Snapshot of recent developments
Tax Legislation and Policy Announcements
On 19 May 2022, the Minister of Finance the Hon Grant Robertson (the Minister) announced the Government’s Budget 2022. Aside from the introduction of the Cost of Living Payments Bill, the Budget also included other announcements that will impact the Inland Revenue.
- From 1 July 2023, child support collected by Inland Revenue will be treated as income and passed on to sole parent beneficiaries. Currently, the State can hold onto child support payments to recoup the cost of welfare.
- Permanent baseline funding has been provided for Inland Revenue’s ongoing administration of the research and development tax incentive. This will allow 35-45 IR employees to continue to review RDTI claims. Current funding was due to expire on 30 June 2022.
- Inland Revenue has been provided with additional funding to retain up to 240 FTE employees to continue to support the response to and recovery from COVID-19, including addressing unfiled returns and supporting customers getting tax obligations right from the start.
You can also access our analysis of the impact of this budget on the tax landscape here.
ACC works on bringing the income insurance scheme into operation
On 24 May 2022, the Income Insurance (Enabling Development) Act 2022 (No 26 of 2022) received the Royal Assent. The purpose of the Act is to enable the Accident Compensation Corporation (ACC) to carry out work to bring an income insurance scheme into operation, should it be established under subsequent legislation. Nothing in the Act is intended to limit or affect the scope or design of any scheme that may be provided under such legislation. The Act is effective on 25 May 2022 and is repealed on the close of 31 March 2025.
Law changes on stopping tax evasion on water-pipe tobacco
On 24 May 2022, the Customs and Excise (Tobacco Products) Amendment Act 2022 (No 28 of 2022) received the Royal Assent and enacted changes to the Customs and Excise Act 2018 aimed at preventing millions of dollars in potential tax evasion on water-pipe tobacco products. The Act came into force on 25 May 2022.
Duty on water-pipe tobacco products will now be based on the weight of the product, rather than the previous system where excise was calculated on the tobacco content declared by importers, which Customs was unable to verify. The new excise and excise-equivalent duty rate for water-pipe tobacco is $234.77 per kilogram.
Amendments to the Customs and Excise Act 2018
Section 95A, which relates to the prohibition of certain tobacco products, has been amended. The effect of the amendment is to make water-pipe tobacco a prohibited import. The prohibition does not apply to water-pipe tobacco imported by a person holding a permit issued under sch 3A of the Act or to a person who brings water-pipe tobacco into New Zealand with them (for example, as part of their duty-free allowance), and does not apply to tobacco that enters New Zealand temporarily (for example, as part of an international transhipment).
Deemed rate of return on FIF attributing interests
On 26 May 2022, The Income Tax (Deemed Rate of Return on Attributing Interests in Foreign Investment Funds, 2021–22 Income Year) Order 2022 (SL 2022/151) was notified in the New Zealand Gazette.
The Order sets the deemed rate of return used to calculate foreign investment fund income for the 2021–22 income year under the deemed rate of return calculation method set out in section EX 55 of the Income Tax Act 2007 (ITA 2007). The Order also sets the deemed rate of return for the 2021–22 income year at 6.01%. The deemed rate of return set for the 2020–21 income year was 4.43%.
Dry autumn in Waikato and South Auckland leads to drought classification
On 18 May 2022, drought conditions affecting the primary sector in the Waikato region and South Auckland (Franklin, Manukau, Howick and Manurewa-Papakura wards) have been classified as a medium-scale adverse event by the Minister for Rural Communities, the Hon Damien O’Connor, enabling a package of support for farmers and growers.
To assist affected farmers and growers, Inland Revenue is exercising discretion to allow late deposits for the 2021 year and early withdrawals from the income equalisation scheme. Taxpayers who have been affected by the drought, missed payment or filing dates, or are struggling to deal with their tax affairs, should contact Inland Revenue.
Customs Refunds and Remissions of Penalties and Interest
On 11 May 2022, The Customs and Excise (Refunds and Remissions) Amendment Regulations 2022 (SL 2022/129) amend the Customs and Excise Regulations 1996 by inserting new regulations 71E and 71F.
New regulation 71E prescribes circumstances in which Customs must refund or remit any interest or penalty payable in respect of certain duty that is not fully paid on or before the relevant payment date. Customs must refund or remit the interest or penalty if the duty payer’s ability to pay on time is (or was) significantly adversely affected by the effects of COVID-19, the duty payer notifies Customs of that fact, and the duty has subsequently been paid (or the chief executive is satisfied that the duty will be paid).
New regulation 71F prescribes the circumstances in which Customs must refund or remit any interest or penalty payable in respect of duty relating to fuel that is not fully paid on or before the relevant payment date. Customs must refund or remit the interest or penalty if the duty payer’s ability to pay on time is (or was) affected by the effects of the reduction in fuel duty rates that came into effect on 15 March 2022, the duty payer notifies Customs of that fact (and provides certain evidence), and the duty has subsequently been paid (or the chief executive is satisfied that the duty will be paid).
Both regulations provide for its revocation on 25 March 2023.
Inland Revenue statements and guidance
Determination - National Average Market Values of Specified Livestock Determination 2022
On 27 May 2022, IR published NAMV 2022 - National Average Market Values of Specified Livestock Determination 2022. Section EC 15 of the ITA 2007 requires the Commissioner of Inland Revenue to make a determination declaring the national average market values (NAMV) for an income year for each class of specified livestock set out in schedule 17 of the Income Tax Act. The determination published in May each year is now available providing a chart of the average market value per head of every type and class of livestock.
