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Richard’s February 2022- March 2022 tax updates
Richard has had over 30 years’ experience with New Zealand and International taxation. His team provide services including:
- Q&A service for accountants
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Below are articles from Richard’s weekly email ‘A Week in Review’ over the last month. You can sign up for his ‘A Week in Review’ newsletter here and get the updates weekly, directly to your inbox.
- Government support for Omicron outbreak, 28 February
- Cyclone Dovi farmers and growers relief, 28 February
- Tax Bill reported back, 7 March
- Covid-19 variations, 7 March
- Cash basis persons under the financial arrangements rules, 7 March
- Changes in the wind for GST apportionment/adjustment rules, 14 March
- Multiple Covid-19 variation determinations issued, 14 March
- Tax relief for donations of trading stock, 14 March
- New trust reporting requirements come into effect, 14 March
- Government targets 39% avoidance, 21 March
- More Covid variations, 21 March
- Keeping with the ASC flavour, 21 March
- Bright-line roll-over relief update, 21 March
Government support for Omicron outbreak
Some of you may already be feeling the effects of Omicron on your business – we, for example, have nearly one third of our team isolating for ten days (under the amended close contacts definition – it would have been worse under the old definition).
Acknowledging the crippling impact this Covid variant can have for New Zealand business owners, a new targeted support scheme was announced last week, with applications able to be made from the 28th February and the payments commencing March 1st (note that if you wish to use the second of the two time periods below, myIR is unlikely to allow you to do so until system changes have been made by the expected date of March 14th).
Each payment will be $4,000 per business, plus $400 per full-time employee (FTE), capped at 50 FTEs or $24,000. Note that this is the same rate as the most recent Transition Payment which the Government rolled out in December.
To be eligible to receive the payment, businesses will have to show a 40% or greater revenue drop in seven consecutive days since 16th February 2022, compared with a typical seven days within one of the following two six-week periods:
- 5th January 2022 to 15th February 2022; or,
- 5th January 2021 to 15th February 2021.
An applicant must have been operating the business or organisation in relation to which the revenue is received for a period of at least one month before 16 February 2022 (or acquired it from another person who has done so), have taken reasonably practicable steps to minimise revenue losses, and have been operating in compliance with the CVC requirements (whether the CVC or non-CVC rules), if applicable.
The payments will be available on a fortnightly basis for six weeks. So three payments in total, international experience reflecting that the peak of the Omicron outbreak should pass after about six weeks, however, there will be the option to extend the payment if this is considered necessary.
Also announced along with the support package, were changes to the ‘Small Business Cashflow Loans Scheme’, with the introduction of a ‘top up’ loan. The ‘top up’ loan will allow those firms that have already accessed a loan to draw down an additional $10,000, with a new repayment period of five years and with the first two years being interest free.
The amendments to the loan scheme also will see the removal of the first two years of accrued base interest from all borrowers who have, or will, take out a loan under the scheme. This change will mean interest will only start accruing at the beginning of year three.
Finally, IR’s ability to apply flexibility for tax payment dates and terms to assist firms with cashflow pressures will also be extended. In this regard, any businesses struggling to pay tax because of the impacts of Covid-19 should log on to myIR to see if they can delay starting payments to a later date, or if any part of the tax can be written off. IR can help with both GST and provisional tax due.
Cyclone Dovi farmers and growers relief
A medium-scale adverse event has been declared for the West Coast and top of the South Island regions on 13th February 2022, extended on 22nd February 2022 to also include the Wairarapa and Taranaki regions, and the Waitomo district.
To assist affected farmers and growers, IR is exercising discretion to allow late deposits for the 2021 year and early withdrawals from the income equalisation scheme.
In case you were not aware, the income equalisation scheme allows farmers, fishermen, growers, and foresters to even out fluctuations in their income by spreading their gross incomes from year to year.
IR has a range of support in place for affected taxpayers, both businesses, individuals and families affected by the floods, so check out their website should you require any assistance.
Tax Bill reported back
The Federal Election Commission (FEC) have finally reported back on the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Bill, which if you can’t quite remember (since it was issued late in 2021), contains lots of goodies like the new residential interest deduction limitation rules, various GST amendments (mostly positive) and some changes to the residential land bright-line rules.
Once the Bill is passed, which should occur within the next couple of weeks I would expect, then I’ll dedicate an AWIR edition to summarise all of the key components of the new legislation for you.
