Snapshot of recent developments
Tax Alert - July 2017
US to share more tax information about multinationals with New Zealand
On 7 June 2017, the Minister of Revenue Judith Collins announced that Inland Revenue will receive more information about US multinationals operating in New Zealand following the signing of a new bilateral arrangement with the US Internal Revenue Service (IRS) to share country-by-country (CbC) reports. Ms Collins notes that “this will further enhance Inland Revenue’s risk assessment processes to make sure that the right amount of tax is being paid” and ensure that Inland Revenue is receiving better information about how multinationals allocate profits from their operations within New Zealand. The bilateral agreement enforces an annual exchange of information between the IRS and Inland Revenue starting from 2018.
Reportable jurisdictions for application of CRS standard
On 8 June 2017, the Tax Administration (Reportable Jurisdictions for Application of CRS Standard) Regulations 2017 (Regulations) was notified in the New Zealand Gazette. The Regulations provide for 58 territories to be reportable jurisdictions for the purpose of the CRS applied standard. Reportable jurisdictions are territories to which Inland Revenue will provide certain information on non-residents that is reported to Inland Revenue by financial institutions in accordance with the CRS applied standard. Under section 91AAV of the Tax Administration Act 1994 however, the Commissioner may, at her discretion, determine a territory to be a reportable jurisdiction.
The Regulations form part of the OECD’s “Standard for Automatic Exchange of Financial Account Information in Tax Matters” (commonly known as AEOI) and comes into force on 1 July 2017.
Inland Revenue finalises IS 17/05: Income tax – treatment of New Zealand patents
On 8 June 2017, Inland Revenue finalised Interpretation Statement IS 17/05: Income tax – treatment of New Zealand patents (final IS), which updates legislative references to reflect changes to income tax and patents legislation since 2006, and replaces the 2006 Interpretation Statement reported in the August 2006 edition of Tax Information Bulletin. The item also discusses legislative changes addressing blackhole expenditure in the Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Act 2016. The Commissioner’s view in the final IS reflects the following changes:
- Renewal/maintenance fees are now considered revenue and deductible expenditure in the year incurred; and
- Expenditure for underlying intangible items after asset recognition will be considered depreciable.
While the final IS does not substantially differ from the content in the draft IS, it is noted that the final IS clarifies that a deduction may be allowed where a patent application is refused or withdrawn or not lodged in terms of section DB 37 of the Income Tax Act 2007.
Draft Standard Practice Statement: Income equalisation deposits and refunds
This draft Standard Practice Statement (SPS) ED0196: Income equalisation deposits and refunds sets out the Commissioner’s statutory discretionary powers to accept income equalisation deposits for a tax year outside the specified period, and to accept refund applications for a tax year outside the specified period. The item applies to income equalisation deposits and refunds made under the main income equalisation scheme and the thinning operations income equalisation scheme. However, it does not apply to the other income equalisation deposits made under the adverse event income equalisation scheme, or certain types of refunds. Once finalised, this SPS will replace SPS 05/09 Income deposits and refunds issued in September 2005.
The deadline for comment is 14 July 2017.
New Deputy Commissioner role appointed
On 7 June 2017, Commissioner of Inland Revenue Naomi Ferguson announced that Gaye Searancke has accepted the role of Deputy Commissioner for the Customer and Compliance Services – Business group at Inland Revenue. This new group will be focused on streamlining and targeting Inland Revenue’s technical services to small, medium, and large businesses.
General Determination DEP99: Campervans and Motorhomes
On 7 June 2017, Inland Revenue finalised General Determination DEP99: Campervans and Motorhomes. This Determination corrects the applicable depreciation rate for campervans and motorhomes for the 2010/11 and subsequent tax years.
The Note to Determination DEP99 clarifies that campervans and motorhomes are considered to have a high residual value (20%), and assets acquired during or after the 2010/11 income year have an estimated useful life of 8 years. Any assets acquired prior to this time have an estimated useful life of 10 years. It is also noted that taxpayers impacted by the retrospective depreciation rate change can seek relief under section 113 of the Tax Administration Act 1994 (to request for an adjustment to assessments for past years), to the extent that legislation permits a refund to be made under subpart RM of the Income Tax Act 2007. Alternatively, taxpayers may choose to use the new depreciation rate prospectively and make the appropriate depreciation recovery adjustment upon disposal of a campervan or motorhome.
GST on low value imported goods delayed until 1 July 2018
The Australian proposal for offshore businesses to register and remit GST on offshore supplies of low value goods sold to consumers in Australia will now take effect from 1 July 2018, instead of the initial 1 July 2017 start date. The House of Representatives recently adopted the recommendations made by the Senate Economics Committee on 21 June 2017, with royal assent of the Treasury Laws Amendment (GST Low Value Goods) Bill 2017 to follow. This delayed start date is welcomed as it gives affected foreign vendors, online market place operators, shopping/mailbox service suppliers redelivering goods to consumers in Australia, as well as international courier/logistics providers, further time to prepare.
The delayed start date does not affect the previously enacted measure requiring overseas-based suppliers to register and remit GST on services, digital products or rights supplied to Australian consumers, which takes effect from 1 July 2017.
For more information and commentary, please refer to Deloitte Australia’s tax@hand article.
Tax debt threshold set for information sharing with credit reporting agencies
Changes to the law earlier this year gave Inland Revenue the authority to disclose information about companies with significant tax debt to certain approved credit reporting agencies. A recent Order in Council has now set the tax debt threshold at $150,000, which means that a company’s tax debt over this threshold may be disclosed to certain credit reporting agencies. In her media statement, the Minister of Revenue Judith Collins noted that the threshold will give smaller creditors greater protection from businesses owing significant tax debts and allow them to make more informed decisions about credit risks.
This $150,000 threshold will come into force on 29 June 2017 and is limited to companies.IRRUIP10: Income tax treatment of software development expenditure – update
Inland Revenue (IR) have informed us that the issues paper, IRRUIP10: Income tax treatment of software development expenditure will not be published, because the issues in the paper have been referred to IR’s Policy and Strategy group for consideration. As such, there is no change in the interim regarding Inland Revenue’s current practice concerning the income tax treatment of software development expenditure.
Submissions on this item closed on 25 August 2016.
QB 17/06 Income Tax: Insurance – key-person insurance policies
On 22 June 2017, Inland Revenue finalised QB 17/06 Income Tax: Insurance – key-person insurance policies, which considers the income tax treatment of key-person insurance policies that replace lost business profits as a result of the death or disablement of a key employee. The Commissioner’s view is that a lump sum or periodic sum paid under such policies will be taxable income of the employer under section CB 1 of the Income Tax Act 2007, and any premium amounts paid are also deductible under section DA 1.
QB 17/07 Resident and non-resident withholding taxes: Non-cash dividends
On 22 June 2017, Inland Revenue finalised QB 17/07 Resident and non-resident withholding taxes: Non-cash dividends, which concludes that income of a person who receives a non-cash dividend includes not only the dividend, but any withholding taxes paid for the dividend, i.e., RWT or NRWT. Recipients of equivalent non-cash dividends will have different amounts of income for tax purposes, depending on whether withholding taxes apply to the dividend.
General Determination DEP100: Depreciation rate for rapid DC car charging stations
Inland Revenue has finalised General Determination DEP100: Depreciation rate for rapid DC car charging stations. The Commissioner has set a general depreciation rate for a new asset class, “rapid DC car charging stations”, which have an estimated useful life of 10 years, and will be depreciated at the diminishing value rate of 20% or the straight line rate of 13.5%.