Interpretation Statement – Variation to section 68CB(2) of the Tax Administration Act 1994
On 6 June 2022, Inland Revenue published COV 22/19 - Variation to section 68CB(2) of the Tax Administration Act 1994 (“TAA 1994”). This variation applies to a person who is seeking the Commissioner of Inland Revenue’s approval of their research and development activities by filing a general approval application for the 2021–22 income year under section 68CB of the TAA 1994.
The variation recognises that the impact of COVID-19 means the planning or conduct of research and development or the ability to obtain information, seek advice and formulate an application or complete a return, for some taxpayers has been materially delayed.
The variation extends from 7 August 2022 to 30 September 2022 the time by which a person with a 30 June balance date, to be entitled to research and development tax credits under section LY 1 of the Income Tax Act 2007, must apply for a general approval for the 2021–22 income year.
The variation applies from 6 July 2022 to 30 September 2022.
Operational Statement – Authority to Act for Tax Agents and other Intermediaries and Nominated Persons
On 6 June 2022, Inland Revenue published OS 22/03 - Authority to Act for Tax Agents and other Intermediaries and Nominated Persons. This statement prescribes how a tax agent or a representative can obtain the authority to act from their clients. This Statement sets out information about:
- Who may give an authority to act;
- What the authority to act should cover;
- The requirements for obtaining authority to act electronically;
- The requirement to keep a record of the client’s authority and identity verification documents; and
- Inland Revenue’s process for auditing these documents.
The statement includes an example of an authority to act form.
This statement applies from 6 July 2022.
Draft QWBA – Interest deductibility where amount not determined at balance date
On 28 June 2022, Inland Revenue published PUB00415 - Can a close company deduct interest on a shareholder advance where the amount is not known until after balance date? The proposed answer to this QWBA is yes.
This QWBA updates the Public Information Bulletin No. 130 on “Deductibility of interest, the quantum of which has not been determined at balance date” (September 1984:7) to reflect changes in case law on when expenditure is incurred. It also sets out the resident withholding tax consequences of interest payments made to shareholder current accounts.
In this QWBA, it is proposed that a close company can make such deductions if it has a legal obligation to pay the interest on the shareholder advance based on a previously agreed formula or method. The company must have the legal obligation, including a method of calculating the liability, before its balance date, which is usually 31 March. Companies need to keep records of the method they used to determine the amount of interest owing and of the legal obligation to pay the interest.
The deadline for comment is 9 August 2022.
Interpretation Statement – Tax depreciation rate for hydrofraise rigs
On 14 July 2022, Inland Revenue published DEP 108 - Tax depreciation rates for hydrofraise rigs available for use in the ordinary course of business. Hydrofraise rigs are used to build diaphragm (water blocking) type retaining walls. Diaphragm walls are often constructed in wet areas where groundwater will tend to flood an excavated area. The construction of the wall must therefore keep water out, as well as being strong enough to stop surrounding ground from collapsing into the excavation.
The determination applies to the 2021–22 and subsequent income years.
Public Rulings – GST and directors’ fees and board members’ fees
On 14 July 2022, Inland Revenue published 3 draft public rulings on the GST treatment of directors’ and board members’ fees:
- Goods and Services Tax — Directors’ fees
- Goods and Services Tax — Fees of Board Members not appointed by the Governor-General or Governor-General in Council
- Goods and Services Tax — Fees of Board Members appointed by the Governor-General or Governor-General in Council.
In summary:
- If a GST-registered person accepts an office as a director or board member in carrying on their taxable activity, the fees that person receives for providing their services are subject to GST;
- Where the director or board member has been engaged in their capacity as an employee, they may be required to account for their fees to their employer, in which case the employer is treated as making the supply of services, not the director (and so directors’ fees will be subject to GST if the employer is GST registered);
- Where the director or board member has been engaged in their capacity as a partner in a partnership, the partnership is deemed to make the supply of services, rather than the director;
- If a board member is appointed by the Governor-General or the Governor-General in Council, the services that the board member provides will always be excluded from the definition of “taxable activity”.
A flowchart illustrating the GST treatment of these fees from a director’s or board member’s perspective is in Appendix 1.
PUB000424 will replace Public Ruling BR Pub 15/10: “Goods and services tax – directors’ fees” as the draft ruling includes 2 new rulings addressing the GST treatment of board members’ fees.
The deadline for comment is 17 August 2022.
