Technical Decision Summary: Losses carried forward and debt remission income
On 26 April 2023, Inland Revenue issued TDS 23/04. A limited liability company Taxpayer was placed in interim liquidation and receivers were also appointed. The receivers returned debt remission income in the 2012 tax return. Shareholding changes took place in 2012, and allegedly in 2013. In 2013, the Taxpayer claimed an adjustment to reverse the debt remission income.
The Tax Counsel Office held that the Taxpayer breached the continuity requirements for 2012, but no adjustments were proposed for that year. It was held the debt remission income adjustment should be reversed because the Taxpayer had derived such income for 2012. Shortfall penalties were not imposed.
Interpretation Statement: GST – Section 58: Specified agents of incapacitated persons, and mortgagees in possession
On 27 April 2023, Inland Revenue issued IS 23/03 which replaces Inland Revenue’s 1995 policy statement and reiterates that where a registered person dies or is in liquidation, receivership, or voluntary administration, then their personal representative, liquidator, receiver, or administrator will be a specified agent of an incapacitated person and liable to fulfil the GST obligations related to the taxable activity in question. However, where a person is bankrupt (so becoming an ‘incapacitated person’), the Official Assignee is generally not a specified agent and not responsible for GST obligations, unless they carry on the bankrupt’s business under the Insolvency Act 2006.
QWBA: Provisional tax – Impact on salary or wage earners who receive a one-off amount of income without tax deducted
On 28 April 2023, Inland Revenue issued QB 23/05 which applies to salary or wage earners who receive a one-off amount of income without tax deducted, which may trigger provisional tax obligations if it results in residual income tax (RIT) of more than $5,000.
A salary or wage earner who receives such an amount is a provisional taxpayer even if their previous year RIT was less than $5,000. If RIT is $60,000 or more, the person will be exposed to UOMI from the P3 date on any unpaid RIT. If RIT is less than $60,000, the person will not be exposed to UOMI provided they pay RIT on or before the terminal tax date.
Technical Decision Summary: In-specie distribution of assets upon winding-up of a unit trust
On 1 May 2023, Inland Revenue issued TDS 23/05 which summaries a binding ruling. The Applicant is a Unit Trust with assets consisting of New Zealand and overseas investments, funded by capital, realised gains, and unrealised gains. The issue was whether the in-specie distribution by the Unit Trust of its assets to the Unitholder is non-taxable.
The Tax Counsel Office held that any in-specie distribution by the Unit Trust of its assets to the Unitholder after the date the Unitholder provides written consent to the Trustee to terminate the Unit Trust will not be a dividend, to the extent the distribution consists of available subscribed capital or an available distribution amount.
Draft QWBA’s: Renting to flatmates
On 2 May 2023, Inland Revenue issued two draft QWBA’s on renting to flatmates.
- PUB00397-1 confirms that if a person lives in their home, rents a room to a flatmate, and then sells the land within the bright-line period, they can still qualify for the main home exclusion (which will apply differently depending on when the land was acquired).
- PUB00397-2 confirms that if a homeowner lives in their home and rents out a room, they can claim deductions for costs incurred in deriving rental income. In this case, expenditure must be reasonably apportioned between private use and income-earning use.
The consultation deadline for both items is 13 June 2023.
Operating Statement: When employee allowances for additional transport costs for home to work travel are exempt from income tax
On 3 May 2023, Inland Revenue issued OS 23/01 which covers when employee allowances for additional transport costs for home-to-work travel are exempt from income tax under section CW 18.
The general rule is that home-to-work travel is private expenditure, and if the employer provides the employee with an allowance for this travel, the starting point is that it is taxable, and the employer must deduct PAYE. However, under section CW 18 some allowances for ‘additional transport costs’ (i.e., more than would ordinarily be expected) are exempt from tax. OS 23/01 sets out the three main considerations of the Commissioner when determining if the exemption applies.
Technical Decision Summary: Deductibility of payment to settle legal proceedings
On 4 May 2023, Inland Revenue released TDS 23/06. A taxpayer was involved in several businesses, proceedings were initiated by the liquidators of one of these companies against the taxpayer as a director. This was settled out of court. The taxpayer proposed an adjustment to their income tax return to include a deduction for the settlement amount.
The Tax Counsel Office held that the taxpayer had incurred the settlement amount as they were under a legal obligation to pay. The settlement amount was not deductible because it was not sufficiently linked to satisfy the nexus test; it was also denied under the private and capital limitations.
Draft Interpretation Statement: GST – Unit title body corporates
On 8 May 2023, Inland Revenue issued PUB00389 which explains the consequences of registering for GST for a unit title body corporate (UTBC) and the GST treatment of transactions with its members and third parties. It notes that a UBTC is a separate legal person to its members and is subject to specific rules in the GST Act. UBTC’s are treated as making supplied to its members for consideration and can generally choose whether to register for GST. The values of supplies it makes to members is not counted towards the $60,000 GST registration threshold. The statement sets out the GST treatment of registered UTBC’s in further detail. The consultation deadline is 20 June 2023.
