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New Zealand Legal Changes (01.04.1999): Tax Changes

Description

As of April 1 1999, the Inland Revenue Department (IRD) has simplified the tax codes and introduced an Employer Monthly Schedule (EMS) and Remittance Certificate designed to reduce the information requirements placed on companies.

This document contains important details regarding the New Zealand tax changes and explains how you can implement these changes in your SAP system.

The changes have been grouped into four sections:

The following list is a summary of the changes:

    1. The IR68P form is still required to be filed for the year ended 31 March 1999 but will not be required for 31 March 2000.
    2. The IR12 and IR13 forms issued to the employee and attached to the IR68P form have been replaced by the new Employer Monthly Schedule.
    3. The magnetic media option for filing IR12 and IR13 forms has been removed as there is no longer an IR68P form.
    4. The IR66N and IR66W returns have been removed.
    5. The Student Loans schedule has been removed (IR 66L).
    6. The Child Support schedule has been removed (IR 66C).
    7. The Employee Start and Finish schedule has been removed (IR 66ES).
    8. The combined Student Loans, Child Support and Start and Finish schedule used by small employers has also been removed (IR 66S).
    9. A new Employer Monthly Schedule (IR348) has been created to replace the IR68P form, IR12 forms, IR13 forms, Student Loan schedule, Child Support schedule, Start and Finish schedules. It is due once a month on the 20th of the following month for small employers and the 5th of the following month for large employers. For large employers, the December Employer Monthly Schedule is due on January 15. The schedule includes the period, employer name, employer IRD number, payroll clerk name and phone number. The new schedule also contains the following employee information:
    10. A new indicator shows whether the extra emolument was deducted at the high or low rate.
    11. A new employee declaration form (IR330) has been created to replace the IR12 and IR13 forms.
    12. A new remittance form IR345 for employers who do not pay Specified Superannuation Contribution Withholding Tax (SSCWT) has been introduced. For small employers it is due monthly, on the 20th of the following month. Large employers must file it twice monthly, on the 20th of the current month and the 5th of the following month.
    13. A new remittance form IR346 for employers who pay SSCWT has been introduced. For small employers it is due monthly on the 20th of the following month. Large employers must file it twice monthly, on the 20th of the current month and the 5th of the following month.
    14. The Remittance Certificate must contain:
    15. The Remittance Certificate is unable to be filed electronically. You should use Inland Revenue stationery.
    16. It is compulsory for large employers to file the Employer Monthly Schedule electronically if they have not been granted an exemption. A large employer is one who pays tax deductions of more than $100,000 per annum. The electronic Employer Monthly Schedule must be in a format prescribed by Inland Revenue.
    17. Exemptions can be obtained from filing electronically if the number of employees is less than 100 on each day in the year.
    18. The tax codes have been changed to make it easier for taxpayers to select the correct tax code. (For more information, see the section Tax Codes below).

Tax Codes

Reduction in return filing is significantly dependent on the accuracy of the PAYE system. The Inland Revenue Department has therefore introduced various supporting measures, such as clearer tax codes to make it easier for taxpayers to select the correct tax code.

Inland Revenue will use the information provided by the Employer Monthly Schedule to ensure the correct tax code is being applied and that taxpayers are receiving the correct amount of social assistance for that year. If an employee does not correct an incorrect tax code after being advised by Inland Revenue, then Inland Revenue will inform the employer to apply the correct tax code. An employer who receives notification of the correct tax code must apply that tax code to source deduction payments on behalf of the employee.

New Tax Codes and Rates

The new tax codes include:

Old Code New Code New Description Tax Rate
G M Main Unchanged
G ED M SL Main w. Student loan Unchanged
T ML Main Low Unchanged
SEC S Secondary 0.21
SEC ED S SL Secondary w.Student Loan 0.21
SH SH Secondary High 0.33
SH ED SH SL Secondary High w. Student loan 0.33
CAW,SSH,SHR CAE Casual Agricultural Employee 0.21
EDW EDW Election Day Worker 0.21
3 STC Special Tax Code *
Non-decl. ND Non-Declaration 0.45
- WT Withholding tax **

Note: All tax rates are listed without earner premium, which must be added where applicable to determine the actual tax amount.

* The tax rate for STC is as specified on IR23.

** The rate for tax code WT is a flat rate without earner premium. The amount to deduct depends on the nature of the payment.

