and late payment penalties from Inland Revenue (IRD).

The service – which has been operating with the blessing of the taxman since 2003 – is available through an approved commercial provider such as Tax Management NZ (TMNZ).

The impact of extreme weather

The Government has declared the recent flood in the Canterbury region as a medium-scale adverse weather event.

As those in this part of New Zealand assess the damage and begin the clean-up following the large deluge of rain, a big dry is beginning (or, in some cases, continuing) to bite other parts of New Zealand. The drought has been classified as a large-scale adverse weather event.

Farmers impacted by these contrasting weather events are being encouraged to act early and assess their options if they need assistance.

For those battling drought, some tough decisions around stock and feed will need to be made. In the Canterbury region, flooding only compounds the financial pressure as many were also dealing with drought beforehand.

Cashflow will be important during this difficult period.

Help is available

Managing tax payments will be a key consideration in managing cashflow too.

IRD, to its credit, is exercising some discretion.

It will allow farmers and growers affected by the Canterbury flood to make early withdrawals from the income equalisation scheme.

For those whose current or future income will be significantly affected by drought, IRD will allow late deposits for the 2019-20 income year up to 30 June 2021.

Early withdrawals are also available in the case of a medium-scale adverse event or if someone is suffering serious hardship.

Please note a taxpayer must satisfy certain criteria for IRD to exercise its discretion around the income equalisation scheme.

There's also the option of re-estimating provisional tax.

However, while that allows someone to get a refund of tax they have paid earlier in the year, it does come with some risk.

Free up cashflow by deferring payment of provisional tax

Farmers growers with a May balance date are due to pay their the final instalment of provisional tax for the 2020-21 income on 28 June.

For a small interest cost, someone can use TMNZ to defer this payment.

We make a date-stamped tax deposit to IRD on behalf of a taxpayer on 28 June and the taxpayer pays us when it suits their cashflow.

A taxpayer can either pay the full tax amount at a date of their choosing or enter an instalment arrangement.

When a taxpayer satisfies their arrangement with TMNZ, IRD will treat it as if the taxpayer had paid on time. Any interest and late payment penalties showing on their account will be remitted.

A taxpayer has up to 12 months to pay their 28 June provisional tax with TMNZ.

TMNZ’s interest cost is much cheaper than what IRD charges when someone pays their tax late.

Please click here to register with TMNZ. Alternatively, feel free to contact us if you have any questions.


Image: Question mark

Can AIM taxpayers use tax pooling?

Image: Question mark

A taxpayer cannot use tax pooling to defer payment of, or settle, provisional tax instalments calculated under the accounting income method (AIM).

However, Tax Management NZ (TMNZ) can help AIM taxpayers with terminal tax or when they receive a notice of reassessment.

What does tax pooling legislation say about AIM?

Legislation in the Income Tax Act 2007 clearly states that a taxpayer can use tax pooling funds to satisfy “a provisional tax liability other than under the AIM method”.

Please refer to sections RP17-RP21 of the Act for further information.

Why IRD doesn’t allow tax pooling to assist with AIM payments?

Inland Revenue (IRD) says tax pooling manages taxpayers’ uncertainty around provisional tax payments and their exposure to interest.

Consistent with this objective, pooling is not currently available for tax types where someone has certainty of their liability at the time of payment (for example, GST).

Given the payments made under AIM are calculated on actual accounting profit, taxpayers will have certainty about what's due.

As such, it's IRD’s view that it's not appropriate to allow tax pooling for provisional tax payments calculated under AIM.

What does that mean for you?

IRD will reject the use of any tax pooling funds to satisfy an underpaid AIM instalment. As a result, late payment penalties and interest will continue to show on a taxpayer account.

They will, however, accept the use of tax pooling funds to settle a terminal tax liability. The same applies if an AIM taxpayer has additional tax to pay after receiving a notice of reassessment.

Please be mindful of these facts when entering arrangements with TMNZ.

It’s also an important consideration before electing to use AIM to calculate provisional tax.

That's because paying tax when income is earned is not necessarily the same as when cash is received.

If someone is unable to pay an AIM instalment on time or in full due to cashflow constraints, the safety net of tax pooling will not be available to reduce their exposure to interest and eliminate late payment penalties.

You're more than welcome to contact TMNZ if you have any questions.


Make IRD interest, late payment penalties disappear

Image: Magician

A missed or underpaid provisional tax payment often means a taxpayer is faced with a steep interest cost and potentially late payment penalties on top of what they owe.

However, tax pooling can make that go away.

A big frustration with Inland Revenue (IRD) is that it expects taxpayers to pay the correct amount of tax on the dates it sets. No ifs, no buts.

Fail to adhere to this rigid timetable or underpay and you will face the consequences.

IRD charges interest – currently seven percent – from the date the payment was due until you pay the outstanding amount.

Late payment penalties may also apply as follows:

  • One percent the day after payment was due.
  • An additional four percent if the tax amount (including late payment penalties) remains unpaid after seven days.

