Snapshot of recent developments

Tax legislation and policy announcements

Business Payment Practices Bill

On 26 April 2023, the Select Committee reported back on the Business Payment Practices Bill. The Committee was unable to agree whether the bill should pass, but recommended a number of amendments to the bill, should the House determine the bill be passed. Background on the proposed bill can be found in our December 2022 Tax Alert article.

Tax Administration (Extension of Due Dates) Order 2023

On 11 April 2023, an order was enacted to extend specified timeframes under the Income Tax Act 2007 that relate to receiving a bad debt deduction and distributing beneficiary income. The new date to perform these actions is 31 May 2023. The order only applies to flood-affected taxpayers.

ACC levies set for 2023, 2024 and 2025

The ACC earners’ levy rates have been set by regulation. The rates for each tax year are 2022-23: 1.46%; 2023-24: 1.53%; and 2024-25: 1.6%.

Child support pass-on bill introduced

On 28 March 2023, the Child Support (Pass On) Acts Amendment Bill was introduced. The Bill proposes that child support collected by Inland Revenue will be passed on to sole parents receiving a main benefit from July 2023.

Inland Revenue statements and guidance

Inland Revenue incorrectly cancels some direct debits

On 21 April 2023, Inland Revenue apologised for incorrectly cancelling some direct debits. Direct debits set up for instalment arrangements will not be affected. For any one-off payments, if the bank account is not available, you’ll need to add a new direct debit mandate before the direct debit is requested.

Interpretation Statement: 5-year bright-line test: Certain family and close relationship transactions

On 20 April 2023, Inland Revenue issued a finalised statement IS 23/02 on the bright-line test under section CZ 39 of the Income Tax Act 2007 which applies to land that is not a main home purchased on or after 29 March 2018 but before 27 March 2021. If all the requirements of section CZ 39 are met, the bright-line test applies to a disposal from:

• Parents to their child;
• A company (not an LTC), where the parents are shareholders, to their child;
• Parents who are trustees to their child who is a beneficiary;
• One partner to themselves and their new partner (to the extent of the new partner’s share);
• Two partners to a third party; and
• Beneficiaries under a will or rules governing intestacy to a third party to the extent that the disposed interest are not the same as the original shares acquired.

If the amount derived from the disposal is below the market value of the residential land, the sale will be taxed on the market value of the land (including gifts). Deductions are allowed for the cost of the residential land.

Draft Public Ruling: GST treatment of payments made by parents to state and state integrated schools

On 12 April 2023, Inland Revenue released PUB00446, which is substantially the same as Br Pub 18/06 which it replaces.

The ruling confirms there is no GST chargeable where payments are made by parents or guardians to assist the school with the cost of delivering the education that the student has a statutory entitlement to receive free of charge.

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

The new ruling will apply from 21 June 2023 for an indefinite period. The deadline for comment is 24 May 2023.

CRS applied standard determinations

On 12 April 2023, Inland Revenue issued CRS 2023/01 and CRS 2023/02 which cancelled 2019 Excluded Account Determinations relating to the Asteron Superplan and Asteron Retirement Savings Plan due to the relevant scheme having closed.

Draft Interpretation Statement: Interest limitation rules and short-stay accommodation

On 4 April 2023, Inland Revenue published PUB00441 which considers how the interest limitation rules apply to interest incurred for property used to provide 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. The deadline for comment is 16 May 2023.

Inland Revenue releases three special reports on the new legislation

On 4 April 2023, Inland Revenue published three new special reports containing detailed information on new rules in the Taxation (Annual Rates for 2022-23, Platform Economy and Remedial Matters) Act 2023:

• Special report on GST apportionment and adjustment rules
• Special report on tax relief for North Island flooding events
• Special report on build-to-rent exclusion from interest limitation rules

Technical Decision Summary: Timing of income and expenditure

On 3 April 2023, Inland Revenue issued TDS 23/03 which concerned a Taxpayer whose business involved leasing assets to customers and maintaining the leased assets in good repair. The amount charged, described as ‘rental’, was partly for the lease, and partly for maintenance costs. The issue was to determine when the Taxpayer derived the maintenance component of the rental.

The Tax Counsel Office held that the taxpayer derived the rental under the leases when and to the extent they met their contractual obligation to supply assets in good repair and operating condition and was entitled to issue an invoice. The Taxpayer did not incur the maintenance expenditure at the time the leases were entered into.

Technical Decision Summary: Assessability of unexplained amounts, interest deductions and shortfall penalties

On 29 March 2023, Inland Revenue issued TDS 23/02. The Tax Counsel Office determined that unexplained deposits were business income (as the Taxpayer was unable to prove they were not), the Taxpayer was not entitled to interest deductions on their family home, and that penalties should be increased due to evasion, gross carelessness, and obstruction.

‘Questions We’ve Been Asked’: Payments made by parents to childcare centres

On 31 March 2023, Inland Revenue released two QWBA’s:

• QB 23/03 Income Tax – Donation tax credits and payments made by parents to childcare centres
• QB 23/04 Goods and Services Tax – Payments made by parents to childcare centres

Inland Revenue completes 6th Common Reporting Standard (CRS) reporting year

On 31 March 2023, Inland Revenue completed the 6th reporting year for the CRS in New Zealand. Inland Revenue has compiled a checklist of twelve issues worth revisiting by financial institutions to ensure systems continue to remain fit for purpose.

Determination: International tax disclosure exemption 2023

On 31 March 2023, Inland Revenue issued ITR 34 which details the scope and application of the 2023 international tax disclosure exemption. The scope of the 2023 exemption is the same as for 2022, and the exemption applies for the income year corresponding to the tax year ended 31 March 2023. The new exemption removes the requirement for a resident to disclose:

• An interest in a foreign company if the resident has an income interest of less than 10% in that company and either that income interest is not an attributing interest in a FIF, or it falls within the $50,000 de minimis exemption.
• If the resident is not a widely held entity, an attributing interest in a FIF that is a direct income interest of less than 10% if the foreign entity is incorporated (in the case of a company) or otherwise tax resident in a treaty country or territory.
• If the resident is a widely held entity, an attributing interest in a FIF that is a direct income interest of less than 10% (or a direct income interest in a foreign PIE equivalent) if the FDR or CV method is used for the interest. The resident is instead required to disclose the end-of-year NZ dollar market value of all such investments split by the jurisdiction in which the attributing interest in a FIF is held or listed.
• For non-resident and transitional residents, the requirement to disclose interests held in foreign companies and FIFs has been removed.

Tax Information Bulletin Vol 35 No 2

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

Global tax news

OECD Updates

OECD report: Communication and engagement with SMEs

The latest report in the Supporting SMEs to Get Tax Right series examines effective communication strategies that tax administrations can use to assist SMEs in fulfilling their tax obligations.

Inventory of Tax Technology Initiatives

The OECD Forum on Tax Administration has developed this tool to provide insights into digitisation projects and initiatives implemented by over 75 tax administrations.

Income-based tax incentives for R&D and innovation

On 18 April 2023, the OECD released a paper on the design features of income-based tax incentives for R&D and innovation. The paper describes the key design features of tax incentives available in all OECD and EU countries.

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

May 2023 - Tax Alerts