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Snapshot of recent developments

Tax Alert - July 2023

Tax legislation and policy announcements

Income Tax (Accommodation Expenditure – North Island Flooding Events) Order 2023

On 8 June 2023, the Income Tax (Accommodation Expenditure – North Island Flooding Events) Order 2023 was made, extending the time limit for section CZ 29B to 1 April 2024. This section provides that accommodation expenditure relating to an employee working on a project of limited duration for rebuilding and recovery efforts in an area affected by the North Island flooding events will be exempt income (provided certain conditions are met).

Child Support (Pass on) Acts Amendment Act passed

On 13 June 2023, the Child Support (Pass On) Acts Amendment Bill received Royal assent. The most significant feature of the Act is that, from 1 July, Inland Revenue will pass child support payments on to receiving carers on a sole parent rate of benefit.

Deemed rate of return on FIF attributing interests

On 16 June 2023, the Income Tax (Deemed Rate of Return on Attributing Interests in Foreign Investments Funds, 2022-23 Income Year) Order 2023 was passed.

The Order sets the deemed rate of return used to calculate foreign investment fund income for the 2022–23 income year at 8.15%. The rate for the 2021–22 income year was 6.01%.

Inland Revenue has also released the special report DRR for attributing interest on FIF for the 2022-23 Income Tax Year.

The Order comes into force on 16 June 2023.

Special report: Marketplace rules for listed services

On 19 June 2023, Inland Revenue released a special report on the platform economy amendments in the Annual Rates Act 2023 which will require operators of electronic marketplaces to collect GST on supplies of listed services from 1 April 2024. This item joins other recent reports on new legislation.

Inland Revenue statements and guidance

Square metre rate for home office calculations for 2023

On 29 May 2023, Inland Revenue announced that the square metre rate for home office calculations has been set at $51.05 for the 2023 income year (1 April 2022 to 31 March 2023).

Inland Revenue: Incorrect reporting of Covid-19 subsidies – penalties and interest remission

On 30 May 2023, Inland Revenue announced they are receiving penalty and interest remission requests for income tax returns in which Wage Subsidy figures have been reported incorrectly and returns have been amended.

Inland Revenue amends trust income example and confirms guidance will be released

On 31 May 2023, Inland Revenue revised commentary on the proposed amendment to increase the trust rate to 39%, following comments that the original example may be considered tax avoidance.

Inland Revenue notes in the commentary that ‘there is some uncertainty under existing law about the tax treatment of such a settlement. This matter will be subject to further consultation’.

On 1 June 2023, Inland Revenue updated their website confirming guidance will be released on the trust rate increase, if needed, once the empowering legislation is enacted.

Interpretation Statement: The interest limitation rules and short-stay accommodation

On 2 June 2023, Inland Revenue issued IS 23/04 (and accompanying fact sheet) which explains how the interest limitation rules apply to natural persons and trustees providing short-stay accommodation, and what other rules may be relevant to any interest that is deductible.

The rules in subpart DH of the Income Tax Act 2007 deny all interest deductions for disallowed residential property (DRP) acquired on or after 27 March 2021, and progressively deny deductions for grand-parented residential interest.

DRP does not include land to the extent that it is ‘excepted residential land’ i.e., a person’s main home, the main home of a beneficiary or trust (if the owner is a trustee and the principal settlor has a different main home), or farmland (including dwellings on the land).

The new build land exemption may also apply, in which case the interest limitation rules do not apply. The rules may apply to one part of a piece of land, in which case land must be apportioned. The rules override all other deduction rules.

Public ruling: GST – Payments made by parents to state and state integrated schools

On 12 June 2023, Inland Revenue issued BR Pub 23/08 (which is a reissue of the expired BR Pub 18/06). The ruling is substantially the same as BR Pub 18/06 and applies from 21 June 2023.

GST is not chargeable if the student has a statutory entitlement to receive services free of charge. GST is chargeable on payments made for supplies of other goods or services that are not integral to the supply of education to which the student has a statutory entitlement, where that supply is conditional on the payment being made.

Inland Revenue: Public Guidance Work Programme Updated

On 12 June 2023, Inland Revenue updated the Public Guidance Work Programme for 2022-23.

Draft Determination: Tax Depreciation Rate for gaming machines (electronic)

On 15 June 2023, Inland Revenue issued the draft determination ED00248 which proposes to change the depreciation rates and estimated useful life for electronic gaming machines, as follows:

  • decrease the straight-line depreciation rate to 21% (from 30%),
  • decrease the diminishing value depreciation rate to 30% (from 40%), and
  • increase the estimated useful life for electronic gaming machines to 6.66 years (from 5 years).

