Snapshot of recent developments
Tax Alert - December 2022
Tax Legislation and Policy Announcements
Increase in Family tax credit and Best Start tax credit
On 17 November 2022, the Income Tax (Tax Credit) Order 2022 (SL 2022/296) was notified in the New Zealand Gazette and comes into force on 1 April 2023.
Under the Income Tax Act 2007, an inflation-indexed increase to the Family Tax credit and Best Start tax credit is required once the cumulative value of quarterly increases in the New Zealand Consumers Price Index is 5% or more. The Order:
- Adjusts the family tax credit (eldest child rate from $6,642 to $7,121, subsequent child rate from $5,412 to $5,802);
- Increases the Best Start tax credit from $3,388 to $3,632; and
- Increases the minimum Family Tax credit threshold from $32,864 to $34,216.
Inland Revenue statements and guidance
Inland Revenue Public Guidance Work Programme 2022-23
On 2 November 2022, Inland Revenue updated its Public Guidance Work Programme 2022-23. The work programme summarises all of Inland Revenue’s Public Guidance projects based on their current progress status, with a link to further information on each item.
Inland Revenue Update: Defaulting property developers
Inland Revenue has advised that it has identified defaulting property developers as a risk group. Inland Revenue will be intervening to help this group improve their overall compliance. Inland Revenue will carry out early and timely education and enforcement action to ensure they comply with their tax obligations.
Determination: Variation to section 68CB(2) of the Tax Administration Act 1994
On 3 November 2022, Inland Revenue published COV22/20 – Variation to section 68CB(2) of the Tax Administration Act 1994.
The variation provides extra time for a person with a September balance date who is seeking the Commissioner of Inland Revenue’s approval of their research and development activities. This can be done by filing a general approval application for the 2021-2022 income year under section 86CB of the Tax Administration Act 1994. The variation recognises that, in some cases, COVID-19 has prevented applicants from promptly receiving the information needed for their general approval applications.
Inland Revenue Update: Filing requirements for Research & Development loss tax credit statements
Inland Revenue is reminding taxpayers that section 70C of the Tax Administration Act 1994 requires the R&D loss tax credit statements to be filed by the earlier of:
- The date on which the taxpayer files the tax return; or
- The final tax return due date (usually 31 March of the following year for customers with agent’s extension of time).
Taxpayers that choose to file their income tax return before the final due date for filing must also file their R&D loss tax credit statement by this earlier date. Note that Inland Revenue does not have the discretion to accept a late R&D loss tax credit statement under section 70C of the Tax Administration Act 1994.
Technical Decision Summary: GST Taxable Activity “Preparatory Work”
On 17 November 2022, Inland Revenue published TDS 22/20. The Tax Counsel Office (TCO) determined that a taxpayer who had returned expenses in respect of a new video production business claimed input tax deductions, but did not return any income or output tax (resulting in a refund position) was not yet carrying on a taxable activity. The TCO determined that the taxpayer had not yet moved beyond preparatory work and did not involve the supply of goods and services to another person for consideration.
Technical Decision Summary: Profit-making undertaking or scheme and a taxable activity
On 17 November 2022, Inland Revenue published TDS 22/21. In this case, the taxpayer resided in a property, which they have subsequently subdivided. One of the lots (House B) was then sold. TCO decided that the taxpayer:
- Did not enter into the undertaking or scheme at the property for the dominant purpose of making a profit. This meant that the sale proceeds were not income for the taxpayer under section CB 3 of the Income Tax Act 2007 (ITA 2007);
- Acquired the property for the sole purpose and intention of creating a home for themself and their extended family. This meant that the proceeds of the sale of House B were not income for the taxpayer under section CB 6 of the ITA 2007;
- Occupied the property mainly as residential land before the subdivision. Therefore, the exclusion in section CB 17(2) of the Income Tax Act 2007 applied to the taxpayer and the sale proceeds were not income for the taxpayer under section CB 12 of the ITA 2007; and
- Did not carry on a “taxable activity”, as defined in section 6 of the Goods and Services Tax Act 1985 (GST Act), in carrying out the development, construction and subdivision project at the Property. Therefore section 8(1) of the GST Act did not require the taxpayer to charge GST on the supply of House B.
