Tax Updates: 6 March 2023

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.

Third time, hopefully the last time

For the third time in less than two months, and hopefully the last for some time to come now, we have seen an emergency event declaration, this time in relation to Cyclone Gabrielle.

The Tax Administration (February Cyclone Event) Order 2023 (SL 2023/10) came into force on 20 February 2023, and declares the February Cyclone Event to be an emergency event for the purpose of section 183ABA of the Tax Administration Act 1994 (TAA94).

The February Cyclone Event means all or any of the flooding or other damage that occurred as a result of Cyclone Gabrielle during the period starting on 12 February 2023 and ending on 16 February 2023. The affected areas being Northland, Auckland, Waikato, Bay of Plenty, Gisborne and Hawke’s Bay regions and Tararua district.

The Order enables Inland Revenue (IR) to remit interest charges on late payments of tax, and it applies to taxpayers who are significantly adversely affected by the February Cyclone Event in respect of making a payment required by the due date.

If you or your clients have been affected by Cyclone Gabrielle, which resulted in a tax payment being late, then you can apply to IR for any UOMI to be remitted, which IR will do if they consider:

• it is equitable that the interest be remitted;

• the taxpayer asked for the relief as soon as practicable; and,

• the taxpayer made the payment as soon as practicable.

The Order expires and is revoked on the close of 30 June 2023.

Further environmental measures

As both the weather and Covid continue to impact our daily environment, IR has also issued the following relief measures:

• The Tax Administration (Research and Development Tax Credit Deadlines for Taxpayers Affected by Weather Events) Order 2023 (SL 2023/11) comes into force on 20 February 2023, and extends the filing deadlines under sections 33E (R&D supplementary return), 68CB (General approval) and 68CC (>$2m approval) of the TAA94 in the period starting on 26 January 2023 and ending on 7 March 2023. The Order appoints 31 March 2023 as a further date on or before which these filings must be made, applies to taxpayers whose ability to meet the filing deadlines is significantly affected by either or both of the January flooding and February cyclone events.

• Determination DET EE 23/01: ‘Declaration of January flood events, beginning 26 January 2023 and Cyclone Gabrielle, which crossed the North Island of New Zealand during the period of 12 February 2023 to 16 February 2023, as emergency events for the purposes of family scheme income’. The determination applies for the purposes of section MB 13(2)(r)(i) of the ITA07, and, for the purposes of section MB 13(2)(r)(ii), the period relating to the events is set from 26 January 2023 to 31 August 2023. A payment made during this period (inclusive of both dates) to relieve the adverse effects of the weather events will not be included in a person’s family scheme income under section MB 13(1).

• The Tax Administration (Extension of Period of Relief for Certain Disposals of Trading Stock) Order 2023 (SL 2023/16) comes into force on 31 March 2023, and extends the period during which sections GZ 4 and GZ 5 of the ITA07 apply. Those sections, part of the Government’s Covid-19 response, turn off the application of section GC 1 of the Act for trading stock that a person (A) disposes of at below market value to a donee organisation, a public authority, or a person (B) not associated with A. Section GC 1 would otherwise treat A as deriving income. Under section GZ 5, trading stock that A disposes of to B may still result in A deriving income if A does not have a business purpose for the disposal. The Order extends the application period to end on 31 March 2024, with the Order being revoked on 30 April 2024.

GST treatment of fees paid to directors and board members

IR has issued three public rulings which provide commentary on the GST issues surrounding fees paid to directors and board members:

• BR Pub 23/01, ‘Goods and Services Tax – Directors’ Fees’ (which covers directors of companies)

• BR Pub 23/02, ‘Goods and Services Tax – Fees of Board Members not appointed by the Governor-General or Governor-General in Council’, and

• BR Pub 23/03, ‘Goods and Services Tax – Fees of Board Members appointed by the Governor-General or Governor-General in Council’. 

As a result of the issue of these rulings, some directors may find that they are not actually eligible to be GST registered, and accordingly, IR has also issued a new operational statement, OS 23/01, which provides that:

• IR will not require such taxpayers to retrospectively deregister.

• Incorrectly GST-registered taxpayers will have to deregister with effect from 30 June 2023 (or such other date that the Commissioner determines).

• Deregistration may result in the taxpayer having to return GST on the market value of any goods or services that formed part of their taxable activity.

The rulings are accompanied by a fact sheet, BR Pub 23/01-23/03 FS, which summarises the key conclusions in the rulings.

The rulings are for an indefinite period commencing 1 April 2023.

Tax Bill reported back

The Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill (No 2), introduced on 8 September 2022, has been reported back to Parliament. The Bill covered issues surrounding:

• Tax settings for the platform economy;

• GST apportionment and adjustment rules;

• Arrangements for cross-border workers;

• Integrity concerns and dual resident companies;

• Build-to-rent exemption from interest limitation; and,

• Fringe benefit tax exemptions.

The main recommendations of the FEC were:

• That the second, ‘extended model reporting standard for digital platforms’ (framework 2), which covers reporting obligations for operators of digital platforms that facilitate the sale of goods and the rental of vehicles, not proceed at this time. However, it was proposed that the introduction of framework 2 only be deferred, and that it still be implemented within three years of the Bill’s commencement. The primary basis for deferring was that implementing both platforms at the same time would impose significant costs on digital platform operators.

• That the proposal that large commercial enterprises (generally accommodation providers such as hotels) have to agree with an electronic marketplace operator that the enterprise (sometimes called the ‘underlying supplier’) will continue to be responsible for paying GST on their services, should be amended. Instead, the FEC recommended that underlying suppliers with large sales ($500,000 or more in any 12-month period) should be able to unilaterally opt out of the new marketplace rules, without needing a written agreement with the electronic marketplace operator, and they would simply need to notify the electronic marketplace operator of their decision to continue being responsible for their own GST obligations.

• That the proposal to introduce a principal purpose test which would provide that GST apportionment and adjustment rules for assets acquired for $10,000 or less (excluding GST) should be optional. However, to avoid ‘cherry-picking’, the option should operate on an ‘all or nothing’ basis. That is, registered people should be able to opt-out for all assets acquired for $10,000 or less for a minimum of 24 months.