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Richard’s September – October 2022 tax updates
Richard has had over 30 years’ experience with New Zealand and International taxation. His team provide tax services including:
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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.
- It’s been a busy week, 5 September
- Tax Bill re-introduced, 12 September
- Tax Bill re-introduced continued, 19 September
- Family and close relationship transactions – Bright-line issues, 27 September
- Tax Bill receives its first reading, 3 October
- Mortgage offset arrangements, 3 October
- Tax Counsel Office update, 10 October
- Receive your R&D tax credits sooner, 17 October
- Charities & donee organisations OS released, 17 October
- GST draft IS issued, 17 October
- QWBA on private school fees, 31 October
It’s been a busy week
Quite a bit has happened in my world of tax over the past week, and unfortunately during a time when I am presently travelling overseas. So, I thought I’d just briefly mention some of the items now, with a more detailed commentary in next week’s edition, post my return to New Zealand.
Early in the week, we saw the release of Inland Revenue’s (IR) regulatory review of the FBT regime, undertaken due to there not having been a full review of the scope of the rules, for nearly 20 years. The review considers the policy and design of fringe benefit tax (FBT), the compliance and administrative experience of the tax, and whether FBT is fit for the future. The purpose of the report is to convey the findings of the review and high-level recommendations for the next steps.
Next, we saw a reminder from IR regarding the issue of working from home, and home office expense claims – specifically in relation to payments being made by employers to their employees. The “Agents Answers” August 2022 edition refers you to Determination EE003, which has applications to payments made during the period 1st October 2021 to 31st March 2023.
The highlight of the week (well at least for someone who lives and breathes tax), had to be the introduction of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill (161-1) into Parliament. The latest Bill includes several GST-related changes, including a proposal to subject services supplied by managers and investment managers to managed funds and retirement schemes to 15% GST. This proposal, however, caused outrage from all corners of the earth. To the extent that within 24 hours the Bill had been withdrawn, presumably to be redrafted post the Government’s announcement that their brilliant idea to cause further pain to the average Kiwi, via fund managers passing on the increased GST costs to their KiwiSaver members, had been scrapped.
On the Covid-related front, there were a couple of releases. The first was an Order to extend the Commissioner’s discretion to vary due dates, or other requirements when compliance with those requirements becomes impossible, impractical, or unreasonable in the circumstances arising from either Covid-19 response measures or as a consequence of Covid-19. The Order extends the Commissioner’s ability to exercise this discretion for another year, now due to expire on 30th September 2023. The second is R&D specific and is an Order to extend the notification deadline under s.68CB(1)(d) (research and development tax credits: general approval) of the Tax Administration Act 1994 for the 2021–22 income year to 30 April 2023.
Finally, we’ve seen the release of a draft interpretation statement that considers the application of the 5-year bright-line test to family and close relationship transactions. The IS discusses transfers of land from parents to their children, from one person to then include their partner, and those related to inherited property. A fact sheet is included with the IS and the deadline for comment is 12th October 2022.
Tax Bill re-introduced
Well, post the initial hiccups (arguably severe indigestion) arising from the proposal to subject services supplied by managers and investment managers to managed funds and retirement schemes to 15% GST, the Bill has now been re-introduced into the House. I will cover four of the proposed changes in this week’s edition, and the remainder next week.
Think Uber, Airbnb, basically electronic marketplaces connecting buyers with goods and services suppliers.
The Bill includes two proposals to ensure that New Zealand’s (NZ) tax settings remain fit for purpose in light of the platform economy and its expected growth. The first proposal is targeted at ensuring Inland Revenue (IR) has better access to information about income earned by sellers on digital platforms based in NZ and offshore. It will see the implementation of an OECD information and reporting exchange framework in NZ that would require NZ-based digital platforms to provide IR with information annually about the consideration sellers on those platforms received from relevant activities. IR would use that information in its administration of the tax system where the information related to NZ tax residents and would share information with foreign tax authorities where the information related to non-residents. Activities subject to the new requirements are the rental of immovable property (including commercial, short-stay, and visitor accommodation), personal services (including any time- or task-based work, such as ridesharing, food and beverage delivery, and graphic and web design services), the sale of goods, and vehicle rentals. The regime would commence in the 2024 calendar year with the first information reporting obligations (and exchange) occurring in early 2025.