Trusts reporting variation
On 23 November 2022, Inland Revenue published TRU 22/01 – Variation to s 59BA(2) of the Tax Administration Act 1994 for trustees of certain trusts that derive a small amount of income. This variation limits the information that a trustee of an Eligible Trust is required to disclose to comply with section 59BA(2) of the Tax Administration Act 1994 (TAA). It also means that a trustee of an Eligible Trust does not need to provide all the information set out in section 59BA(2)(a)-(e) of the TAA.
An Eligible Trust is a complying trust under section HC 10. It must also satisfy one of the following criteria:
- Criteria A
o Derived no income other than reportable income (section 22D of the TAA) that does not exceed $1,000
o No deductions
o Assets of the trust have not given rise to income in a person’s hands or given rise to fringe benefits to an employee
- Criteria B
o A testamentary trust
o Distributions do not exceed $100,000, reportable income does not exceed $5,000 and non-reportable income does not exceed $1,000 and deductions against that income are at least $800
This variation is effective for the 2021-22 income year. For a trustee of a trust that is wound up during the 2022-23 income year, it is also effective for the 2022-23 income year.
Draft Public Ruling: GST – Supplies of properties used for transitional housing
On 23 November 2022, Inland Revenue published PUB00428 – Supplies of properties used for transitional housing for public consultation. These draft Rulings (BR Pub XX/XX, YY/YY and ZZ/ZZ consider the Goods and Services Tax treatment of supplies of properties by landlords to organisations for use in the Ministry of Housing and Urban Development’s Transitional Housing Programme. The draft ruling outlines when GST needs to be charged by the landlord.
The conclusions in these items do not affect the rent paid by transitional housing tenants.
Deadline for comment is on 31 January 2023.
FBT rate for low-interest loans increased
On 24 November 2022, the Income Tax (Fringe Benefit Tax, Interest on Loans) Amendment Regulations (No 2) 2022 (SL 2022/306) Order in Council was notified and comes into force on 1 January 2023. The regulations amend the Income Tax (Fringe Benefit Tax, Interest on Loans) Regulations 1995 by increasing the interest rate that applies for FBT to employment-related loans from 4.78% to 6.71%. The new rate applies for the quarter beginning 1 January 2023 and subsequent quarters.
But wait there’s more…
UOMI rate increased
On 1 December 2022, the Taxation (Use of Money Interest Rates) Amendment Regulations (No 3) 2022 (SL 2022/315) Order in Council was notified and apply on and after 17 January 2023. The regulations amend the Taxation (Use of Money Interest Rates) Regulations 1998 by increasing the taxpayer’s paying rate of interest on unpaid tax from 7.96% to 9.21%. The Commissioner’s paying rate of interest on overpaid tax increases from 1.22% to 2.31%.
As a result of the rapid increases in market interest rates, the FBT and UOMI prescribed rates are likely to change again, with a new FBT rate likely to apply from 1 April 2023.
Pricing Greenhouse Gas Emissions: Turning Climate Targets into Climate Action
To cut greenhouse gas emissions, countries have increased their use of carbon pricing through taxes or emissions trading systems. A new OECD report finds that this coverage is increasing across countries and sectors in 2021. The report, Pricing Greenhouse Gas Emissions: Turning climate targets into climate action, determined that carbon prices covered more than 40% of greenhouse gas emissions in 2021. This is an increase of 32% from 2018. The report also determined that average carbon prices are higher in 47 of the 71 countries studied.
New countries and jurisdictions sign international agreements to exchange information
On 9 November 2022, 28 countries and jurisdictions, including New Zealand, signed international tax agreements to exchange information concerning income earned on digital platforms and offshore financial assets. This included the multilateral competent authority agreement for the automatic exchange of information under the OECD Model Rules for Reporting by Digital Platforms.
The agreement will allow jurisdictions to automatically exchange information collected by digital platform operators on transactions and income realised by platform sellers in the sharing and gig economy and from the sale of goods through such platforms.