Inland Revenue – Sharing the secrets of successful business transformation
On 15 July 2022, Inland Revenue announced that they have launched a website making the detail behind its successfully completed $1.5 billion transformation programme available to other agencies and organisations. The Business Transformation Programme (BT) was officially closed off last month and Inland Revenue Deputy Commissioner, Greg James, says they have had many requests to share what has been learned in delivering it. You can access the BT website here.
Interpretation Statement – Claiming depreciation on buildings
On 20 July 2022, Inland Revenue published IS 22/04 - Claiming depreciation on buildings. This interpretation statement provides guidance to building owners on when they can claim depreciation on buildings. It considers the meaning of “building” for depreciation purposes and the distinction between residential and non-residential buildings. This statement is also accompanied by a fact sheet.
Notably, Inland Revenue has incorporated a number of Deloitte recommendations from our submission on the draft statement, please contact your usual Deloitte advisor if you have any queries on building depreciation.
Inland Revenue and the Ministry of Social Development child support information sharing change
From 1 July 2023, child support collected by Inland Revenue will be passed on directly to sole parents on a benefit.
Child support is counted as income when the Ministry of Social Development (MSD) works out a benefit payment. Currently, MSD must give clients 10 working days to respond to them changing a benefit based on the child support received. Those 10 working days mean MSD is not able to change benefit payment based on Inland Revenue collected child support. This could mean taxpayers get underpaid, or overpaid, and end up with a debt.
Inland Revenue and MSD would like to remove the 10 working day response period from the information sharing agreement they have. Consultation on this is open to the public and will close on 17 August 2020.
International Tax Update – Simplification Measures for Transfer Pricing
On 20 July 2022, Inland Revenue has completed its annual review of the small value loans simplification measure and updated the measure. For small value loans (that is, for cross-border associated party loans by groups of companies for up to $10 million principal in total), Inland Revenue currently consider 250 basis points (2.5%) 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. The rate previously, from 1st July 2020 to 30 June 2022 was 375 basis points over the relevant base indicator. Transactions priced in accordance with this simplification measure are likely to present a low transfer pricing risk and as such no further benchmarking is required. You can find more information about this here.
Inland Revenue has also updated the information on their APA inventory published on their website. In the year ended 30 June 2022 a further 19 APAs were completed.
Reissued Draft Interpretation Statement – Loss carry-forward – continuity of business activities
On 21 July 2022, Inland Revenue published PUB00376 - Loss carry-forward – continuity of business activities. This draft interpretation statement has been released for public consultation. The statement provides guidance on how the main aspects of the business continuity test in s IB 3 of the Income Tax Act 2007 apply. The business continuity test may enable a company to carry forward tax losses despite a breach in ownership continuity if certain requirements are satisfied.
The deadline for comment is 1 September 2022.
Interpretation Statement – Cash basis persons under the FA rules
On 27 July 2022, Inland Revenue published IS 22/05 - Cash basis persons under the financial arrangements rules, together with an accompanying fact sheet.
This interpretation statement explains when a person can account for income and expenditure from financial arrangements on a cash basis instead of an accrual basis. It also sets out the adjustment that must usually be made when a person ceases to be a cash basis person (cash basis adjustment) and must account for their financial arrangements using accrual basis. The statement includes worded examples and a fact sheet.
The statement answers a specific question that arose from IS 20/07, Income tax – Application of the financial arrangements rules to foreign currency loans used to finance foreign residential rental property on the cash basis adjustment. The new statement revisits the meaning of cash basis person and details how to perform a cash basis adjustment.
Fact Sheet – Donations – What is required to maintain a public fund?
On 27 July 2022, Inland Revenue published QB 22/02 FS - Income tax - Donations – what is required to establish and maintain a “public fund” under s LD 3(2)(d) of the Income Tax Act 2007? The 6-page fact sheet summarises the conclusions reached in the QWBA that was issued in April 2022: QB 22/02, “Donations – what is required to establish and maintain a “public fund” under s LD 3(2)(d) of the Income Tax Act 2007?"
Corporate Tax Residency – COVID-19 guidance
On 31 July 2022 concessional COVID-19 corporate tax residency rules ceased to apply. This guidance dealt with tax issues which could arise when director control over a company was impacted by the inability of directors to easily travel. Inland Revenue’s guidance now states: “From 31 July 2022 changes to border restrictions mean that generally it is no longer the case that directors are unduly restricted in movement between countries. It remains the case that the occasional exercise of control by the directors from New Zealand, for example through a board meeting, will not make the company tax resident in New Zealand. IS 16/03 contains our interpretation of matters relating to company residence. We will continue to monitor any impacts of the COVID-19 pandemic.”
