Newsletter December 2009
Welcome
2009 has certainly not been without its challenges for the world, our country, our communities and our people. Within MCI & Associates we have seen first-hand the effects of the recession on our clients and we will continue to see these effects into 2010. It is important to recognise the successes that have been made in the past 12 months and we are proud of the resilience demonstrated by our clients and within our community.
We have made improvements this year in our turnaround times and the level of service provided to our customers and we have achieved top ranking percentages within the region for returns filed.
Our staff continue to go above and beyond in their roles and are enjoying developing closer relationships with their clients. A stable workforce will allow us to approach 2010 with consistency and our focus continues to be on improving the services that we provide to you.
Christmas Closure
We will be closing at 12pm Wednesday 23rd December 2009 and reopening 8.30am Thursday 7th January 2010. Best wishes for a Merry Christmas, a Happy New Year and a Great 2010.
Bonuses – the Good and Bad Points
“Pay for performance” is a topic that can create heated debates amongst employers as well as employees.
People who do not support bonuses argue that staff should get a cost of living adjustment each year and should be treated the same, unless there is an identified problem with their performance. They argue that the salary should be appropriate for all the expectations of the job and that staff are intrinsically motivated to do a good job.
Those in support of bonuses argue that individuals who excel should receive financial recognition and if employees are given financial incentives they will be motivated to achieve more. They contend that the base salary is for an adequate job, but more could be achieved if a greater reward is on offer.
If bonus payments are seen as the essential form of recognition, it is not surprising that they become a point of contention when they are not as high as anticipated. The method of calculation and amount of bonuses are often featured in personal grievance cases.
When an employment agreement states the basis for the calculation of the bonus, the employer is obliged to pay it if the criteria have been met. Failure to pay if the criteria are met provides grounds for a personal grievance.
In summary, make sure:
• the bonuses reward team work and the team members who back up the stars and let them shine.
• that if an extraordinary effort is expected, the reward given as a result is not a trifling amount.
• expectations are managed – if employees expect $50 and get $500, they will be thrilled. If they expect $5,000 and get $500 instead, they will be terribly disappointed and it could put the working relationship in jeopardy.
Bonuses can be effective in the right place but they can be incredibly difficult to design to get the desired result.
Mileage Rate for Business Use of Motor Vehicles
The IRD mileage rate used to calculate motor vehicle expenditure for both self-employed persons and employee reimbursements has increased to 70 cents/km. The previous mileage rates were 62 cents/km for the first 3,000km, then 19 cents for each kilometre thereafter. Even though the new rate was only published in May 2009, it is effective from the 2008/2009 income year, i.e, from 1 April 2008 for taxpayers with a March balance date.
The IRD mileage rate is based on information collected from a survey on the running costs of a range of vehicles with petrol and diesel engines of various sizes. It includes the cost of repairs and maintenance, fuel and other running costs. The IRD has said that changes to petrol prices only have a marginal effect on the overall mileage rate. The rate applies regardless of the size of the engine or whether the vehicle uses petrol or diesel.
Mileage rates are used by employers to calculate reimbursements for employees who use their own vehicle for a business purpose, and by self-employed people to calculate deductible motor vehicle expenditure when a vehicle is used for both business and private purposes.
There are three methods for a self-employed person to calculate the expenditure on a motor vehicle that is deductible for business use of the motor vehicle:
• actual records
• a detailed log book
• mileage rate
Self-employed people can use the mileage rate to calculate their deduction up to a maximum of 5,000km of work related travel each year. If their business travel exceeds 5,000kms then they must use one of the other two methods.
Where an employee incurs expenditure for the benefit of their employer, the expenditure can be reimbursed to the employee without being subject to PAYE. The employer may base the reimbursement on a reasonable estimate. Employers can use the mileage rate to calculate a reasonable estimate of the cost of using a private vehicle. However, if reimbursement of high mileage business travel occurs, the amount of the reimbursement may result in a monetary benefit being provided to the employee, on the basis that the reimbursement could be more than a reasonable estimate. If that is the case, the portion which represents a monetary benefit would be subject to PAYE. Shareholder-employees are not subject to the 5,000km limit if they receive income that is subject to PAYE, from a company in which they hold shares. However, care must be taken to ensure that the reimbursement is reasonable and to avoid a taxable monetary benefit arising.
