What’s on the Tax Policy Work Programme?
Tax Alert - September 2019
By Robyn Walker
In early August the Government released its updated tax policy work programme (“work programme”). This was significant as it was the first real signpost after the release of the Government’s response to the Tax Working Group report as to where the Government’s tax priorities sit.
The work programme suggests that it will continue to be a busy time for tax policy, with 11 key areas of priority. The work programme is slightly different from previous versions, in that in many instances, items are merely suggested as items which could possibly be included within a tax package, rather than a more committed stance to review something.
That said, the work programme is always a list that can never be achieved within an eighteen month timeframe. An item being on the work programme has never been a guarantee of it happening.
What are the work streams?
(1) Land – following the outcome of the Tax Working Group process and in particular the abandonment of a capital gains tax, refinements to deal with the taxation of land were always going to be on the agenda. The work programme confirms that the land rules will be reviewed, particularly in relation to investment property and speculators, land banking and vacant land. There are a number of initiatives specifically highlighted which could be looked at in both the short and longer term, including looking at the deductibility of holding costs of land, reviewing exemptions from the rules to deal with habitual renovators, improving information flows to facilitate compliance with the existing land tax rules, and considering whether the existing rules are creating inefficient “lock-in effects”.
(2) Business – enhancing economic performance and minimising the impact of the tax system on businesses are stated as being priorities for the Government. The work programme for businesses applies two lenses, a general business and a small business lens (albeit tax changes for either could apply to both). The work programme simply lists “examples of items that could be considered for inclusion” for business and small business, so it is far from clear what might be progressed. However, those that get a mention for businesses generally are:
· Seismic strengthening
· Loss carry forward rules and trading when ownership changes
· Tax treatment of innovative spending (feasibility and blackhole expenditure)
· Research and development
· Purchase price allocation
· Cross-border employment
· Financial arrangement issues; and
· Other integrity issues
For small business, the following are listed:
· Closely-held company issues
· Compliance and enforcement issues
· Simplifying Fringe Benefit Tax (FBT)
· Tax disputes for small taxpayers
· Tax compliance for self-employed
· Considering issues around the sharing economy/platforms
· Options for assisting businesses to become more digital; and
· A review of the Accounting Income Method (AIM)
(3) Infrastructure – this project will consider whether the tax system should have a role in driving infrastructure investment and will consider a recommendation of the Tax Working Group to develop a tax regime that encourages investment into nationally-significant infrastructure projects.
(4) Information collection and use – better information can contribute significantly to the integrity and fairness of the tax system. This work stream will consider the overall data strategy; information sharing; automatic exchange of information; repeat collection of large datasets; and the collection and public release of information to support policy advice, evaluation and public debate on policy issues.
(5) Business transformation – we are part way through the transformation of Inland Revenue’s systems and work will continue to complete this process. Some further work could be undertaken on items which can be better handled by the new system, such as a review of the Prescribed Investor Rate (PIR); the taxation of lump sum payments (e.g. ACC compensation); and changes to withholding taxes to minimise over/under withholding.
(6) Reforms and remedials – this work stream is an essential part of the tax system. It represents the tidy up work which is sometimes required when there are legislative errors or unintended consequences. This work programme item could include a GST remedial issues paper; Base Erosion and Profit Shifting (BEPS) remedials; and other general maintenance work.
(7) Social policy including Government response to Welfare Overhaul – Inland Revenue will continue to work closely with Officials at the Ministry of Social Development (MSD) and other agencies on the Government response to the welfare overhaul. This work will touch on Working for Families, child support, student loans, and KiwiSaver.
(8) Environment / sustainable economy – this will include cross-agency work on areas such as the Emissions Trading Scheme (ETS), water quality, waste disposal levies and congestion charging, all of which are less traditional “tax” areas for Inland Revenue to be involved with. From a more traditional tax standpoint there will be consideration of how specific tax regimes, like FBT, might achieve positive environmental outcomes (e.g. promoting public transport), and regimes which may impact on natural capital may come under the microscope (petroleum mining is singled out as the first regime to undergo review).
(9) Charities – before the end of 2019 there will be a report to Ministers to address some of the Tax Working Group’s recommendations for charities (including a review to ensure that intended social outcomes are being achieved). At the same time the Department of Internal Affairs (DIA) has undertaken a review of the Charities Act and the Government’s response to that review will also influence what work is undertaken for tax purposes. Potential issues which will be looked at include accumulation; business activity for significant charities; GST and not-for-profits; imputation credit refundability; and rules for donating trading stock.
(10) Tax exemptions – this is the development of a coherent framework for determining when an entity should be eligible for an income tax exemption. The purpose of this review is to provide more consistency.
(11) International – we will see New Zealand continuing to support multilateral work being undertaken at the OECD, as well as considering further changes to New Zealand’s tax rules to address BEPS issues. This work stream also includes double tax agreement (DTA) negotiations and assisting with free trade agreements.
At the same time as the work programme was released, also released was a “Tax and Social Policy Engagement Framework” (“engagement framework”) which governs how engagement will be undertaken on tax policy issues delivered by Inland Revenue. The engagement framework represents a move away from how tax policy consultation has been traditionally undertaken (e.g. large detailed discussion documents), to a more agile approach where there may be earlier and more frequent engagement and a greater variety of engagement methods used with a greater range of stakeholders. The engagement framework should see a flow of information back to submitters, allowing them to understand whether any changes have been made as a result of their submissions and why or why not.
The engagement framework represents a step in the right direction in ensuring that everyone has the ability to contribute thoughts to the design of tax policy in New Zealand.
As noted above, the work programme is very full and requires prioritisation. We will see some things progress quickly and some may continue to sit waiting to be picked up (a number of potential work programme items are carried forward from previous work programmes). At this stage there has not been any further signalling as to what will happen when, so we will all have to wait and see what happens. If you have a passion for seeing something on the work programme progress, then consider ways to make you opinions known, such as contacting the Government. For more information please contact your usual Deloitte advisor.
September 2019 Tax Alert contents
· What's on the tax policy work programme