The second proposal is targeted toward maintaining and promoting the sustainability of NZ’s broad-based GST system by requiring digital platforms to charge and collect GST on services provided through them in NZ. You will be aware of the categories of “Remote services” (2016) and “Low value imported goods” (2019), and proposed in the Bill is the introduction of a third category of “Listed services”. Within this new category will be “Taxable accommodation services”, which would include all forms of accommodation (such as commercial, short-stay, and visitor accommodation) other than exempt residential accommodation, and “Transportation services” which would be ridesharing, and beverage and food delivery. Other transportation services would not be included in this definition. “Listed services” would also include services closely connected with the above services, which are also available through the electronic marketplace.
The marketplace operator of an electronic marketplace through which listed services are supplied would be treated as the supplier where they authorised the charge for the supply of the listed services to the recipient, and/or set a term or condition, whether directly or indirectly, under which the supply of listed services is made. Where the marketplace operator was deemed to be the supplier, then they would charge 15% GST on the supply to the customers. The underlying supplier (say the Uber driver) would be deemed to make a zero-rated supply to the marketplace operator, with the consequence that they would no longer account for GST on the supply, but if GST registered themselves, would still be able to recover GST input tax incurred in making those supplies. With respect to determining when the marketplace operator should charge NZ GST on the supply, this would be required where the services are performed, provided, or received in NZ. It is also intended to introduce a new “Flat-rate credit scheme” for scenarios where the underlying supplier is not GST registered – the marketplace operator would receive an 8.5% (of value of listed service) input tax credit to offset against the output tax payable on the supply, and would be expected to pass on this credit to the underlying supplier. The new rules would take effect on 1st April 2024.
The proposed amendments would acknowledge that employees working in NZ for a non-resident employer (whether as a remote worker, a business traveller, or on assignment to an NZ business) are in different compliance circumstances to employees of resident employers. These different circumstances may mean a different administrative approach is justified, reducing the cost of compliance with the rules. There are two key proposals. Firstly, to enable a more flexible application of the PAYE, FBT, and ESCT rules in specific circumstances, by introducing a grace period that will apply in certain circumstances, by enabling IR to agree with an employer of cross-border employees to pay PAYE annually in special circumstances, and by repealing the PAYE bond provision, which is rarely used and is anticipated that it will no longer be required. Secondly, to improve the clarity and integrity of the PAYE, FBT, and ESCT rules.
Under the first set of proposals, a new definition of cross-border employee would be introduced. An employee of a non-resident employer who provides services in NZ, or an NZ resident employee who provides services outside NZ. The flexibility enabled by the proposed amendments would apply to cross-border employees only.
A 60-day grace period would be introduced which would enable an employer to meet or correct their PAYE, FBT and ESCT obligations within a 60-day grace period where they have taken reasonable measures to manage their employment-related tax obligations, and the employee;
- is present in NZ for a period during which the employee has breached a threshold for exemption under section CW 19 of the ITA;
- breached a threshold for exemption under a relevant double taxation agreement; or
- received extra pay.
A voluntary disclosure would be unnecessary where an employer or relevant cross-border employee meets or corrects the tax due within the grace period, and penalties and interest would not be imposed in respect of underpaid tax if the underpayment is corrected within the grace period.
The proposed amendments would generally take effect on 1 April 2023. Provisions that introduce flexible PAYE measures, including the introduction of the 60-day grace period and the repeal of the PAYE bond provision, would take effect on 1 April 2024.
Under the second set of proposals, effective from 1st April 2023, the amendments would make a safe harbour available to non-resident employers who wrongly assess their liability to the rules. Where the conditions of the safe harbour are met, and provide that where a non-resident employer does not have an obligation under the rules, the employment-related tax obligations pass to the employee in the absence of other arrangements.