IRD Lays its Cards on the Table
The IRD has released a report that sets out the areas of its compliance focus for the 2009-10 year. The report reflects the IRD’s intention to be open and transparent about the compliance matters that are of concern to the Department. The IRD believes this will enable people and businesses to better understand areas that will be targeted and hence result in better overall compliance by taxpayers.
Small and Medium Enterprises (SMEs)
There are 665,000 businesses in New Zealand with an individual turnover of less than $100 Million. It is not surprising that given the current economic times the IRD intends to focus on helping businesses avoid getting into debt with the IRD, and if they do, intervene earlier with direct contact. The IRD also intends to enter into agreements with tax authorities in other jurisdictions to recover unpaid tax from New Zealanders living overseas.
New Zealand’s “hidden economy” will also be pursued with attention focused on the following specific areas:
• GST fraud involving the use of fictitious identities and false documents
• Agricultural and horticultural contractors - they will continue to be targeted as has been the case for a number of years
• Illegal activity in the form of organised crime and complex fraud, which is expected to increase
• E-commerce involving on-line sales transactions
• Income from property transactions focusing on property traders
• Income from offshore investments, and
• Artificial losses that may be exaggerated or artificially generated.
The IRD appears to be broadly adopting a two pronged approach, through increased information being provided to the public and through specific targeted actions, such as research and intelligence gathering. For example, with respect to property transactions the IRD has identified that many taxpayers are unaware of the obligation to pay tax on certain transactions, rather than deliberate non-compliance. The IRD intends to increase awareness through its “IRD Guides”, on-line property related tools, advertising, revenue alerts and working with intermediaries and interest groups such as real estate agents, so that these groups can pass information on to the taxpayer. The report does not go into detail on how it will target property traders; this is probably so that it can protect its methods.
The report also advises that an investigations project has been launched focusing on the hospitality industry. Many businesses in this industry deal mainly in cash, and therefore have greater incentive and opportunity to understate income or overstate expenses. It has been identified that businesses that are non-compliant for tax are more likely to be non-compliant in other areas, so a cross-check will be done with data from local authorities about compliance with local government regulations, to identify prospective audit targets.
Employers
The IRD intends to focus on employers who are not registered for PAYE that should be and ensure that employers file their PAYE returns electronically if required, and that their returns are filed on time.
Individuals & Families
The IRD administers a number of different programmes, two of which are Working for Families and Child Support. Problem areas that will be targeted include families that receive too much family support, whether accidentally or deliberately, and people who try to avoid paying Child Support.
With respect to Working for Families, the IRD intends to contact new recipients and those who are at risk of receiving an over-payment (i.e. seasonal workers or self employed), to clarify their family and income details. Online services will be improved, so that recipients can view and update their information as needed. Where fraud is detected shortfall penalties or prosecution may occur.
Administrative reviews will be undertaken around Child Support payments, so that individual circumstances are taken into account as far as the law allows. Agreements are being looked at with other countries to make it easier to collect Child Support payments for parents who reside overseas. The possibility of paying by credit card over the phone is also being looked into.
It is expected that with the removal of the donations rebate threshold, fraudulent donations claims are likely to increase. The IRD intends to provide information to individuals and charitable entities about how much may be claimed and continue to identify fraudulent donation rebate claims.
Staff News
Congratulations to Jade Goode and Tim Le on the birth of their baby son Quinn in October. Jade will be returning in January 2010.
Welcome back to our regular university students Namrata Prasad and Tamsyn Hardie. Tamsyn has gained a Bachelor of Accountancy from Massey University and will be completing a further year of study towards her accountancy qualifications. Namrata has one more year of a four year degree to go. We also have Courtney Forrest with us these holidays. Courtney is studying towards a degree in agriculture and accountancy and has been employed to get our Dairybase and Waikato University statistical projects underway.
Recently we have again had a number of staff successfully pass exams towards business and accounting degrees. Congratulations to Beth, Sarah, Bronwyn and Gloria.
Staff Profile – Gloria Hayward
Congratulations to Gloria who recently passed the Professional Competency Examination 1 (PCE1). Gloria now only has the PCE2 exam to complete before achieving her goal of becoming a Chartered Accountant. These examinations require a great deal of study and time and we are proud of Gloria’s achievement.
Gloria has been with Holloway & Irwin and now MCI & Associates for four and a half years and travels from Palmerston North. Her position as Accounting Manager involves assisting in staff training and supporting the management functions within the firm