Unfortunately, the FEC did not recommend any major changes to the Bill as introduced, particularly dropping the proposed interest deduction limitations (although clearly this was never going to happen). The amendments they did make include:
- Drafting changes to ensure the input tax deduction cap, which is to apply to property developers upon a disposal of land that has been used for both taxable and non-taxable purposes, only applies to those where the disposal is of land “that the person uses in the course or furtherance of a taxable activity of developing land or dividing land into lots”. There was concern that the previous drafting could mistakenly capture those taxpayers who were not property developers.
- An amendment to the definition of ‘new build land’ to include that where remediation of an existing dwelling prevents it from falling out of available housing supply. The two specific situations will be where a dwelling has been on the earthquake-prone buildings register, but remediated and removed from the register on or after 27 March 2020, and a leaky home has been substantially (at least 75%) re-clad.
- An amendment to the development exemption (non-business developments usually captured by s.CB 12/CB 13) to ensure that interest remains deductible post the land being disposed of for a loss. The original drafting proposed that the interest deductibility would cease at the time the land was disposed of, however, the FEC felt this limitation would discourage people from taking development risks, which may negatively affect new housing supply.
- Drafting changes to the wording in the ‘main home exclusion’ which covers scenarios where a person is constructing their main home and as a consequence the land may be unoccupied for more than 12 months and includes in counted ‘main home days’. Days where the period of construction is a ‘reasonable time’ as opposed to the original drafting being the person is making a ‘reasonable effort’.
- An amendment to ensure that a purchaser of a ‘new’ new build (vendor’s land qualified as new build land when acquired and they then added another new build to the land) still obtained a five year bright-line period if they acquired the land within 12 months of the CCC for the ‘new’ new build being issued.
- An amendment to the bright-line rollover relief provisions to include a scenario where the residential land is transferred from a family trust back to the settlor of the trust (must satisfy the same connectivity rules as for transfers from a person to a family trust).
- A deferral of the proposed GST information modernisation rules until taxable periods commencing post 1st April 2023 – it being the view that the proposed implementation date of 1st April 2022 was too soon for taxpayers to be able to get their head around the new rules.
We are fast approaching the end of yet another income year, and coupled with the 31st of March being your standard income year end, it is also the date by which a number of elections must be filed.
Inland Revenue (IR) has acknowledged that the present Omicron outbreak may certainly have had an impact on taxpayers to attend to their compliance obligations and consequently a number of variations are slowly starting to be issued:
- Firstly, there is Determination COV 22/01, ‘Variation to section EI 1 of the Income Tax Act 2007’, which extends the deadline for making an application to the Commissioner under s.EI 1 to spread back income from timber to previous income years. The deadline under s.EI 1 is one year from the end of a person’s income year. This variation extends this deadline to 31 July 2022.
- Secondly, there is Determination COV 22/02, ‘Variation to section HB 13(3)(b) of the Income Tax Act 2007’. The variation applies to all companies who wished to elect to be a look-through company (LTC) and have not previously been required to file a return of income. It recognises that the impact of Covid may have adversely affected some companies’ ability to file their LTC election on time, and this will mean they are unable to be treated as an LTC for the year in question. So, in respect of the 2021 income year, where a company makes an election to be a look-through company and s.HB 13(3)(b) applies, the deadline by which that election must be received by the Commissioner is extended to include an election received by the Commissioner on or before 30 June 2022.
- Finally, there is determination COV 22/03, ‘Variation in relation to s DB 31 of the Income Tax Act 2007′ to extend time for writing off bad debts’. The variation applies to a person who wishes to claim a deduction in the 2022 income year for a bad debt. The variation recognises that the impact of Covid means that some taxpayers may not have been able to write off debts as ‘bad’ during their 2022 income year, and extends the time for writing off debts as ‘bad’ to 30 June 2022. However, the variation is subject to the conditions that the taxpayer did not write off the debt by the end of the 2022 income year as a result of the impact of Covid, and the taxpayer takes into account only information that was relevant as at the end of their 2022 income year.
Cash basis persons under the financial arrangements rules
IR has issued a draft interpretation statement, PUB00396, titled ‘Cash basis persons under the financial arrangements rules’. It’s a 30-page document that explains when a person can account for income and expenditure from financial arrangements on a cash basis instead of an accrual basis. It also sets out the adjustment that must be made when a person ceases to be a cash basis person and must account for their financial arrangements using the accrual basis.
I’d suggest the primary point to note if you are checking your client’s cash basis status, is that they only have to be below one of the two absolute numbers thresholds (<$100k income/expenditure or <$1m financial arrangements) to be entitled to use the cash basis regime, but you must not forget to check the $40k deferral threshold as well – which if exceeded will throw your client back into reporting on an accrual basis.
