Richard has had over 30 years’ experience with NZ taxation, and particularly enjoys dealing with land tax issues and the GST regime. He deals with clients of all types and sizes and provides tax opinions on the appropriate treatment of items of income and expenditure, assists clients with IRD risk reviews and audits and can assist clients who are having difficulties meeting their tax payment obligations to make suitable repayment arrangements with the IRD.
Here are snippets from Richard’s weekly email ‘A Week in Review’ over the last month. If you would like to receive them as they happen, please sign up for the weekly mail out here.
- Travel to a distant workplace operational statement
- Temporary relief from annual return filing
- Employer issued crypto-assets ruling finalised
- Foreign trust distributions
- Child support debt relief
- “Amazon Tax” special report
- Compliance cost reduction determination for telecommunication tools
- Proposed amendments to the KiwiSaver Act regarding early withdrawal rules
- Kilometre rate operational statement issued
- Confirmation land use payments taxable
Travel to a Distant Workplace OS
IR has released draft operational statement ED0217, which considers the taxation issues associated with employer-provided travel from an employee’s home to a distant workplace.
A distant workplace is defined as one which is a workplace that is not within reasonable daily travelling distance of the employee’s home. Consequently if the employer-provided travel does not relate to the employee getting to a distant workplace as defined, ED0217 at first glance is unlikely to have application to your situation, although you may still find its commentary useful in terms of IR’s views on a number of relevant issues like whether the employees home may be considered a workplace of the employer for example.
IR’s starting premise is that home to work travel is private use (it gets the employee “to” work and is therefore not “on work” travel), and consequently the employer-provided travel will be taxable, either under the PAYE rules (employee reimbursements or allowances) or subject to FBT (employer pays for the travel or provides it directly).
The employer-provided travel may however not be taxable if one of the following scenarios apply:
- the travel is one-off or very occasional (de minimis applies);
- the travel relates to a temporary posting or secondment (up to two years);
- the employee also genuinely works at a hometown workplace; or,
- the employee works from home on specified days (home being their place of work on those days, and the travel relates to one of those days).
ED0217 provides commentary on each of the four scenarios, and a number of examples to illustrate the key principles which are likely to determine the tax consequences of the arrangement between the employer and the employee.
The deadline for comment is 6th September 2019.
It’s There If You Want It
If you would like to gain a more in-depth understanding of exactly what was said by Tax Policy, Inland Revenue, to both the Minister of Finance and Minister of Revenue in relation to the Tax Working Group findings, IR has now released it advice documents, which includes policy reports, briefing notes, and emails prepared by Inland Revenue and the Treasury.
The index of documents in the information release can be found by clicking on the following link: http://taxpolicy.ird.govt.nz/publications/2019-ir-tax-working-group/overview.
Temporary Relief from Annual Return Filing
While not completely of a tax flavour, I thought I would include the following update, as I appreciate that a lot of us are still coming to grips with the AML/CFT reporting obligations that we as accountants have seen imposed upon us since 1st October last year.
As with our legal colleagues, a number of us are trustees of our client’s trusts, and most will use a corporate trustee structure to provide a desired level of personal protection. In this regard, the Department of Internal Affairs’ (DIAs’) view is that any corporate trustee company that has been set up to act as a trustee is a reporting entity under the AML/CFT Act, and consequently there is a requirement to submit an annual report by 31st August each year.
The obvious question/concern that has been raised in this respect, is whether the fact that the accounting or legal firm is now a reporting entity in its own right, should result in all these trustee companies coming under the one umbrella, not requiring multiple annual returns to be filed therefore.
Taking on board the issue, the Ministry of Justice is currently considering a class exemption for situations where a corporate trustee company is a subsidiary of the accounting or law firm, and has advised that while this exemption application is being assessed, the corporate trustee company, is not required to submit an annual report by 31 August 2019, provided that it:
- is a subsidiary of a law firm or accounting practice that is a reporting entity under the AML/CFT Act in NZ;
- is conditional that the parent law firm or accounting practice’s own annual report includes information relating to all relevant activities of the subsidiary corporate trustee company;
- is temporary while the Ministry of Justice considers the corporate trustee company class exemption application; and,
- applies to Annual Report obligations for the period from 1 July 2018 to 30 June 2019 only.
Employer Issued Crypto-Assets Ruling Finalised
IR has now finalised its public binding ruling BR 19/03: Income tax – Employer issued crypto-assets provided to an employee, which provides the Commissioners’ view as to the income tax consequences of the transaction.
BR 19/03 only has application where the employer is issuing crypto-assets (e.g. an ICO), the employee will only receive the crypto-assets if they are still employed by their employer at a future specified date (referred to as “the condition”), and the employee cannot sell/otherwise transfer the crypto-assets until the specified future date. The Ruling also only applies to employees and not to the self-employed, and will not have application where either the crypto-asset is defined as a “share” received under an “employee share scheme” or either BR 19/01 (Salary & wages paid in crypto-assets) or BR 19/02 (Bonuses paid in crypto-assets) apply.
In scenarios where BR 19/03 is of application:
- A fringe benefit will be provided under s CX 2 when “the condition” is met and the employee becomes entitled to the crypto-assets; and,
- The value of the benefit will be determined in accordance with either s RD 40 or s RD 27(3) as applicable or if neither of these sections apply, then the Commissioner will need to determine the value.
Foreign Trust Distributions
IR has released PUB00345, which is a draft interpretation statement which considers the income tax treatment of amounts of money/property transferred to NZ resident taxpayers by a person overseas, including through inheritance, how to then address determining the character of the transferor and in this regard, the scenarios when a taxpayer will be seen to have derived either beneficiary income or a taxable distribution from a foreign trust.
The key items
discussed by the draft statement, include how to determine if the amounts of
money/property will be deemed to have come from a trust (defined purely from a
NZ law perspective regardless of how the overseas jurisdiction may characterise
between the parties, the character of the trust itself once one has been deemed to exist (with the focus on foreign trusts for the purpose of this ruling), and upon a foreign trust definition having been satisfied, whether the distribution will then be considered to be either beneficiary income or a taxable distribution, with either categorisation then having NZ income tax consequences for the NZ resident beneficiary.
The deadline for comment on PUB00345 is 10th September 2019.
Child Support Debt Relief
IR has also released ED0209, which is a draft standard practice statement settling out the Commissioner’s proposed practice of exercising her discretions to provide relief to a liable parent who is unable to make the immediate payment of an overdue child support or domestic maintenance obligation.
The form of the relief can come in one of three ways, being either an agreement for the person to repay the debt by way of an instalment arrangement, the writing off of penalties in certain circumstances or in limited cases, actually writing off part or all of the child support debt. The deadline for comment on ED0209 is 16th September 2019.
“Amazon Tax” Special Report
Commonly referred to as the Amazon Tax, the new GST rules coming into effect from 1st December 2019, will see non-resident suppliers of “distantly taxable goods” whose total supplies to NZ consumers will exceed $60,000 per annum (or are expected to exceed this threshold), required to register for NZ GST. The new regime will, as appropriate, also apply to certain operators of electronic marketplaces and to redeliverers.
“Distantly taxable goods” is a term that refers to low value imported goods, which are items which have a value of $1,000 or less, common examples being books, sporting goods and small electronic items.
To assist with ensuring non-resident suppliers are compliant with the new rules, IR has now issued a Special Report (http://taxpolicy.ird.govt.nz/sites/default/files/2019-sr-gst-low-value-imported-goods.pdf), which provides early information on the new rules, and will be followed up with more detailed guidance in the September edition of the Taxpayer Information Bulletin. I have also been contacted already by a number of non-resident suppliers, who have directly received correspondence from IR with regard to the new rules, suggesting that they discuss the issue with their advisor to determine any forthcoming obligations.
