July 2013 E Newsletter

Welcome

With Winter in full swing around the country, all fears of drought repercussions have been replaced with completely different weather-related issues! We hope that, wherever you are around the country, you are managing to weather any storms. There are black clouds over the taxing of worldwide income, with the IRD having recently signed information-sharing treaties with several other countries. Please don’t forget that if you are a New Zealand resident then any income earned from anywhere in the world needs to be considered for inclusion in your New Zealand tax return. If in doubt, please ask us. In this months’ edition of Focus, we look at this issue, and that of foreign exchange gains on bank accounts & foreign pensions.

NZ Tax Residents are taxed on all their “Worldwide Income”

It may be important to determine your tax residency status. This is an area IRD are looking to change which will result in taxing more New Zealanders working overseas who are deemed to have a home in NZ. If you are a transitional resident, then your foreign retirement savings will not be taxable until you stop being a transitional resident

Foreign Exchange Gains / Losses on Overseas Deposits / Bank Accounts – A trap for the Unwary

Whenever our clients have cash and bank accounts in other countries, we need to assess whether these types of cash investments fall under the accrual rules which apply to realised and unrealised foreign exchange gains and losses. If caught gains are taxable and losses tax deductible. Foreign dominated currency bank accounts and investments are defined as a “variable principal debt instrument”.

Such funds are known as an excepted financial arrangement only if the value of all bank accounts and deposits overseas and in NZ do not exceed NZ$50,000 on any one day of the year. The IRD is particularly targeting the non-disclosure of offshore bank accounts, the use of foreign credit/debit cards, overseas life insurance and superannuation funds. It does not include interest earned from term deposits, bonds, debentures or money lent.

The bank account will be a financial arrangement for accrual rules purposes unless an exemption applies. If the account is subject to the accrual rules, unrealised exchange gains and losses will be taken into account for tax purposes.

Important information about Foreign Pensions and Annuity income

Inland Revenue have started to review the position of tax payers claiming foreign tax credits (FTCs) relating to foreign pension and annuity income where they may not have been entitled to do so, and will be writing to tax agents with clients whom it thinks have taken incorrect tax positions on a please explain basis. While the concern is mostly concentrated on UK sourced pensions and annuities, it also may apply to other forms of income sourced from other countries.
So who does this apply to?

Limited time to get smart

The Government is cracking down on Student Loan borrowing and has announced a number of changes to the scheme in this year’s budget.
If you are nearing 65 or older and were intending to study, you might want to think again. The Government has decided to remove eligibility for over 65s and if you’re over 40, stricter limits will be put in force when you’re applying for a student loan.
That’s not the only area where the government is tightening the reins. Those with student loan debt, who are living overseas, are now in the firing line too. Overseas-based borrowers with higher loan balances will have a higher repayment obligation. It will now be an offence for a borrower to knowingly default on an overseas-based borrower repayment obligation.

What happens if an employee does not complete a timesheet?

The Employment Relations Act 2000 and the Holidays Act 2003 outline that all employers have an obligation to keep and maintain a wage/time, and a holiday/leave record for each of their employees. However the legislation does not place an obligation on employees to fill out time sheets.

Completing a timesheet each week can be a part of the workplace policy or is a contractual issue and thus up to an employee and employer to agree upon as a term and condition of employment. Once agreed upon, the requirement to fill out weekly timesheets can not be changed without the agreement of both the employer and the employee - as this may be seen as a condition of employment.

If an employee has not submitted their timesheets as per their agreement, then the employer does not automatically have the right to withhold payment, unless it is expressly outlined in a signed written agreement. In this situation, it would be up to the employer and the employee to reach an agreement over the matter in good faith.