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TAX TIDBITS
Issue Eight, May 2006

 

In this months issue:

IRD Shortfall Penalties
United Kingdom Dividends
Guard Dogs

 

IRD SHORTFALL PENALTIES

Legislation has been passed which gives the Inland Revenue Department discretion to cancel or not to assess the unacceptable tax position (UTP) shortfall penalty in cases where the tax shortfall is the result of :-

  • A "clear mistake or simple oversight" and
  • is either voluntarily disclosed before notification of a pending audit or investigation, or is a temporary tax shortfall, and
  • it is appropriate that the taxpayer not be liable to pay a UTP penalty in relation to the tax position

 

  The new law also allows the IRD to cancel a UTP shortfall penalty that has been assessed after 1 April 2003 and before 1 April 2006, provided the case meets the above criteria. This must be requested in writing before 30 September 2006 .

 

UNITED KINGDOM DIVIDENDS 

The taxation of dividends received by New Zealand tax residents from UK companies has changed and this will come as a surprise to some investors.  Under UK tax rules a tax credit equal to 10% of the gross dividend is attached to a dividend paid by a UK company.  For income years up to and including the 2004/2005 income year, the Income Tax Act 1994 treated this tax credit as part of dividend income for New Zealand tax purposes.  In addition, the credit was allowed against New Zealand tax payable.  New legislation here means the following changes from1 April 2005 for a New Zealand resident who receives a tax credit attached to a dividend from a UK company:

  • You should not include the credit as taxable income; and
  • You are no longer entitled to a foreign tax credit for the UK tax credit

Unfortunately this will result in more tax payable on these dividends.

 

 

GUARD DOGS

The cost of feeding and maintaining a guard dog is deductible if the primary purpose of the dog is security for your business.  In this situation the purchase price of the dog would be capitalised and depreciated over its working life.  The family pooch is excluded from these rules as it has the primary purpose of being the family pet - any security offered to the home office is merely incidental.

 

 

Upcoming events at HWI:

FREE Seminar: Better business management & characteristics of a well run business,
Wendesday 14th June 2006 at 9am, email Mark at maldridge@hwi.co.nz for details or book online at www.hwi.co.nz

 

Disclaimer
Information contained within this document is of a general nature and does not constitute advice. Readers are cautioned not to act or reply on it without first seeking professional advice.

 

 
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