GST Related Reforms

• Crypto Assets:  The proposed amendments would exclude crypto assets from GST and the financial arrangements rules.
• Improvements to the GST apportionment rules.
  • The first reform would ensure that the apportionment rules do not overtax sales of appreciating assets that are partly used for business and partly used privately by allowing a deduction that correctly reflects the non-taxable use.
  • The second reform would reduce compliance costs for smaller GST-registered suppliers by allowing them to apply to IRD to approve an alternative apportionment method (this is currently limited to large taxpayers).
• Second hand input tax credits on supplies between associated persons. The proposed amendment will allow a second-hand goods input tax credit on supplies (incl. land) between associated persons equal to the tax fraction of the original cost of the good at the time it was purchased by the first person in the chain of associated persons.
• Domestic Transport Services supplied as part of the International Transport of goods will be zero-rated.
• Groups of companies. Introduction of the term GST group for a group of companies that choose to register as a group under the GST Act, and rules clarifying the application of rules for the representative member of the GST group.
• B2B Compulsory Zero Rating of Land Rule The proposed amendments would apply in cases where a registered person has incorrectly zero-rated a supply of land and is required to make subsequent adjustments. It also clarifies that the adjustment should be made in the period that the error became apparent, rather than the period when the original supply took place. It also allows a non-taxable supply that has been incorrectly zero-rated to be correctly adjusted to be a non-taxable supply thereby allowing the recipient to claim a second-hand goods input tax credit, which the recipient is currently unable to do.
• Assessing Time Barred GST returns The proposed amendments will provide that the CIR’s decision to reopen an assessment for a time barred GST return is treated as a disputable decision.
• Zero rated supply of Going Concern The proposed amendment introduces a provision that would require a purchaser who acquires goods which were zero-rated as the sale of a going concern and then uses those goods for a partly non-taxable use, to determine the amount of GST that would have been payable if the transaction was not zero-rated and apportion the amount accordingly.

INCOME TAX Related Reforms

• Crypto Assets:  The proposed amendments will exclude crypto assets from the financial arrangements’ rules.
• Use of Tax Pooling:  allowing the use of tax pooling for voluntary disclosures related to tax types other than RWT and income tax. The tax types that would be covered are PAYE, ESCT, RSCT, NRWT, GST, FBT, income tax, further income tax, and imputation penalty tax.
• Brightline Test – Construction of main home that takes longer than 12 months The proposed amendment to the main home exclusion from the bright-line test would ensure a main home that takes longer than 12 months to construct would not as a result be subject to the bright-line test.
• Foreign Currency Loans that Finance Residential rental Property in a Foreign Jurisdiction The proposed amendment would amend the definition of “residential income” to include income that a person derives from a foreign currency loan to the extent the loan finances their residential portfolio so that foreign exchange gains on the same loan in a subsequent period can be offset against the ring-fenced deductions.
• Fringe Benefit Tax – Unclassified Benefits provided by associates The amendment would exclude unclassified benefits paid by an employer’s associate to that associate’s employees from the calculation of the de minimis concession when the employer and their associate are not part of the same commonly owned group

Debt Remission within an Economic Group

The proposed amendments would clarify the rules for debt remission within economic groups by:

• clarifying that the related party debt remission rule applies to any type of remission, not only forgiveness,
• providing an available subscribed capital (ASC) increase to a resident company within a wholly-owned group of companies where a shareholder remits a debt owed by the company (without requiring the company to capitalise the debt)

Amending ICA Accounts when making Transfer from Previous Years The proposed amendments would permit imputation credit account (ICA) entries that result from a transfer of tax from a previous period to be made on the date that the taxpayer requests the transfer, rather than the effective date chosen by the taxpayer.

OTHER REMEDIAL MATTERS

Extending UOMI Relief during COVID 19

The proposed changes would allow the scheme to be extended retrospectively and for a specific group of taxpayers described in an Order in Council. The proposed changes would also include a time limit of 36 months for extensions that could be set within an Order in Council.

Non-Active Estates Return Filing

The proposed amendment would amend section 43B to extend the non-filing provision to include non-active estates.

R&D Tax Incentive – Cut off for claiming Supporting activities

The proposed amendment would permit supporting activity expenditure that arises one year before or one year after a relevant core R&D activity to be eligible for the R&D Tax Incentive.

The proposed amendments would apply for the 2020–21 and later income years, and would permit supporting activity expenditure incurred from the 2019–20 and later income years to be claimed.

DID YOU KNOW

INCOME EXEMPTION – MINORS

There is currently an exemption from income tax for minors who derive certain income totalling less than $2,340.

