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Richard’s Tax Updates: Nov/Dec
Richard has had over 25 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’…
- IR Requests Submissions for AEOI Exclusions
- Earthquake Relief Package
- Charitable/Donee Organisations and FBT Exemption
- Market Value of Accommodation
- Closely Held Companies Bill
- Unclaimed Monies
- OECD Multilateral Instrument Released
- Business Tax Bill Reported Back
- Alteration of Rights a Disposal?
- Non-Resident Seasonal Workers Holiday Pay
- ACC Reductions
- GST Refunds by Direct Credit
- Further Consultation on Modernising TAA
IR Requests Submissions for AEOI Exclusions
In July 2014, the OECD released a global standard (“CRS”) for the automatic exchange of information (AEOI) between jurisdictions. The standard was prepared following a previous commitment by 122 jurisdictions to an international standard of transparency and exchange of information upon request, which in 2013 was refocussed to the potential opportunities that could arise by making the exchange automatic.
The CRS provides for implementing jurisdictions to domestically add to the list of automatically excluded entities and accounts to include what are considered “low risk” entities and accounts. Entities and accounts on this list are excluded from the various due diligence and reporting obligations outlined in the CRS.
IR has now invited financial institutions and interested parties to submit details of entities and accounts they believe should be included on the list because they meet the criteria set out on the Fact Sheet published by IR on their website. Submissions should be made no later than 31st January 2017.
Earthquake Relief Package
As expected the Government has followed up the recent Kaikoura earthquakes with a tax relief package, which comes in the form of the waiver of any use of money interest charges arising as a result of any late tax payment since the event, and cancellation of any late filing or late payment penalties for all affected taxpayers. At this stage, the relief package is expected to expire on 31st January 2017.
Similarly, relief is to be provided to affected KiwiSaver members who are now likely to experience financial hardship as a result of the earthquakes, and as a consequence require an early withdrawal from their fund. Presently legislation permits any KiwiSaver member who is experiencing financial hardship to request an early withdrawal of otherwise locked-in savings from their KiwiSaver scheme provider. The Government has reached agreement with Kiwisaver supervisors, that when assessing financial hardship applications, they will work with KiwiSaver providers to ensure affected members can go through the process as quickly and as flexibly as possible.
Finally, two other Orders in Council have been rushed through to provide that, firstly, any earthquake support subsidy payments are not subject to GST, and secondly, to permit IR to share information with the Ministry of Social Development where reasonably required for the administration of earthquake support subsidy payments.
Charitable/Donee Organisations and FBT Exemption
IR has released draft public ruling PUB00229 for consultation. The document discusses the application of section CX 25 of the Income Tax Act 2007 in respect of non-cash benefits provided by charitable and other donee organisations to their employees. Section CX 25 will apply to exempt a non-cash benefit from FBT to the extent that the employee’s employment is carried on in respect of the entities benevolent, charitable, cultural, or philanthropic purposes. The non-cash benefit may however be subject to FBT to the extent the employee is involved in a business operated by the entity, unrelated to the purposes of the organisation. Consequently CX 25 contemplates apportionment.
The deadline for comment is 23rd January 2017.
Market Value of Accommodation
IR has published a Commissioners Statement CS 16/02 which deals with determining the market rental value of employer provided accommodation. The statement is effective from 1 April 2015.
Where an employer provides accommodation to an employee, the value of that accommodation is assessable income of the employee and an employer is required to pay PAYE on the amount. Naturally when rent is paid to a third party on an arms-length basis, the value for PAYE purposes is the amount of rent paid. Where however the employee either stays in employer owned accommodation or in accommodation where the arrangement with the third party is not arms-length, the employer will need to determine what is a “market value” amount? The Commissioner does not dictate a particular valuation method to be used, instead suggesting several alternatives such as registered valuers, real estate agents or the employer undertaking their own research in respect of comparable properties on the market. The Commissioner does however expect the employer to take reasonable steps and exercise reasonable care in determining the “market value” amount, and to maintain proper records in this regard.
The Commissioner lays out several “can” and “cannot” factors in determining what is “market value”, most of which are common sense. She also suggests that the employer discuss the determined amount with their employee, as it may also impact on the employee’s entitlements/obligations with respect to family tax credits, student loans and child support. Finally CS 16/02 is only in respect of NZ provided accommodation and the Commissioner will provide separate guidance with respect to accommodation provided outside of NZ.
Closely Held Companies Bill
Introduced in May 2016, this Bill focuses on three key areas: closely held companies, NRWT and GST. The Finance and Expenditure Committee has now reported back to Parliament, following its review of submissions on the Bill.
A number of the amendments proposed by the Bill are welcomed, including removal of the deduction limitation rule for LTC’s, narrowing of the “tainted capital gains” provisions (new 85% thresholds) and amendments to the debt remission rules which will provide for shareholders to be able to release their company’s debt obligations to themselves without creating assessable income for the company.
Not so welcomed however are changes to the NRWT rules to trigger payment of the tax upon interest accrual as opposed to payment in certain circumstances, introducing a foreign income restriction for predominantly foreign owned LTC’s (although admittedly not as bad as a similar rule that applied to QC’s) and amending the LTC entry tax rate from 28% to the marginal tax rates of the shareholders.