Draft Interpretation Statement: GST – Court awards and out-of-court settlements
On 9 May 2023, Inland Revenue issued PUB00423 which considers whether court awards and out of court settlements will be subject to GST. This may occur if the court award or settlement is consideration for a supply made by the person receiving the court award. The statement confirms that for a payment to be subject to GST, it must be consideration for a supply, have a sufficient connection with the supply, and involve reciprocity. The consultation deadline is 14 June 2023.
2023 CPI adjustments
On 11 May 2023, Inland Revenue issued the following determinations which showed the annual CPI adjustments, reflecting a 6.7% increase in the CPI in the twelve months to March 2023:
Tax Information Bulletin Vol 35 No 4
Inland Revenue published a Tax Information Bulletin for May 2023.
Public Rulings: Income tax – Cryptoassets and employees
On 15 May 2023, IR reissued four public rulings that expired on 1 December 2022. The new rulings apply from 2 December 2022 to 30 November 2027, and are as follows:
A summary of these rulings can be found in the April 2023 Snapshot.
Product Ruling: Fonterra Co-operative Group Limited
On 15 May 2023, Inland Revenue issued the product ruling BR Prd 23/01 about the operation of the Fonterra Shareholders’ Fund (FSF). The FSF is a NZ-resident unit trust through which non-milk-supplying investors and farmers supplying milk to Fonterra can invest in units. Units in the FSF give economic rights in Fonterra shares but do not give unit holders any legal interest in Fonterra shares.
The product ruling held that the FSF qualifies as a ‘foreign investment variable-rate PIE’ (as defined in section YA 1) and income attributed by the FSF to its investors is ‘excluded income’ (as defined in section BD 1(3)), provided that certain conditions, which are set out in the ruling, are met.
2023 Individual income tax assessment – end of year process
On 22 May 2023, Inland Revenue announced that they will be issuing automatic income tax assessments for most New Zealanders from the end of May through to the end of July.
All individual clients of tax agents (excluding IR3 filers and those with no reportable income) will receive an 'Income tax – more information request' letter. If a taxpayer’s income tax mail is being redirected, their agent will receive it. The taxpayer (or their agent) must review and finalise this before 31 March 2024.
Inland Revenue: Instalment arrangements with future debt
On 22 May 2023, Inland Revenue announced that taxpayers can now choose to include future assessed debt when requesting an instalment arrangement. Taxpayers will need to include all overdue debt, including where Inland Revenue has assessed overdue provisional tax.
To do this on my IR, go to ‘Access client’ > ‘I want to…’ > ‘Request an instalment arrangement’.
Alternatively, please contact your usual Deloitte advisor for advice.
Determination: National Average Market Values of Specified Livestock 2023
On 23 May 2023, Inland Revenue issued NAMV 2023 which establishes the National Average Market Values of specified livestock for 2023 for the purposes of section EC 15 of the Income Tax Act 2007.
QWBA: GST – goods purchased on deferred payment terms
On 23 May 2023, Inland Revenue issued QB 23/06 which explains when a person who is registered for GST on a payments basis can claim a full input tax deduction upfront for goods purchased on deferred payment terms.
Generally, a person who is registered for GST on a payments basis can claim input tax deductions only when and to the extent that payment has been made. This includes goods purchased under a standard sales agreement or goods purchased on a ‘buy now, pay later’ basis. However, if a person has entered into a hire purchase agreement for the purchase of goods, they can claim a full input tax deduction when they enter into the agreement.
For a layby sales agreement for the purchase of goods, a person can only claim an input tax deduction only when property in the goods is transferred, typically after the final payment has been made.
7-day payment processing for banks
On 23 May 2023, Inland Revenue confirmed their processes will not change following banks’ shift to 7-day processing from 26 May 2023:
- Due dates for payments that fall on a weekend on public holiday will still move to the following business day.
- WfFTC payments will be paid early when they fall on a public holiday.
- IR will not send funds to banks for processing on weekend or public holidays.
Child support changes from 1 July 2023
On 29 May 2023, Inland Revenue announced that from July 2023, when a liable parent makes a child support payment, it will be passed on to receiving carers on a sole parent rate of benefit, instead of being used to pay the cost of providing the benefit. The first payment to receiving carers will be made on 22 August 2023.
Child support payments will be treated as income, and from July 2023, customers will also be able to set up a voluntary agreement if they can agree on the child support amount but would still like IR to manage payments.
Inland Revenue warns customers to be aware of scammers during 2023 ‘tax season’
Inland Revenue is warning customers to be wary of scammers during the 2023 ‘tax season’ when 3.5 million individual income tax assessments will be issued (from late May to the end of July). The reminders are:
- Do not click on any links received in emails or text messages.
- Customers have until February 2024 to pay income tax bills (scammers often try to create urgency).
- Inland Revenue will always ask for bank details in a secure way, either by using myIR or via their call centre.
- Inland Revenue will only pay funds directly into the account they have on record.
- Inland Revenue will ask customers to login to their myIR account from their website.
- Inland Revenue will never put the dollar amount of a refund in an e-mail or text message and will never ask for credit or debit card details to pay a refund.
- Enable two-factor authentication on your myIR account.
