Snapshot of recent developments

Student loan annual repayment threshold increases

On 1 December 2022, the Student Loan Scheme (Repayment Threshold for 2023-24 Tax Year and Subsequent Tax Years) Regulations 2022 (SL 2022/316) were notified in the New Zealand Gazette. These regulations, which come into force on 1 April 2023, increase the annual repayment threshold for the purposes of the Student Loan Scheme Act 2011 from $21,268 to $22,828. These regulations also revoke the 2021 regulations.

Excise duties rates adjustment for tobacco products

On 1 December 2022, Excise and Excise-equivalent Duties table (Tobacco Products Indexation) Amendment Order 2022 was notified in the New Zealand Gazette and comes into force on 1 January 2023. The order adjusts the excise and excise-equivalent duties on tobacco products to reflect the movement in the Consumers Prince Index All Groups (less credit services) over the 12-month period ending on 30 September 2022.

Extension of filing deadline – Research & Development Loss Tax Credit Statements

On 22 December 2022, the Tax Administration (Extension of Deadline for Research and Development Loss Tax Credit Statements) Order 2022 (SL 2022/342) came into force. The Order in Council extends the filing deadline under section 70C(2) of the Tax Administration Act for the 2021/22 tax year to 30 April 2023. This new deadline applies to statements that must be filed with the Commissioner of Inland Revenue in relation to:

• Research & Development loss tax credits under the Income Tax Act that a person claims for the tax year 
• Research & Development repayment tax that a person must pay for the tax year

Draft Questions We’ve Been Asked: Provisional tax – impact on salary or wage earners who receive a one-off amount of income without tax deducted

On 1 December 2022, Inland Revenue published PUB00418 - Provisional tax – impact on salary or wage earners who receive a one-off amount of income without tax deducted (which updates QB 19/03). Submissions on PUB00418 closed on 27 January 2023.

Draft Questions We’ve Been Asked: Payments made by parents to childcare centres – GST and Income Tax 

On December 8 2022, Inland Revenue released two draft QWBA documents (PUB00340 – GST - Goods and Services Tax – Payments made by parents to childcare centres and PUB00340 – Income Tax - Income Tax – Donation tax credits and payments made by parents to childcare centres) and a fact sheet regarding payments made by parents to childcare centres. These documents provide guidance on how these payments should be treated for the purposes of goods and services tax (GST) and income tax.

For GST purposes, the draft QWBA states that payments made by parents to their child's childcare centre are generally subject to GST at the standard rate of 15% unless the payment is considered an unconditional gift and the centre is a non-profit organization.

For income tax purposes, the draft QWBA states that payments made by parents to a childcare centre that are considered gifts may qualify for a donation tax credit (DTC) if the childcare centre is a donee organization, the payment is at least $5, the payment is made voluntarily to benefit the centre or for a specific purpose or project, and the parent or child does not receive any material benefit or advantage in return for the payment. DTCs are not available for attendance fees or additional charges paid for optional activities or goods.

The accompanying fact sheet includes a flowchart that summarizes the special rules for determining whether payments should be considered donations or fees.
Deadline for comment is on 7 February 2023.

Issues Paper: Charities and business income exemption

On December 8 2022, the Tax Counsel Office published IRRUIP17 - Charities – business income exemption. The paper discusses interpretive and practical issues that charities may encounter when applying the business exemption provided in section CW 42 of the Income Tax Act 2007. This section exempts income derived by a charity that is a "tax charity," and section CW 42 provides the test for determining what "business income" derived by a charity is exempt. However, the wording of this section is capable of more than one interpretation, which can lead to significant differences in the income subject to the exemption and whether that income is exempt or taxable. The paper presents different views on these issues and offers tentative conclusions. The issues discussed include the definition of "business income," the requirements for a charity to be considered as carrying on a business, the role of charitable purposes in New Zealand, and the requirements for a charity to be considered a "tax charity." The deadline for comments on the paper is 17 February 2023.

Inland Revenue update Trust disclosure requirements – trustees that may be able to be excused from filing returns

On 14 December 2022, Inland Revenue advised that the Taxation (Annual Rates for 2022-23, Platform Economy and Remedial Matters) Bil (No 2)l proposes changes to the Tax Administration Act for situations where a trust may be excused from filing an income tax return for a certain year or on an ongoing basis. The changes increase the thresholds of income and expenses, broaden the eligible income types, and introduce new criteria for testamentary trusts. These changes will be retroactive to the 2021/22 income tax year. As the legislative change will not be enacted until late March 2023, Inland Revenue is proposing three filing options to ensure a practical implementation, backdated to apply to the 2021-22 tax year. Trusts that are eligible to be non-active for that year can choose one of the three filing options:

1. File a return and apply the variation by supplying limited disclosure information
2. Complete the Inland Revenue spreadsheet and not file a return
3. File a return and full disclosure of information

If Option 1 or 2 is chosen – the spreadsheet must be emailed to Inland Revenue by 1 March 2023 – trust.disclosure@ird.govt.nz

Questions We’ve Been Asked: Deducting interest by a close company on a shareholder loan account with unknown amount

On 13 December 2022, Inland Revenue issued QB 22/10 - Can a close company deduct interest on a shareholder loan account where the amount is not known until after balance date? Inland Revenue concludes that a close company can deduct interest if it has a legal obligation to pay the interest on the shareholder loan account based on a previously agreed formula or method. The legal obligation, including a method of calculating the liability, must be in place and recorded before the company’s balance date. The financial arrangement rules may also apply in determining when the deduction occurs. Resident withholding tax may have to be deducted from the interest payment to a shareholder, although a resident withholding tax credit can be claimed in some cases.

Companies must keep a record of the method they used to determine the amount of interest owing and of the legal obligation to pay the interest.

Inland Revenue update: Goods and Services Tax filing frequency

On 14 December 2022, Inland Revenue advised that from mid-January 2023 approximately 7,000 Goods and Services Tax customers will receive a notice advising that their filing frequency will change in 30 days. Taxpayers currently filing:

• 6 monthly with a turnover of greater than $500,000 - will move to 2 monthly (the change can be disputed within 30 days).
• 2 and 6 monthly with a turnover of greater than $24m - will move to 1 monthly under section 15C(4) of the Goods and Services Tax Act.

These notices will now be issued periodically to monitor customers who exceed the filing frequency rules to assist customers to comply with current legislation.

Inland Revenue update: Trust disclosures – common errors

On 14 December 2022, Inland Revenue advised they have found several common errors being made in trust income tax returns for the 31 March 2022 income year in relation to the additional reporting requirements. Inland Revenue requests that if you have already filed Trust returns with any of these

Product ruling: Bank of New Zealand

On 20 December 2022, Inland Revenue issued product ruling BR 22/14 - Bank of New Zealand. BNZ offers a product (TotalMoney) that allows customers (individuals, companies or trusts only) to group or aggregate accounts for the purpose of either “pooling” or “offsetting” the account balances. The ruling applies in respect of sections BG 1, CC 7, EW 15, EW 21, RE 1 and RF 1 of the Income Tax Act and sections 86F and 86I of the Stamp and Cheque Duties Act 1971.

Inland Revenue update: Medium-scale adverse event for Bay of Plenty of Waikato regions

On 10 December 2022, the Minister for Rural Communities, declared a medium-scale adverse event for the Bay of Plenty and Waikato regions (severe spring frost). Inland Revenue is exercising discretion to allow late deposits for the 2022 year and early withdrawals from the income equalisation scheme.

Inland Revenue update: Medium-scale adverse event for Gisborne/Wairarapa

On 13 and 16 January 2023, the Minister for Rural Communities declared a medium-scale adverse event for the Gisborne and Wairarapa regions, as well as localised flooding and damage across other regions and districts. Inland Revenue will be using its discretion to allow late deposits for the 2022 year and early withdrawals from the income equalisation scheme, as well as providing other support and discretionary relief for affected taxpayers.

Inland Revenue update: Cost of Living letters

On 17 January 2023, Inland Revenue announced that letters would be sent to three groups of customers on 18 January 2023 who received the Cost of Living payments but whose eligibility was unclear. These groups are those who had only negative portfolio investment entity income and received payment incorrectly, those whose eligibility is unclear, and those who may not meet the eligibility criteria for other reasons. The letters were sent directly to the customers and include advice on how to return the payments.

Tax revenues rebounded as economies recovered from the COVID-19 pandemic

On 30 November 2022, the OECD published the Revenue Statistics 2022. The report shows that the OECD average tax-to-GDP ratio rose by 0.6% to 34.1% in 2021. This is the second strongest year-on-year increase since 1990. The report also shows that in OECD countries for which 2021 data on tax revenues was available, tax-to-GDP ratios increased in 24 countries, declined in 11 and remained unchanged in one. The recovery in tax revenues in 2021 was driven by corporate income tax and value-added tax. The report also includes a special feature examining the changes in revenues from different tax types in 2020 and 2021.

Consumption Tax Trends 2022

The Consumption Tax Trends 2022 have also been released which highlights that most OECD countries have implemented reforms to guarantee that value-added tax is collected effectively on online sales and in line with OECD standards.

Design elements of Amount B relating to the simplification of transfer pricing rules

As part of the ongoing work of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting to implement the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, the OECD is seeking public comments on the main design elements of Amount B under Pillar One. Interested parties were invited to send their comments by 25 January 2023.

Tax Database Key Tax Rate Indicators

On 15 December 2022, The OECD release its Tax Database Key Tax Rate Indicators December 2022 brochure. This summary presents information on statutory tax rates and tax rate indicators in OECD countries, including personal income tax rates, social security contributions, corporate income tax rates, and value added taxes. The data covers the years 2021 and 2022, during which many countries have introduced, scaled back, or withdrawn Covid-19 measures.

OECD Investment Tax Incentives Database 2022 update

The OECD Investment Tax Incentives Database (ITID) provides insights into tax incentives in 52 emerging and developing economies, including how incentives are designed and granted to investors. The 2022 update of the ITID shows that:

• Tax exemptions are the most widely used type of corporate income tax incentives in developing and emerging economies.
• The size, timing, and flexibility of tax relief through tax incentives varies across economies.
• The choice of tax incentive types varies depending on a country's income level.
• Incentives are often targeted based on the sector or location of the investment.
• More than half of all investment tax incentives in the database combine multiple eligibility conditions.
• The governance of investment tax incentives is complex, with multiple authorities involved in granting and administering them.
• Over a third of incentives can be linked to sustainable development goals, with a focus on environmental impact, employment, and social inclusion.

OECD plans workstream to address worker mobility tax questions

On 9 January 2023, the OECD announced it is considering how to tackle a number of worker mobility and taxation questions, including issues related to transfer pricing, treaties, tax coemption and pensions. There is currently no timeline for the work.

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