Snapshot of recent developments

Tax legislation and policy announcements

Information Release: Ministerial response to a petition on the increase of the GST threshold

On 3 July 2024, Inland Revenue released the Minister of Revenue’s response to a petition to increase the GST threshold from $60,000 to $130,800. The response noted no increase would be made to the GST threshold as doing so is not the most effective way to support small businesses facing cost pressures. 

Tax changes in effect from 1 July 2024

On 15 July 2024, Inland Revenue updated its website to reflect 1 July 2024 policy changes. The changes that have now been passed into law include:

• FamilyBoost
• 3% Government contribution to KiwiSaver for paid parental leave recipient
• Bright-line test reduced to two years
• Offshore Gambling Duty registration now available
• Paid parental leave rates change (from 15 July)
  

Inland Revenue statements and guidance

FamilyBoost

On 1 July 2024, Inland Revenue reminded parents that they should start collecting their early childhood education invoices to claim FamilyBoost later in the year. From mid-September, parents or caregivers can register for FamilyBoost in myIR. From the beginning of October, eligible households will be able to claim FamilyBoost for the July-September quarter, and every three months after that. More information on FamilyBoost is available here.

Determination: A type of attributing interest in a foreign investment fund for which a person may not use the fair dividend rate method

On 1 July 2024, Inland Revenue published FDR 2024/02: A type of attributing interest in a foreign investment fund for which a person may not use the fair dividend rate method (Colchester Multi-Strategy Global Bond Fund PLC – The Colchester Global Green Bond Enhanced Currency Fund- NZD Hedged Accumulation Class Z Shares).

The Determination states that section EX 46(10)(c) of the Income Tax Act 2007 would not apply to prevent the use of the fair dividend rate method for interests in the NZD Share Class (NZD denominated class of the Fund) but would apply if the Fund represented a separate foreign company and the NZD Share Class was the only class of share on issue.

The Determination applies for the 2024-2025 income year and subsequent income years.

Tailored tax codes

On 3 July 2024, Inland Revenue advised they will calculate and issue new certificates to existing tailored tax code taxpayers and their employees. This will affect around 7,700 taxpayers. Inland Revenue notified affected taxpayers (or their tax agent) on 9 July.

Technical Decision Summary: Interest-free loan and dividends (private ruling)

On 3 July 2024, Inland Revenue issued TDS 24/14: Interest free loan and dividends.

Company A was incorporated in New Zealand by Company C (a non-resident company) with nominal equity. Following its incorporation, Company A acquired all the shares in Company B from Company C in consideration for Company A issuing shares to Company C. The arrangement included an interest-free shareholder loan from Company C to Company A and the ongoing repayments of that loan.

At issue was: (1) whether the interest free loan gave rise to dividends to Company C from Company A; (2) whether repayment of the interest free loan was subject to withholding; and (3) whether sections BG 1 and GA 1 of the Income Tax Act 2007 apply to negate the outcomes of the above two issues.

The Tax Counsel Office concluded that: (1) The interest free loan from Company C to Company A does not give rise to a dividend from Company A to Company C under section CD 1 at any point in time, including as a result of the issue or repayment of the loan; (2) Company A was not required to withhold or pay an amount of tax under section RA 6 in relation to the interest free loan repayments made to Company C; and (3) sections BG 1 and GA 1 do not apply to negate or vary the above two tax outcomes.

Public Guidance Work Programme 2023-24

On 4 July 2024, Inland Revenue updated the Public Guidance Work Programme 2023-24. This is the final update for the 2023-24 year.

Recent tax fraud sentencing decisions

On 8 July 2024, Inland Revenue published a number tax fraud sentencing decisions:

• An individual with control over three companies was sentenced to community detention on tax fraud charges. Over a three-year period, PAYE was taken from employee’s wages, but the money was never paid to Inland Revenue.
• An individual, who tried to get nearly $60,000 in COVID relief money, was sentenced to 11 months home detention. The person applied for three Small Business Cashflow Scheme Loans (SBCS) for unrelated taxpayers (including one for their own company and one in their own name) when they knew they were not entitled to any of the money. The person also illegally accessed myIR accounts without authority.
• The owner of a food vending business was sentenced to a year’s home detention for tax fraud. In 2019, the individual was charged with aiding and abetting two companies to file false or misleading GST returns, aiding and abetting two companies that failed to make PAYE deductions when required, and filing false personal tax returns. In 2021, they were charged again for evading or trying to evade the assessment or payment of GST, failing to make PAYE deductions and not providing information to Inland Revenue with the intention of evading the assessment or payment of tax. The Court was told the offending was not a temporary slip. It was premeditated, repetitive and prolonged with the conscious decision to provide false revenue information for tax returns for straightforward financial self-interest.