There are numerous examples throughout the document, to assist in explaining the concepts.
If you would like to make a comment on the exposure draft, the closing date for submissions is 14th April.
Changes in the wind for GST apportionment/adjustment rules
Inland Revenue (IR) has released an officials issues paper titled ‘GST apportionment and adjustment rules.’ The paper requests your feedback on proposed changes to the rules in an attempt to make them less complex, and consequently reduce the high compliance costs required to ensure a registered person is satisfying their obligations.
Firstly, it is suggested that there be an ability to elect that certain capital assets are excluded from a person’s taxable activity – one obvious example being a person’s private dwelling where they operate a portion of their business from the home through a home office. As the home office is being utilised by the registered person to facilitate the making of taxable supplies, when either those activities are no longer undertaken in the dwelling or the dwelling is sold, a potential output tax liability is triggered – the asset being deemed to be sold in the course or furtherance of the persons taxable activity. Now I could bet my bottom dollar that 99.9% of clients and/or their advisors never consider the issue. So, under the proposal you would make an election to clarify that the asset is not within the GST base. However, any operational costs like rates, insurance etc would still be claimable.
Secondly, is the proposal to remove a fair number of assets from the existing apportionment and adjustment rules. There would be a principal purpose test for assets costing less than $5k (ex. GST), where if the principal purpose of the asset acquired was for making taxable supplies, then any non-taxable use would be ignored and 100% of the input tax would be claimable. Following on from that would be the 20/80/20 rules. If the taxable use of the asset was less than 20%, then the asset would be regarded as non-taxable (so would likely cover most of your home office scenarios as well), with no input tax claimable on acquisition and equally no output tax liability on disposal. Likewise, for an asset that had 80% or more taxable use, it would be considered 100% taxable with the associated input tax entitlements/output tax obligations. And finally, for those assets with taxable use between 21% and 79%, adjustments would only be required where the change in taxable use was more than 20%. So, for an asset that was 64% taxable use, no adjustments triggered unless the asset moved to either below 44% or above 84% taxable use.
Thirdly, there are some proposed changes to the definition of ‘dwelling’ and ‘commercial dwelling’ in an attempt to provide greater clarity of your GST obligations in scenarios for example, where the same premises are being used to make a combination of supplies of commercial guest accommodation and private use or residential rental.
Fourthly, your feedback is sought on whether a new special set of rules should be developed for house sales alone, in essence to make certain sales of a house (including owner-occupied houses, residential rental properties, and holiday homes) an exempt supply. Note that the election option in the first proposal may be a simpler way of achieving the same result.
Fifthly, are a set of proposals targeted at those who develop land, including a proposal to remove the existing required concurrent use adjustment when the land is used for making non-taxable supplies during the development period, and to introduce a 36 month time period to mitigate the risk of registered persons who buy land intending to develop, claim 100% input tax upfront, then cease or defer the developments plans and do not account for output tax on the land because they do not consider they have ceased their taxable activity etc.
Finally, there are proposals to remove the GST mixed use asset rules (leaving these assets to be dealt with under the more general adjustment and apportionment rules) and to amend the present ‘wash-up’ rules so you could quickly recover the GST input tax on an asset brought into the tax base or remove an existing asset from it, without having to wait until the end of the second annual adjustment period post the change of use, which is the present case.
It is considered that most of the proposals would come into effect from 1st April 2023, with some transitioning or retrospective application rules for different scenarios.
If you would like to have your say, submissions are due no later than 27th April 2022.
Multiple Covid-19 variation determinations issued
Well, it was certainly a busy week for the latest round of Covid variations – here’s what was announced:
COV 22/04 – ‘Variation to section FN 7(5) of the ITA 2007’. The variation applies to taxpayers who wish to form an imputation group for the 2022 tax year. The variation recognises that the impact of Covid means that some taxpayers may not have been able to provide a notice of election to IR by the 31 March 2022 deadline. It provides those taxpayers with an additional two months to provide IR with a notice of election to form an imputation group. Taxpayers will now have until 31 May 2022 to provide IR with a notice of an election to form an imputation group. That election notice will be effective from the start of the 2022 tax year. The variation applies from 4 March 2022 to 31 May 2022.
