It's Tax Time again

Ruapehu Bulletin, Volume 15, Issue 690, 10 June 1997, Page 11

It's Tax Time again

It's time to look at one of life's certainties — tax — and accountants Peach Cornwall and Partners and Sewell & Wilson have offered the following advice to Bulletin readers. The following information is presented in good faith but no responsibility can be accepted for its accuracy. If you have any doubts, ask your accountant or the Inland Revenue Department. Nice changes For the 1997 tax year there are some advantageous changes which makes a nice change in the current economic climate. Below is a brief summary of the main ones affecting most households. • The charge of marginal tax rate. The highest tax rate of 33% does not come into effect until $34,200. • The tax rate differential is now 11.5c increasing the benefit of planning for high income earners. • Family Support Entitlements are increased. • Independent Family Tax Credit was introduced. This now provides benefits to people whose income levels previously were too high. • National Superannuation Surcharge exemption levels were increased as follows: Single from $4160 to $4550; married from $6240 to $6825. A further reduction occurs in this financial year which will affect provisional taxation calculations. These are: Single from $4550 to $10,296; Married from $6825 to $15,444. The bad news!! Your compliance obligations are tougher with the new penalties regime introduced from 1 April 1997. These apply to all types of tax for the tax period commencing after that date. Briefly, this means: • A one-off penalty will be imposed for late

payment. Mailing your cheque on the date is not an acceptable excuse! •"Use of money interest" will be charged from the due date until funds are received. Neither of these impositions will be reversible by the IRD. Therefore, as agents and taxpayers the onus is on us all to complete our obligations accurately and within due time. New tax penalties The most significant impact is the extension of the existing use of money regime. Currently, the rates are 13.9% on under payments and 7.1% on overpayments. Many clients will find their borrowing rates significantly below the IRD rate. Tax accounts will need to be monitored to minimise interest costs. There will be a real downside to getting a tax calculation wrong regardless of any other penalty. If a tax audit finds a mistake or incorrect claim going back say, three years, then interest on the shortfall will apply from the original date together with any other relevant penalties. The same applies to late payments. Clients must realise that this makes it imperative to consider for the mutual benefit of both the accountant and themselves: • Regular processing of information. • More timely provision of year-end information • Responding quickly to queries these are minimised by regular processing as is the year-end process, in addition to which you might find out more about your business and its direction! • Putting aside a regular amount for tax so as to avoid penalties arising from inability to pay. • The old "claim and hope" basis of the past will attract stiff penalties if overturned.

One area that is bound to receive attention from the IRD is claims for repairs and maintenance that could border on being capital

improvements. The referendum later in the year about compulsory superannuation should make for interesting reading and

much debate. As yet comprehensive details are not available so whether there will be a tax effect is unknown at the moment.