On 18 July 2024, Inland Revenue announced that an Auckland couple was sentenced to three years in prison on tax evasion charges. The couple, whose business activities were primarily housing construction, were found guilty of jointly committing 69 offences of personal income tax and GST evasion and failures to account for PAYE for their company.

The Judge found the overall evasion of income tax and GST amounted to about $750,000, with a further $80,000 in unaccounted-for PAYE. After some PAYE payments were made, the total loss was about $800,000. The Judge described it as deliberate offending in which business income was underreported through filing false returns. The offending happened between 2010 and 2015.

Determination: Amount of tax for a payment of a main benefit

On 10 July 2024, Inland Revenue issued DET 24/03: Determinationunder section RD 11(3) of the Income Tax Act 2007 of the amount of tax for a payment of a main benefit.

• For any payments made up to and including 1 August 2024, the amount of tax for a payment follows the M tax code rate set out in the Commissioner’s PAYE tables that apply from 1 April 2024 to 30 July 2024.
• For any payments made on or after 2 August 2024, the amount of tax for a payment follows the M tax code rate set out in the Commissioner’s weekly PAYE tables that apply from 31 July 2024.
  

Updated factsheets for GST on listed services

On 16 July 2024, Inland Revenue updated its factsheets on:

• GST on listed services - drivers, deliverers and accommodation owners - AD277
• GST on listed services - online marketplaces - AD278.
  

These include information on the new rules that took effect on 1 April 2024.

Inland Revenue have also developed a new GST on listed services factsheet for property managers and agents - AD282

PAYE threshold changes 31 July 2024

On 18 July 2024, Inland Revenue announced an updated income tax threshold changes page, including information on the composite rates.

Updated PAYE tax tables, calculator, and a new IR330 declaration are also available.

On 26 July 2024 the Ministers of Finance and Revenue announced that most payroll software providers and employers were ready to implement the tax reductions.

Guidance for small value loans (transfer pricing)

On 18 July 2024, Inland Revenue published guidance for small-value loans (cross-border associated party loans by groups of companies for up to $10 million principal in total). Inland Revenue considers that 175 basis points (1.75%) over the relevant base indicator is broadly indicative of an arm’s length rate in the absence of a readily available market rate for a debt instrument with similar terms and risk characteristics.

Deloitte Global Perspectives

Global Tax Policy Survey Report: The future in focus

The Deloitte Global Tax Policy Survey examined over 1,000 business leaders responses to current tax trends. Ranked from most to least impactful, the trends were transparency and reporting, digitalisation of tax, international tax reform, future of work, and climate and sustainability.

Stock-based compensation for an increasingly diverse workforce

Deloitte’s survey of 1,750 early-career employees who receive company stock highlights how stock-based compensation can be used as a tool to meet talent objectives, attract and retain a diverse workforce, and enhance the employee value proposition.

OECD updates

Corporate Tax Statistics 2024

On 11 July 2024, the OECD released Corporate Tax Statistics 2024. The statistics include information on corporate taxation, multinational enterprise activity, and base erosion and profit-shifting practices.

The headline statistic is that average statutory corporate income tax rates have remained steady at 21.1% over the past three years. This follows a two-decade period that saw average statutory corporate income tax rates decline from 28% in 2000 to 21.1% in 2021.

OECD releases Secretary-General Tax Report to G20 leaders

On 25 July 2024, the OECD published the OECD Secretary-General Tax Report to the G20 leaders, covering key developments in international tax reform. The report highlights progress made on the Two Pillar Solution, tax transparency and administration, and BEPS.

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