Specific Tax Codes Usage in the R/3 System

Employer Monthly Schedule

Employers are required to provide Inland Revenue with monthly schedules detailing each employee's salary and wage income and deductions such as PAYE, student loan repayments, child support payments and certain other information. The Employer Monthly Schedule process involves:

Employers who use manual payroll systems are required to copy information already contained in their wage books onto the Employer Monthly Schedule. Large employers, (those who pay PAYE to Inland Revenue twice monthly), are required to provide information electronically. An exemption is provided if this would cause undue compliance costs to employers with under 100 employees in the 1999/2000 year and 50 employees in subsequent years.

Effects on Customizing

The following steps need to be maintained in Customizing for Payroll Accounting New Zealand. For more information, see the Implementation Guide (IMG):

Running the Employer Monthly Schedule

To run the Employer Monthly Schedule, choose Human Resources -> Payroll -> Subs. activities -> Per payroll period -> Lists / Statistics -> Payroll reports -> Employer Monthly Schedule.

On the selection screen, you make entries in the following new fields:

Running the EMS for the First Time

If you are running the EMS for the first time in April 1999, the date in the Last submitted EMS run date field must be the same as the date the last payroll was executed in the 1998/1999 financial year.

For example:

Processing the EMS Report

After you have executed the EMS, each employee is processed individually. A process indicator bar at the bottom of the screen indicates which employee is currently being processed and the total percentage completed.

Once all employees have been processed, a screen appears, detailing the reason why any employees were rejected. If no employees were rejected, this screen is not displayed.

The system then displays a report, listing the details for all employees included on the EMS. You have three options:

    1. Cancel the report
    If you choose the Back function, the report is cancelled and no further processing takes place.
    2. Generate an electronic file to be used for transmitting the EMS to the IRD electronically
    If you choose the function Electronic file, the system creates an electronic file and displays a dialog box for downloading the electronic EMS file to the desktop. The system suggests a default file name and location, but you can change this if necessary. Note, however, that the file type must NOT be changed. The IRD requires that the file be submitted in ASCII format. Once the file has been downloaded, you transmit the electronic file to the IRD as specified in the "ir-file" document. (This document is available from the IRD).
    3. Generate an exception report
    If you choose the Exception report function, the system displays a list of all employees who were not included on the EMS. These employees were not rejected from the EMS because of an error in their details, but because their gross income, PAYE or student loan was negative. You must send the details from this report to the IRD.
    Note: The formatting buttons under the table of results will not affect records on the electronic file, even if records are added, deleted or manipulated in any other way.

Remittance Certificates

In addition to the Employer Monthly Schedule, two new Remittance Certificates (IR345 and IR346) have been created. The IR345 form is used for employers who do not pay SSCWT. The IR346 form is used for those employers who do pay SSCWT. The employer is automatically sent the correct Remittance Certificate for their needs. The Remittance Certificate replaces the Employer Deduction return (IR 66N/IR66W) and is used to allocate the payment to the correct tax types. Large employers are required to file the Remittance Certificate twice a month. The Remittance Certificate contains totals for PAYE deductions, Child Support, Student Loans, and, if the employer pays SSCWT, total SSCWT deductions.

Creating a Remittance Certificate

To create a Remittance Certificate, choose Human Resources -> Payroll -> Subs. activities -> Per payroll period -> Lists / Statistics -> Payroll reports -> Remittance certificate.

On the selection screen, you make entries in the following new fields:

Processing the Remittance Certificate

After you have executed the Remittance Certificate (either the IR345 or the IR346 form), each employee is processed individually.

Once all employees have been processed, a screen appears, detailing the reason why any employees were rejected. If no employees were rejected, this screen is not displayed.

The system then displays the Remittance Certificate. It contains totals for the employer's PAYE deductions, Child Support, Student Loans, and, if the employer pays SSCWT, total SSCWT deductions.

The system also generates an exception report which lists the total for all employees that were not included on the Remittance Certificate. These employees were not rejected from the Remittance Certificate because of an error in their details, but because their gross income, PAYE, Student Loan or Child Support was negative during the specified period.

Effects on System Administration

Tax Conversion Program

A program has been created to convert the New Zealand Tax infotype (0313) details from the old to the new tax codes. You must execute this program for all employees prior to running payroll in the 1999/2000 financial year.

Converting the Tax Codes

To execute the conversion program, choose System -> Services -> Reporting.

Then enter HNZUTAX0 in the Program field and choose the Execute function.

Once the system has processed all employees, a screen appears, detailing the reason why any employees were rejected. If no employees were rejected, this screen is not displayed.