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 articles 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.
- Feedback sought on GST proposals
- IR clarifies PAYE intermediaries rules
- CRS reportable jurisdictions and DTA updates
- IR modernisation sees further changes from 1 April
- IR annual shutdown dates announced
- SOP introduced
- UOMI calculation basis changed
- KiwiSaver bill completes second reading
- Child support amendment bill introduced
Feedback sought on GST proposals
IR’s Policy & Strategy have released an issues paper, seeking public feedback on various GST policy issues, where it has been identified that the present legislation produces an outcome that does not reflect the underlying policy intent.
The areas of focus include:
- Tax invoice requirements – removing some of the present criteria surrounding tax invoices or making the rules more flexible, to align GST invoicing requirements with today’s business practices and technology. For example, removing IR pre-approval requirements from the buyer-created tax invoice process, allowing the parties instead to agree between themselves what is most appropriate for the businesses in question;
- Crypto-assets – removing crypto-assets from the GST rules by making crypto-assets an exempt supply. The proposed changes are only to the supply of crypto-assets themselves, and not to other services related to crypto-assets such as mining or providing crypto-asset exchange services;
- Amending the change in use wash-up formula for non-land assets – presently if an assets’ use changes to 100% taxable or non-taxable use, and the 100% such use remains for the balance of the current adjustment period plus all of the following adjustment period, the taxpayer is required to make a final wash-up adjustment. Officials consider however that the final wash-up adjustment formula does not take into account prior non-taxable/taxable use of the asset, and consequently are recommending a new formula to correct this considered anomaly. Note that changes to the land asset wash-up calculation rules are also proposed and are discussed separately in the paper.
- Amending the going concern rules to ensure, like the present CZR rules, the recipient makes an adjustment post transfer, to reflect any intended use of the supply for private or exempt purposes;
- Amending the concurrent use of land rules to limit the application of section 21E, to not apply in situations where the only taxable use of the land in an adjustment period is holding the land for its eventual sale or development. If the only taxable use of land in an
- adjustment period is holding the land for its eventual sale or development, then the taxable use of the land during that period would be zero percent. There are also proposals to amend the section 21E(3) formula, which is considered to be over generous presently;
- Offshore businesses undertaking conferences and staff training in New Zealand – having identified that it is impractical to require these offshore businesses to register under the offshore businesses special claimant regime to simply enable them to recover the New Zealand GST costs incurred in attending New Zealand based conferences or staff training events – allowing New Zealand based suppliers to zero-rate their supplies instead to the non-resident business where appropriate;
- Compulsory zero-rating of land (CZR) rules – amendments to provide certainty as to the purchasers obligations where supplies are subsequently determined to have been zero-rated in error by the vendor, the relevant GST period for making adjustments for intended non-taxable use of the land, and clarifying the date of a deemed supply under section 5(23); and,
- Several technical and remedial issues including clarifying how the GST grouping rules should apply in relation to other provisions of the GST Act, amending section 20(3C) to deal with scenarios where the person has not yet obtained physical possession of the goods (so cannot satisfy the ‘available for use in’ criteria) and amending the associated persons second-hand goods rules which limits a purchasers claim to the lesser of three amounts (often zero where the vendor paid no GST), to an input tax credit equivalent to the tax fraction (presently 3/23rds) of the original cost of the goods to the supplier, rather than limiting the claim to the original GST paid by the supplier. Note that this latter amendment will be a great relief to those of us trying to explain to a client, that even though they have bought the land from an associate to develop and make taxable supplies, they cannot claim any GST in respect of the purchase even though full output tax will be payable upon the eventual supply.
The closing date for submissions is 9th April 2020, should you wish to provide your feedback on the proposals. The issues paper can be located here – http://taxpolicy.ird.govt.nz/sites/default/files/2020-ip-gst-issues.pdf
IR clarifies PAYE intermediaries rules
IR has published an item, ‘PAYE by intermediaries’ rules, to update all on amendments that have been made to the rules to improve their operability. In case you were not aware, accredited intermediaries are permitted to largely assume an employer’s obligations under the PAYE rules. These obligations are to calculate PAYE, pay it to Inland Revenue and file PAYE returns.