Raising the Bar on Tax Transparency
The Global Forum on Transparency and Exchange of Information for Tax Purposes has published its annual report on tax transparency. This report includes the latest information on the exchange of information on request, the automatic exchange of information and its capacity-building activities. In 2022, countries automatically exchanged information on 111 million financial accounts worldwide, covering total assets of EUR 11 trillion. Over EUR 114 billion in additional tax revenues have been identified through voluntary disclosure programmes, offshore tax investigations and related measures since 2009. You can also access the Forum’s statement of outcomes here.
Peer Review of the Automatic Exchange of Financial Information 2022
On 9 November 2022, the Global Forum on Transparency and Exchange of Information for Tax Purposes released the Peer Review of the Automatic Exchange of Financial Account Information 2022. This report presents the latest conclusions of the peer reviews of the legal frameworks put in place by each jurisdiction to implement the Automatic Exchange of Information (AEOI) standard. The results relate to the more than 100 jurisdictions that committed to commence AEOI by 2020. It also contains, for the first time, the results of the Global Forum’s initial peer reviews about the effectiveness in practice of implementing the standard.
The overall ratings on the effectiveness of AEOI in practice for the 99 jurisdictions reviewed are as follows:
- 65 jurisdictions are rated as on track;
- 15 jurisdictions are rated as partially compliant; and
- 19 jurisdictions are rated as non-compliant.
Peer Reviews on the Exchange of Information on Request
The Global Forum monitors and peer review the implementation of the international standard of exchange of information on request (EOIR) and automatic exchange of information. The EOIR provides for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party.
The Global Forum has published ten new peer review reports on the EOIR. Seven of the ten reports cover the practical implementation of the EOIR standard and provide an overall rating for the jurisdictions. The overall ratings are as follows:
- Largely compliant: Barbados, Iceland, Morocco, Slovenia, South Africa, and Turkey; and
- Partially compliant: British Virgin Islands.
Corporate Tax Statistics
On 17 November 2022, new data was released which highlighted continuing base erosion and profit-shifting risks. The latest edition of Corporate Tax Statistics covers over 160 countries and jurisdictions. It includes new aggregated Country-by-Country Report data on the activities of almost 7,000 multinational enterprises, representing a significant boost in tax transparency efforts. This database also provides information on corporate tax revenues, statutory corporate income tax rates, action 13 implementation, anonymised and aggregated Country-by-Country report statistics, forward-looking effective tax rates, tax incentives on research & development and intellectual property, controlled foreign company rules, interest limitation rules, and standard withholding tax rates.
New mutual agreement procedure statistics and country awards on the resolution of international tax disputes
The latest mutual agreement procedure (MAP) statistics cover 127 jurisdictions and practically all MAP cases worldwide. The 2021 MAP statistics illustrate the following:
- Significantly more MAP cases were closed in 2021 due to the greater use of virtual meetings, the prioritisation of simpler cases, greater collaboration to solve common issues collectively that could be applied across multiple MAP cases and increases in staff numbers.
- Fewer new MAP cases in 2021 due to a significant decrease in new transfer pricing cases being opened.
- Outcomes remain generally positive. Around 75% of the MAPs concluded in 2021 fully resolved the issue both for transfer pricing and other cases (similar to 76% for transfer pricing cases and 74% for other cases in 2020). Approximately 2% of MAP cases were closed with no agreement compared to 3% in 2020.
- Cases still experience significant delays, especially for more complex cases. The COVID-19 crisis affected the quality of their communication with some treaty partners.
- Competent authorities have continued to adapt illustrated by an increase in MAP engagement with treaty partners. This is exemplified by a hybrid approach (face-to-face and virtual meetings) which expedites MAP resolutions and improves the efficiency and effectiveness of their MAP programmes.
Simultaneously, country awards on the resolution of international tax disputes were given in recognition of efforts made by competent authorities. You can access the press release here.
OECD Tax Certainty Day 2022
On 22 November 2022, tax policymakers, tax administrations, business representatives and other stakeholders attended the OECD Tax Certainty Day 2022. You can now watch the replay of the event here.
And finally, this is the last Tax Alert issue for 2022 and we hope that you have found our articles helpful, insightful and thought-provoking.
Whatever your festive season celebration and holiday plans are, Deloitte wishes you and your families a Merry Christmas and Happy New Year, along with a few days with your feet up enjoying the (hopefully) warm and sunny weather. Tax Alert will be back in February 2023.
Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert.