A snapshot of recent developments
Tax Alert - April 2018
Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill
On 27 March this bill had its third reading and it received Royal Assent on 29 March 2018. A further Supplementary Order Paper (No 16) was added which makes minor amendments of a technical nature to ensure the drafting of the bill as intended.
Customs and Excise Bill
The Customs and Excise Bill passed its third reading on 22 March 2018 and received Royal Assent on 29 March 2018. It replaces the Customs and Excise Act 1996. It includes measures to deal with raised standards of trade security, new free trade agreements, and the use of new forms of information and technology for passenger facilitation and risk targeting. It is aimed at making the law less prescriptive, easier to understand and apply and, in some areas, reduce unnecessary compliance costs.
Land Transport Management (Regional Fuel Tax) Amendment Bill
This bill, introduced on 22 March 2018, proposes to introduce a mechanism under which regional fuel taxes can be established to provide a way for regions to fund transport infrastructure programmes that would otherwise be delayed or not funded.
Changes to myIR going live in April
Significant changes will be made to myIR, effective from 17 April 2018, to enable more functions to be completed online. The My GST section of the IRD website will change to My Business and taxpayers will be able to file, pay and amend fringe benefit tax, gaming machine duty and portfolio investment entity returns. Further information on the changes is available here.
Inland Revenue issues paper – ring-fencing losses on residential properties
Officials have released an issues paper, Ring-fencing rental losses for comment, regarding the introduction of rules ring-fencing rental losses arising on residential properties held by speculators and investors. The paper outlines the scope and general approach of the proposed rules and is seeking feedback on some of the design aspects. Generally there are currently no restrictions on using losses from one source to reduce income from other sources. It is proposed that the rules will apply to “residential land”, they will apply on a portfolio basis, and there will be special rules to ensure that trust, company, partnership or look-through company structures cannot be used to get around the ring-fencing rules. These rules will either apply in full from the outset, or could be phased in over two or three years. Submissions for this paper will close 11 May 2018.
Commissioner of Inland Revenue v Lin  NZCA 38 CA
The Court of Appeal has allowed an appeal by the Commissioner of Inland Revenue (CIR) from a High Court decision. The Court held that a New Zealand resident is not entitled to a credit against income tax liability in New Zealand for tax spared by China on income earned by companies in which the resident had an income interest. You can read our earlier article on this case here.
In May 2017, the High Court held that Ms Lin, the plaintiff, could use the full tax credits to which she was entitled to under the double tax agreement between New Zealand and China (the China DTA) to lower her income tax liability. The CIR appealed on the ground that the judge misconstrued critical provisions of the China DTA and their application to New Zealand domestic law.
The outcome of the case turned upon the proper construction of Article 23 of the China DTA and its relationship to domestic revenue legislation, in particular, the controlled foreign company regime in the Income Tax Act 2007 and earlier versions of that legislation.
Public ruling and QWBA on school donations
The Commissioner has issued a draft public ruling and QWBA for consultation regarding donations to state and state-integrated schools.
Draft public ruling PUB00298 discusses which payments made by parents to state and state-integrated schools are subject to GST. GST is not chargeable on payments made by parents to the board of trustees of a state or state integrated school where the payments are made to assist the school with the cost of delivering the education services if the student has a statutory entitlement to receive those education services for free. This ruling is a reissue of BR Pub 14/06 and is substantially the same, but has been rewritten to improve readability and incorporate legislative changes.
The two QWBAs in PUB00288 explain when a payment to a school will qualify as a gift, so that a school is able to issue a donation tax receipt to the parent. As a summary, a payment will be a gift where it is voluntary, does good for the school in some way, and where the parent does not expect to obtain a material benefit or advantage for making the payment. The guidance is accompanied with easy-to-apply examples of situations that do and don’t qualify for a tax credit.
Revenue Alert RA 18/01: Dividend stripping
The CIR has issued a Revenue Alert to provide information about an emerging tax planning issue that is of concern to Inland Revenue. Specifically this concerns the sales of shares to related entities in situations where IR consider the sales proceeds are a dividend under the general tax avoidance rule in section BG 1 or the specific dividend stripping rule in section GB 1.
ED0202: Non-disclosure right for tax advice documents
The draft operational statement ED0202 has been issued for comment to replace SPS 05/07 with regard to the process that the CIR will follow when an information demand is made and the taxpayer has a right to claim non-disclosure of a tax advice document pursuant to sections 20B to 20G of the Tax Administration Act 1994. The draft incorporates amendments to the legislation and other principles established in cases (namely Blakeley v C of IR (2008) 23 NZTC 21,865) since SPS 05/07 was released in 2007. Submissions close 11 May 2018.
IRD releases guidance on cryptocurrency
Inland Revenue has, on 3 April 2018, confirmed that cryptocurrencies are to be treated like property for tax purposes. This means that generally any gains made on selling cryptocurrency are expected to be taxable. Inland Revenue has released a media statement and a set of Questions and Answers addressing a range of tax issues relating to cryptocurrencies.
April 2018 Tax Alert contents
- New rules for employers reimbursing employees’ mileage costs
- Inland Revenue issues the first Large Enterprises Update of 2018
- Don’t forget your GST entertainment expenditure adjustment
- Have your statutory filing obligations changed?
- Do you have assets used for making both taxable and non-taxable supplies?
- Tax Working Group – submissions are open
- A snapshot of recent developments