The Bill is expected to be enacted early in 2017. An article I wrote when the Bill was first introduced can be found here.
IR has released draft public rulings PUB00284 which deals with the issues surrounding unclaimed amounts of $100 or less. The rulings essentially replaces previous rulings on the issue which are due to expire at the end of the 2016/17 income year. It is proposed that the present ruling will be for an indefinite period.
The first ruling deals with an amount not held on trust by the holder for the owner and the second deals with the trust scenario. Where there is no trust relationship with respect to the amount held, and it has been received by the holder during the ordinary course of carrying on the business, the amount will be income under section CB 1 when the holder has applied the amount for its own benefit (or anyone else’s) and it is probable that repayment to the owner will not have to occur. Under a trust scenario however, the amount will not be income for as long as it is held on trust for the owner by the holder.
Note that the ruling is worthy of a read due to its detailed discussion on the concept of income derivation in a wider sense. The deadline for comment is 27 January 2017.
OECD Multilateral Instrument Released
The instrument has been released by the OECD to enable the rapid amendment of a worldwide network of tax treaties, rather than each jurisdiction having to individually amend each bilateral treaty themselves. It has been developed over the past year further to work undertaken by the OECD and around 100 countries, the focus being to strengthen treaties which are presently abused to facilitate BEPS techniques.
It is expected that NZ will sign the instrument around June 2017, once consultation on how it will be implemented has been completed.
Business Tax Bill Reported Back
Officials have reported back on the Bill, having considered submissions received post its release in August. The Bill proposes 16 tax simplification measures for businesses including welcomed amendments to UOMI rules (e.g. increasing safe harbour rules to non-individual entities), introducing a new provisional tax payment method (AIM) and making several changes to the schedular payment rules (ability to elect own rates).
The Bill also includes proposed changes to deal with the fallout from the Panama Papers and NZ’s foreign trust regime, which predominantly centre around new registration and annual reporting obligations.
Finally the Bill includes some technical amendments to the recently introduced RLWT and bright-line test rules.
Alteration of Rights a Disposal?
IR has issued draft PUB00263, an item which considers whether section CB 4 of the Income Tax Act 2007 applies to share rights that are altered. Section CB 4 essentially taxes amounts derived from the disposal of personal property, where the property was acquired with a disposal intention. The question considered therefore, is whether the altering of rights attached to shares would constitute a disposal which would then trigger the application of section CB 4 if the shares had been originally acquired for resale.
The conclusion reached is that shares with altered rights are the same property pre and post the alteration and consequently section CB 4 has no application.
The deadline for comment is 27th January 2017.
Non-Resident Seasonal Workers Holiday Pay
In March 2016, IR issued the Commissioner’s operational position with respect to holiday pay and whether the payments of such amounts were subject to PAYE at normal salary and wage rates or were to be treated as extra pays and taxed as such. The item concluded that where the holiday pay was paid as a component of the employee’s usual salary and wages on an ongoing basis (the most common method), it was to be taxed as a payment of salary and wages and not as an extra pay. Where however the holiday pay was paid as an additional amount to the regular pay for the pay period, it was deemed to be an extra pay and was to be taxed at the associated rates.
A non-resident seasonal worker uses the NSW tax code which attracts a PAYE withholding rate of 10.5% and it is Parliament’s intention that this should be a final tax, exempting the worker from having to file an annual income tax return. Holiday pay for non-resident seasonal workers is usually paid at the completion of their season in one lump sum and therefore in accordance with the March 2016 operational position was an extra pay, required to be taxed at the extra pay rates, which could subject the non-resident seasonal worker to a rate exceeding 10.5% where their combined annual income exceeded $14,000. Consequently IR has now issued an interim operational position to ensure that Parliamentary intention is maintained, setting the extra pay rate for non-resident seasonal workers to 10.5%.
The operational position is temporary (1/4/16 – 31/3/18) while further work is undertaken by IR to clarify the PAYE rules that should apply to non-resident seasonal workers in order to fully satisfy Parliament’s intention.
While not strictly tax related, its effect on the masses means it’s probably worthy of a mention in this forum.
Acting ACC minister, Nathan Guy, has announced reductions in the average work levy paid by employers and the self-employed from 80 cents per $100 of liable earnings to 72 cents, the average motor vehicle levy from $130.26 to $113.94 and the petrol levy from 6.9 cents to 6 cents per litre.
The work levy reductions will apply from 1st April 2017, while the motor vehicle levy deductions will apply from 1st July 2017. The new rates will apply for a two year period now that reviews are undertaken on a biennial basis.
GST Refunds by Direct Credit
From 7th February 2017, the Tax Administration (Direct Credit of GST Refunds) Order 2016 (LI 2016/296) has provided that GST may be refunded by direct credit under s 184A of the Tax Administration Act 1994 to a bank account nominated by the taxpayer.
Further Consultation on Modernising TAA
The next round of consultation on the Government’s “making tax simpler” project has arrived, with the release of the latest proposals on how the Tax Administration Act could be amended to support “better public services” objectives. The proposals can be found at www.makingtaxsimpler.ird.govt.nz and include:
- Allowing information sharing without the need for regulation where a taxpayer has consented
- Significantly reducing binding ruling fees for SME’s
- Allowing more tailored approaches to different types of taxpayers via greater use of regulations
Consultation closes 24th February 2017.