Removal of the employer tax credit annual square-up

Submission

(Matter raised by officials)

The employer tax credit annual square-up contained in the bill should not proceed.

Comment

Employer tax credits were removed by the Taxation (Urgent Measures and Annual Rates) Act 2008. The proposed square-up would therefore only be applicable for the 2008–09 tax year.

The compliance and administration costs to employers and Inland Revenue do not justify a one-off square-up. Many employers do not have payroll software and it would be necessary to perform the complicated calculations manually. The small amounts involved in most square-up payments, particularly for small businesses, may not make it worth claiming.

A number of employer agencies have been consulted. They acknowledged that the square-up is likely to be too small to worry about claiming given the compliance costs involved and would be more trouble than it is worth for small to medium businesses and those without automatic payroll software.

Recommendation

That the submission be accepted.

Issue: Calculation of the employer tax credit

Clauses 258–261

Submission

(67 – New Zealand Institute of Chartered Accountants, 68A – Corporate Taxpayers Group)

The legislation should be amended to relate the calculation of the employer tax credit to the employer’s contributions actually made, subject to a maximum of $1,042.86.

A taxpayer with fortnightly pay days should have the ability to elect to merely claim $20 per week per employee based on the number of payroll days that fall within that month.

Comment

Employer tax credits were removed by the Taxation (Urgent Measures and Annual Rates) Act 2008, so the submission is no longer relevant.

Recommendation

That the submission be declined.

Submission

(79 – Michael Chamberlain)

The employer tax credit (ETC) annual square-up should proceed. The formula for calculating the employer tax credit in MK 10 of the Income Tax Act 2007 results in an under-calculation of the correct amount of ETC. The amount of a square-up may be significant and therefore worthwhile for an employer to claim.

Comment

The submission raises concerns about whether an employer would receive the full amount of the employer tax credit. Inland Revenue’s interpretation of current legislation is that the calculation in section MK 10 correctly delivers the vast majority of the ETC to employers. This addresses the submission’s concerns.

Recommendation

That the submission be noted.