Tax Updates: 8 April 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.

International tax disclosure exemption issued

Each year, Inland Revenue (IR) issues an international tax disclosure exemption in accordance with the provisions of section 61(2) of the Tax Administration Act 1994.

Section 61(1) of the TAA requires a person with a control or income interest in a foreign company or an attributing interest in a foreign investment fund at any time during the income year to disclose the interest held. In the case of partnerships, disclosure must be made by the individual partners, not the partnership itself. Section 61(2) enables the Commissioner to exempt any person or class of persons from this requirement to disclose, and the scope of the 2024 income year exemption is the same as that for 2023. It removes the requirement of a resident to disclose in certain circumstances and removes the requirement for a non-resident or transitional resident to disclose interests held in foreign companies and foreign investment funds.

There are three primary exemptions which apply to residents:

• An interest in a foreign company, if the resident has an income interest of less than 10% in that company, and either that income interest is not an attributing interest in a FIF, or it falls within the $50,000 de minimis exemption.

• If the resident is not a widely held entity, an attributing interest in a FIF that is a direct income interest of less than 10%, if the foreign entity is incorporated (in the case of a company) or otherwise tax resident in a treaty country or territory, and the fair dividend rate or comparative value method of calculation is used.

• If the resident is a widely held entity, an attributing interest in a FIF that is a direct income interest of less than 10% (or a direct income interest in a foreign PIE equivalent) if the fair dividend rate or comparative value method is used for the interest. Instead, the resident must disclose the end-of-year New Zealand dollar market value of all such investments split by the jurisdiction where the attributing interest in a FIF is held or listed.

Further details about the available disclosure exemptions are provided in the document itself, which is referenced as ITR35.

Special reports issued

IR has issued two special reports to assist you in understanding two pieces of legislation: one that came into effect from 1 April—GST on accommodation and transportation supplied through online marketplaces—and the second, which comes into effect from 1 July—a 12% offshore gambling duty that will apply to online gambling provided by offshore operators to New Zealand residents.

The first of these reports is titled ‘GST on accommodation and transportation supplied through online marketplaces’ and provides guidance on the changes to “listed services” supplied through electronic marketplaces, which were enacted with the passing of the Taxation (Annual Rates for 2022–23, Platform Economy and Remedial Matters) Act 2023 on 31 March 2023.

Certainly, if you have clients who provide services through online marketplaces such as Airbnb or Uber, the report is worthy of at least a skim read. Regardless of your client’s GST registration status, GST will usually be imposed on the supply of “listed services” by the marketplace operator, where the supply occurs after 1 April.

For a client who is not GST registered, they should receive a “flat-rate credit” from the marketplace operator, which is intended to recognise the GST incurred by unregistered underlying suppliers on goods and services used to make supplies of listed services (although not in relation to any capital assets (land, motor vehicles) used to make the supplies). For income tax purposes, the “flat-rate credit” should be treated as excluded income, and where expenses are attributable to deriving income exclusively through an electronic marketplace, deductions for expenditure incurred for income tax purposes must be taken on a GST-exclusive basis (this is going to be fun I can hear you saying). So, your client may have expenses disclosed exclusive of GST, inclusive of GST (non-marketplace operator income), and a mixture of both (where expense attributable to both types of activity)!

For a client who is GST registered, they should not receive the “flat-rate credit” from the marketplace operator (so ensure they disclose to you if they have). They should claim GST input tax credits in the usual fashion, and they should still reflect the value of their supplies on their GST returns, albeit now reflected as zero-rated supplies (so GST on the supplies is not accounted for twice). Note that any supplies not through the online marketplace operator are recorded as previously – fully taxable supplies.

Finally, if your client engages a property manager or agent to list taxable accommodation in those properties on electronic marketplaces, then that person may be referred to as a “listing intermediary” (determined by whether that person has a contractual relationship with an operator of an electronic marketplace to list or advertise the services on the marketplace). In essence, whether or not the “listing intermediary” definition is satisfied, it should have no impact on your client – it simply determines who may be accountable for the GST on the supply and for administering the “flat-rate credit” scheme.

The report is a 68-page document and can be located in the Tax Policy section of IR’s website.

I suspect the second report, ‘ Special Report—Offshore Gambling Duty, ‘ will not interest most of you. It’s only a nine–page document, and well, enough said—if the topic interests you, you’ll find it in the same place as the GST report.

Happy reading!

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.