The amendments to the rules:
- Allow PAYE intermediaries to make payments of net salary and wages directly to employees (from an employer’s account) provided the associated PAYE is simultaneously transferred, or is transferred before the payment to employees is made, into an intermediary’s trust account
- Clarify the accreditation requirements for PAYE intermediaries, and
- Require PAYE intermediaries to represent at least ten employers.
CRS Reportable Jurisdictions and DTA Updates
The reportable jurisdictions list had recently been updated. These are territories to which IR may provide certain information about non-residents that is reported to IR by financial institutions in accordance with the CRS applied standard.
With respect to reporting periods beginning on or after 1st April 2019, territories added are:
- Oman; and,
Two DTA’s have also recently been updated.
The Double Tax Agreements (Switzerland) Order 2020 (LI 2020/22) comes into force on 26 March 2020 and replaces the Double Taxation Relief (Switzerland) Order 1981.
The Double Tax Agreements (Guernsey) Amendment Order 2020 (LI 2020/21) comes into force on 26 March 2020 and amends the Double Tax Agreements (Guernsey) Order 2010 (the principal order).
IR Modernisation sees further changes from 1 April
Most of you will be aware of IR’s change of system, from FIRST to START around this time last year. START has brought with it many new bells and whistles, both for the benefit of IR and the taxpayer alike.
April 1st this year will see the commencement of further system ‘enhancements’, including:
- Student Loans – via myIR, lenders will be able to see a clearer view of their total student loan balance and repayments made, obtain a breakdown of any assessment, including amounts due and due dates, see their departure and arrival dates if they travel overseas, and use new calculators to work out how long it will take to repay their student loan or when interest will be charged when they go overseas;
- KiwiSaver – members having better visibility of deductions and contributions to myIR, having more self-service options in their KiwiSaver account, being provided with more information to determine their correct PIR rate on Inland Revenue’s website, and having their employer contributions invested sooner. On the other side of the coin, employers will receive new notifications specific to KiwiSaver contribution rates and enrolments, and they will see improvements to the on-boarding process for new employees;
- Investment Income – mandatory payday reporting by payers of investment income commences on the 1st (payers of interest, dividends, royalties in the main) – find out more here – https://www.classic.ird.govt.nz/campaigns/2020/investment-income-changes/. This change will naturally increase the level of ‘reportable income’ that IR receives for your clients, and ultimately may result in the person not having to do anything further post year end, if it is apparent that IR already has the complete picture of their income position for the relevant income year; and,
- Income Equalisation Schemes – eligible taxpayers able to tell IR about deposits/request withdrawals for income equalisation in myIR (no more paper forms), the ability to make deposits electronically in myIR or via internet banking (new account code: EQU — Income Equalisation for internet banking), being able to see scheme balances and other transactions, such as interest, at any time in myIR under the new accounts (Income Equalisation), and having deposits and withdrawals shown in the taxpayers income summary and pre-populated into the ‘other income’ field on their income tax returns in myIR.
IR annual shutdown dates announced
Coinciding again with this year’s Easter holiday weekend break, IR will be closing its doors from 3pm on April 9th to 8am on Thursday April 16th, as Release 4 to its transformation process is implemented, bringing further changes to the IR START system, most of which were outlined above.
Unavailable during this time will be IR phone lines and offices, and access to myIR or E-file.
Post the break, all IR products (if you can refer to them as such?) will be available in START, with the exception of child support and paid parental leave. Release 5 planned for April 2021 will include the changes and improvements to the child support regime.
A Supplementary Order Paper (SOP) has been introduced into Parliament, proposing a number of remedial and technical amendments to the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill, which is presently making its way through the House (presently at second reading stage).
