Tax legislation and policy announcements

Game Development Sector Rebate scheme finalised

On 1 September 2023, the Hon Ginny Anderson announced that the Government has finalised the design, and is undertaking a pilot, of the Game Development Sector Rebate (GDSR) scheme which was announced as part of Budget 2023. The GDSR is a rebate on eligible expenditure of eligible businesses of 20%, capped at $3m per annum, with a minimum qualifying expenditure of $250,000.

Changes proposed for Fonterra and cyclone-affected properties

On 6 September 2023, the secondary legislation SOP No 423 was referred to the Finance and Expenditure Committee for consideration.

The SOP contains proposals to ensure the main home exclusion is not affected by people needing to vacate flood-affected homes, ensure the bright-line test is not triggered for Government buy out properties, and fix a double taxation issue to allow Fonterra to deduct certain distributions to its shareholders (consistent with its previous constitution).

Commentary, an RIS on co-operative dividends, and the Minister’s media statement are available.

Pre-Election Economic and Fiscal Update 2023

On 12 September 2023, the Treasury released the PREFU for 2023. The PREFU outlines what the Treasury observes in the current economic and fiscal climate, what may happen in the future, and what risks we may face over the forecast period.

More information, including a summary, relevant charts, and data relied on, and the Minister of Finance’s press release, are also available.

Submissions and Cabinet paper: Policy framework for debt to government

On 12 September 2023, Inland Revenue released submissions received from targeted external consultation, and a cabinet paper, on the Policy framework for debt to government. On 26 July 2023, Cabinet agreed to adopt the framework as a Cabinet policy tool. The framework proposes an all-of-government approach to personal debt owed by low-income households to the government.

Regulatory stewardship review of donation tax credit regime

On 15 September 2023, Inland Revenue’s Tax Policy team announced they are reviewing the rules relating to the Donation Tax Credit regime. The review is expected to be completed by mid-2024.

Review of Customs’ secondary legislation

Customs has commenced a review of their secondary legislation, which includes nearly 200 regulations, as well as orders, rules, notices, directions, and tariff concessions. The review has started with high priority matters, and as the review progresses, Customs will reach out to stakeholders.

Inland Revenue statements and guidance

Tax Information Bulletin, September 2023, Vol 35, No 8

On 31 August 2023, Inland Revenue released the Tax Information Bulletin for September 2023.

OP 23/02: Commissioner’s operational position on professional directors and board members incorrectly registered for GST – Withdrawal of OP 23/01

On 4 September 2023, Inland Revenue updated their operational position on GST registered professional directors, by issuing OP 23/02, which added a paragraph to and replaces the previously issued OP 23/01.

The new paragraph in OP 23/02 adds:

“Also, directors and board members operating through personal services companies (therefore not in their capacity) will often be able to register the personal service company as long as the personal service company’s level of activity is sufficient to be a taxable activity as defined in section 6(1) of the Goods and Services Tax Act 1985. This is because the supply of directorship services is distinct from the supply of personally being a director.”

OP 23/02 is effective from 15 February 2023.

PUB00434: Income tax – Forfeited deposits from cancelled land sale agreements

On 5 September, Inland Revenue issued the draft QWBA Income tax – Forfeited deposits from cancelled land sale agreements.

The draft QWBA askes: Is a forfeited deposit from a cancelled land sale agreement income to the seller? The answer given is that a forfeited deposit is not income to the seller under the land sale rules because there is no “disposal” of land if the agreement is cancelled, and settlement and registration do not take place. However, if the proceeds from the sale would have been taxable under the land sale rules had the sale gone ahead, then it is likely the forfeited deposit will be income to the seller, that is, if:

• The sale of the land was part of the current operations of the business or an ordinary incident of the business (section CB 1).

• The seller is carrying on a profit-making scheme (section CB 3).

• It has the character of income (section CA 1(2)) i.e., the proceeds of the sale would have been taxable (e.g., under sections CB 6A to CB 23B, CZ 39, and CZ 40) had the sale gone ahead.’

Inland Revenue has set out guidance to determine whether sellers fall into the above categories.

The deadline for comment is 16 October 2023.