COV 22/11 – ‘Variation to sections 33E, 68CB(2) and 68CC(3) of the TAA 1994’. The variation applies to a person who is filing an R&D supplementary return for the 2020–21 tax year, or who is seeking IR’s approval of their R&D activities by filing a general approval application for the 2021–22 income year under s.68CB of the TAA 1994 or who is seeking IR’s approval of their R&D activities by filing a criteria and methodologies application for the 2021–22 or 2022–23 income years under s.68CC of the TAA 1994. The date by which a supplementary return must be filed for the 2020–21 tax year has been amended to 31 May 2022 for a person whose due date for filing under s.33E of the TAA would otherwise be 30 April 2022. For a general approval application in relation to the R&D tax credit for the 2021–22 income tax year under s.68CB(2) of the TAA, for applicants whose 2021–22 income year ends between 31 December 2021 and 31 March inclusive, the date by which the application must be filed has been amended to the earlier of 31 May 2022 or a date that represents a two-month extension to their filing date.
- For applicants whose 2021–22 income year ends on 31 August 2022 or 30 September 2022, the date by which that notice must be filed with IR is extended to the earlier of 31 May 2022 or a date that represents a two-month extension of their filing date: and,
- For applicants whose 2022–23 income year ends on 31 October 2022, the date by which that notice must be filed with IR is extended to 31 May 2022.
The variation recognises that the impact of Covid means the planning or conduct of R&D or the ability to obtain information, seek advice, and formulate an application or complete a return may have been delayed. The variation applies from 9 March 2022 to 31 May 2022.
COV 22/06 – ‘Variation to s YD 1(3) and (5) of the Income Tax Act 2007: Residency of natural persons’. This variation allows a person, for the purpose of determining whether they are a New Zealand resident under either s.YD 1(3) (the 183 day rule) or s.YD 1(5) (the 325 day rule) of the ITA 2007, to exclude those days where they were personally present in New Zealand, but practically restricted from leaving New Zealand between 17 March 2020 and 30 June 2022. The variation applies from 17 March 2020 to 30 June 2022.
COV 22/07 – ‘Variation to day test for visitors to New Zealand in s CW 19 of the Income Tax Act 2007’.This variation allows a person, for the purpose of determining if income from performing personal or professional services in New Zealand during a visit is exempt income. To exclude days where they were personally present in New Zealand but practically restricted from leaving New Zealand between 17 March 2020 and 30 June 2022. The variation applies from 17 March 2020 to 30 June 2022.
COV 22/08 – ‘Variation to day test for non-resident crew members in s CW 21 of the Income Tax Act 2007’. This variation allows a person, for the purpose of determining whether they are a ‘non-resident crew member’ of a pleasure craft that is visiting New Zealand, to exclude days where they were personally present in New Zealand but practically restricted from leaving New Zealand between 17 March 2020 and 30 June 2022. The variation applies from 17 March 2020 to 30 June 2022.
COV 22/09 – ‘Variation to day test for non-resident contractors in s RD 8(1)(b)(v) of the Income Tax Act 2007’. This variation allows a non-resident contractor to exclude days where they were personally present in New Zealand but practically restricted from leaving New Zealand between 17 March 2020 and 30 June 2022 when determining if a payment for services is excluded from being a schedular payment. The variation applies from 17 March 2020 to 30 June 2022.
COV 22/10 – ‘Variation of section 15D(2) of the Goods and Services Act 1985 for applications to change GST taxable period’.This variation recognises that the impact of Covid means that some taxpayers may now wish to file on a one-monthly basis to provide earlier access to any GST refunds. It allows a change of taxable period to take effect much sooner than it would otherwise. A person who applies on or before 31 March 2022 may apply variation COV 21/03. The variation applies from 1 April 2022 to 30 September 2022.
COV 22/12 – ‘Variation to s YD 1(5) of the Income Tax Act 2007’. This variation allows a natural person who is a New Zealand resident for tax purposes only by virtue of personal presence in New Zealand, and who may otherwise become non-resident because they are absent from New Zealand, to ignore any days that they were unable to return to New Zealand because of the imposition of Covid response measures or as a consequence of Covid. The variation is subject to the conditions that the person applying the variation is able to demonstrate to IR’s satisfaction that the absence was due to the imposition of Covid response measures or as a consequence of Covid, and that the person applying the variation returned to New Zealand as soon as practicable after it was reasonable to do so. The person applying this variation must notify IR in writing and provide such information as IR may request. The variation applies from 17 March 2020 to 30 September 2022.