While the SOP does include several other minor legislative amendments, the main focus of the paper is to address the Court of Appeal’s decision in IR v Roberts (2019) 29 NZTC ¶24-026,  NZCA 654, which found in favour of the taxpayer that a debt forgiveness could amount to an available donation credit for the creditor.
A proposed amendment to s. LD 3 of the Income Tax Act 2007, will confirm that donation tax credits and gift deductions will not be available for gifts to donee organisations where they are made by way of debt forgiveness. The amendment will ensure that the original policy intent that donation tax credits and gift deductions were limited to gifts of cash or cash equivalents such as payments made by bank transfers, credit card or cheques will be satisfied.
The proposed amendment will apply retrospectively from 1 April 2008 but a savings provision will apply to taxpayers who have already taken a position in reliance on the current legislation and filed a return or donation tax credit claim before 17 December 2019, the date of the announcement by the Minister.
UOMI Calculation Basis Changed
Introduced in 1997, the setting process for calculating the Commissioners paying rate of UOMI, has remained basically unchanged for the past 23 years – the Reserve Bank of NZ 90-day bill rate less 1%.
In these current troubled times however, with the official cash rate potentially set to continue its downward trend, there is a real risk now that application of the setting formula could actually produce a negative interest rate.
To prevent this from happening, the Taxation (Use of Money Interest Rates Setting Process) Amendment Regulations 2020 (LI 2020/35), comes into force on 9 April 2020, specifying a floor of 0%.
And in case you were interested (it is Monday after all), the setting process for the taxpayer’s paying rate is currently calculated using the Reserve Bank of NZ floating first mortgage new customer housing rate plus 2.5%. No proposed change in this regard.
KiwiSaver Bill completes second reading
Introduced into Parliament in June 2019, the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill (158-3) has recently passed through the second reading stage and now awaits its third and final reading.
The Bill has as its focus continuing the Government’s programme of simplifying and modernising tax administration, predominantly via a transition to IR’s new technology platform, which will see the implementation of further changes in a few weeks time (note last week’s AWIR article on the forthcoming IR shutdown dates) – this rounds updates primarily in relation to KiwiSaver and Student loans.
Also included in the Bill are extensions to the refundability of R&D tax credits, and due to a subsequently introduced SOP, clarifications to the donation tax credit rules (no credit entitlement with respect to gifts made by way of debt forgiveness) and introduction of a new withdrawal category in the KiwiSaver Act 2006 that would allow members with life-shortening congenital conditions to withdraw their savings early.
Child Support Amendment Bill introduced
The Child Support Amendment Bill (228-1) has been introduced into Parliament.
Its proposed changes are planned to come into effect from 1st April 2021, and include:
- moving the second phase of the initial penalty to 28 days after the due date to give IR time to contact the customer with the aim of working with the person to get them back on track.
- the $5 minimum penalty rule will no longer apply. The penalty charged at the expiry of the due date will be 2% of the outstanding balance. That will ensure that the 2% penalty imposed is in proportion to the amount outstanding.
- for people new to the child support scheme, a grace period will apply during which late payment penalties will not be charged. The grace period will start on the first due date and will apply for the following 60 days. It will allow a liable person the time to adjust to making financial support payments.
- a newly liable person will pay their financial support obligations by automatic deduction from source deduction payments made by their employer. That will be regardless of whether or not they have defaulted on their obligations. The amendment will encourage compliance by helping newly liable parents to get their payments right from the start.
- there will be time limits placed on reassessing child support years by introducing a rule that would restrict the reassessments of a child support year to a four-year period from the end of the relevant child support year. That proposal will reduce uncertainty for parents.
- the definition of income used for child support is amended to better reflect a parent’s financial capacity by incorporating investment income and no longer offsetting losses from earlier years.
Detailed commentary on the Bill can be found here – www.taxpolicy.ird.govt.nz/publications/2020-commentary-child-support-bill/overview.
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