Effective from 1st April 2024, there will be a change to the interpretation of the schedular payment withholding thresholds as they apply to payments made to non-resident contractors from an ‘all circumstances’ view (considering all the non-resident contractor’s activity in NZ) to a ‘single payer’ view (considering matters only related to the contract with the payer). So, when considering either the 92 day or $15,000 de minimis rule, the payer would only need to consider their own contract with the non-resident contractor. However, to mitigate any integrity risk associated with this ‘single payer’ view, new reporting requirements would also be introduced for payers to provide payment information to IR, who could in turn then identify non-resident contractor activities in NZ and monitor the thresholds and exemptions.
Dual resident companies
The proposed amendments (that were effective 15th March 2017) would allow dual resident companies to be eligible to offset income tax losses against the profits of other group companies, be a member of a consolidated group and retain their imputation credit account (ICA) balance. This would ensure NZ companies affected by the change to Australia’s corporate tax residence rules have uninterrupted access to certain NZ tax regimes. An Australian High Court judgement in March 2019 (retrospectively applied from 15th March 2017) altered the way the ATO was to apply their central management and control test (CMAC), which effectively meant that companies with Australian directors could now be Australian tax resident, even if the company’s commercial activities are carried on outside Australia. This change may affect NZ companies with Australian-based directors, potentially making them tax residents in both countries (referred to as being a ‘dual resident’).
There are a number of proposals here, the two main ones being the introduction of a principal purpose test for goods and services acquired for $10,000 or less (GST exclusive), that would allow a registered person to claim a full GST input tax deduction, and allowing GST-registered persons to elect to treat certain assets that have mainly private or exempt use, such as dwellings, as if they only had private or exempt use.
Under the new principal purpose test for goods or services acquired for $10,000 or less, principal purpose is intended to have the same meaning as the reference to principal purpose used in the pre-2011 GST Act definition of “Input tax”. The principal purpose is the main, primary, or fundamental purpose (which does not necessarily equate with more than 50% taxable use). Satisfy the principal purpose test, and a full input tax deduction could be claimed, with no subsequent apportionment adjustment calculations required. However equally if a supply of goods or services is not for a principal purpose of making taxable supplies, a registered person would not be able to either claim an input tax deduction for the acquisition of the good or service or apportion input tax for an adjustment period between their taxable and non-taxable use of the good or service. The new rules would apply to goods and services acquired on or after 1st April 2023.
Under the new election option where GST-registered persons may elect to treat the supply of certain goods as an exempt supply, this new provision would allow registered persons to elect to treat the supply of goods that were not acquired or used for the principal purpose of making taxable supplies as exempt. This proposal is intended to align the GST rules with current practices for GST-registered persons who may have some minor use of their goods, such as private dwellings, in the course and furtherance of their taxable activity (that is, their GST-registered business). To qualify as an exempt supply under the proposed rule, the goods would have to satisfy the following requirements:
- no previous deductions claimed for the goods under section 20(3), the goods were not acquired for the principal purpose of making taxable supplies;
- the goods were not used for the principal purpose of making taxable supplies, and;
- the goods were not acquired as zero-rated supplies under sections 11(1)(m) or (mb).
There would be a transitional rule for goods acquired before 1st April 2023 (the proposed effective date), to enable you to repay any input tax claimed, so that your subsequent disposal of the asset would still qualify as being an exempt supply. Note that you would still be entitled to claim GST on overheads or operating costs that do not become an integral part of the goods themselves – for example, the GST portion of rates for a home office. There will be no requirement to formally notify IR of your election, instead, you would simply not account for any GST on the asset (no deduction claims, no output tax paid on disposal).
Amendments are also proposed to reduce the number of adjustment periods required for mixed-use goods and services, particularly in relation to land, which currently is subject to unlimited adjustments. Under the proposal, the number of adjustment periods for land would be capped at ten. The threshold for two adjustments increases from $5,001 – $10,001 to $10,001 – $20,000, and the threshold for five adjustments from $10,001 – $500,000 to $20,001 – $500,000.