Special Report on fair dividend rate foreign currency hedges
On 29 April 2022, Inland Revenue released a special report Public Act 2022 No 10 - Fair dividend rate foreign currency hedges. This provides information on the technical amendments made to the rules for hedging of foreign currency movement in Australian non-attributing shares and attributing FDR method interests (the FDR FX hedges rules) in subpart EM of the ITA 2007 to improve their functionality from a practical perspective and to reduce compliance costs for investors with large numbers of hedges.
Controlled foreign company determinations issued
On 29 April 2022, Inland Revenue issued two Controlled Foreign Company (CFC) determinations, both of which apply for the 2022 and 2023 income years.
- Determination CFC 2022/01, “Non-attributing active insurance CFC status (TOWER Insurance Limited)”: CFC 2022/01 applies to TOWER Insurance Ltd and grants non-attributing active CFC status to National Pacific Insurance (American Samoa) Ltd resident in American Samoa.
- Determination CFC 2022/02, “Non-attributing active insurance CFC status (TOWER Insurance Limited)”: CFC 2022/02 applies to TOWER Insurance Ltd and grants non-attributing active CFC status to National Pacific Insurance Ltd resident in Samoa.
Determination – Consumer Price Index adjustments
On 9 May 2022, the Inland Revenue published Consumers Price Index (CPI) adjustments to the following determinations:
- The update to OS 19/03 - Square metre rate for the dual use of premises shows the square metre rate for the 2021–2022 income year for buildings used partly for business purposes and partly for other purposes. The square metre rate for the 2021–2022 income has increased to $47.85.
- The update to DET 19/01 - Standard-cost household service for private boarding service providers shows the annual adjustment for the 2022 income year (1 April 2021 to 31 March 2022) for the weekly standard-cost for each boarder as $207.00.
- The update to DET 19/02 - Standard-cost household service for short-stay accommodation shows the annual adjustment to the standard-cost household service for short-stay accommodation for the 2022 income year (1 April 2021 to 31 March 2022) as follows:
o the daily standard-cost for each guest for an owned dwelling is $55.00, and
o the daily standard-cost for each guest for a rented dwelling is $50.00.
- The update to DET 09/02, Standard-cost household service for childcare providers shows the annual adjustment to the standard-cost household service for childcare providers for the 2022 income year (1 April 2021 to 31 March 2022) as follows:
o the hourly standard cost is $4.00 per hour per child, and
o the annual fixed administration and record-keeping fixed standard-cost component is $392 pa for a full 52 weeks of childcare services provided.
Draft Determination – Depreciation rates for hydrofraise rigs
On 9 May 2022, the Inland Revenue published ED00242 - Tax Depreciation Rates for hydrofraise rigs. The Commissioner has been asked to consider what depreciation rate should apply for hydrofraise rigs used to build diaphragm (water blocking) type retaining walls. Diaphragm walls are often constructed in wet areas where groundwater will tend to flood an excavated area. The construction of the wall must therefore keep water out, as well as being strong enough to stop the surrounding ground from collapsing into the excavation. Under the “Contractors, Builders & Quarrying” industry category, the following are proposed for the hydrofraise rig:
- An estimated useful life of 10 years,
- A Diminishing Value rate of 20 percent, and
- A Straight Line rate of 13.5 percent
Other components of equipment used for diaphragm wall construction (for example, slurry tanks, other storage tanks, mixing platform and separate pumping equipment) are viewed by the Commissioner as separate items of plant, not covered by the proposed depreciation rate for hydrofraise rigs. Deadline for comment is 17 June 2022.
Commissioner of Inland Revenue
On 10 May 2022 it was announced that Peter Mersi has been appointed to the position of Commissioner and Chief Executive, Inland Revenue Department. Mr Mersi is currently Secretary for Transport and Chief Executive of the Ministry of Transport, a role he has held since 18 July 2016. He was previously Chief Executive, Land Information New Zealand, and Acting Secretary for Internal Affairs, Department of Internal Affairs. Prior to Mr Mersi’s chief executive roles he was a Deputy Commissioner at Inland Revenue and was a Deputy Secretary at the Treasury for seven years.
Mr Mersi holds a Bachelor of Commerce and Administration (Economics) from Victoria University of Wellington. He has been appointed for five years from 1 July 2022.
OECD: Public comments received on the extractives exclusion under Pillar One Amount A
As part of the ongoing work of the OECD/G20 Inclusive Framework on BEPS to implement the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, the OECD invited public comments on the Extractives Exclusion under Pillar One Amount A to assist members in further refining and finalising the relevant rules. The comments could now be found here.
Taxing Wages 2022
The OECD has released its latest “Taxing Wages” report. This annual study compared how heavily taxed labour income is in different countries. The report is available here. The OECD explains the report as follows:
This annual publication provides details of taxes paid on wages in OECD countries. It covers personal income taxes and social security contributions paid by employees, social security contributions and payroll taxes paid by employers, and cash benefits received by workers. It illustrates how these taxes and benefits are calculated in each member country and examines how they impact household incomes. The results also enable quantitative cross-country comparisons of labour cost levels and the overall tax and benefit position of single persons and families on different levels of earnings. The publication shows average and marginal effective tax rates on labour costs for eight different household types, which vary by income level and household composition (single persons, single parents, one or two earner couples with or without children). The average tax rates measure the part of gross wage earnings or labour costs taken in tax and social security contributions, both before and after cash benefits, and the marginal tax rates the part of a small increase of gross earnings or labour costs that is paid in these levies. Taxing Wages 2022 includes a special feature entitled: "Impact of COVID-19 on the Tax Wedge in OECD countries".
Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert.