Snapshot of recent developments

Tax legislation and policy announcements

Briefing to the Incoming Minister

Inland Revenue has released its Briefing to the Incoming Minister, dated November 2023.

The document outlines the tax and social policy system, tax design principles, Inland Revenue’s priorities, structure, funding and people, and how they will support the Minister.

Family Tax Credit and Best Start Tax Credit amounts to increase from 1
April 2024

On 29 November 2023, the Income Tax (Tax Credit) Order 2023 was passed, increasing the Family Tax Credit (FTC) and Best Start Tax Credit (BSTC) amounts in line with inflation. This will take effect from 1 April 2024.

The new FTC amount for the eldest child is $7,524 (currently $7,121) and for subsequent children $6,130 (currently $5,802). The BSTC will increase to $3,838 (currently $3,632).

Taxation Principles Reporting Act 2023 repealed

On 22 December 2023, the Taxation Principles Reporting Act Repeal Act 2023 received royal assent. The full press release can be read here, and the Regulatory Impact Statement here.

On 1 February 2024, Inland Revenue proactively released the draft report that was prepared by Officials and the Cabinet minute and papers relating to the repeal.

New Zealand dairy products can now enter China duty-free

From 1 January 2024, all New Zealand dairy products can enter China duty free, with the end of safeguard duties on milk powder. The full press release can be read here.

Electric vehicles to pay Road User Charges

On 16 January 2024, the Minister of Transport announced the exemption from road user charges for owners of light electric vehicles and plug-in hybrid vehicles will end on 1 April 2024. The new road user charges will be $76 per 1,000 kilometres for owners of electric vehicles and $53 per 1,000 kilometres for plug-in hybrid vehicles.

New Zealand - European Union Free Trade Agreement Legislation: first
reading held

On 31 January 2024, the NZ-EU Free Trade Agreement legislation passed its first reading and was referred to the Foreign Affairs, Defence and Trade select committee.

The Minister of Trade announced that the Government aims to finish its part of the procedure through Parliament by May 2024. The agreement will then come into force at an agreed date after New Zealand has passed the implementing legislation and notified the EU.

R&D Tax Incentive in-year payment loan scheme ends

On 12 February 2024, Tax Management New Zealand announced the Government had closed the in-year payment loan scheme.

No new loan or payment requests will be accepted. However, existing loans will remain in effect (with no change to the repayment due dates) and the most recent round of loan requests (which closed on 15 January 2024) will continue to be processed and paid out to eligible businesses.

Income Tax (ACC payments) Amendment Bill

On 15 February 2024, the Income Tax (ACC Payments) Amendment Bill was drawn by ballot. The Members Bill seeks to make changes to how certain ACC lump sum payments are taxed (this issue is also addressed by the current Annual Rates Tax Bill). The bill is waiting for a first reading.

Goods and Services Tax (removing GST from food) Amendment Bill

On 15 February 2024, Rawiri Waititi’s (Te Pati Māori) Members Bill proposing to remove GST from all food products and non-alcoholic beverages was drawn from the ballot. The bill is waiting for a first reading.

Social Security (benefits adjustment) and Income Tax (minimum family tax credit) Amendment Bill

On 15 February 2024, the Bill adjusting the minimum family tax credit completed the committee stage and will now face its third reading.

The bill proposes to amend section ME 1 of the Income Tax Act 2007, replacing the minimum family tax credit amount of “$34,216” with “$35,204” for the 2024-25 and later tax years.

Regulated tyre fee from 1 March 2024

From 1 March 2024, a new regulated tyre stewardship fee will apply. The fee will fund Tyrewise, NZ’s first regulated product stewardship scheme. The scheme will see worn-out tyres collected, processed and recycled. Anyone who sells a regulated tyre, including importers of loose tyres must do so in accordance with the Waste Minimisation (Tyres) Regulations 2023 and register with Tyrewise.

Inland Revenue statements and guidance 

Technical decision summaries: adjudication – omitted income and liability
for shortfall penalties

On 24 November 2023, Inland Revenue published TDS 23/14 which considered whether a taxpayer returned all their assessable income for the income years in dispute and, if not, whether they were liable for shortfall penalties.

The taxpayer proposed adjustments in relation to undisclosed dividend income, beneficiary income and other income that Inland Revenue had assessed as derived.

It was held that some deposits were beneficiary income, and most were income under ordinary concepts. The taxpayer was liable for evasion shortfall penalties from income not returned on some unexplained deposits, reduced by 50% for previous behaviour.

On 29 November 2023, Inland Revenue released TDSs 23/15, 23/16, 23/17, 23/18, and 23/19 (all on omitted income and shortfall penalties) regarding a taxpayer(s) with complex personal and business affairs. Inland Revenue held that the taxpayer(s) were liable to pay tax on omitted income, a time bar exemption applied, and evasion shortfall penalties applied.

Tax information bulletin – December 2023

On 1 December 2023, Inland Revenue released TIB Vol 35 No 11 (December 2023).

Interpretation Statement: Income – when gifts are assessable income

On 6 December 2023, Inland Revenue issued IS 23/11 which clarifies when a gift is subject to income tax in the recipient’s hands. This statement replaces Assessability of gifts received by volunteer workers in NZ (TIB Vol 6, No 3, September 1994) and Cash gifts received by voluntary workers (TIB Vol 4, No 5, December 1992).

In summary, gifts are generally not subject to income tax because they are made as a mark of affection, esteem or respect for an individual, and therefore do not have the character of “income”. However, a gift may be liable to income tax if it’s a person’s income under Part C, i.e., from a business, from carrying on or carrying out an undertaking or scheme entered into or devised for the purpose of making a profit, in connection with employment, or in undertaking a voluntary activity.

Question we’ve been asked: Income tax – deductibility of expenditure –
renting to flatmates

On 6 December 2023, Inland Revenue issued QWBA 23/08 which explains when a person can claim deductions for expenditure incurred in deriving rental income, where the person rents a room in their home to a flatmate. In summary:

Q: If a homeowner lives in their home and rents out a room to a flatmate, can they claim deductions for costs incurred in deriving the rental income?

A: Yes. A homeowner can claim deductions for costs incurred to the extent the expenditure is incurred in earning the rental income from the flatmate(s). The rental income from the flatmate is taxable.

The QWBA also considers interest limitation, residential ring-fencing, apportionment, and mixed-use asset rules.

Technical Decision Summary: Private Ruling – Deductibility of retention payments

On 7 December 2023, IR issued TDS 23/20 which considered an agreement between companies, while an acquisition was being considered, to enter into retention agreements with key staff. The agreements were accepted as variations to employment agreements. The retention agreements incentivised key staff to remain and entitled these staff to bonus payments calculated by reference to their salary.

The issue was whether a portion of the retention payments were deductible. Based on the specific facts, the Tax Counsel Office decided that the retention payments were deductible, the capital limitation does not apply to deny a deduction, and the deduction is allocated to the income year in which the payments were made.

Question we’ve been asked: Income tax – forfeited deposits from cancelled
land sale agreements

On 13 December 2023, Inland Revenue released QWBA 23/09 which clarifies the circumstances in which a forfeited deposit from a cancelled land sale agreement is income to the seller. In summary:

Q: Is a forfeited deposit from a cancelled land sale agreement income to the seller?

A: Yes, if one or more of the following situations apply:

• the sale of the land that is the subject of the cancelled land sale agreement was part of the current operations of the business or an ordinary incident of the business (s CB 1) of the Income Tax Act 2007.
• the seller is carrying on a profit-making scheme that involves the sale of the land (s CB 3).
• it has the character of income (s CA 1(2)) i.e., if the proceeds of the sale under the cancelled land sale agreement would have been taxable had the sale gone ahead.

Question we’ve been asked: FIF calculation methods in cases of non-compliance

On 14 December 2023, Inland Revenue finalised QB 23/10 which explains that a person has a choice of methods to calculate FIF income even if they fail to declare the income in a tax return and later file a voluntary disclosure, or fail to file a tax return by the due date and later provide one including income.

This QWBA was expanded from the revised draft by confirming that the principle also applies to “other taxpayers”, not just a natural person or eligible trustee.

Technical Decision Summary: Private Ruling – Interest free loan and dividends

On 9 January 2024, Inland Revenue issued TDS 24/01 which analysed an interest free shareholder loan from a non-resident company and the ongoing repayments of the loan. The issues were whether the interest free loan gave rise to dividends and whether repayment of the loan was subject to withholding tax.

The Tax Counsel Office decided that the loan did not give rise to dividends, including as a result of the issue or repayment, and that the receiving company was not required to pay withholding tax.

Determination: participating Jurisdictions for the CRS applied standard

On 18 January 2024, Inland Revenue released AE 24/01 which details Participating Jurisdictions. Since the last update in 2023, Georgia, Kenya, Maldives, Moldova, Montenegro, Morocco, Thailand, Uganda and Ukraine have been added.

Participating Jurisdictions can provide NZ with financial account information under the CRS which is important for financial institutions when conducting due diligence in respect of accounts held by passive non-financial entities.

The Determination is effective from 1 April 2024.

Technical Decision Summary: Adjudication - Renovation work on recently
acquired properties and the capital limitation

On 31 January 2024, Inland Revenue issued TDS 24/02 which involved a trust that purchased several tenanted properties and, after purchasing, undertook work on the properties. The issue was whether the work was capital expenditure or ordinary repairs and maintenance.

The Tax Counsel Office decided that the expenditure was not deductible as it was part of the cost of acquisition, and therefore, capital. Relevant factors in this decision included the valuer’s assessment of the properties condition, the taxpayer’s intention, the cause of the need for the work, and the purchase price.

Tax Information Bulletin – February 2024

On 1 February 2024, Inland Revenue released TIB Vol 36, No 1 (February 2024).

Interpretation Statement: taxation of trusts

On 1 February 2024, Inland Revenue released IS 24/01 which explains the trust rules in the Income Tax Act 2007.

This comprehensive Interpretation Statement updates and replaces IS 18/01 and is a general guide as to how income derived by the trustees of a trust is taxed. It also explains the various compliance obligations imposed on settlors, trustees, and beneficiaries under tax law.

It does not deal with the proposed change to the trustee tax rate and related measures.

Draft Interpretation Statement: charities – business income exemption

On 2 February 2024, Inland Revenue released PUB00465 which is an exposure draft considering the extent to which business income a charitable entity derives is exempt from tax under section CW 42 of the Income Tax Act 2007.

Income a tax charity derives can broadly be classified as either “business income” or “non-business income”. Both types of income can be exempt (non taxable) if a tax charity meets the requirements of ss CW 41 and CW 42.

A tax charity that derives business income must apply s CW 42 to work out the extent to which that income is exempt. For all other income, a tax charity applies s CW 41. The main difference between the two sections is that business income is subject to additional restrictions compared with non-business income.

The deadline for comment is 15 March 2024.

Inland Revenue updates Public Guidance Work Programme

On 12 February 2024, Inland Revenue updated its Public Guidance Work Programme. This includes not proceeding with PUB00456 Income tax – Land – Main home exclusion and caravans, tiny homes etc (due to bright-line changes) and PUB00479: deductibility on UTBC levies (as this is addressed in IS 23/10).

Technical Decision Summary: Private Ruling - Fringe benefit tax –
discounted goods provided by third party

On 22 February 2024, Inland Revenue issued TDS 24/03 which considered a staff discount scheme for employees. The applicant contracted a non associated third party to provide discounted goods, then reimbursed the third party for costs incurred in providing the discounts.

The issue was whether the discounted goods give rise to a “fringe benefit” and, if so, what was the value of that fringe benefit. The Tax Counsel Office concluded that a fringe benefit did arise with a value determined under s RD 27 of the Income Tax Act 2007 (i.e., market value or otherwise as the Commissioner determines).

Global tax news

European Union – New Zealand Free Trade Agreement

On 27 November 2023, the European Parliament approved the Free Trade Agreement with New Zealand that was signed on 9 July 2023.

