Tax Alert

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A Snapshot of Recent Developments

Tax Alert - November 2018

Policy Developments:

Tax changes relating to bloodstock introduced to Parliament

On 16 October 2018, the Government introduced draft legislation that will allow more deductions for acquiring bloodstock. This is being introduced as a further supplementary order paper (No 135) to the Taxation (Annual Rates for 2018-19, Modernisation Tax Administration, and Remedial Matters) Bill that is presently at Select Committee stage.

Under current law, a person who acquires bloodstock for breeding must have an existing bloodstock business to qualify for tax deductions in relation to the bloodstock. The proposed amendments will enable new investors in certain bloodstock yearlings to claim tax deductions in relation to that bloodstock, as if they had an existing bloodstock breeding business, where they notify the Commissioner of Inland Revenue of their intention to use the bloodstock for breeding bloodstock for profit in the future and provide the information required by the Commissioner.

Updated bill disclosures statements and a regulatory impact assessment have also been released.

ED0208: Tax payments – when received in time

Inland Revenue has released a draft Standard Practice Statement. This draft statement sets out Inland Revenue’s practice for accepting tax payments as having been in time. There are two changes to practice – post-dated cheques will not be accepted by Inland Revenue from 1 February 2019 as a method for payment, and Inland Revenue dropboxes for the physical delivery of tax payments are only available in in-house office reception areas. Taxpayers are being encouraged to use digital methods for making tax payments.

Tax Cases Update:

Second charity deregistration appeal denied

Family First New Zealand [2018] NZHC 2273

The High Court has upheld the second deregistration decision made by the Charities Registration Board (Charities Board) in relation to the charitable status of Family First New Zealand (Family First). Family First’s appeal from this deregistration decision was dismissed as Family First failed to satisfy the Court that the Charities Board had erred in its conclusion that Family First did not exist solely for charitable purposes

Bad debt deduction denied

Hong v CIR [2018] NZHC 2539: This appeal case concerned Mr Hong, a lawyer, who was denied a deduction by the Commissioner for bad debts written off in relation to two loans which he had made to his clients. Mr Hong had not shown, according to his own accounting procedures, that the loans were written off. The evidence presented which related to when the spreadsheet was created and when the debts were “written off” was not sufficient. The High Court decided the Taxation Review Authority (“TRA”) was correct in finding that the debtors had not been released at law from making further payments; and that Mr Hong was not carrying on, even in part, a lending business for the purpose of deriving assessable income. The Court also accepted that Mr Hong fell well short of the standard of care expected of taxpayers and agreed with the TRA’s findings that Mr Hong had failed to take reasonable care.

GST input tax deductions allowed

Canterbury Jockey Club Inc. v Commissioner of Inland Revenue [2018] NZHC 2569

This was a GST test case which considered whether a jockey club was entitled to GST input tax deductions for stakes payments paid to GST registered trainers and jockeys in horse races conducted by the club. This depended on two key issues which were whether there is a “supply” of services from the riders/trainers to the club and secondly if the stakes payments were “consideration” for any services supplied. The Court decided in favour of the club, meaning it is entitled to GST input deductions, for stakes payments made to trainers and riders who win.

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