In case of a Natural Person or a Trust both FDR or CV can be used, depending on which method provides a better outcome, unless forced CV is required. Companies are precluded from opting to use the CV method and are only able to use FDR method.

The other methods such as cost Method and Deemed Rate of Return methods are available to all taxpayers regardless of their legal nature.

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.

 

WHEN IS A SUBDIVISION PROJECT A TAXABLE ACTIVITY FOR GST PURPOSES?

IRD has issued a consultation document PUB00427 which will replace its earlier position following the decision in Newman v CIR (1995)17 NZTC 12,097 (CA) case.

 

Former IRD policy was that a one-off subdivision creating an additional lot where simple subdivision was concerned involving no development work would not in itself give rise to a taxable activity

 

Whilst the CIR is still of the view that most principles as they applied before still need to be considered, their new view departs from that policy in some respects.

A subdivision project is a taxable activity when it is carried on continuously or regularly and involves, or is intended to involve the making of taxable supplies to another person for consideration. (i.e., selling off the new section).

Subdivision means dividing a parcel of land into two or more lots, or changing boundary lines. For the purposes of this consultation document subdivision also includes any development or building work carried out as part of the subdivision, as a degree of development work is often required for the purposes of consent application.

 

Whether or not a subdivision is carried on continuously and regularly will depend on the facts of each case. The factors that need to be considered include:

• The scale of the subdivision
• The level of development work
• The number of lots created and sold
• The time and effort involved
• The level of financial investment
• The level of repetition, and
• Whether the subdivision is done in the course of furtherance of an existing taxable

 

The CIR is of the view that generally a small-scale subdivision creating one extra lot and sale of the bare land will not be a taxable activity. Similarly, a small- scale subdivision creating one extra lot, and the construction and sale of a single house on the lot, will generally not be a taxable activity.

 

GST – UNIT TITLE BODIES CORPORATE

 

IRD has issued an interpretation statement IS 23/08 which deals with GST and its application to Unit Title Bodies Corporate (UTBC).

 

Whilst UTBC will have a taxable activity, it will not be liable to register for GST as the value of supplies to its members is not counted towards the $ 60,000 GST registration threshold. S 51(1B) of GSTA.

A UTBC can voluntarily register for GST, in which case it will need to return GST output on supplies to its members, a one- off GST output adjustment in relation to investments it holds and can claim GST inputs on supplies it receives from third parties.

 

UTBC cannot claim a GST input tax credit on goods and services acquired pre- registration. It may claim a deduction under s 21F when pre-registration goods are disposed of, or deemed disposed of upon deregistration.

 

Levies that UTBC charges to unit owners for ground rent that relate to units used for the principal purpose of accommodation in a dwelling will not be considered “Taxable Supplies” and will therefore not be subject to GST.

Levies that UTBC charges to unit owners for ground rent that relate to units NOT used for principal purpose of accommodation in a dwelling will be a Taxable Supply and subject to GST.

 

Where UTBC receives court awards and out of court settlements, GST consequences may apply if the payment is sufficiently connected to a supply. Out of court settlements must be considered individually.

 

UTBC receiving an insurance pay-out will have an output tax liability on the amount it receives.

 

FORFEITED DEPOSITS FROM CANCELLED LAND SALE AGREEMENTS

 

IRD has issued an Exposure Draft PUB00434 which discussed the income tax treatment of forfeited deposits in the hand of the vendor arising from cancelled land sale agreements.

 

IRD determined that the forfeited deposits will be income to the vendor in following circumstances:

 

• A forfeited deposit will be business income (s CB1), if the sale of land in relation to which agreement was cancelled was part of the current operations of the business or an ordinary incident of a business. (i.e., sale of land held on revenue account – property dealer). Forfeited deposit from sale of land held on capital account will not be income to the Vendor.

 

• A forfeited deposit is income from a profit- making scheme if the Vendor is carrying on a profit-making undertaking or a scheme that involves the sale of land (s CB3). IRD is of the view that the same would apply if the vendor decided to abandon the profit-making scheme following the cancellation of the

 

• As no supply has occurred the forfeited deposit will not be subject to GST.

 

• A forfeited deposit is income if under ordinary concepts it has the character of income (s CA 1(2)). IRD’s view is that the nature of a deposit is a compensation for failure of the buyer to settle the transaction as opposed to being a penalty. The compensation payments take the character of what they replace.

 

• For example, if the proceeds of the sale would have been taxable had the sale of land gone ahead (e.g., under land sale rules) then the forfeited deposit replaces that taxable income.

 

• If proceeds from sale of land would not be taxable income to the vendor, then the forfeited deposit is nothing more than compensation for loss of capital

 

IRD further considers, that a forfeited deposit is not income to the vendor under the land sale rules as there is no “disposal” of land if the agreement is cancelled and the settlement does not take place.