Appendix
4 Inland Revenue Department Requirements
Requirement for an IRD Number
All applicant groups regardless of turnover must apply for an IRD Number. The only exception to this is where the project is administered through an existing organisation such as a crown research institute, consultancy group or farmer organisation that already has an IRD number.
Your project must have its own IRD number before it can register for GST.
Applying for an IRD Number
You can apply for an IRD number by filling in an IRD number application – non individual form (IR596). It is possible to apply for an IRD number on-line. Go to http://www.ird.govt.nz/taxagents/forms-guides/, click on the "by number" tab then select the applicable IRD number range (500-599). Scroll down to IR596 and follow the link to the relevant information/instructions.
Change of Balance Date
For most tax payers the balance date is the end of the accounting year, i.e., 31 March.
It is recommended that you apply for a change in balance date from the time you receive funding. This will help with the financial management of the project as the project’s financial year will then align with the IRD balance date. This means that all budgets, cashflows and annual accounts will align with the balance date.
If you choose a balance date other than 31 March for your organisation, you must apply in writing to the IRD stating the reasons for the change. The change will usually only be approved where there are sound business reasons for doing so.
An example of a letter requesting a change of balance date and outlining the reasons for the change is in Appendix 3.
Tax Exempt Status
Groups obtaining funds from the Sustainable Farming Fund cannot make a profit from the research undertaken, and therefore will not have to pay income tax over the term of the project. Application must however be made to the IRD to gain tax exempt status for your group. Application should be made as soon as an IRD number is obtained.
The group will need to establish itself as an entity for tax purposes. How to do this is covered in the next section of these guidelines
Qualifying for Income Tax Exemption
There are two main conditions that a group or organisation has to meet if it is to qualify for an income taxation exemption:
Aims
The main aims and activities of the organisation should meet the specific requirements of the section of the Companies Act under which exemption is requested. This is outlined in Section DJ 17 and Section CB 4 (1) (b) of the Act (refer to section 4 for specific definitions).Private use of funds
No part of the organisation’s income or other funds is to be used for the personal use of any member or any associated person of a member.
There are two exceptions to this. Acceptable payments are:
- reasonable payment for services, or repayment of costs incurred on behalf of the organisation;
- interest on money lent to the organisation, as long as the loan is at normal rate that would be used in a commercial transaction.
Applying for Income Tax Exemption
For an organisation to be granted income tax exemption, IRD must consider and approve an application from the organisation. An application must include the following:
- an up-to-date signed copy of its rules, constitution or founding documents
- a copy of its certificate of incorporation (if it is incorporated);
- a letter which states the type of exemption requested (non profit group) and details of how it has been or will be operating (refer to Appendix 3 for an example).
Note: An organisation without rules or a constitution will not qualify for an income tax exemption.
Application for income taxation exemption only needs to be done once. If exemption is granted, it applies to the full term of the project.
Goods and Services Tax
Application for GST registration
You do not need to register for GST if turnover per annum is less than $40,000 (inclusive of GST) therefore this section is only applicable to those projects with a turnover greater than $40,000 per annum.
Your group must register for GST when you are conducting a taxable activity that meets any of these conditions:
- it has a turnover of more than $40,000 over the last financial year (this month plus the previous 11 months);
- your group expects to have a turnover of more than $40,000 over the next financial year (this month plus the next 11 months);
- your group indicates that prices include GST (e.g. in a price list or on an invoice).
A taxable activity is an activity carried on continuously or regularly by a business, trade, manufacturer, profession, association or club. It includes any activity that supplies, or intends to supply, goods and services to someone else for a consideration (money, compensation, reward) but not necessarily for profit.
There are a number of taxable supplies for which GST is not claimable. These include:
- working for salary or wages;
- bank fees;
- bank interest;
- any activity not supported by a GST invoice, i.e., any activity undertaken by someone who is not GST registered.
You must have an IRD number before you can register for GST. It is possible to register for GST on-line. Go to www.ird.govt.nz/library/publications/register.html then select Register for Goods & Services Tax – IR360.
What Accounting Basis to Use
When you are registered for GST you need to keep records of your GST transactions and account for these transactions in your GST returns. The payments or cash basis is by far the most common and simplest method for accounting for GST among small businesses and is recommended for all SFF projects.
Payments (or cash) basis
Account for GST in the taxable period when you make or receive a payment (i.e., what goes through your bank account for that period). This option is available to businesses whose taxable supplies were $1.3 million or under for the previous 12 months, or whose taxable supplies are not expected to go over $1.3 million in the next 12 months.
Invoice (accruals) basis
Account for GST in the taxable period when you issue or receive an invoice, or receive or make a payment, whichever is earlier.
Hybrid basis
Account for GST on your sales/income in the taxable period when you issue an invoice or receive a payment, whichever is earlier, and claim GST on your expenses in the taxable period when you make a payment.
How Often to File GST Returns
A two month return period is recommended as practical for most projects.
When you register for GST, you choose how often you are going to file GST returns (your taxable periods). There are three taxable periods that may apply for this type of operation.
Your turnover in any 12 month period |
Taxable periods you can choose |
Up to $250,000 |
One, two or six monthly |
$250,001 to $24 million |
One or two monthly |
Completing a GST Return
A GST return will usually be done on a payments/cash basis.
Procedure
The GST return normally covers two months e.g., the return due on the 20th of May will cover transactions on your bank statements for the months of March and April.
Electronic calculation
If using an accounting package to do your GST return, code all income and expenditure and input the data in to the package. The programme will provide codes for you to use. Follow the directions of the individual package to complete the return process. If using a spreadsheet, coding is the budget category the expenditure is covered by.
Complete the GST return using the information generated by the programme (a form will have been sent to you from the IRD for this purpose), make payments as required to the IRD no later than the 20th of the month the return is due. If your return is late you will be charged penalty interest and a late filing penalty.
Manual calculation
If using a manual cash book write up all income and expenditure on appropriate pages. Total the debits and credits (excluding non GST items, e.g. wages, bank fees, interest). To get the GST value of both the income and expenditure, divide the totals by 9 (= 12.5%). Subtract the GST on debits from the GST on Credits to find out if you have to pay GST or if you will get a refund:
Income gross |
$50,000 divided by 9 = |
$5,555.56 |
Expenses gross |
$65,000 divided by 9 = |
$7,222.22 |
Subtract expenses from income (refund) |
-$1,666.66 | |
or: |
||
Income gross |
$50,000 divided by 9 = |
$5,555.56 |
Expenses |
$8,500 divided by 9 = |
_$944.44 |
Subtract expenses from income (to pay) |
$4,611.12 |
Contact for Enquiries
Fund Administrator
Sustainable Farming Fund
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
Tel: 0800 008 333
Fax: 04 894 0746
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