Anatomy of a Tax Bill

By Joe Sothcott, Amy Sexton and Robyn Walker

On 28 March, the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill, after many twists and turns, was enacted into law and transformed into the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024.

A lot has changed since the Bill was first introduced on Budget Day in May 2023, so you could be forgiven for losing track of everything that has happened since then. So, as a reminder, we have collated the various aspects of the bill, what the changes were, when they were introduced, and a few other issues to be aware of.

Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill

The Bill was introduced on 18 May 2023 by the previous Labour government under the then Minister of Revenue David Parker. At that stage, as discussed in our June 2023 article, the key features of the Bill included:      

• Increasing the trustee tax rate from 33% to 39% to align the trustee rate with the top personal tax rate.
• Introducing the OECD Pillar Two Global Minimum Tax Rules (GLoBE rules).
• Taxation of backdated lump sum payments.

The Bill passed its First Reading and was referred to the Finance and Expenditure Committee (FEC) and submission from the public was sought.

The Supplementary Order Paper (SOP)

Before the Bill was reported back from the Select Committee (and before SOPs became “Amendment Papers”) SOP No 423 was referred to the FEC. The proposals were to:

• Ensure that the bright-line and other timing-based land sale tests did not apply to those impacted by the North Island flood events.
• Allow Fonterra to deduct certain distributions to its shareholders, as it was allowed to under its previous constitution.

These changes were ultimately adopted by the new government and enacted as part of the bill.

Report back from Finance and Expenditure Committee (FEC)

Due to the dissolution of Parliament for the election, and despite the public needing to make submissions by 30 June 2023, the Bill stayed at the FEC stage until early March 2024. The FEC heard oral submissions at the end of January 2024 and consequently made several recommendations (which were agreed to unanimously in Parliament), including:

Trustee tax rate

• The increase to the trustee tax rate of 39% was confirmed, but a $10,000 de minimis threshold was introduced. Trustees with income up to and including $10,000 will continue to be taxed at 33%. Trusts with trustee income of more than $10,000 (after deductible expenses) would be taxed at 39%.
• A flat 33% rate for disabled beneficiary trusts. There would also be a new expanded definition for “disabled beneficiary” to include a wider class of beneficiaries and the definition of “disabled beneficiary trust” expanded to permit multiple beneficiaries.
• A flat 33% rate for deceased estates for the income year of the person’s death and the 3 subsequent income years.

GLoBe rules

• The primary change was the introduction of application dates for the income inclusion rule (IIR) and undertaxed payments rule (UTPR) (1 January 2025) domestic income inclusion rule (DIIR) (1 January 2026).
  
  
• It was also clarified that the OECD commentary or guidance prevails over the GloBe rules, that money paid under the qualified domestic minimum top-up tax (QDMTT) is foreign income tax and eligible for foreign tax credit, and that the Commissioner of Inland Revenue can issue binding rulings about the GloBE rules.

Other

• Several other remedial changes were recommended, such as extending the proposed changes to backdated lump sum payments for attendant care, correcting extra pay on termination, andnother amendments to rollover relief for 2023 North Island Flooding Events.

The Amendment Paper

With the new coalition Government coming into power, there was an array of tax priorities campaigned on which needed to be included, this was once done through Amendment Paper No 20 (previously called a SOP). Notably, these amendments were introduced at the Committee of the Whole stage, therefore bypassing FEC scrutiny and public submissions.

The headline changes that were introduced as part of the Amendment Paper include:

• Removal of commercial building depreciation for building (from the 2024/25 income year).
• Interest deductibility for residential investment property restored (80% of deductions allowed from 1 April 2024, and 100% of deductions allowed from 1 April 2025).
• Residential property bright-line test reverting to two years (for agreements entered into on or after 1 July 2024). 
• Introduction of a new 12% duty on offshore gambling profits (from 1 July 2024).
• Changes to the tax treatment of disposals of trading stock at below market value to prevent legislative overreach. 
• Introduction of a transitional rule in the GST platform economy rules for contracts entered into before 1 April 2024 on digital platforms.

Taxation (Annual Rates for 2022-23, Platform Economy and Remedial
Matters) Act 2023

With all the excitement of the latest tax bill being enacted, it is easy to forget that some of the last changes from last year’s Annual Rates 2023-23 bill came into force from 1 April 2024 as well.

The most notable of these are the platform economy GST changes (the “App Tax”). These new rules mean certain “listed services” provided through electronic marketplaces must now pay GST. This includes short-stay accommodation, ride-sharing and food delivery. The idea is that these platforms will need to charge GST even if the underlying owner/driver is not GST registered and makes under $60,000 per year. For further explanation of the App Tax, you can read our article [SA3] in this issue of Tax Alert.

Several changes to modernise and improve remote working arrangements also came into effect on 1 April 2024. You can read a summary of those changes in our May 2023 Tax Alert.

What next?

The next question on everyone’s lips is changes to the personal income tax changes. The Government has repeatedly confirmed there will be tax cuts for individuals from 1 July 2024. The clearest indication of this was in the Budget Policy Statement 2024, delivered by the Minister of Finance Hon. Nicola Willis in late March. The statement confirmed that “delivering meaningful tax reductions to provide a cost-of-living relief to New Zealanders” was a priority for Budget 2024.

The big question mark that remains is how big this tax reduction will be, and how it will be paid for. For that, we’ll have to wait until 30 May 2024.

For any questions about the issues discussed in this article please contact your usual Deloitte advisor.