A tax pooling provider such as Tax Management NZ (TMNZ) operates with the blessing of IRD. It can be of assistance if taxpayers find themselves in this situation.

Where might this be useful?

In the event you missed your recent 7 May provisional tax payment – or any other instalment relating to the 2020-21 income year, for that matter – we can eliminate any late payment penalties for which you may be liable and reduce the interest you pay by up to 30 percent.

You make your payment to TMNZ and we apply backdated tax that was paid to IRD on the original date(s) it was due against your liability.

The taxman treats it as if you paid on time once it processes this transaction.

This wipes any IRD interest and late payment penalties showing on your account.

You have the option of making to TMNZ a one-off payment at a date of your choosing or making regular instalment payments towards your liability over a longer period.

TMNZ gives you up to 13 months to pay your 7 May provisional tax for the 2020-21 income year.

Is your 2020 terminal tax overdue?

You still have time to use TMNZ to reduce the interest cost and eliminate late payment penalties if you have outstanding provisional or terminal tax liabilities for the 2019-20 income year.

However, you will have to act quickly.

Tax pooling legislation gives taxpayers an additional 75 days past their terminal tax date to pay their terminal tax.

If your terminal tax for the 2019-20 income year was due on 7 April 2021, you would have until 15 June to settle owe with TMNZ.

Reassessed by IRD

TMNZ can also assist with historic income tax payments and other tax types such as GST and PAYE if you receive a notice of reassessment from IRD.

You have 60 days from the date the IRD issues this notice to use tax pooling.

Please contact us if you have any questions.


Image: Big data

Audit claim data highlights level of IRD’s behind-the-scenes activity

Inland Revenue (IRD) is still actively reviewing taxpayers despite COVID-19 and the various business disruptions the pandemic has caused in the past 12 months, according to figures released by Accountancy Insurance.

They saw a 31 percent increase in claims in all categories during the 2020-21 financial year compared to the 2019-20 financial year.

In terms of the proportion of claims, most related to GST verification (55 percent) and income tax returns (nearly 28 percent).

GST verification claim activity increased by 48 percent and income tax return-related claim activity by 67 percent in the 12 months to 31 March 2021.

The income tax return claim activity included cases relating to two campaigns IRD commenced in late 2020: They were the increased enforcement of the bright-line rules in December and the Automatic Exchange of Financial Account Information programme in November.

Accountancy Insurance says the following taxpayer categories had the highest number of claims during the 2020-21 financial year:


  • Sole trader/partnership/non-trading company and trusts.
  • Business groups <$500,000-$3 million turnover.


Industries under the spotlight

As most know, IRD has access to several large data sources which they use to help identify high-risk industries where there could potentially be low levels of tax compliance.

Low levels of compliance are usually seen in sectors where there is a high level of cash transactions.

Hospitality and construction are two such industries that IRD monitors regularly. The tax department recently launched a new campaign aimed at the latter.

And as well as property and the real estate industry, IRD is also taking an interest in cryptoassets.

Accountancy Insurance notes that client risk review claim activity decreased by 62 percent in the 12 months to 31 March 2021. In fact, this accounted for just 9.74 percent of all claims.

However, that was likely because the businesses which are typically subject to these reviews and audits were the ones most affected by multiple COVID-19 lockdowns in 2020.

They expect things will return to normal throughout 2021 as IRD ramps up its audit activity.


Reminder: We can help with IRD audits and voluntary disclosures

As an IRD-approved tax pooling provider, Tax Management NZ (TMNZ) can be used to get significant savings on Inland Revenue interest if they owe additional tax as a result of IRD issuing a notice of reassessment after an audit or voluntary disclosure.

TMNZ lets someone apply tax that was paid to IRD on the original due date(s) against their liability.

As such, IRD treats it as if they paid on time once it processes this tax pooling transaction. This eliminates any late payment penalties. Please note the legislation prohibits us from assisting with shortfall penalties.

A taxpayer can use TMNZ to reduce the interest cost on the difference between the original assessment amount and the reassessed amount that arises due to an audit or voluntary disclosure.

We can assist with income tax, and other tax types such as GST, PAYE and FBT when there is a reassessment.

Someone has up to 60 days from the date IRD issues the reassessment notice to pay the tax they owe via TMNZ.

TMNZ has the largest and oldest supply of audit tax in the market.

Please contact us if you have any questions about tax pooling. We’re happy to help.

 


Commissioner’s discretion for tax pooling

A provision within legislation allows taxpayers to use tax pooling for certain income tax or RWT voluntary disclosures where no return has been previously filed.

This is known as Commissioner’s discretion.

And it’s worth seeking if a taxpayer satisfies all relevant criteria (see below), as settling these underpaid tax types through an approved tax pooling provider such as Tax Management NZ (TMNZ) can result in significant interest savings. We can reduce the interest payable by up to 30 percent.

To use tax pooling for historical income tax and other tax types, there generally needs to be a notice of reassessment issued by Inland Revenue (IRD).

