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Snapshot of recent developments

Tax Alert - August 2023

Tax legislation and policy announcements

Special report: Child Support (Pass On) Acts Amendment Act 2023

On 29 June 2023, Inland Revenue issued a special report providing early information on the passing on of child support, and the treatment of those payments for the purpose of determining entitlement to benefits and other assistance.

Charities Amendment Act 2023 passed

On 5 July 2023, the Charities Amendment Act 2023 was granted Royal assent. The Act modernises the charities sector, improves access to justice services and reduces the red tape that smaller charities face. It also empowers the Taxation Review Authority to hear Charities Act 2005 appeals.

Deposit Takers Act 2023 passed

On 6 July 2023, the Deposit Takers Act 2023 received Royal assent. The Act modernises the regulatory framework to help ensure the safety and soundness of deposit takers, provides for new inspection powers, and introduces a new Depositor Compensation Scheme.

Information releases: new legislation and Budget 2023 advice

Inland Revenue have recently published the following information releases, which includes policy advice and cabinet papers, about new legislation and policy announcements:

New Zealand-European Union Free Trade Agreement

On 10 July 2023, the Government announced that a Free Trade Agreement with the European Union has been signed. New Zealand is expected to gain up to NZ$1.8b in exports to the European Union per year. Duties have been removed on 91% of New Zealand’s goods exports, and this will rise to 97% after seven years.

New Zealand-Australia Double Tax Agreement

On 26 July, the New Zealand Prime Minister Chris Hipkins and Australian Prime Minister Anthony Albanese met in Wellington and announced they discussed a number of Trans-Tasman issues including “agreement to work towards updating our Double Taxation Agreement”.

Inland Revenue statements and guidance

Tax Information Bulletin Vol 35, No 6 – July 2023

On 30 June 2023, Inland Revenue released the Tax Information Bulletin for July 2023.

Interpretation Statement: GST – Section 5(6D): Payments in the nature of a grant or subsidy

On 4 July 2023, Inland Revenue issued IS 23/05 which considers the application of section 5(6D) of the Goods and Services Tax Act 1985 and replaces GST and Compensation to Māori Organisations and GST on Grants in TIB Vol 4, No 7, March 1993.

The Statement confirms that when a payment in the nature of a grant or subsidy is paid on behalf of the Crown or by a public authority to a person in respect of their taxable activity, then that payment is deemed to be consideration for a supply of goods and services in the course or furtherance of the taxable activity (if the requirements in section 5(6D) are met). If the person is GST-registered, they must account for output tax.

Interpretation Statement: Income tax – Government payments in the nature of a grant or subsidy

On 4 July 2023, Inland Revenue issued IS 23/06 which considers the application of sections CX 47 and DF 1 of the Income Tax Act 2007 (the grant provisions) in relation to payments in the nature of grants and subsidies.

The Statement clarifies the Commissioner’s view in situations where it is not clear how the grant provisions apply, including where the payment is not for any specific expenditure, the payment is not spent in the same year it is derived, and where there are surplus funds.

In summary, the payment and expenditure must correspond and are taxable when the business can keep the payment. Expenditure must be incurred in a “reasonable timeframe” and deductions that correspond to payments are denied to the extent they are funded by the payment. It is expected that surplus funds will be spent on other deductible or depreciable property.

Businesses must keep records to demonstrate the payment has been spent in their business and that corresponding deductions have not been claimed.

Interpretation Statement: GST – Court awards and out-of-court settlements

On 10 July 2023, Inland Revenue issued IS 23/07 which considers whether court awards and out-of-court settlements will be subject to GST. This may occur if the court award or settlement is consideration for a supply made by the person receiving the court award.

The Statement discusses the requirement for a sufficient connection to exist between a payment and a supply, different types of court awards, different GST accounting bases, claiming GST input tax deductions in a later period, payments received under a contract of insurance, and apportionment.

Technical Decision Summary: Distributions from private foundation on dissolution

On 11 July 2023, Inland Revenue issued TDS 23/10. A New Zealand resident taxpayer contributed funds to a private foundation established in, what was then, the Netherlands Antilles. The decision concerned whether funds of the private foundation were income to the taxpayer upon dissolution.

It was held that the private foundation was a “company” and the taxpayer a “shareholder” at the time the amount was distributed. The distribution was found to be capital in nature and therefore not income of the taxpayer.

Inland Revenue guidance on bright-line property changes and rollover relief

On 11 July 2023, Inland Revenue released further guidance on changes to the bright-line property rules and rollover relief. The bright-line property tax guide (IR 1227) has been updated and two new tools have been developed to assist taxpayers in working out whether rollover relief applies to:

QWBA: GST: Directors and board members providing their services through a personal services company

On 21 July 2023, Inland Revenue issued QB 23/07 which considers the GST treatment of a director or board member who provides their services through a personal services company (PSC).

The QWBA confirms that if a director (or board member) provides services through a PSC, the PSC will be able to register for GST, even if the director would not be able to register if they were providing their services in their capacity as a natural person.

This is because the supply by a PSC of a person to provide directorship services is distinct from the supply of those directorship services by an individual. As long as the PSC’s level of activity is sufficient to be a taxable activity, the PSC can register for GST.

Public Rulings: Investing into a US limited liability company – New Zealand tax consequences

On 24 July 2023, Inland Revenue published BR Pub 23/09 – 23/13. These five Public Rulings and accompanying commentary set out the income tax treatment of foreign tax credits or other forms of double taxation relief for New Zealand investors in a US limited liability company that is taxed on a fiscally transparent basis as a partnership in the US, but as a foreign company in New Zealand.

The Rulings apply from 26 June 2023 until 25 June 2028. This is a reissue of the earlier BR Pub 20/01 – 20/05 which expired on 25 June 2023. The Commissioner’s view remains unchanged from BR Pub 20/01 – 20/05.

Global tax news

Deloitte 2023 Global Tax Survey: Confidence in times of change

The tenth annual global survey of multinationals provides valuable insight into how large multinational companies perceive and react to the ongoing changes in the international tax framework. More than 200 tax leaders from multinational companies across 28 countries responded to the survey.

Findings from our survey indicate Pillar Two is happening and businesses are preparing for impact. Stakeholder interest in tax will continue to increase but is becoming the new normality. Tax administration and tax disputes remain high on the corporate agenda. EU tax transparency proposals will affect many respondent groups, and BEFIT is not expected to simplify compliance. Voluntary tax transparency standards and strategies feature widely but many respondent groups plan to keep within standard financial reporting. Groups are also considering environmental taxation and international remote work. The survey results and full report can be accessed here.

Amendments to New Zealand International Accounting Standard 12 – Pillar Two

On 13 July 2023, the NZ XRB issued an amendment to IAS 12 which gives entities temporary relief from accounting for deferred taxes arising from the OECD Pillar Two rules, including tax law that implements qualified domestic minimum top-up taxes.

Except for the deferred tax exception, the amended standard applies to annual reporting periods beginning on or after 1 January 2023 that have not ended, or do not end, before 10 August 2023. Disclosure is not required for any interim period ending on or before 31 December 2023.

OECD Updates

OECD launches new version of the BEPS MLI matching database

On 29 June 2023, the OECD launched a new and improved version of the BEPS MLI database which will allow tax authorities and other interested parties to make projections on how the MLI modifies a specific tax treaty.

138 jurisdictions agree historic milestone to implement global tax deal

On 12 July 2023, the OECD announced that 138 members of the Inclusive Framework, representing over 90% of global GDP, agreed an Outcome Statement recognising the progress made and allowing countries to move forward with the Two Pillar Solution.

OECD invites public input on Amount B under Pillar One relating to the simplification of transfer pricing rules

On 17 July 2023, the OECD announced they are seeking public comments on Amount B under Pillar One. Interested parties are invited to submit their comments on the public consultation document by 1 September 2023 by answering this questionnaire or by email.

OECD Tax Report to G20 Finance Ministers and Central Bank Governors

On 17 July 2023, the OECD released a report which sets out the latest development in international tax reform.

Webinar: OECD Tax Talks

On 19 July 2023, the OECD recorded a webinar on recent and upcoming international tax developments. 

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

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