To a large extent, the new rules are drafted on similar terms to the remote services regime (Netflix Tax) which came into effect from 1st October 2016 – the filing period (quarterly) is the same, supplies to GST registered businesses are excluded, and the basis for determining whether a supply is to a NZ based consumer uses an identical approach.
Non-resident suppliers, operators of electronic marketplaces and redeliverers will be able to register for the new regime from 1st September 2019. Take note in this regard, that when determining whether there is an obligation to register, all supplies to NZ based consumers need to be taken into account, which could include a mixture of remote services supplies and those of distantly taxable goods.
Compliance Cost Reduction Determination for Telecommunication Tools
IR has issued a draft Determination, ED0219, which considers the issue of an employees’ use of telecommunications tools and usage plans in their employment, and applies to scenarios where the employee is directly incurring the costs themselves (providing their own telecommunication tool and/or usage plan), and their employer then agrees to pay them a reimbursement in relation to the business use element of those costs.
The Determination is split into three parts:
- A Class A scenario where the telecommunication tools and/or usage plan are principally used by the employee in their employment; and they are also used privately;
- A Class B scenario where the telecommunication tools and/or usage plan where the employee is required to use telecommunications tools and/or the usage plan in their employment based on a business reason, and they are also used privately; and,
- A De Minimis Class scenario, where the two previous Class arrangements are effectively ignored, with the employer reimbursement being exempt income of the employee if the amount paid is no more than $5 per week, amounting to no more than $265 per year.
Should the De Minimis Class not apply, then it is proposed under the Determination, that for:
- Class A scenarios – 75% of the amount paid can be treated as exempt income of the employee, unless the employer is only reimbursing or paying an allowance based on 75% of the total bill amount paid by the employee, in which case the total payment will be considered exempt income of the employee.
- Class B scenarios – 25% of the amount paid can be treated as exempt income of the employee, unless the employer is only reimbursing or paying an allowance based on 25% of the total bill amount paid by the employee, in which case the total payment will be considered exempt income of the employee.
The deadline for comment on ED0219 is 20th September 2019.
SOP to Existing Tax Bill
You may have heard various commentators in the media recently, talking about the restrictive nature of the KiwiSaver early withdrawal rules, and the inability of someone who has a life-shortening congenital condition, to access their KiwiSaver funds to enable them to spend a reasonable portion of their adult life in retirement.
Accepting that this limitation is a real issue for a number of New Zealander’s, and therefore needs to be addressed sooner rather than later, the Minister of Commerce and Consumer Affairs has introduced a SOP to the present taxation Bill before the house, the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill (158-1), to remedy the deficiency in the present legislation.
The SOP proposes amendments to the KiwiSaver Act 2006, to allow a person who has a life-shortening congenital condition, to withdraw their savings early in order to spend a reasonable portion of their adult life in retirement. The SOP creates a new withdrawal category in the KiwiSaver Act for people with life-shortening congenital conditions. This new early withdrawal category allows those people to withdraw their savings before they are 65 for the purposes of retirement on the basis of sufficient medical evidence.
To give certainty to people with such conditions, there will be a set list of congenital life-shortening conditions named in regulations as qualifying for withdrawal. However, a person who has a (perhaps rare) congenital condition will still be able to apply for a withdrawal if they are able to provide medical evidence that they have a congenital condition that shortens their life below the age of 65.
The new rules will apply to both KiwiSaver schemes and complying funds.
The taxation Bill is currently before the FEC, with submissions on the Bill due no later than 4th September 2019.
Kilometre Rate OS Issued
IR has released Operational Statements 19/04a and 19/04b, which confirm the 2018/19 kilometre rates which taxpayers can use to either calculate their own motor vehicle expense deduction claims when they do not wish to prepare calculations based on actual expenditure incurred, or for those who are employers, can be used to calculate employee reimbursements where the employee is using their personal motor vehicle in the course of their employment.