A recent law change has added beneficiary income to the list of income types that are not tax exempt for minors. This amendment is retrospective. It applies from the 2012-13 tax year unless a return of income has been filed before the tax bill was introduced – 4 June 2020 – where the customer relied on the law as it previously stood.

The amendment does not affect the minor beneficiary income rule in section HC 35 of the Income Tax Act 2007 where beneficiary income in excess of $1,000 is generally taxed in the trust return at the trustee rate. Beneficiary income of $1,000 or less should be taxed at the beneficiary’s marginal tax rate.

PIE INCOME DISTRIBUTED AS A BENEFICIARY INCOME

Beneficiaries must include PIE income allocated to them as beneficiary income  in their income tax return as  Trust income and not as PIE income.

S HM36B of ITA 07 states that PIE income is schedular income only for a natural person, not income derived by trustees. Further s HM36B(1B) clarifies that it is not schedular income if a natural person derives PIE income as a beneficiary of a non-PIE trust.

Attributed PIE income from a PIE (which is not  a superannuation fund or a retirement savings scheme where one must be of a specified age or be in exceptional circumstances before one can access the funds) and dividends from a listed PIE need to be included in adjusted net income for WFFTC or when determining student loan repayments.

Excess NZ tax credits & Losses

Where a reisdent Trustee has chosen a PIR of 10.5%, 17.5% or 28%, most multi-rate pies (MRP’s) that have access NZ tax credits or losses  receive a tax credit calculated at the chosen PIR. The MRP then credits the investor by adjusting their interest in the MRP, or making a distribution to the investor.

APPLICATION OF CB12 TO A SUBDIVISION WHICH RESULTS INRESIDUAL LAND

Taxpayers that own a large piece of land often end up subdividing that land within 10 years of acquisition and selling some of the subdivided sections. Whilst the taxation under CB12 in relation to the disposed lots is clear, the taxpayers can be faced with the question as to what happens to the residual land that they wish to retain in cases where none of the exclusions from taxation under CB 12 would apply e.g. land  owned by a family trust that engaged in the subdivision of the land within 10 years of acquisition.

Whilst the residential exclusion from CB12 in CB 17 does not apply to the Trust and the beneficiaries of the Trust, it is possible that this Lot will not be taxable ultimately upon disposal.

The CIR has released QB  15/04  a while back where it was clearly stated that it is possible that the amount derived on disposal of some of the land is not income under CB12, even if none of the exclusions from CB 12 apply, provided that the taxpayer can provide satisfactory evidence that whilst the residual land was part of the undertaking or scheme, it was not part of the undertaking or scheme  that was carried on for the purposes of disposing of land e.g original house lot retained.

It should be noted that if an undertaking or scheme  meeting the criteria in CB12 is carried on, it does not matter when the disposal of the land occurs.

The mere passage of time, will not, without other supporting evidence, be sufficient  to show that the undertaking  or scheme was not carried on with a  view of disposal of the land in question.

If you are faced with a similar question, please do not hesitate to contact us so that we can assess your situation and recommend an appropriate course of action.

OTHER TAX MATTERS

GST DEFINITION OF A RESIDENT

IRD has recently published an interpretation statement IS 21/07 that provides guidance on how to determine whether a person is a resident for GST purposes.

Whether or not a person is a NZ resident for GST purposes is important as it may affect whether GST needs to be charged on any supplies made to that person.

It is also relevant to determine whether the person is required to charge and account for GST on supplies they make in New Zealand and whether a person can or is required to register for GST in New Zealand and on what basis.

The definition of residency for GST purposes is wider than the definition for Income Tax purposes. Consequently, some non-residents for income tax purposes may be treated as GST residents and not be aware of the differences and their obligations.

Whilst the definition of a resident for GST purposes refers to the Income Tax definition, it further widens it by reference to whether the person has an activity in NZ and a fixed or permanent place in NZ relating to that activity.

It is also important to note that whilst Double Tax Agreements can shift income tax residency between jurisdictions, the Double Tax Agreement has no application in relation to residency for GST purposes.

CROSS BORDER CHILD SUPPORT RECOVERY Impossible? – Think again!

NZ is a party to the Convention on the International Recovery of Child Support and Other Forms of Family Maintenance (the 2007 Hague Convention) which was concluded at the Hague on 23 November 2007. The convention was ratified in NZ recently and will come into force on 01 November 2021.

There are 43 signatories to the convention and the convention is effective in 41 of those states.

Whilst NZ has a reciprocal arrangement with Australia in relation to mutual recovery, the consequence of this convention is that it will give IRD greater tools to recover child support and other family maintenance amounts from individuals residing in the treaty partner countries.

The list of treaty partner countries can be accessed from the link below.

https://www.hcch.net/en/instruments/conventions/status-table/?cid=131