Deemed Supplies & GST

Lots of trusts have baches that are rented as a short term accommodation. This in itself is not a problem as the value of supplies is unlikley to reach the $ 60,000 (the GST registration threshold) if the bach is being rented sporadically.

It is not uncommon for the bach to be used by beneficiaries of the Trust rent free. One of the requirements of the Trust Disclosure Rules is to disclose the market value of the benefit enjoyed by the beneficiaries of the Trust. Why is this a problem?

Whilst the beneficiary is not required to make a payment to the Trust for the use of the bach, for GST purposes there is a deemed supply at market value. Consequently, when income from renting the bach to third parties is added with the market rental value of bach used by the beneficiaries, the GST registration threshold of $ 60,000 may be exceeded and suddenly the Trust will be required to register for GST and return GST to IRD, even in relation to the market value of the rent free accommodation enjoyed by the beneficiaries.

OVERSEAS TRAVEL EXPENSES

As the borders are opening business travel will become more frequent than in recent years. QB22/06 considers deductibility of overseas travel costs. In essence they will be deductible when costs are incurred by the taxpayer and sufficient nexus exists with deriving assessable income or carrying on business for the purpose of deriving assessable income.

FBT rate

FBT rate for low interest employment related loans will be increasing from 4.78% to 6.71% for quarters beginning on or after 01 January 2023.

UOMI rate

The new underpayment rate for use of money interest is 9.21% (previously 7.96%). The new overpayment rate is 2.31% (previously 1.22%). These will apply on and after 17 January 2023.

16 January 2023

Please do not forget, 2^nd instalment of provisional tax payment and GST for the period ended 30 November 2022 are due on this day.

MORTGAGE OFFSET ARRANGEMENTS

A product rulling BRPrd 22/09 was issued by IRD in relation to Westpac mortgage offset arrangements, pursuant to which Westpac customers can elect to link several deposit accounts to one variety of home loan accounts (known as Choices Home Loan accounts), notionally offsetting the balance of the linked deposit accounts against the home loan. Interest is payable on the loan balance after notional offest. Interest is not payable by Westpac on the linked deposit accounts as long as they are linked to Choices Home Loan.

For the purposes of the Financial Arrangement Rules, where a credit balance of a linked deposit account and a debit balance of a Choices Home Loan account are offset, no amount of consideration is paid or payable by the offset for the purposes of calculating income or expenditure under EW15 and EW 31 of the Financial Arrangement Rules. (i.e. no deemed interest arises).

CRYPTO CURRENCY TARDERS – BE WARE

The rise in popularity of crypto assets has been phenominal in recent years. The revenue authorities around the world have been struggling to obtain visibility in this space. A new Crypto Asset Reporting Framework (CARF) has been finalised by the OECD which will facilitate collection and sharing of information in relation to taxpayers trading in or transacting in digital/ crypto assets.

It is expected that the NZ government will adopt this regime in due course as it will provide valuable information to the NZ government in relation to unreported transactions.

In addition to cryptro currencies such as Bitcoin, Etherum and the like, the regime will capture assets like stable coins, certain non-fungible tradable tokens (NFTs) or tokens if used for payments and derivatives issued in the form of crypto assets.

Excluded for now are crypto-assets that cannot be used for payment or investment purposes (loyalty reward program tokens, digital media, or online subscriptions) provided they cannot be transferred on secondary market.

The final rules include a new de-minimis threshold of $ 50,000 for retail transactions.

The collection of information and reporting obligations will rest with the crypto asset service providers (exchanges or anyone) that facilitate exchange transactions of relevant crypto assets.

Crypto asset providers will need to conduct AML customer due diligence in relation to its account holders. It is proposed that this be by way of a self- certification. Typically, this would include verifying identity, country of tax residency and foreign tax identification numbers.

If account holders are not willing to provide that information, the service providers must stop relevant transfers from taking place. It is likely that the service providers will adopt the same practices as banks and will freeze or block accounts of account holders until such time as they provide the relevant information.

The information that will be reportable to tax authorities on an annual basis will include, but is not limited to: name, tax identification number, country of tax residence, address, date of birth, amounts paid/ received, purchases/ disposals, number of units transacted, details of exchanges between crypto currency and conventional currency, exchanges between various crypto assets, etc.

These rules are currently in their infancy and unlikely to be adopted before 2025. It is however good to be aware that they are on the government’s radar and that sooner or later the various account holders will be known to respective revenue authorities.

To avoid having unpleasant surprises down the track it is recommended that crypto asset holdings be reviewed and income from crypto assets be reported. If you are unsure of your reporting obligations, please do get in touch so that appropriate assessment can be made.

ISSUES PAPER – CHARITIES BUSINESS INCOME EXEMPTION PUB00392

Inland Revenue has released the above issues paper on charities and the business income exemption in relation to business that is carried out exclusively for the purposes of the Charity under s CW42 (business income derived by a charity) and s CW41 (any other income).

The purpose of this paper is to provide greater clarity to taxpayers when interpreting s CW42, as the section is capable of more than one interpretation, which can have differing outcomes. S CW42 applies to income derived directly or indirectly from a business. A question arises as to what income is from “business” and do the words “directly or indirectly’ extend to the test in s CW42 to income not usually considered to be income from a business?

S CW42 further contains a control test. IRD is of the view that in most cases, the entity applying the business test in s CW42 will be a registered charity. One of the requirements for approval is that the business is not carried on for the private profit of any individual. In other words that no person within the entity has the power to divert income or assets from the charity.

The paper addresses the following topics:

• What income is “from a business”
• When is the business carried on by, or for the benefit of a charity?
• What is the effect of the requirement that the entity carrying on the business be a registered charity?
• When does a charity carry out charitable purposes in New Zealand?
• When is a charity a “tax charity”?
• When does a tax charity need to apply territorial restriction?
• How does a tax charity apply the territorial

IRD is of the view that the geographical location of where the Charity’s funds are spent or paid does not determine whether its charitable purposes are for purposes in or outside of New Zealand. A Charity carries out its charitable purposes in New Zealand if at least one of its purposes is a charitable purpose in New Zealand.

GST – SUPPLIES OF PROPERTIES FOR TRANSITIONAL HOUSING

Inland Revenue has released an Exposure Draft PUB00428 which considers the GST treatment of supplies of properties by landlords to organisations for use in the Ministry of Housing and Urban Development’s Transitional Housing Programme (Transitional Housing). This PUB will result in three rulings:

Ruling 1- Quiet Enjoyment

A supply of a property (self-contained house, unit or an apartment with few or no communal facilities) by a registered person to an organisation (Head Lease) that intends to lease the property to tenants under the Transitional Housing Program, where the tenants are provided with quiet enjoyment pursuant to s 38 of Residential Tenancies Act 1986, will not be a taxable supply pursuant to s 8(1) of GST Act.

Ruling 2- No Quiet Enjoyment

A supply of a property (self-contained house, unit or an apartment with few or no communal facilities) by a registered person to an organisation (Head Lease) that intends to lease the property to tenants under the Transitional Housing Program, where the tenants are not provided with quiet enjoyment pursuant to s 38 of Residential Tenancies Act 1986, will be a taxable supply pursuant to s 8(1) of GST Act.

Ruling 3- Communal Facilities

A supply of a property that contains rooms, with communal bathroom, lounge kitchen and common areas, or units or rooms with a private bathroom or kitchenette or both, but otherwise has communal kitchen, lounge and common area facilities, or is a unit within an ordinary, commercially operated motel to an organisation (Head Lease) that intends to lease to tenants under the Transitional Housing Program, will be a taxable supply pursuant to s 8(1) of GST Act.