In an attempt to mitigate any confusion, and reflecting the dual purpose the rates can be used for, IR has issued the Operational Statement in two parts:
- OS 19/04a – using a kilometre rate for business running of a motor vehicle — deductions; and,
- OS 19/04b – using a kilometre rate for employee reimbursement of a motor vehicle.
Operational Statement 19/04a applies to the 2018/19 income year and sets the following kilometre rates, remembering that the Tier 1 rate applies to the first 14,000km’s of total distance travelled in the vehicle during the income year, while Tier 2 applies for total travel in excess of the Tier 1 threshold:
Remember that to use the kilometre rate method, as opposed to the cost method, an election has to be made in the first income year that the vehicle is either purchased or first used for a business purpose (simply using the method in that income years tax return is considered to be an election), and the election is irrevocable, remaining in place until the vehicle is either sold or no longer used for a business purpose. In other words, if you do not elect in the first year to use the kilometre rate method, then the default cost method will apply to that vehicle going forward.
Naturally the calculation of the expense deduction using the kilometre rates, relies on the taxpayer having already determined the business/private use proportions of the particular motor vehicle, usually by way of a logbook maintained for a three month test period, such percentage then able to be used for the following three years (unless the use percentage changes by more than 20%).
Also take note of a common mistake made by taxpayers, that if proper records are not kept to determine the business use percentage of the motor vehicle, then IR can limit a deduction claim to the lesser of 25% or the proportion of actual business use. So it is not simply a case that the claim will be limited to 25% – it could in fact be reduced to 0% if IR considers the motor vehicle has not been used for business use at all.
Finally, effective from 1st April 2017 for motor vehicles acquired or first used for business purposes on or after this date, close companies can now make an election under section DE 2 to use either the cost or kilometre rate methods as opposed to paying FBT or being exposed to deemed dividends in respect of company motor vehicles which are also used privately by company shareholders. In this regard, the company also makes an irrevocable election by no later than the due date for the filing of the relevant first income tax return (year in which vehicle acquired or first used). It is important to note that if a section DE 2 election is made, then any interest deductions for the motor vehicle are also included in these calculations, and should not be claimed separately in accordance with either sections DB 7 or 8.
A section DE 2 election by a close company can only be made where the only fringe benefit provided by the company, is the use of a motor vehicle by a shareholder employee.
Operational Statement 19/04b applies to any employee reimbursement made from 16th August 2019, and uses the same kilometre rates as set out above. Naturally the employee will have to keep similar records to those required under OS 19/04a to determine the business use kilometres of their personal motor vehicle for work-related purposes during the income year, as well as a record of total kilometres travelled by the vehicle for the income year so their employer can establish whether Tier 1 or Tier 2 rates should be used for the purpose of calculating the reimbursement payment.
In absence of any records being maintained by the employee however, the use of Tier 1 rates will be limited to the first 3,500 business kilometres, with Tier 2 rates applying to any additional business use kilometres.
Reimbursement payments calculated and made in accordance with OS 19/04b, will be tax exempt in the hands of the employee.
Confirmation Land Use Payments Taxable
A remedial amendment is to be included in the latest tax Bill presently before Parliament, the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill, to ensure there is no room for uncertainty in the taxpayer’s mind, that any payment received for the grant of a land right (such as a licence) is taxable.
In a media release by the Minister of Revenue on the 23rd August 2019, the Hon Grant Nash said that such payments were always intended to be taxable in accordance with present legislation, as they are in effect substitutes for rent payments – such payments themselves clearly taxable under section CC 1.
The remedial amendment will apply retrospectively from 1st April 2013, although with a savings provision to protect tax positions already taken by the taxpayer in respect to tax returns filed or a binding ruling received from Inland Revenue stating that a payment was not taxable, prior to 23rd August 2019.
If you would like to receive these updates directly to your mail inbox, you can subscribe by clicking here.