These changes are intended to reflect technological advancements and industry practices from when the rates were set 30 years ago. The determination will not extend to electronic gambling machines.

The deadline for comment is 27 July 2023.

Technical Decision Summary: Deductibility of expenditure

On 20 June 2023, Inland Revenue issued TDS 23/09 on a binding ruling sought by a manufacturer subject to overseas regulatory requirements in markets it exports to. The issue was whether expenses incurred to renew these regulatory registrations are deductible.

The Tax Counsel Office confirmed that the registration costs satisfy the general permission if the costs have a direct link to the work required to register the products with the overseas regulator. The capital limitation does not apply because the registration costs allow the Applicant to distribute the products in that overseas market for its customers and is a necessary part of making that supply.

Inland Revenue: First time provisional tax liabilities satisfied by tax pooling credits and the early payment discount for the 2018 and 2019 tax years

On 21 June 2023, Inland Revenue provided an update on the Income Tax Act 2007 amendment that allows the use of tax pooling credits to qualify for the early payment discount. The change initially applied from the 2020 income tax year, and now also applies to the 2018- and 2019-income years.

For eligible taxpayers whose 2018- or 2019-income tax returns were received prior to the transfer to Inland Revenue’s new system, the returns will require manual intervention by Inland Revenue. If an early payment discount has not been granted, please send a web message in myIR.

Tax Information Bulletin Vol 35 No 5

Inland Revenue has published a Tax Information Bulletin for June 2023.

Global tax news

New Zealand corrects list of reservations and notifications to Multilateral Instrument

On 20 June 2023, New Zealand deposited a corrected list of reservations and notification to the OECD Multilateral Instrument under articles 2 and 8. The corrected version amends the list of covered tax agreements under article 2 of the tax agreement with Hong Kong and adds a provision of the treaty with South Africa to the notification of existing provisions in listed agreements under article 8.

Australia: Treasury Laws Amendment (Making Multinationals Pay Their Fair Share — Integrity and Transparency) Bill 2023

On 22 June 2023, the Australian Parliament introduced a new tax bill regarding thin capitalisation and disclosure of subsidiaries. The Bill limits the amount of interest expenses that entities can deduct for tax purposes, and introduces new reporting requirements, both from 1 July 2023. A Deloitte Australia summary is available here.

OECD Updates

Global Forum Secretariat assists members to ensure the effective implementation of automatic exchange of financial account information

On 31 May 2023, the OECD announced that the Global Forum Secretariat has developed a Model Administrative Compliance Strategy to assist jurisdictions to improve and implement their own tax information exchange strategy. The tool and its user guide are available to all interested jurisdictions.

Decarbonisation and intergovernmental fiscal relations

On 6 June 2023, the OECD released a paper which explores the nexus between decarbonisation and intergovernmental fiscal relations focusing on related challenges and reform options.

Crypto-Asset Reporting Framework and 2023 Common Reporting Standard update

On 8 June 2023, the OECD released a publication which includes the Crypto-Asset Reporting Framework, amendments to the CRS, and commentaries on the exchange of information framework.

Global Forum Secretariat launches guidance on implementing secure systems for automatic information exchange

On 9 June 2023, the OECD released Guidance for implementation of a secure perimeter for automatic exchange of information purposes – a tactical approach on confidentiality and data safeguards for developing counties.

Uzbekistan joins Inclusive Framework on BEPS thereby commits to the two-pillar plan

On 9 June 2023, Uzbekistan joined the Inclusive Framework on BEPS which commits the country to joining the two-pillar plan.

Tax Administration Forum launches peer-to-peer support for developing countries to implement the Two-Pillar Solution

On 13 June 2023, the OECD announced that the Forum on Tax Administration Pillar Knowledge Sharing Network held its first meeting of what will be a series of peer-to-peer knowledge-sharing events where experts from tax administrations in 'early implementer' jurisdictions will offer high-level practical advice and share lessons learned on aspects of the Two-Pillar Solution.

Continued progress on countering harmful tax practices as international standards are followed

On 21 June 2023, the OECD announced that jurisdictions continue making progress on implementing the international standard under BEPS Action 5 to address harmful tax practices, as the OECD/G20 Inclusive Framework on BEPS releases new results on preferential tax regimes.

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

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