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New Zealand Legal Changes (01.04.1999): Tax Changes ( RELNHR_PAY_NZ_TAX_LCP )

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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:

• Tax Codes

• Employer Monthly Schedule

• Remittance Certificates

• Tax Conversion Program

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 The IR12 and IR13 forms issued to the employee and attached to the IR68P form have been replaced by the new Employer Monthly Schedule.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:

• Employee name

• IRD number of each employee

• Tax code of each employee plus the student loan code if applicable

• Gross earnings

• Earnings not liable for earner premium

• Indication where the tax deducted from an employee's extra emolument (Lump sum) is taxed at a rate less than 33%

• Total amount of PAYE deductions (PAYE includes tax deductions, earner premium and withholding tax.)

• Child Support amount

• Child Support variation code

• Student Loan deductions

• Start date if employee commenced work in that month

• Finish date if employee ceased work in that month

1. A new indicator shows whether the extra emolument was deducted at the high or low rate.
2. A new employee declaration form (IR330) has been created to replace the IR12 and IR13 forms.
3. 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.
4. 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.
5. The Remittance Certificate must contain:

• Name of employer

• Inland Revenue number of employer

• Period to which the remittance certificate relates

• Total PAYE deductions (PAYE includes tax, earner premium and withholding tax.)

• Total Child Support

• Total Student Loans

• SSCWT if an employer pays SSCWT

1. The Remittance Certificate is unable to be filed electronically. You should use Inland Revenue stationery.
2. 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.
3. Exemptions can be obtained from filing electronically if the number of employees is less than 100 on each day in the year.
4. 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.

• Student Loan threshold: $14,716 (Unchanged)

• Maximum rate for ACC earner premium: $83,017 (Up from $81,008)

• Earner Premium rate: 1.4% (Up from 1.2%)

Specific Tax Codes Usage in the R/3 System

• If you use tax code STC in the Tax New Zealand infotype (0313), the flat rate does not include earner premium. If you wish the system to add earner premium to the flat rate, select the checkbox Add earner premium to add it. If the employee is not liable for earner premium, you must check in Customizing that cumulations 43 and 46 are set correctly, depending on whether or not the employee's earnings are liable for ACC employer premium (IR68A). You must check all employees with a STC tax code to ensure the correct rate is contained in infotype 0313.

• If you use tax code WT, the checkbox Add earner premium is disabled, as withholding tax payments are not liable for earner premium. You must check that the wage types that are paid to the employee on a WT tax code have cumulation 46 but do not have cumulation 43.

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:

• Combining all employee information, which used to be provided by employers on multiple forms, in a single schedule

• Providing earnings and deduction information at an individual employee level

• Removing the current year-end reconciliation undertaken by employers. This will remove the need for the production and distribution of over 4 million tax deduction certificates a year, as well as the completion of 200,000 annual reconciliation forms.

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):

• The SAP System contains the 43EMS feature for identifying the hiring and leaving action types in order to determine whether or not the dates need to be recorded on the EMS (Payroll: New Zealand -> Taxation -> Employer Monthly Schedule -> Maintain EMS hiring/leaving action types). In the standard system the hiring action type is set to 01 and the leaving action type is set to 10 and 25.

• The payroll accounting constants table (T511K) contains two constants for identifying the high and low tax rate. (Payroll: New Zealand -> Taxation -> Employer Monthly Schedule -> Maintain EMS high/low tax rate). These are:

• TXLOW - Low Tax rate (currently set to 0.21)

• TXHIG - High Tax rate (currently set to 0.33)

• You must maintain the employer Inland Revenue details - NZ table (T7NZIR). This table contains your company's IR details such as company name, address and IR number, as well as payroll contact details (first name, last name and contact telephone number). These details are reported on the EMS and must be completed for each personnel area. (Payroll: New Zealand -> Taxation -> Employer Monthly Schedule -> Define employer IR details for the EMS).

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:

• EMS period (month/year)
  Defines the month and year for which you wish to generate the EMS. For example, if you enter 05.1999, the EMS will be generated for May 1999.

• Last submitted EMS run date
  Defines the date the last EMS was generated and subsequently sent to the IR department. For example, if the field contains 05.04.1999, the last EMS file was generated in the previous month on April 5 1999. This field is used during processing to determine which employee start and finish dates need to be reported to the IR department.
  The following examples assume that you wish to run the EMS for May 1999 with the Last submitted EMS run date of 05.05.1999:

• If an employee started employment on the 06.05.1999 and their details were physically entered into the system on the same date, then the employee's start date will appear in the May 1999 (05.1999) EMS, because it was entered after the Last submitted EMS run date.

• If an employee started employment on the 03.05.1999 and their details were physically entered into the system on the same date, then the employee's start date should already have been reported in the April 1999 (04.1999) EMS, (because it was entered before the Last submitted EMS run date). It will therefore not be reported again in the May 1999 (05.1999) EMS.

• If an employee started employment on the 03.05.1999 and their details were physically entered into the system on the 06.05.1999, then the employee's start date will appear in the May 1999 (05.1999) EMS. This is because when the last EMS was run on 05.05.1999, the employee had no records in the system and therefore, their start date was not reported. As a result, it must be reported in the next EMS period (05.1999).

• Personnel area - (for reporting)
  Defines the personnel area to be used in the header details on the electronic file and report.

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:

• If you run a monthly payroll, the Last submitted EMS run date must be the same as the date you ran payroll in period 12.1998.

• If you run a fortnightly payroll, the Last submitted EMS run date must be the same as the date you ran payroll in period 26.1998 (or 27.1998).

• If you run a weekly payroll, the Last submitted EMS run date must be the same as the date you ran payroll in period 52.1998 (or 53.1998).

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:

• Remittance certificate period
  Defines the date range for which the Remittance Certificates are to be created. For large employers, an example of the Remittance Certificate periods for April 1999 is:
  01.04.1999 - 15.04.1999 and
  16.04.1999 - 30.04.1999
  For small employers, an example of the Remittance Certificate periods for April 1999 is:
  01.04.1999 - 30.04.1999

• IR345 - without SSCWT
  If you choose this option, the system produces the IR345 Remittance Certificate without SSCWT.

• IR346 - with SSCWT
  If you choose this option, the system produces the IR346 Remittance Certificate with SSCWT.

• Personnel area - (for reporting)
  Defines the personnel area to be used in the header details on the electronic file and report.

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.

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Description

Software/hardware requirements

Installation information

Effects on System Administration

Effects on Customizing

Changes in procedure

Dependent functions

Planning

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