Finally, there are proposed amendments to the wash-up rule contained within section 21FB. Firstly, there will be a new avoidance provision, enabling IR to assess additional GST output tax, where it is considered you have removed an asset from the GST net via the wash-up adjustment (so claimed use had permanently changed to 0% taxable use for the requisite two adjustment periods) in contemplation of a future sale or cessation of the taxable activity. Under either of these latter scenarios, GST would have been payable on the present market value of the asset, whereas the use of section 21FB in essence allows you to simply repay the original GST claimed (or notional GST component if the purchase was zero-rated).
Secondly, you will no longer have to wait for the second adjustment period to make your wash-up adjustment. Presently, if you change the asset use to 100% taxable (or non-taxable), the 100% use has to remain constant for the remaining portion of the annual adjustment period during which the change occurs, plus all of the subsequent adjustment period. Under the proposed amendment, you will be entitled to make your wash-up adjustment at the end of the first adjustment period. Additionally, the wash-up rules will no longer apply to only 100% use changes, but to any permanent use change. So, for example, if your permanent change was to 80% business use, you could make a one-off wash-up adjustment at the end of the first adjustment period, resulting in no further adjustments being required for the asset (unless the use did happen to change again for some reason).
All the amendments here would apply for adjustment periods beginning on or after 1st April 2023.
Tax Bill re-introduced continued
Following on from last week’s edition where I covered a number of the proposed changes included within the latest tax Bill, the remaining proposals include:
GST – the present mixed-use asset rules contained in sections 20(3JB) and 20G will be repealed, with cases where GST apportionment continued to apply being dealt with using the same general GST apportionment rules that apply to other assets. These general rules would allow an apportionment percentage to be calculated based on days of taxable use. This is a similar method to the current formula in section 20G, but the calculation would be less prescriptive and would not be limited to the set of “mixed-use assets” described in section DG3 of the Income Tax Act. The proposed repeal of sections 20(3JB) and 20G would have an effect on the registered person’s first adjustment period beginning on or after 1 April 2024.
GST – prescribing an information disclosure requirement for GST persons claiming a taxable use on purchases of land, aircraft, or pleasure craft – in essence a “big brother is watching you” collection regime to enable Inland Revenue (IR) to better monitor and promote compliance by registered persons who have previously claimed large input tax deductions (or acquired zero-rated land) but no longer appear to be proceeding with, or carrying on, a taxable activity (for example, they have been continuously filing GST returns with no or low sales). It is expected that the earliest possible implementation date to apply the new disclosure rules would be for land, pleasure craft, or aircraft acquired on or after 1 April 2024.
Interest limitation – providing for an in-perpetuity exemption from the interest limitation rules for build-to-rent dwellings that meet the asset class definition. Now don’t get too excited, because in order to qualify for this exemption, you have to satisfy a new “build-to-rent land” definition, which means land to the extent to which, together with any other contiguous land owned by the same person, it has 20 or more dwellings where each dwelling is used, available for use, or being prepared or restored for use, as a dwelling occupied under a residential tenancy to which the Residential Tenancies Act 1986 (RTA) applies; where every residential tenancy has the option of a 10-year term, with the ability to give 56 days’ notice of termination; where every tenancy agreement includes a personalisation policy, and where at no time it after it first meets the above requirements does it fail to meet those requirements. The exemption would apply to new and existing build-to-rent developments, the latter where the new definition requirements are satisfied by 1st July 2023.
FBT – a proposedamendment which would exempt from FBT, public transport fares that are subsidised by an employer mainly for the purpose of their employees travelling between their home and place of work. Provided the public transport is via a bus, train, ferry, tram or cable car, the employer would not have to pay FBT on such benefits.The proposed amendments would have effect for fringe benefits provided on and after 1 April 2023.
