A Week in Review

ACC Levies annual review

With the ringing in of the new income year, we usually also see the coming into effect of any changes to the ACC rates – the Work Account levies (to cover work-related injuries) and the Earners levy (non-work injuries).

In this regard therefore, taking effect from 1^st April 2019:

• the average Work Account levies will decrease from 72 cents per $100 to 67c per $100; and,
   
• the Earners levies will remain at the current level of $1.21 per $100 of liable earnings.

New Payday Reporting – error corrections

Section 23N of the Tax Administration Act provides for regulations to be made, which will set out how an employer may correct errors they have made in relation to the employment income information they have filed for a particular payday.

So in this regard, we have now seen the release of the Tax Administration (Correction of Errors in Employment Income Information) Regulations 2019. These regulations provide commentary on the nature and types of errors that may be corrected by the employer, and the manner in which correction of those errors can occur.

The regulations are easy to read, contain a useful flowchart in the Explanatory Notes section towards the end of the document, and includes examples throughout the regulations themselves, to illustrate the nature of the particular error that the employer has subsequently identified and the appropriate method of correction.

The regulations are targeted towards overpayments of PAYE income (not underpayments however), errors in calculating the amount to be withheld (although not where the employee has provided an incorrect tax code), or the error relates to certain other employment related deductions (e.g. child support) that the employer should have withheld.

The regulations are effective from 1^st April 2019.

New Zealand signs new DTA with China

Considering all the recent media attention in recent weeks suggesting the weakening of NZ/China relations, you could say therefore that it is somewhat surprising to see that our first resigned, effectively modernised (BEPS inclusive) DTA, is with the Asian nation.

Relatively unchanged since the treaty was first signed in 1986, the new DTA is designed to reduce barriers to cross-border trade and investment with China, and contains measures to prevent companies structuring to avoid paying taxation on their profits in the respective taxing jurisdictions.

The new agreement will see a reduction in the withholding tax rates on certain dividends, reducing from the present standard rate of 15% to 5%, where the beneficial owner of the paying company is a company which holds a greater than 25% interest in the paying company.

The new DTA will eventually be brought into force via the exchange of diplomatic notes between NZ and China.

Non-resident entertainers exposure draft

IR has released PUB00317 for comment, which explores the issue of whether the income derived from NZ by the non-resident entertainer can be exempt from income tax via application of section CW 20 of the Income Tax Act 2007.

In this regard the statement discusses the four potential situations where section CW 20 could have application:

• where the activity/performance occurs in a cultural programme belonging to and funded by, either the NZ Government or an overseas central government; or,
   
• when the activity/performance occurs in a cultural programme that is wholly or partly sponsored by a government (where the NZ Government/overseas central government provides more than minimal funding for the cultural programme); or,
   
• when the activity/performance occurs as part of a programme that belongs to certain types of overseas not-for-profit bodies (must be foundation, trust or other organisation, with more than minimal purpose of promoting cultural activity, and cannot be carried on for the private pecuniary profit of any member, proprietor, or shareholder); or,
   
• where the activity relates to a game or sport, where the participants are official representatives of a body that administers the game or sport at a national level in an overseas country.

It is proposed that the statement would also apply to exempt amounts derived by another person (Service Provider) who provides the services of a non-resident entertainer during a visit to NZ if certain conditions are met.

The deadline for comment is 10^th May 2019.

R&D Tax Credit Bill reported back

The R&D Tax Credit Bill has been reported back from the Finance & Expenditure Committee, post consideration of public submissions made on the Bill.

The Bill as originally drafted remains relatively unchanged, with a few minor exceptions:

• The internal software development expenditure cap has been raised from $3m to $25m;
   
• The contracted R&D profit margin clause which automatically sought to deduct 20% from the outsourced cost for the purpose of calculating the principals credit claim, has been deleted, as the FEC accepted submissions that the contracted cost was in fact the true cost to the claimant in undertaking the R&D, and retaining the clause could create bias towards not outsourcing the particular R&D activity, even in circumstances where it may have been more efficient to do so;
   
• Amend any use of the term “paid” with “incurred” to ensure consistency between timing of expenditure claims under the R&D rules with those under the tax rules;
   
• The addition of other employment related costs as eligible expenditure such as bonuses, recruitment and relocation costs, because these costs can represent a genuine cost of R&D to a business; and,
   
• That IR contact a claimant before declining their claim, thereby providing an opportunity for the person to provide additional information before the claim is formally declined.

We now await the Bill’s second reading.