A snapshot of recent developments
Tax Alert - September 2016
Trustpower case impact statement released
On 18 August 2016, Inland Revenue released a case impact statement on the Trustpower Limited v Commissioner of Inland Revenue case concerning the deductibility of expenditure incurred in obtaining resource consents for possible future generation projects (refer our feature article last month). In the case impact statement, Inland Revenue states that as Trustpower is now the current law, it must be applied by taxpayers and the Commissioner from the date of the judgment. Inland Revenue has stated that it will not be actively reviewing assessments prior to the decision in Trustpower where taxpayers have followed the approach taken in the Commissioner’s Interpretation Statement IS 08/02: Deductibility of Feasibility Expenditure. In light of the judgment, this statement is currently under review and should not be relied upon.
Corporate tax governance guidance
Inland Revenue has publically endorsed recently released OECD guidance which seeks to assist businesses in designing and implementing effective tax governance. Inland Revenue states that it considers this guidance applies in New Zealand to significant enterprises (in particular those that currently file a basic compliance package) and high wealth individuals who have complex business interests. At a minimum, the following key questions should be routinely addressed by boards and high wealth individuals:
- Is there an up-to-date documented strategy?
- Have effective systems, procedures and resources been put in place to manage key tax risks and is there a statement in the annual report to this effect?
- Is annual reporting sufficiently transparent to enable all stakeholders to analyse and effectively interpret information provided on taxes paid?
Reminder to document the terms of intragroup loans
Inland Revenue has issued a reminder about documentation required in relation to cross border associated party lending arrangements because too often there is minimal or non-existent documentation supporting such loans. Specifically the guidance sets out 10 points of detail that should be addressed in the documentation such as the purpose or intention of funding, parties, amount and currency, interest rate, payment dates, terms and repayment dates, fees, security, guarantees and amendments to loans over the life. Inland Revenue further advise it keeps a close eye on cross border financing arrangements, particularly loans in excess of $10m principal and guarantee fees.
SOP to Business Tax Bill released
On 16 August 2016, Supplementary Order Paper No. 190 (“the SOP”) was released. The SOP proposes an amendment to the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill that would provide the Government with a regulation-making power to change the application of a provision in the Tax Administration Act 1994 so that the application of the legislative provision is consistent with its policy intent. This regulation making power is limited to legislative provisions impacting the Business Transformation process and is intended to be used in situations where a prompt regulatory response is required to avoid the potential for delays to the transformation process. See this article for more information.
Inland Revenue releases two draft items for consultation
On 11 August 2016, Inland Revenue released a draft interpretation statement on when income from professional services is derived. For tax purposes, there are two main methods for determining when an amount of income has been derived: cash basis or accrual basis. While there is no general rule of law requiring particular professions to account for income using one method or the other, Inland Revenue prescribes a number of factors (based on case law) that should be considered when determining which method is appropriate for a particular business or profession. Inland Revenue is welcoming comments, which are due 22 September 2016.
Inland Revenue also released a draft Questions We’ve Been Asked on the date of acquisition of land. This draft QWBA has previously been consulted on, however is open for re-consultation due to remedial changes made to section CB 15B of the ITA 2007 seeking to clarify the section’s intention.
QB 16/06: Land acquired with purpose or intention of disposal
On 29 July 2016, Inland Revenue finalised a Question We’ve Been Asked QB 16/06: Land acquired with the purpose or intention of disposal. The QWBA considers the tax treatment of proceeds from the sale of land which was acquired with the purpose or intention of disposal. Where there is an intention or purpose of disposal at the time of acquisition, section CB 6 of ITA 2007 should apply and proceeds should be included as income tax for purposes. The QWBA also includes a discussion of the exclusions from section CB 6, the interaction of section CB 6 with the new bright-line rules, a discussion concerning determining intention or purpose and several useful examples.