Nordic Tax Records
It’s often considered taboo to ask other people how much they earn. So what would you do if you could look up how much your colleagues, neighbours and friends make, all legally, online and for free? Well this is what happens in some Nordic countries!
Norway has had an ‘open salary policy’ since 1863, when they used to publish individual’s tax returns and post them to the walls of the local town hall.
This practice continued, and until recently, Norwegians could anonymously request certain information about other taxpayers. The information is limited to the total income earned, and total tax paid by the taxpayer – there is no breakdown of amounts received from different income categories.
This understandably led to several concerns, so when Norway’s right-wing government took office in 2013, they addressed these worries by tightening the rules. Now, people still have the right to request tax information about other individuals, however the person whose name is targeted is sent an email telling them who has been checking up on them.
This loss of anonymity has had an immediate and dramatic impact on the amount of searches people have been making, falling from 16.5 million per year to 2.15 million.
Donald Trump is likely to be relieved he doesn’t live in Norway….
Beware of Paying Excessive Salaries
It is very common for family owned companies to employ members of the family in the business on a permanent or casual basis. There is no problem with this per se, however income tax rules seek to prevent ‘excessive salaries’ being paid to family members.
Inland Revenue has recently been focusing on this issue and has been scrutinising the type of work completed, the amount paid, the way in which it was calculated, and what a third party might be paid for the same work.
There is no precise measurement as to what constitutes ‘excessive’, as each case is different. What is most important is that business owners determine the value of a relatives remuneration based on the service provided to the business. The relative should be paid the same amount as an unrelated employee performing similar duties.
IR has the ability to intervene and reallocate remuneration, income or losses if it considers the amount is not reflective of the value contributed. If an amount is deemed to be excessive, the excess may be re-characterised as a dividend and therefore non-deductible to the payer. Where salaries to family members are paid it is important to ensure the employment and the amount paid is calculated and documented on an arms-length basis.
FBT Changes on the Horizon
Currently, companies that provide a motor vehicle for the private use of their employees must register for and pay FBT. Draft legislation has been introduced which will enable some small businesses to avoid having to pay FBT.
The proposed amendment will allow close companies (where 5 or fewer natural persons own 50% or more of the shares) that only provide one or two vehicles to shareholder employees (and no other benefits) to apply the rules currently available to sole traders and partnerships. Using these rules, the company will claim a deduction for the use of a vehicle to the extent it is used in the business and not pay FBT in respect of the private use.
In order to apply the treatment to a particular vehicle, it needs to be adopted from the time a vehicle is acquired, or first used in the business. Hence, the method won’t be available for company vehicles currently held. Once a particular vehicle is subject to the new treatment, it must continue to be applied until the vehicle is either sold or is no longer used in the business.
The Bill introducing the change is currently going through its second reading in Parliament and will apply from the 2017- 2018 year. With the new rules coming into play soon, it may be the right time to think about your current business vehicle usage and whether or not it is a good excuse to splash out on a new vehicle.
Change of Address
With 1st June fast approaching, it is a timely reminder to all who are on the move, to ensure you advise us of your new address. This includes informing the IRD and to those of you who hold a firearms licence, you must notify the Police within 30 days of moving as per Section 34 Arms Act 1983.
Unusual Tax Balance Date
Tax balance dates around the world are often quite straight forward. Most incorporate a full calendar month, like the standard New Zealand balance date of 31 March. However the standard balance date in the UK is the 5th of April – and there’s quite a story behind this.
The British Empire followed the Julian type calendar until 1752 when they changed to the new standard Gregorian. The Julian calendar was slightly different than the Gregorian; longer by about 11.5 minutes each year. The Gregorian calendar was introduced to Europe by Pope Gregory XIII in 1582, and had taken over as the standard throughout most of Europe. The 11.5 minute difference slowly added up resulting in the British Empire being 11 days behind the rest of Europe.
To make sure the British Treasury didn’t lose out on any revenue, they added this 11 day difference onto their existing tax balance date of 25th March (New Year’s Day in the 18th century). These additional days gave a new balance date of April 4th.
Later in the year 1800, the old Julian calendar was due for a leap year day but the current Gregorian calendar was not. The British Treasury made sure to account for this by moving the balance date to April 5th, which remains the date used today.