Bright-line – clarifying the bright-line test exclusion for inherited property. Inherited residential land is effectively exempt from the bright-line test. This outcome is achieved through three different sections in the Income Tax Act – sections CB 6A(2B), CZ 39(7), and FC9 – but it is not always clear that they operate together. The amendments will work to clarify that the bright-line test does not apply to the transfer of the land from the deceased to a beneficiary beneficially entitled to the residential land under the terms of the deceased’s will or the rules governing intestacy, including any intervening transfer to an executor or administrator, or to a scenario where the executor or administrator of the estate or the ultimate beneficiary sells the residential land. The proposed amendments would take effect on the day after the date the Bill receives the Royal Assent.
Land tax provisions – partitioning of land among co-owners. The proposed amendment would ensure that the allocation of subdivided land among the co-owners of the original undivided land does not constitute a disposal for the land sales provisions. This exclusion would apply to the extent that the value of the allocated properties under the partition aligns with the co-owners’ interests in the original undivided parcel of land and contributions to development and construction costs. Any difference in these proportions (including any wash-up payments between the parties) would continue to be subject to income tax where applicable, as this difference would represent an economic change in ownership and actual disposal. The proposed amendment would have effect for partitions occurring on or after 27 March 2021.
GST – improvements to the place of supply rules. The proposed amendments would enable a broader range of suppliers to use the proxies available to non-resident suppliers of remote service and distantly taxable goods to determine the GST treatment of their supplies. Section 8(4) currently allows the non-resident supplier of goods that are in New Zealand at the time of supply and the GST-registered recipient of those goods to make an agreement that the supply is made in New Zealand – however it has been acknowledged that it can be burdensome to enter into and manage these agreements in circumstances where non-resident importers have a lot of GST-registered customers. The amendment proposes replacing the requirement to have an agreement with the recipient of the goods with an option for the non-resident supplier to unilaterally treat the supply as being made in New Zealand. The non-resident supplier would implement this by charging 15% GST on the supply of the goods. The proposed amendments would take effect on the day after the date the Bill receives the Royal Assent.
Family and close relationship transactions – Bright-line issues
A few weeks back, I briefly mentioned the release of PUB00351, a draft interpretation statement titled ‘Income tax – Application of the section CZ 39 bright-line test to certain family and close relationship transactions.’
The draft IS is a stark reminder of how draconian the bright-line rules can be, and that even transactions between close family members can trigger bright-line issues for the transferor, resulting in exposures to income tax payable on the deemed disposal gains.
The IS focuses on three specific transfer scenarios, and if you do not have the time, or in fact any inclination to read the 45-page document, then you could cheat and probably obtain the requisite knowledge to be able to advise your client, just by reading the accompanying six-page fact sheet.
The first point to note is that as the IS refers to the application of section CZ 39, its commentary is only targeted towards transactions where you entered into a binding agreement to purchase residential land from 29 March 2018 to 26 March 2021 (inclusive).
Moving on to the three scenarios, the first considers a transfer of residential land from a parent to their child, perhaps to assist the child in buying the land, where the child is unable to complete the transaction themselves at the outset for whatever reason.
If the land is transferred from the parent to the child during the five-year bright-line period, any deemed disposal gain will be subject to taxation (assuming the main home exclusion does not apply) via the application of section CZ 39. I say deemed disposal gain because remember that when the land tax provisions are triggered upon the disposal of land, an anti-avoidance provision steps in to deem a market value consideration to have applied to the transfer, even if for example, the parent transferred the land to the child for the parent’s original cost.
However, excluded from a bright-line application will be a scenario where the parent was acting either as a nominee or a bare trustee for the child. In this respect, Inland Revenue (IR) will expect you to be able to provide sufficient evidence that the nominee or bare trust arrangement was in existence. It is also IR’s view, that since a bare trustee should have no active duties in relation to the land, if a mortgage is registered in the parent’s name in respect of the land, then the parent cannot be a bare trustee, as a legal responsibility for the loan is an active duty and not a passive duty of a bare trustee.
