2021 Tax Update
About the Author:
Mike Rudd
Tax Director at Bakertilly
With over 25 years as a tax advisor, Mike simplifies complex tax issues and works with clients to help them make the most of tax opportunities and effectively manage tax risks.
Key upcoming tax items
With 2021 getting off to a roaring start, there are a number of tax issues which you may need to consider.
Low value assets
As part of relief measures introduced last year, the government permitted businesses to claim an automatic deduction for assets costing less than $5,000 (subject to certain criteria) instead of needing to depreciate those assets. This concession is for assets purchased between 17 March 2020 and 16 March 2021. From 17 March 2021, this concession only exists for assets costing less than $1,000.
Accordingly, if you are planning on acquiring assets costing less than $5,000 and wish to take advantage of this concession, we recommend purchasing assets prior to 16 March 2021.
New kilometre rates
Inland Revenue have recently released their new kilometre rates, which are as follows:
The Tier One rate is available for the first 14,000 kilometres of usage per annum. This needs to be apportioned where a vehicle is used for both business and private usage (so, for instance, a vehicle used 50/50 for business and private usage can only use the Tier One rate for the first 7,000 kilometres of business usage). The Tier Two rate is used for all usage after the first 14,000 kilometres.
Kilometre rates can be used in the following situations:
To reimburse employees for usage of their motor vehicle for business purposes
To determine the deduction available for businesses for motor vehicle usage (subject to specific requirements)
Kilometre rates published by reputable organisations (e.g. Automobile Association rates) can also be used.
Given the kilometre rates have been published abnormally late this year, an argument can be made that employees could receive a slightly higher tax-free reimbursement payment for business usage. In practice, we find Inland Revenue accept usage of the most recent published kilometre rate, even though technically, the new rate applies from 1 April 2020.
With this change, along with changes in FBT rates, it might be time for your business to consider whether employees should continue to be provided with motor vehicles or whether it would be more cost effective to reimburse them for business use of their motor vehicle. This is an area for which it is worth seeking further advice.
RWT/NRWT returns
When a party is required to withhold Resident Withholding Tax (RWT) or Non-resident Withholding Tax (NRWT) on interest, dividend or royalty payments made, a return must be filed with Inland Revenue. Since 1 April 2020, those returns must be filed in a standard electronic format by the 20th day of the month following the month in which the relevant amount was paid. This includes full details of recipients and amounts they receive. The information required is listed here.
There are a couple of key items to note:There is no longer a requirement to file a return where interest, dividends and royalties have not been paid.
The relevant legislation requires parties that are paying taxable dividends to file a return. This includes dividends that do not require payment of RWT or NRWT due to the involvement of various concessions in legislation, including for fully imputed dividends paid to overseas shareholders or where the shareholder is a New Zealand corporate and the payer has chosen that RWT not be withheld.
R&D election deadline
There are two key R&D tax credit deadlines coming up in the next few months, which we outline below:
2020 income year: The R&D supplementary return is generally due on 30 April 2021, assuming your income tax return is due on 31 March 2021.
2021 income year: General approval applications (notifying Inland Revenue an R&D tax credit claim is to be made):
The deadlines for general approval applications have been extended by Inland Revenue for 2021. In future periods, general approval applications must be filed by the 7th day of the 2nd month following balance date.
For 31 December 2020 balance dates – must be filed by 7 May 2021
For 31 March 2021 balance dates – must be filed by 7 August 2021
For 30 June 2021 balance dates – applications must be filed by 30 September 2021
GST and not for profits
We remind you of the 31 March 2021 deadline referred to in our Jan-Feb journal article:
One of the benefits of the GST regime for not for profit entities is their ability to register for GST and claim input tax credits on goods and services acquired by them, except when in relation to making exempt supplies (usually residential accommodation or selling donated goods). This works as a subsidy by the government for the not for profit sector.
By 2018, Inland Revenue had formulated a view that where a not for profit is carrying on a taxable activity, this did not include other activities undertaken by the entity. The result was that a not for profit with substantial assets (e.g. a religious body with a building used for worship or a sports body with grounds used for sporting activities) could potentially receive input tax credits but not be subject to GST when the relevant assets were sold. Government therefore amended the law with effect from 15 May 2018 and gave existing not for profits two options:
They could claim input tax credits as before, but would be subject to GST when the assets were sold; or
They could make an election to exclude specific assets as not being part of any taxable activity. This means no input tax could be claimed on the asset, but would also mean that GST would not be charged on the sale of the relevant asset.
The election under option 2 must be provided to Inland Revenue before 1 April 2021, with a GST adjustment effective at that date.
A not for profit choosing option 2 will need to repay GST previously claimed to Inland Revenue, but would also obtain the benefit of not needing to account for GST on the sale of the relevant asset. For some not for profits, who may have acquired land prior to the introduction of GST and have only claimed costs in relation to upkeep, this benefit could be substantial.
There is a considerable level of complexity involved in making the election, and so professional advice should be sought.
Automatic assessment
As most will be aware, Inland Revenue have issued automatic assessments of income tax returns since the 2019 year (generally the year ended 31 March 2019). The automatic assessments are based on information held by Inland Revenue, including wage and salary data, interest earnings data and, from 1 April 2020, dividend earnings data. Where Inland Revenue data is incomplete, more information will be requested and taxpayers have the opportunity to provide this information through to Inland Revenue.
Care needs to be taken should further information be required. One issue Inland Revenue has identified to us is the incorrect filing of an IR3 return instead of simply providing the additional information requested. Other issues identified have included:
Incorrect information held by Inland Revenue
Unexpected tax bills
Amendments made after terminal tax due date not following the correct procedure
If you have received an automatic assessment from Inland Revenue and have concerns about its accuracy, or have been asked to provide more information, seek professional advice.
Director
Baker Tilly Staples Rodway
09 373 1137
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With 2021 getting off to a roaring start, there are a number of tax issues which you may need to consider.