COV 22/13 – ‘Extension of time to provide IRD number to allow continuation of WFF instalments’. This variation extends the timeframe within which an IRD number must be provided to allow instalment payments of family tax credits to continue. The extension is for a period not exceeding a further 56 days as determined by IR having regard to the effect on the person of Covid or a Covid response. The variation applies for a child born between 12 January 2022 and 30 June 2022.
COV 22/14 – ‘Variation to s RC 15 of the Income Tax Act 2007’. The variation applies to taxpayers who wish to change their method of calculating provisional tax to the GST ratio method. The variation recognises that the impact of Covid means that some customers may not have been able to choose to use the GST ratio method and inform IR of their election before the start of their income year. The variation provides those customers with extra time to inform IR. The variation applies from 10 March 2022 to 31 May 2022.
Tax relief for donations of trading stock
You may recall legislation introduced last year which made it easier for businesses to donate trading stock to approved donee organisations (which were mostly registered charities), as well as to public authorities and non-associated persons. The amendments applied to disposals of trading stock made between 17 March 2020 and 16 March 2022 inclusive, which would otherwise have been caught by the anti-avoidance rule which applies when businesses disposed of trading stock for less than market value and would mean that businesses were effectively taxed on a deemed profit margin for trading stock they donated – a serious dis-incentive to donating. Therefore in a Covid environment where there is a dire need in the community for this generosity from businesses.
The relief period has now been extended by the Tax Administration (Extension of Period of Relief for Certain Disposals of Trading Stock) Order 2022 (SL 2022/55) and now applies to disposals of trading stock made between 17 March 2020 and 31 March 2023 (inclusive).
The temporary relief ensured that donations of trading stock to approved donee organisations and public authorities would qualify for an income tax deduction. Disposals of trading stock below market value to other non-associated organisations will benefit from relief from the anti-avoidance rule, but will only qualify for an income tax deduction if they can show they have a business purpose in making the disposal.
New trust reporting requirements come into effect
You will no doubt recall, that along with the increase in the top personal marginal tax rate to 39% effective 1st April 2021, came a warning that IR would have an increased focus on family trusts to ensure that they were not being used to shelter income that would otherwise be subject to the higher tax rate.
In this regard, the Tax Administration (Financial Statements — Domestic Trusts) Order 2022 (SL 2022/56) comes into force on 31 March 2022 and applies to trustees of trusts that are required to file annual returns that comply with s.59BA(2) of the Tax Administration Act 1994. The Order applies to income years that end on or after 31 March 2022.
Section 59BA(2) requires the return to contain a statement of profit or loss, and a statement of financial position. The Order also sets out the minimum requirements for preparing the financial statements. The requirements include matters relating to:
- The form of the financial statements
- The principles with which the financial statements must comply
- The valuation of assets and liabilities
- A statement of accounting policies; and,
- Matters that the financial statements must show.
The Order provides that certain requirements do not apply to simplified reporting trusts (for example, the requirement to apply the principles of accrual accounting). A trust is a simplified reporting trust if:
- The assessable income derived during the income year is less than $100,000
- The deductible expenditure or loss incurred during the income year is less than $100,000; and,
- The amount of total assets of the trust as at the end of the income year (or as at the end of a period permitted under cl 5(2)), is less than five million.
The Order does not apply in the circumstances set out in s 59BA(3) of the Tax Administration Act. For example, it does not apply to non-active trusts that are excluded from the requirement to make a return, foreign trusts, and charitable trusts registered under the Charities Act 2005.
Government targets 39% avoidance
Perhaps thinking that they’ve now done enough damage to the residential property investment market via interest deduction restrictions, loss ring-fencing and increased bright-line periods… the Government has now moved its focus to all you tax avoiders out there who have nothing better to do with your businesses in the challenging environment of the new Covid world, than to spend your days thinking up ways of how you can avoid the new 39% personal marginal tax rate.
Introduced for your bedtime reading pleasure (although this one may keep you awake at night rather than help you sleep) is the Government’s consultation document, ‘Dividend integrity and personal services income attribution’. It’s a 54-page masterpiece that seeks your feedback (which is likely to fall on deaf ears) on measures that would limit the ability of individuals to avoid the 39% or the 33% personal income tax rates by using a company structure.
First up it’s a new capital gains tax (oops, did I just hint that?) on the sale of your shares in a company you and/or your associates have controlled (more than 50% interest), where you’ve clearly retained earnings within the company to avoid paying 33% or now 39% personal tax. Basically, without getting into the detail for now (since it is purely a consultation document at this stage), if your company has retained earnings when you sell your shares to another party, then a portion of your historically tax-free capital gain will be treated as a taxable dividend.