Double Tax Agreement with Slovak Republic signed

On 28 November 2023, New Zealand and the Slovak Republic signed a Double Tax Agreement.

Deloitte Tax Technology Report: tax in a data-driven world

On 29 February 2024, Deloitte Global released a report on tax and technology. Using the results from Deloitte’s Tax Transformation Trends 2023 research, the report explores challenges relating to technology transformation in the current tax landscape, including investment, obtaining budget, and optimal implementation and maintenance programs.

European Union: corporate sustainability due diligence

New mandatory requirements for corporate due diligence reporting
have been agreed by the EU and are expected to enter into force following
European elections in June 2024.

This report outlines the background, outcome, and planned implementation of the EU’s new Corporate Sustainability Due Diligence Directive including the potential impacts for New Zealand companies trading with or doing business in the EU.

For more information, please visit the MFAT website page or contact exports@mfat.net.

Deloitte Insights: Global tax reform is coming – and CEOs need to be
ready

Deloitte Global has released an Insights article on why Pillar Two tax reform is a C-suite priority. This includes a survey of 300 senior tax and finance leaders at companies across a range of industries, sizes, and regions, and what Pillar Two means for boards and C-level leaders.

Austria – New Zealand Double Tax Agreement

New Zealand and Austria have signed the Second Protocol updating the Double Tax Agreement and First Protocol between the two countries. The Protocol lowers the dividend withholding rates and includes the most recent OECD anti-abuse provisions.

OECD updates

Misuse of citizenship and residency by investment programmes

On 22 November 2023, the OECD released a report on the misuse (by criminals and corrupt officials) of citizenship and residency by investment programmes.

Fuel taxes less resilient than emission permit prices amid high inflation

On 27 November 2023, the OECD released the report Effective Carbon Rates 2023: Pricing Greenhouse Gas Emissions through Taxes and Emissions Trading which presents data on taxes and tradeable permits for carbon emissions in 72 countries.

Resilience and reform in carbon pricing: adapting to new realities

On 28 November 2023, the OECD released a recording from the COP28 virtual pavilion on the future of carbon pricing.

Revenue Statistics 2023

On 6 December 2023, the OECD published the Revenue Statistics for 2023. Global energy crisis and government responses drove a significant fall in tax levels in most OECD countries, including NZ.

Dividend Tax Fraud

On 7 December 2023, the OECD published Raising Awareness of Dividend Stripping Schemes.

Over 54,000 exchanges on tax rulings carried out under BEPS Action 5

On 13 December 2023, the OECD released the latest peer review assessments for 131 jurisdictions in relation to the compulsory spontaneous exchange of information on tax rulings. The 2022 Peer Review report indicates that over 54,000 exchanges of information have taken in over 24,000 tax rulings identified.

Public comments received on proposed changes to Article 5 Commentary

On 22 January 2024, the OECD published the comments received on the proposed changes to the Commentary on Article 5 of the OECD Model Tax Convention and its application to extractible natural resources.

OECD releases International Compliance and Assurance Programme statistics

On 29 January 2024, the OECD released the first aggregated statistics from the Forum on Tax Administration ICAP for a multilateral risk assessment of an MNE group’s key international tax risks.

New Zealand will not apply Pillar One – “Amount B”

On 19 February 2024, the OECD published its optional simplified and streamlined approach to in-country baseline marketing and distribution activities (formerly “Amount B”).

Inland Revenue confirmed New Zealand will not be applying this approach and there is no change to current rules or practice. The existing simplification measure for small foreign-owned wholesale distributors remains available and existing transfer pricing rules apply in all other cases.

OECD Tax and Development Days 2024

The OECD will host meetings on their initiatives to strengthen tax capacity, improve tax policy and compliance in developing countries, and explore future challenges.

These will take place on 12 and 13 March 2024 from 12:30-17:15 (UTC+1) (Day 1) and 12:30-16:30 (UTC+1) (Day 2). Replays of the sessions will be available here the week following.

All sessions are open to the public and will take place virtually. You can register here.

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