Tax Updates: 2 September 2024

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

The Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Bill (No. 73-1) was introduced to Parliament last week, and it has already passed through its first reading. The main topics covered by the Bill include:

• confirmation of the annual rates of income tax for the 2024–25 tax year;
• introducing a generic set of tax relief measures for future emergency events;
• implementing the OECD’s Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard;
• addressing two issues that affect the transfer of overseas pension and superannuation funds to NZ;
• allowing borrowers who have not registered a security for Approved Issuer Levy (AIL) on time to register it retrospectively in limited circumstances;
• increasing the thresholds relating to exempt employee share schemes;
• allowing persons aged under 16 to enrol in KiwiSaver with the signature of one guardian; and,
• introducing a ‘one-off’ information sharing provision with the Ministry of Business, Innovation and Employment to encourage the use of NZBN numbers among unincorporated entities.

The tax relief proposals are interesting and, arguably, very timely, unfortunately, if one considers the greater frequency of weather-related events, particularly flooding. It is proposed in the Bill to initially amend primary legislation to incorporate, on a generic basis, the tax measures from past major emergency events that proved to be useful to affected taxpayers, with an accompanying activating provision in the Tax Administration Act 1994 (TAA), which would enable activation of any of those measures by Order in Council in a future emergency. An Order in Council should take no more than two months to activate.

The proposed changes to address two issues that may arise on the transfer of overseas pension and superannuation funds to New Zealand (NZ) will firstly create a ‘scheme pays’ election option, where a person subject to NZ income tax on the transfer (under the foreign superannuation scheme withdrawal rules), can elect to have the NZ scheme pay the tax due on the transfer on the person’s behalf.

With respect to a transfer from a United Kingdom (UK) pension fund to a NZ QROPS, the ‘scheme pays’ option would see the QROPS withhold the requisite taxes payable by the person and make payment directly to Inland Revenue (IR), which would not then expose the person to UK tax charges of up to 55% (payable where the person has access to their funds pre 55 years of age), as no funds would be seen by the UK to have flowed to the migrant personally. The second proposed change addresses KiwiSaver funds that are effectively ‘locked in’, as they were transferred before the UK changed its mind regarding KiwiSaver schemes qualifying as QROPS effective from 6^th April 2015. Members with these ‘locked in’ contributions were worried that any transfer to another KiwiSaver scheme could trigger UK tax penalties for them. Consequently, the amendment will enable a KiwiSaver scheme to transfer these ‘locked in’ amounts to a NZ QROPS, so the remaining balance of the fund could be managed without any potential negative UK tax implications.

Of all the proposed changes in the present Bill (other than the GST amendment I will discuss next), I suspect the ability to apply for retrospective Approved Issuer Levy (AIL) registration will be the most popular. I expect that many of you, like the team at Gilligan Sheppard, have had clients who have overlooked their Non-resident Withholding Tax (NRWT) payment obligations (usually in relation to overseas borrowings on foreign-held rental investment properties), with the need to then file a voluntary disclosure to IR, to account for the 10/15% NRWT not previously returned on the offshore interest payments. Now note that the new ability to retrospectively elect for AIL registration (a 2% levy instead of the 10/15% NRWT) will not come into effect until April 1^st 2025, and going forward, that will be the earliest date you will be able to elect back to. However, once the new rule is in place, provided the delay in registering for AIL was caused by a ‘genuine oversight’, there will be a two-year retrospective registration window.

Finally, in a recent edition of AWIR, I mentioned the issue of GST refunds not being released in relation to permanent change of use adjustments. This use arose due to the drafting of the new rules (ability to make the one-off adjustment in the first adjustment period return post the permanent change of use occurring), having referenced that the first adjustment period must have commenced on or after 1^st April 2023, which therefore ruled out assets acquired pre-1^st April 2023 – as the adjustment period for these assets commenced on the date of purchase. The correction to the previous drafting will now use the wording ‘apply to a registered person’s adjustments made in returns for taxable periods starting on or after 1^st April 2023’, with retrospective effect to 1^st April 2023. So, fingers crossed, we will see all those refunds presently put on hold awaiting this legislative correction, which will be released shortly after enactment of the Bill.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.