27 MAY 2004

NEW ZEALAND GAZETTE, No. 60

1445

This Determination is made by me, acting under delegated authority from the Commissioner of Inland Revenue under section 7 of the Tax Administration Act 1994.

This Determination is signed on the 10th day of May 2004.

MARGARET COTTON, National Manager, Technical Standards.

COMMENTARY ON DETERMINATION DET 001

This commentary and its appendices do not form part of the Determination. They are intended to provide assistance in the understanding and application of the Determination.

Standard-Cost Basis and Actual-Cost Basis

(a) In accordance with section 91AA (3) of the Tax Administration Act 1994, a childcare provider who uses the standard-cost basis set by the Commissioner in determining their income tax liability has elected this basis to be appropriate for their circumstances.

(b) A childcare provider who elects to use the standard-cost basis determined by the Commissioner must use this basis to calculate their income tax liability for the elected income year.

(c) The childcare provider must adopt either the standard-cost basis or the actual-cost basis, but not both, for an income year with the exception of one-off costs actually incurred (refer to the commentary on additional costs).

(d) As the use of the standard-cost basis is optional, childcare providers will not be precluded from adopting the actual-cost basis or from opting in and out of the standard-cost basis for any subsequent income year.

(e) A childcare provider who does not elect to use the standard-cost basis set by the Commissioner in determining their income tax liability must use the actual-cost basis. In electing to use the actual-cost basis, the childcare provider must ensure that they have adhered to all the record keeping requirements for verifying the costs.

Income Tax Implications and Filing of Tax Returns

The following income tax implications apply to a childcare provider who provides childcare service and elects to use the standard-cost basis set out in the Determination.

(a) Section ID 1 (2) of the Income Tax Act 1994 prohibits any resultant losses from being utilised against other income for any income year or carried forward to future income years.

(b) In accordance with section 33B of the Tax Administration Act 1994, a childcare provider would not be required to file a tax return for that income year if:

(i) after deducting the amount of standard-cost under the Determination, the childcare provider has zero income tax liability; and

(ii) the childcare provider did not have any other income where tax has not been deducted at source.

Consumers Price Index

To assist childcare providers, Inland Revenue will publish the effect of the annual movement of the All Groups Consumers Price Index as at 31 March on the variable standard-cost component and the administration and record keeping fixed standard-cost component. The revised standard-cost components will be published in the New Zealand Gazette and in Inland Revenue’s Tax Information Bulletin in May of each year.

The changes in the annual movement of the All Groups Consumers Price Index will not be applied to the domestic accommodation fixed standard-cost component. This is because the basis for this component is either historical (where a childcare provider owns their domestic accommodation) or market related (where a childcare provider rents their domestic accommodation).

The first such annual adjustment will be for the income year to 31 March 2005.

Goods and Services Tax (G.S.T.)

As the annual turnover from childcare services is expected to be well below the registration threshold for G.S.T., it is presumed that few childcare providers will be registered for G.S.T. Therefore, the standard-cost components determined by the Commissioner have been prepared on a G.S.T. inclusive basis and cannot be used by a childcare provider who is registered for G.S.T.

Purchase Price of Domestic Property

The purchase price of a domestic property will include any subsequent cost of improvement to the domestic property. Childcare providers will be required to provide verification of such additional costs incurred.

Receipt of Accommodation Supplement by a Childcare Provider

A childcare provider may be entitled to an accommodation supplement. The Ministry of Social Development assesses each applicant’s entitlement based on a set of guidelines. The assessment of entitlement takes into account such factors as accommodation costs, income and assets, family status, employment status and residential location. Where a childcare provider is entitled to an accommodation supplement, the amount of annual domestic accommodation fixed standard-cost calculated will be reduced by the annual amount of the accommodation supplement received. The examples in Appendix B illustrate how the receipt of an accommodation supplement affects the calculation of the annual domestic accommodation fixed standard-cost.

Additional Costs

Where a childcare provider has incurred additional one-off costs, which have not been taken into account by the Commissioner in arriving at the standard-cost in the Determination, such costs will be allowed as an additional deduction. The childcare provider must, however, demonstrate to Inland Revenue that such costs have been incurred for the childcare service they provide. An example may be expenses incurred to comply with the training requirements of the Education (Home-Based Care) Order 1992.