However, section RP17B (9) Income Tax Act 2007 stipulates that the Commissioner’s discretion found in RP17B (10) of the Act may be available in situations where a voluntary disclosure for income tax or RWT is made and a return for that tax type has not previously been filed.

The criteria for Commissioner’s discretion

That said, there are three conditions a taxpayer seeking Commissioner’s discretion to use tax pooling funds to settle income tax and RWT obligations must meet.

They are as follows:

  • The increased amount arises as a result of an event or circumstance beyond the person’s control; and
  • The person has a reasonable justification or excuse for not filing the return by the required date; and
  • The person has an otherwise good compliance history for two income years before the income year in which the voluntary disclosure is made.

A taxpayer must satisfy all three requirements for the Commissioner to exercise her discretion.

This ensures that in exercising discretion she is satisfied that each occasion of non-compliance is not a deliberate act or a continuation of failures because of the taxpayer’s inadequate or poorly applied internal controls.

We recommend you refer to the examples 12 and 13 (pages 44 and 45) of the Tax Information Bulletin Vol 23, No 8, October 2011 to get a sense of the scenarios where IRD will allow or decline a request for Commissioner's discretion.

Applying for Commissioner’s discretion

The process is straightforward.

An application asking the Commissioner to exercise her discretion to use tax pooling funds can be made in writing.

Be sure to include the taxpayer’s name and IRD number in this correspondence.

Outline the details of the case in a few paragraphs. We recommend splitting this information under the following headings:

  • Background information. Include information about the taxpayer and nature of their business. It should also contain contextual information that you deem relevant, such as historical business relationships, personal circumstances, and relationships with other/historical accountants.
  • The increased amount arises as a result of an event or circumstance beyond the person's control. Include detailed (and chronological) events or factors that have occurred throughout the period in question that provide further contextual explanation as to how the liability has arisen and not been declared until now, and how this was beyond the taxpayer’s control.
  • The person has a reasonable justification or excuse for not filing the return by the required date. Include any details that show the client has not been purposefully negligent.
  • The person has an otherwise good compliance history for two income years before the income year in which the voluntary disclosure is made. Include details that support a good prior history. It’s important to show this occurrence is out of the ordinary and therefore worthy of consideration.

TMNZ has an email template available should you require this.

Requests asking the Commissioner to exercise her discretion can be sent to Rajni Raju at IRD by emailing Rajni.Raju@ird.govt.nz.  

TMNZ is here to help

If you’d like further information on Commissioner’s discretion or wish to discuss a particular scenario, please call us on 0800 829 888 or email support@tmnz.co.nz.


Image: Miscalculate

Miscalculated your tax loss carry-back? Don’t worry – help is at hand

Tax pooling can reduce the interest cost a taxpayer faces significantly, if they have overestimated their loss under the temporary tax loss carry-back scheme.

Under the temporary Inland Revenue (IRD) scheme, those who expect to make a loss in the 2019-20 or 2020-21 income year can estimate that loss and use all (or a portion of it) to offset the profit made in the previous year.

A taxpayer can carry their loss back one year. For example, that would mean:


  • Losses from 2019-20 income year can be carried back to the 2018-19 income year.
  • Losses from the 2020-21 year can be carried back to the 2019-20 income year.

More information about the scheme and how it works is available here.

One of the major downsides of the loss carry-back scheme is a taxpayer falls outside of the IRD interest concession rules that apply for provisional taxpayers using the standard uplift method. This is because they must switch to the estimation method when determining the tax loss they wish to carry to back.


What happens if someone overstates their loss and receives a greater refund of tax for which they are eligible?

It means that normal IRD interest rules will apply for underpaid tax in the previous profit year.

For example, if someone with a 31 March balance date overestimated the loss they will make in the 2020-21 tax year and therefore has additional tax payable in the 2019-20 income year, IRD interest will apply from 28 August 2019, the date of their first instalment for the 2019-20 income year.

As of 8 May 2020, IRD charges interest of seven percent.

Moreover, the COVID-19 relief relating to remission of IRD interest is not available to taxpayers who use the temporary tax loss carry-back scheme.


How Tax Management NZ can help

If it turns out you have additional tax to pay in the 2018-19 or 2019-20 income year due to overstating your loss during the 2019-20 or 2020-21 income year, then help is available.

As an IRD-approved tax pooling provider, Tax Management NZ (TMNZ) can mitigate your exposure to the interest incurred on this tax.

That’s because we can apply backdated tax paid to IRD on the date it was originally due against your liability.

You make a payment directly to TMNZ comprising the core tax amount plus our interest. We then arrange a transfer of the tax you require from our IRD account to your IRD account.

The interest you pay TMNZ is significantly cheaper than what IRD charges for underpaid tax.

Once IRD processes this transaction, it will treat it as if you paid on time.

This clears any IRD interest and late payment penalties showing on your account.

Legislative deadlines do apply.

If you have any questions about tax pooling, please feel free to contact us. We’re here to help.