Second up, and a few of you may think it’s just basic best practice in any event (because the onus always rests with you to prove the tax position taken) so why waste time legislating for it?… is a proposal to require companies to maintain a record of their ASC and ACDA balances, so that the Revenue can easily verify the non-taxable amount when either shares are repurchased by a company, or the company that is liquidated. I expect most of you will be aware, that an amount paid to a shareholder for a repurchase of their shares is tax-free in their hands to the extent of the available subscribed capital (ASC) per share component. Or, when a company liquidates, a distribution to shareholders will not be a dividend to the extent of the ASC and available capital distribution amount (ACDA) – the latter in essence net non-related party capital gains. The consultation document suggests two options for the new rules – reporting to IR annually akin to present ICA account balance reporting (to me suggests “Big Brother is watching you”), or you simply produce when requested should one of the triggering events occur.
Finally, if Penny and Hooper (a well-known tax case) risk-type reviews and the subsequent introduction of the personal services attribution rules were not enough, the Government is suggesting the existing thresholds to the latter make the rules too narrow, particularly for all the tax avoiders out there. First proposal is to remove the 80% single customer rule – so do more than 80% of the work and not use significant assets to perform the services, then having multiple customers will still trigger an attribution requirement. However, just to stick the knife in a little further, the proposal is also to reduce the working person threshold from 80% to 50%. And just to give the knife a twist once in, increase the substantial business assets thresholds either to $150k or $200k and exclude cost of passenger or luxury vehicles unless the entities business is a transportation one.
I had to chuckle to myself with this last proposal, the suggestion from the Government being that the existing $75k threshold does not accurately reflect the cost of business assets today. Yet mention to them the personal tax rate threshold creep and the silence is deafening!
More Covid variations
A couple more Covid-related variations came out over the last week:
- COV 22/15, ‘Variation in relation to s RP 17B(4) of the Income Tax Act 2007 to extend time for tax pooling transfers’. The variation applies to a person who wishes to use funds in a tax pooling account to satisfy an obligation for provisional tax or terminal tax for the 2021 tax year. The variation recognises that the impact of Covid-19 means that some taxpayers who would otherwise have made use of tax pooling have been unable to do so due to cashflow difficulties and disruption to normal business operation. In order to use funds in a tax pooling account to satisfy a tax obligation for the 2021 income year, s.RP 17B(4) of the ITA07 requires a transfer request to be made on or before either 75 or 76 days of terminal tax date. For the 2021 income year, the time within which a request must be made has been extended to 183 days after terminal tax date. The variation applies from 18 March 2022 to 30 September 2022.
- Remission of interest for taxpayers affected by Covid-19 – the Taxation (Extension of Covid-19 Interest Remission) Order 2022 (SL 2022/70) comes into force on 25 March 2022 and amends s 183ABAB(3)(b) of the Tax Administration Act 1994. The time limit for IR to remit interest under s.183ABAB(3) for taxpayers affected by Covid, and who asked for relief and made payment as soon as practicable has been extended from 25 March 2022 to 8 April 2024. This Order is revoked at the close of 30 June 2024.
Keeping with the ASC flavour
While the Government has issued its consultative document to review present ASC and ACDA record keeping requirements, IR has ramped up the gossip surrounding ASC balances by releasing its own operational statement OS 22/01, titled ‘Available Subscribed Capital recordkeeping requirements’. A quick four-page read compared to its 54-page Big Brother, setting out IR’s approach to applying the statutory recordkeeping requirements that are necessary to substantiate distributions of Available Subscribed Capital (ASC).
The document in essence discusses your onus of proof obligations, and is a reminder that if you do not have sufficient records to verify that either the s.CD 22 (Returns of capital: off-market share cancellations) or s.CD 26 (Capital distributions on liquidation or emigration) exclusion from what is a dividend should apply to a distribution made to a shareholder, then IR will simply assert that s.CD 4 applies to tax the amount received.
Therefore, you have been warned!
Bright-line roll-over relief update
Unfortunately, I got a little over-excited last week when I noticed the proposed roll-over relief which acts to prevent the bright-line rules from applying (including a restart of the bright-line clock), when the trustees of a trust transfer residential land to a settlor of the trust.
The relief is actually a lot narrower in scope than I first thought, only having application where the particular settlor had originally transferred the land to the trust. And if there was more than one original settlor who settled that residential land upon the trust, then all the other original settlors must also get back their original interest as well.
Sorry Angus (who posted feedback on my LinkedIn last week)!
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