A snapshot of recent developments
Tax Alert - October 2016
GST turns 30 and celebrates with the introduction of the Netflix tax
Goods and services tax (“GST”) turned 30 on 1 October 2016. GST was introduced on 1 October 1986 by the third Labour Government at a rate of 10%. It was increased to 12.5% on 1 July 1989 and more recently to 15% on 1 October 2010.
The birthday celebrations coincide with the commencement date of the new “Netflix tax”. From 1 October, any offshore business providing remote and online services and supplies of intangibles to a New Zealand private consumer will need to collect and pay GST if the cumulative amount of supplies provided to New Zealand private consumers within a 12-month period is expected to exceed NZD 60,000. See our earlier article on this topic.
Public Rulings Unit Work Programme
On 5 September 2016, Inland Revenue released an updated 2016-17 Public Rulings Unit Work Programme. Noteworthy items added to the work programme included the following.
- Income tax – Deductibility of feasibility expenditure, which is an update and review of IS 08/02 following Trustpower (see our main article on this).
- Income tax – Income – Amounts derived from land use, which considers the impact of the Vector decision on existing public statements, in particular Pub BR 05/ 02-10 and Pub BR 09/06.
- GST – Credit card charges, which seeks to provide guidance on the GST treatment of fees charged in respect of credit cards.
- GST – Grouping rules, which seeks to resolve uncertainties around GST grouping issues.
- Income tax – Associated persons – Corporate trustees, which addresses uncertainty around the capacity of a trustee when the trustee is a corporate following the decisions in Concepts 124 Ltd v CIR  NZHC 2140 and Staithes Drive Development Limited v CIR  NZHC 2,593.
- Income tax – Land – Improvements becoming part of land, which seeks to address whether building fit-out is an improvement to land for the purposes of section CB 11 and as to which party owns various improvements to land and buildings.
- Income tax – Research & Development, which seeks to provide guidance on the R&D rules, including the application of the new loss tax credit rules.
Operational guidelines: Section 6A settlements
On 1 September 2016, Inland Revenue released Operational Guidelines: Section 6A settlements (“the Guidelines”) to outline its internal approach to settling disputes prior to the filing of a challenge in the Taxation Review Authority or the High Court. By way of background, Interpretation Statement IS 10/07 confirms that Inland Revenue can “settle” disputes prior to litigation, pursuant to section 6A of the Tax Administration Act 1994. The Guidelines confirm that the starting point for Inland Revenue is to apply the law correctly and to seek to recover all of the tax which is due. However, where a dispute is commenced, the Guidelines provide a set of criteria which can be taken into account and some guiding principles around how much weight should be given to each criterion. For each settlement, Inland Revenue will consider whether it is consistent with the dual duties of collecting the highest net revenue practicable over time and protecting the integrity of the tax system.
QB 16/07: Income tax – land sale rules – main home and residential exclusions – regular pattern of acquiring and disposing, or building and disposing
On 31 August 2016, Inland Revenue released QB 16/07. The QWBA provides guidance on when someone will have a “regular pattern” of transactions that means they cannot use the residential exclusion from sections CB 6 to CB 11 of the Income Tax Act 2007 and when someone will have a “regular pattern” of transactions that means they cannot use the main home exclusion from the 2-year bright-line test. While there is no hard and fast rule, at least three prior transactions would be needed for there to be a regular pattern of acquiring or building and then disposing of property. We also note that a flowchart has been inserted which outlines the taxing provisions and exclusions that may apply when taxpayers sell land and property.
IRD: Depreciation rates guidance
Inland Revenue has published an updated depreciation rates guide. This guide sets out the general and provisional depreciation rates for both diminishing value and straight line methods for assets acquired in the 2006 and future tax years. Several times a year, the Commissioner releases determinations to insert new asset classes and corresponding depreciation rates which apply going forward. This is most common for new types of assets (for example, we have recently seen the addition of depreciation rates for drones, smart phones and tablet computers). Often taxpayers use a default rate where a specific rate does not exist. In this case, if the new rate is higher, they are required to commence using the new rate from the beginning of the income year specified in the determination. However, if the new rate is lower, as long as the previous rate was correct at the time, taxpayers are not required to change to the less favourable rate and can continue to use the higher rate. See QB 15/03 – Changing to a different depreciation rate for an item of depreciable property for more information. Setting depreciation rates is not necessarily a set and forget task. It pays to periodically check that you are using correct depreciation rates, particularly for new classes of asset types where a default rate may have been used.
Tax Alert October 2016 Contents:
- It’s feasible that feasibility expenditure may still be deductible… sometimes
- Thinking of gifting food and drink for Christmas? Be aware!
- Further consultation on employee share scheme proposals
- Tax residency: Life after Diamond - the new era begins
- Government releases significant and complex proposals to tackle hybrid mismatch arrangements
- A snapshot of recent developments