IRD releases guidance on tax reforms
Tax Alert - June 2018
By Kelsey Pepper
With recent legislation passed that affects a number of different and complex areas, Inland Revenue has released four special reports to provide guidance to taxpayers on how to apply the new rules. The Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Act (the Act) became law in March 2018, and the following special reports cover the new rules for four specific areas. Full coverage of all the reforms in the Act will be published in the June 2018 edition of Inland Revenue’s Tax Information Bulletin.
- Extension of the bright-line test to five years: The bright-line test, which determines whether tax should be paid when some residential property is sold, has been extended from two years to five years. The amendments still maintain the other policy settings that support the original two year bright-line test. The five-year bright-line test applies to residential land if the taxpayer first acquires an interest in the land on or after 29 March 2018, the date that the legislation became law. Our most recent Tax Alert article on the new rule from March 2018 can be found here.
- Provision of IRD numbers to Portfolio Investment Entities: Amendments have been made to encourage taxpayers to provide their IRD numbers to their PIE. The new requirement is that investors opening new investments in multi-rate PIEs will be required to provide their IRD number to the PIE within six weeks of opening their account in order to remain a member of the PIE. This will ensure that the taxpayer is paying the right amount of tax, and receives and pays the correct amount in social policy entitlements and obligations. This requirement came into force on 1 April 2018.
- PAYE reporting changes and changes to the payroll subsidy scheme: The Act introduces significant changes to the administration of PAYE information from 1 April 2019. This report covers: payday provision of employment income information; transitional provisions; consolidation of PAYE administrative requirements; and the payroll subsidy. Examples are provided throughout the report to highlight how the rules are to be applied to real-life situations. Our Tax Alert article on these rules when the draft legislation was first released can be found here, and an update is here.
- Employee share schemes (ESS): The objective of the changes to the core rules for the taxation of ESSs is neutral tax treatment of ESS benefits. There are transitional rules for existing arrangements, and shares granted before 29 September 2018 should generally not be affected by the new rules, if the taxing date is before 1 April 2022. Generally otherwise the rules apply from March 2018. This report covers the following changes: the taxing point for ESS; the new deduction rule for employers providing ESS benefits to employees; simpler rules for certain exempt ESSs and other consequential and technical amendments. Examples are provided throughout the report to highlight how the rules are to be applied to real-life situations. Our most recent Tax Alert article on this topic can be found here.