Waikato Business News March/April 2017

WAIKATO BUSINESS NEWS March/April 2017 17
Should your plastic pal pay taxes?
US founding father Benjamin Franklin said
there were only two things certain in life:
death and taxes. But he could never have
dreamed, before his death in 1790, that his
quotation would apply to robots. Bill Gates
said, in a recent interview with Quartz, that
robots should pay taxes.
The Microsoft founder
and philanthropist made
the assertion in a bid to
recoup cash into government
coffers as employers swap a
flesh and blood workforce for
a mechanised one.
“You cross the threshold
of job replacement of certain
activities all sort of at once,”
Gates said, as European Union
(EU) legislators rejected the
idea.
“Certainly, there will be
taxes that relate to automation,”
Gates pushed back.
“Right now, the human
worker who does, say, $50,000
worth of work in a factory,
that income is taxed and you
get income tax, social security
tax, all those things. If a robot
comes in to do the same thing,
you’d think that we’d tax the
robot at a similar level.”
Gates suggested governments
tax the profits generated
by labour-saving robots.
“Some of it can come directly
in some type of robot
tax. I don’t think the robot
companies are going to be
outraged that there might be a
tax... at a time when people are
saying that the arrival of that
robot is a net loss because of
displacement, you ought to be
willing to raise the tax level
and even slow down the speed
of that adoption somewhat...
“You cross the threshold of
job-replacement of certain activities
all sort of at once. So,
you know, warehouse work,
driving, room clean up, there’s
quite a few things that are
meaningful job categories that,
certainly in the next 20 years,
being thoughtful about that extra
supply is a net benefit. It’s
important to have the policies
to go with that.”
Gates said it would be really
bad if people had more fear
about innovation than enthusiasm.
“That means they won’t
shape it for the positive things
it can do. And, you know, taxation
is certainly a better way
to handle it than just banning
some elements of it... absolutely
government’s got a big role
to play there.
“So, there is nothing new
under the sun,” wrote the author
of Ecclesiastes. The same
argument could have been applied
to Microsoft from 1981
when it launched the first version
of Microsoft Word.
In the 26 years since the
software giant has slowly done
away with the office secretary
for many small to medium
sized businesses.
If robots are taxed, users of
Microsoft Word should be too,
beyond the standard goods and
services tax.
TECH TALK
> BY DAVID HALLETT
David Hallett is a director of Hamilton software specialist Company-X,
design house E9 and chief nerd at Waikato Need a Nerd.
Tax changes for efficient business
Every now and again it is
nice to be able to write
about some positive
changes that are coming through
which make life easier. New legislation
enacted in February has
introduced such changes. They
substantially simplify obligations
under the provisional tax
regime. Although the topic itself
is a little ‘dry’, it is worth having
a read because the changes are
quite fundamental, particularly
for small and medium sized
businesses.
Current Provisional Tax rules
Currently, provisional tax is
required to be paid through the
course of the year with use-ofmoney
interest (UOMI) applying
in cases of over or underpayment
at each payment date.
The vast majority of taxpayers
meet their provisional tax
obligations under the standard
uplift method, which essentially
bases their liability on 105 percent
or 110 percent of their previous
year’s tax payable.
While the standard uplift is
a simple means to an estimate
provisional tax payable, UOMI
applies if a higher liability is ultimately
assessed.
New safe harbour threshold
for UOMI
Individuals have had the
benefit of a concession where
UOMI is not charged by IRD
until their terminal tax date,
which is typically February 7 or
April 7 the following year.
From the 2017/2018 income
year, that concession is
being increased from $50,000
to $60,000 and being extended
to all types of taxpayers, such as
companies.
There are requirements that
need to be met in order for the
concession to apply, such as
having already paid the minimum
obligation under the standard
uplift method.
Inland Revenue expects the
changes to the safe harbour
threshold will eliminate UOMI
charges for approximately
67,000 taxpayers, at least 63,000
of these being non-individuals
who previously do not qualify
for the safe harbour concession.
Removal of UOMI for first two
provisional tax instalments
A further reduction in the
scope of UOMI will benefit
those taxpayers who have a tax
liability of more than $60,000
and are not otherwise covered
by the above concession.
As referred to above, most
taxpayers are required to pay
provisional through the course
of the year, but if their crystallised
liability as per their tax
return is more than their provisional
tax paid they will incur
UOMI.
From the 2017/2018 income
year UOMI will not be charged
on the shortfalls arising at the
first two provisional tax payment
dates.
For example, a taxpayer with
a March 31, 2018 balance date
with a standard uplift liability of
$300k would be required to pay
$100k on August 28, 2017, January
15 and May 7, 2018.
But, if the taxpayer’s final liability
per its income tax return
came in at $500k for the year,
UOMI would apply under the
old rules to the $67k shortfall
accumulating at each due date.
However, under the new
rules UOMI would only apply
on the $200k shortfall that exists
from May 7, 2018.
Similar to the first concession,
the taxpayer must make
the minimum payments required
under the standard uplift
method on the first two instalment
dates.
Where the taxpayer does not
make the required instalments,
UOMI will apply on the first
two instalment dates based on
the lower of the difference between:
• The amount due under standard
uplift and the actual
payment; or
• One-third of the residual
income tax liability for the
year and the actual payment.
To be eligible for the concession,
companies within a group
will all be required to use either
the standard uplift or GST ratio
method for calculating provisional
tax.
This rule is designed to prevent
related entities gaming
the differences between the
standard uplift and estimation
methods to reduce exposure to
UOMI.
Late payment penalties
The late penalty regime will
also change with effect from
April 1, 2017, with the removal
of the one percent monthly incremental
late payment penalty
on unpaid GST and income tax
amounts.
In making this change, the
Government acknowledges that
the current late payment penalty
mechanism does not effectively
encourage taxpayers to comply.
In its attempts to keep tax
simple, IRD is trying hard not to
overwhelm taxpayers with excessive
penalties while it struggles
under the huge amounts of
uncollectable debt that are created
by such penalties.
Hopefully this change will
help in its effort to engage with
taxpayers to collect outstanding
debts.
Annual FBT threshold
Also coming into effect for
the 2017-18 year onwards, the
threshold for filing FBT returns
annually is increasing from
$500,000 to $1 million of combined
PAYE and ESCT.
The doubling of the threshold
will enable taxpayers who
have been accounting for FBT
quarterly to switch to accounting
for it annually. Having to
file fewer returns each year will
certainly help make compliance
with the FBT regime easier.
The Government and Inland
Revenue are making progress in
their bid to make tax simpler.
The provisional tax, UOMI,
penalty and FBT changes are a
positive step forward and will
affect many New Zealand businesses.
It is important for businesses
to understand the new rules to
ensure they qualify for the concessions
and take advantage of
the changes.
The comments in this article
are of a general nature and
should not be relied on for specific
cases. Taxpayers should
seek specific advice.
TAXATION AND THE LAW
> BY HAYDEN FARROW
Hayden Farrow is a PwC Executive Director based in the
Waikato office. Email: hayden.d.farrow@nz.pwc.com
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