The second scenario involves a transfer of an interest in land from a person to their new partner – so from a sole owner scenario to equal co-owners. Once again, the anti-avoidance rules will trigger a deemed market value disposal of the land to your partner, with the consequence that 50% of the interest will be subject to bright-line taxation if the transfer occurs during the 5-year bright-line period.
The third and final scenario considers a disposal of the land by a beneficiary who has inherited an interest in the land under a will, to other beneficiaries who have also received their interests in the same land under the will. This disposal of the interest in the land to the other beneficiaries, will not trigger a bright-line taxation issue for the transferor beneficiary – under the rule which exempts the disposal of land by a will beneficiary from bright-line taxation. Note here that if the transferee beneficiaries then go on to dispose of the land during the 5-year bright-line period, then while their initial allocation of land interests under the will would not be subject to bright-line taxation, the land interest that the transferee beneficiaries received from the transferor beneficiary will not be excluded from potential bright-line taxation.
As a final point, it should be noted that most of the aforementioned transactions would also restart the bright-line clock for the transferees – roll-over relief not applying to these scenarios.
Should you wish to make a comment on PUB00351, the closing date for submissions is 12th October.
Tax Bill receives its first reading
The Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill (No 2) (No 164-1) received its first reading on 21st September. The Bill has now been referred to the Finance and Expenditure Committee with a report-back date of 2 March 2023.
Mortgage offset arrangements
Some of you may have clients who have entered into a mortgage offset arrangement with their bank – where they can elect to use the balance of their transaction and savings accounts to offset against home loan accounts so that there is a reduction in interest payable.
In case you were wondering about the tax effects of such arrangements, Inland Revenue (IR) has recently released BR Prd 22/09, which confirms its present view of the tax consequences of Westpac’s mortgage offset arrangement.
The Binding Ruling concludes that, so long as the interest rates are offered at arm’s-length market rates, the tax consequences of the arrangement are as follows:
- offsetting a credit balance from a deposit account against a debit balance of a loan account does not, of itself, give rise to any income or expenditure under the financial arrangements rules;
- any fees payable by the customer to Westpac are “consideration” for the purposes of the financial arrangements rules
- as there is no payment of (or entitlement to) interest on the credit balance of these deposit accounts, there is no derivation of interest income for the account holder and no obligation on Westpac to deduct resident withholding tax (RWT) or non-resident withholding tax (NRWT), or pay approved issuer levies;
- the arrangement is not an indirect associated funding arrangement under section RF 12I;
- no income arises under section CC7 for either Westpac or its customers, and;
- the tax avoidance provisions inside sections BG 1 and GB 21 have no application.
The ruling applies from 1 April 2022 to 31 March 2027.
Tax Counsel Office update
Each year, the Tax Counsel Office prepares a draft programme of its priority work for the following year, and then provides monthly updates to reflect the progress of the programmed work post the relevant year has commenced.
With respect to the 2022/23 work programme, therefore, the October update has just been released and can be located here.
Receive your R&D tax credits sooner
MBIE have just announced, that from early 2023, businesses performing eligible research and development will be able to access more frequent and faster payments of the research and development (R&D) tax incentive with the introduction of in-year payments.
Under the proposed scheme:
- Businesses will be eligible for in-year payments if they have submitted their applications and their anticipated tax credit isn’t offset by provisional tax payments. After the application is approved, businesses will receive payments during the year that they spend money on eligible R&D activity.
- Tax Management New Zealand will deliver the in-year payments, with further details about how the scheme will work and its start date available later this year.
- The in-year payments will be paid to businesses as an interest-free loan, repayable when the corresponding R&D tax incentive credit is available.
Businesses are encouraged to apply for general approval on their R&D activities so they’re in a position to qualify for in-year payments when the scheme goes live.
Charities & donee organisations OS released
Inland Revenue (IR) has issued an operational statement (OS) to assist entities in the not-for-profit sector to understand their tax obligations and available tax benefits.