DEP110: Tax Depreciation Rate for Gaming Machines (Electronic)

On 8 September 2023, Inland Revenue issued a determination updating the depreciation rates for gaming machines (electronic). The new rates will apply for the 2023/24 and subsequent income years.

Technical Decision Summary: GST – Input tax deduction and taxable activity

On 11 September 2023, Inland Revenue published TDS 23/11.

The Taxpayer was a GST registered company that used the payments basis and claimed input tax deductions for the periods under dispute. Inland Revenue sought a reassessment as the Taxpayer did not provide the required records and documentations, nor sufficient evidence a taxable activity was being carried on.

The Tax Counsel Office held that the Taxpayer did not meet the requirements to claim the input tax deductions, the Taxpayer was not carrying on a taxable activity continuously and regularly and should retrospectively be deregistered.

Technical Decision Summary: Amalgamation and liquidation

On 12 September 2023, IR issued TDS 23/12.

The Taxpayer was a company with several subsidiaries who sought a binding ruling. The ruling related to winding up a group of these subsidiaries in two steps: amalgamation and liquidation. There were ten issues to be decided, including the cancellation of shares, intercompany loans, taxable dividends, capital gains, amounts from share disposals, and tax avoidance implications. The Tax Counsel Office held that:

• the amalgamation was a ‘resident’s restricted amalgamation’

• shares in each group company are treated as disposed of immediately before amalgamation

• intercompany loans between subsidiaries are treated as repaid in full on the date of the amalgamation

• amounts derived by the amalgamated company from acquiring property of the other group subsidiaries are not dividends

• the “available capital distribution amount” calculated by the amalgamated company would be treated as deriving a capital gain amount

• the amount distributed would be treated as a capital gain amount (to the extent it is excluded from being a dividend)

• the amount derived from the disposal of shares would not be income

• section BG 1 does not apply to negate or vary the above points

IG 23/01: Deductibility of software as a service (SaaS) configuration and customisation costs

On 13 September 2023, Inland Revenue issued IG 23/01 which clarifies the Commissioner’s position on the deductibility of costs incurred in configuring or customising a supplier’s application SaaS arrangement. Depending on the circumstances, the costs may be deductible under the general permission (section DA 1), as development expenditure (section DB 34), or as relating to depreciable intangible property.

Global tax news

Public Trust in Tax: Building Trust in Tax for a Sustainable Future

On 15 September 2023, the joint report Public Trust in Tax by CAANZ, ACCA, and IFAC was released. This is the fourth joint report detailing a survey of public opinion on tax issues. The survey canvassed members of the public across G20 countries with more than 7,700 individual respondents.
In relation to the tax system, respondents had the highest level of overall trust in professional tax accountants (59% trust/highly trust) and professional tax lawyers (54% trust/highly trust). The overall trust in government tax authorities remains the same as 2021 (43% trust/highly trust).

Protocol to Austria–New Zealand Tax Treaty Available

On 19 September 2023, the English text of the protocol signed on 12 September in Vienna that amends the Austria-New Zealand income and capital tax treaty was obtained.

OECD updates

Taxation of labour vs capital income

On 28 August 2023, the OECD published the working paper The taxation of labour vs capital income: A focus on high earners which presents novel analysis comparing in a consistent way the tax treatment of labour and capital income across OECD countries, through stylised effective tax rates (ETRs).

The paper shows that dividend income and capital gains are generally subject to lower ETRs than wage income at the personal level and highlights that differential tax treatment of labour and capital income can affect the efficiency and equity of tax systems.

Papua New Guinea BEPS ratification instrument

On 7 September 2023, the OECD reported that Papua New Guinea deposited its instrument of ratification for the BEPS Convention, which will be effected for exchanges from 1 January 2024.

Report: Tax policy reforms 2023

On 13 September 2023, the OECD released Tax Policy Reforms 2023 which describes how tax policy has played a central role as governments sought to shield households and businesses from the impact of decade-high inflation levels. The report covers 75 jurisdictions, including all OECD countries.

Public comments on Pillar One, Amount B released

On 20 September 2023, the OECD released the public comments received on Amount B under Pillar One. Amount B provides for a simplified and streamlined approach to the application of the arm's length principle to in-country baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries. The comments can be read here.

Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert.