Director Fees and GST OP23/02
IRD has recently issued an Operational Position OP 23/02 in which it concluded that a person who provides only directorship services in a personal capacity is not eligible to register for GST, even if the value of the director fees exceeds the GST registration threshold of $ 60,000.
A Professional Director does not carry-on a taxable activity just by holding multiple offices as each office is excluded from the definition of taxable activity by s 6(3)(b) or 6(3) (c)(iii). Those who are incorrectly registered for GST will not be required to deregister retrospectively, only going forward.
Directors providing directorship services through a company (i.e., not in personal capacity) will still be able to register for GST.
Professional directors who provide directorship services as part of their other taxable activities (such as accountants, lawyers) who still carry on that other taxable activity can remain GST registered.
Those providing only directorship services in their individual capacity, will have to deregister from GST going forward. This can be done in MyIR or by completing an IR315 Business Cessation Form.
On deregistration a taxpayer may be required to return GST in relation to market value of goods and services that they will retain that formed part of their taxable activity. These would include but not be limited to motor vehicles, telephones, computers, office furniture, etc.
Depreciation rate for Gaming Machines
DEP 110 sets the depreciation rates for electronic gaming machines at 30% DV (down from 40%) or 21% SL (down from 30%).
UOMI rate
The current underpayment rate for use of money interest is 10.91% (previously 10.39%). The current overpayment rate is 4.67% (previously 3.53%).
FBT Prescribed Interest Rate
The FBT prescribed interest rate is 8.41 % (previously 7.89%) effective 01 Oct 2023.
Debt & Insolvency
If you are struggling to meet your tax obligations, please speak to us as there are number of options available that one can explore which includes but is not limited to an instalment arrangement, application for remission under hardship provisions, etc.
GST REGISTRATION CANCELLATIONS
We are often asked about the ability to claim GST input tax credits in relation to client specific transactions.
As a general rule, a GST registered person is entitled to claim a GST input tax credit in relation to goods or services acquired for the purposes of carrying on that person’s taxable activity.
One must, however, be mindful of the requirement that an input tax deduction can only be made by a GST registered person. Whether a person is liable to register (s 51(1), and whether they are entitled to voluntary register (s 51(3) of GST Act (GSTA)), is dependent on the person’s taxable activity status.
S 52(5) of GSTA gives the Commissioner the power to cancel a person’s GST registration, if the Commissioner is satisfied that the GST registered person does not, or no longer carries on a taxable activity. The cancellation can be retrospective, which could give rise to unintended GST outcomes.
DEDUCTIBILITY OF HOLDING COSTS FOR LAND
There are so many different rules that govern the deductibility of the various land holding costs. IRD has recently issued an interpretation statement IS 23/10 focusing on the deductibility of these.
Holding costs are generally costs associated with the ownership of the land, such as interest, rates, property insurance, repairs & maintenance, body corporate fees (other than those charged for capital improvements).
As a general rule for holding costs to be deductible, there has to be a sufficient connection between the expenses and income derivation.
Income earning use of property include renting the land or holding land on revenue account i.e. resulting in a taxable sale. Holding land on capital account is not an income earning use, even if the sale of the property gives rise to taxable gain (i.e. brightline sale).
IRD accepts that holding costs for land held on capital account are deductible subject to any apportionment that needs to be made and to the interest limitation rule, from the time there is a binding contract to sell the land if the gain will be a taxable gain.
If the property is used for deriving rental income, other rules could limit the deductibility of holding costs. Such as:
Deductions are not allowed to the extent that the expenses are of private nature (friends & family use the property). Interest deduction for residential rental properties can be denied in full or in part under the interest limitation rules. Interest limitation rules do not apply to land that meets the criteria of a new built land, or a revenue account property.
If the allowable deductions exceed the income from the property or portfolio of properties, the ringfencing rules may limit the amount of a deduction that can be claimed in a particular year. The excess deductions are carried forward to future years.
If some or all of the interest is disallowed only because of the application of the interest limitation rules, it will become deductible if the sale of property is taxable.
Property held on capital account resulting in taxable gain (i.e. brightline)
If the sale is taxed under the brightline rule, the interest disallowed because of the interest limitation rules will be deductible in calculating the taxable gain on sale. There is a rule that limits the cost deduction one can claim in the year to the amount of income one has from land sales. If the brightline sale results in a loss, the full deduction will not be available and the excess will have to be carried to future years to be offset against other brightline taxable gains.
If the sale is taxed under a provision other than brightline, the ring-fencing rules may limit the available deduction for that year.
November 2023