The statement is in two parts, which together make up OS 22/04:
- charities and donee organisations – Part 1 charities, with accompanying fact sheet; and,
- charities and donee organisations – Part 2 donee Organisations, with accompanying fact sheet.
Part 1 of the statement covers, amongst other issues, the various income tax exemptions for the business and non-business income of charities, including:
- resident withholding tax (RWT) exemptions;
- fringe benefit tax (FBT) exclusions;
- goods and services tax (GST) concessions; and,
- interest-free student loans for overseas volunteers of approved charitable organisations.
Part 2 explores the various types of donee organisations and discusses the tax benefits that follow for donors.
Part 2 also covers:
- record-keeping, and the requirement to self-assess and notify if there is a change in status; and,
- winding up and deregistration.
OS 22/04 applies from 10 October 2022.
GST draft IS issued
IR has issued a draft interpretation statement, titled ‘GST – Section 58: Specified agents of incapacitated persons, and mortgagees in possession’, and with the reference PUB00426.
The IS discusses the GST implications when a registered person dies, becomes incapacitated, or goes into receivership, liquidation or bankruptcy. In such circumstances, the person who conducts the relevant taxable activity on behalf of the incapacitated person is treated as personally carrying on that taxable activity (and to be GST registered).
Section 58 of the Goods and Services Tax Act is the legislative reference, which covers:
- specified agents of “incapacitated persons” (i.e. a person who dies, or goes into liquidation or receivership, or becomes bankrupt or incapacitated); and,
- mortgagees in possession of land or other property of a mortgagor.
In both cases, the taxing provision treats the specified agent/mortgagor as the registered person with regard to the taxable activity of the incapacitated person/mortgagee.
However, if a person is adjudicated bankrupt (and so becomes an “incapacitated person” as defined), the Official Assignee will generally not be a specified agent of that bankrupt registered person and will therefore not be responsible for the GST obligations related to that bankrupt’s taxable activity. The exception is where the Official Assignee has used its power under Schedule 1(i) of the Insolvency Act 2006 to carry on the bankrupt’s taxable activity.
For a mortgagee in possession of land or property of a registered person mortgagor, the Commissioner may deem the mortgagee to be a registered person where and to the extent that the mortgagee carries on any taxable activity of the mortgagor. Unlike specified agents, who are automatically treated as registered persons in respect of an incapacitated person’s taxable activity, the Commissioner has a discretion to do the same in respect of a mortgagee in possession.
The IS is a 10-page document, so quite an easy read over your morning coffee break. The deadline for comment is 8th November.
QWBA on private school fees
Inland Revenue (IR) has now finalised its Questions We’ve Been Asked on the issues of when a parent’s payment to their child’s private school will qualify for a donation tax credit, and, the GST treatment of payments parents make to private schools.
The QWBA is released in two parts.
QB 22/09 is titled, ‘Income Tax – Payments made by parents to private schools and donation tax credits’, with the conclusion within the document being that a payment to a private school is a gift (and therefore qualifies for the donation credit) if:
- the school is a donee organisation;
- the payment is $5 or more (and is money, rather than goods or services);
- the parent makes the payment voluntarily to benefit the school either generally or for a specific purpose or project; and,
- the parent or child gains no material benefit or advantage in return for making the payment.
The second QWBA is QB 22/08, which is titled ‘Goods and Services Tax – Payments made by parents to private schools’. The QWBA focuses on the circumstances in which a parent’s payment to their child’s private school is subject to GST.
In this regard, QB 22/08 notes that private schools are usually GST-registered and charge GST at the standard 15% rate on supplies made.
The private school may not charge GST (or may charge GST at a reduced rate) however, where a parent:
- makes an “unconditional gift” to the school; or,
- pays boarding fees to the school (and these are subject to the reduced GST rate of 9%).
A 4-page fact sheet titled ‘GST and Income Tax – Payments made by parents to private schools’ has also been released to aid in understanding the conclusions reached in both of the QWBA’s.
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