Snapshot of recent developments
Tax Alert - July 2018
PUB00279: GST treatment of fees that suppliers charge customers for using a credit or debit card
Inland Revenue has released draft QWBA PUB00279: “GST treatment of fees that suppliers charge customers for using a credit or debit card", which considers the GST treatment of credit or debit card fees charged by suppliers to customers to recover the cost of providing a card processing facility. The following scenarios are considered in the draft item:
- The supplier provides the payment facility directly to the customer,
- The supplier has arranged for an agent to provide the payment facility to the customer on the supplier’s behalf, and
- The supplier contracts with a third party to provide a payment facility to the customer.
The conclusion of the statement is that in all of these cases, the fee will form part of the consideration for the goods and services being supplied and will have the same GST treatment as those goods and services. Consultation for this item closes 31 July 2018.
PUB00171: Income tax – treatment of costs of resource consents
Inland Revenue has released draft interpretation statement PUB00171: “Income tax – treatment of costs of resource consents” for consultation, which considers the tax treatment of obtaining a resource consent. The ability to deduct or depreciate expenditure on a resource consent depends on the type of expenditure and the type of consent. The Income Tax Act 2007 treats certain resource consents as items of depreciable intangible property and allows the cost to be depreciated over the fixed life of the consent. Where resource consents are not depreciable intangible property the expenditure may be able to be capitalised into the cost base of another item of depreciable property and depreciated.
Part One of the statement discusses the key concepts behind the treatment of this type of expenditure and the decision in Trustpower v CIR (2016) 27 NZTC 22-061,  NZSC 91. Part Two considers the specific situations in which expenditure on resource consents may be deductible or depreciable. Comments are due 3 August 2018.
IRRUIP11: Cryptocurrency issues paper
Inland Revenue has issued an issues paper, IRRUIP11: “Whether remuneration paid to an employee in cryptocurrency is subject to PAYE or FBT”. The conclusion of the issues paper is that, on balance, when cryptocurrency is received by an employee as part of their regular remuneration the PAYE rules apply. Inland Revenue is seeking feedback on the initial interpretation, practical concerns, the policy outcome, and how to administer the tax laws. The deadline for comment is 3 August 2018.
PUB00301: Attribution rule for income from personal services
Inland Revenue has released draft interpretation statement PUB00301: “Income tax – attribution rule for income from personal services” for consultation. This draft statement provides guidance on when the attribution rule for income from personal services in sections GB 27 to GB 29 of the Income Tax Act 2007 will apply. The attribution rule in these sections is a specific anti-avoidance rule that was introduced to prevent a taxpayer avoiding the top personal rate of tax by inserting an entity (usually a company) between an employer and an employee. Essentially, the income attribution rule applies in situations where a person (the working person) provides personal services to a third party (the buyer) as an employee of an entity they created and are associated with (the associated entity). The deadline for comment is 26 July 2018.
QB 18/12: Are war pensions paid under the Dutch ABVP Scheme exempt from tax? This item confirms PIB 168-17 “War pensions – Section 61(10) Income Tax Act 1976”, which states that pensions under the Dutch (Benefit Act for Victims of Persecution 1940-1945) Scheme are tax exempt under s CW 28(1)(b) of the Income Tax Act 2007 and are not taxed in New Zealand.
QB 18/13: Income tax – what is the tax treatment of allowances paid and benefits provided to farm workers? This item considers the income tax treatment of allowances or benefits paid or provided to employees in a farming context. It sets out a range of allowances often paid in a farming context and outlines the Commissioner’s view on the extent to which they can be paid as exempt from tax. This QWBA withdraws and replaces several items previously published in the Public Information Bulletin.
General Determination DEP103: Tax depreciation rate for skin therapy machines was released by Inland Revenue on 21 June 2018, which inserts a new asset class for skin therapy machines into the “Medical and Medical Laboratory” and “Shops” industry categories. This applies for the 2017/18 and subsequent income years.
Tax Information Bulletin (Volume 30, Number 5)
This volume provides commentary on the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Act 2018 (enacted on 29 March 2018). Included in this Act are changes to the reporting of employment income information, new rules for collection of investment income information, changes to the tax rules for employee share schemes, petroleum mining decommissioning, extension of bright-line test to 5 years, demergers, trustee capacity, bank account requirements for offshore persons, and a number of remedial matters (including closely held companies, GST, PAYE treatment of back-dated holiday pay entitlements, allocation of RWT credits by trustees) as well as some maintenance and minor rewrite items. Also included in this TIB are binding rulings, a QWBA, determinations and case notes on recent cases.
Court refuses to set aside bankruptcy notice
CIR v Muir HC Auckland,  NZHC 1407, 15 June 2018.
Dr Muir, the judgment debtor, was the architect of the Trinity tax scheme, which the Supreme Court found to be a tax avoidance arrangement. Since that decision in 2008, there have been many unsuccessful legal challenges by Dr Muir to the assessment of his tax liability.
The Commissioner issued a bankruptcy notice against Dr Muir on the basis of a summary judgment decision of the High Court for unpaid taxes, interest and penalties (which came to just over $8m). Dr Muir sought to have the Court exercise its inherent jurisdiction to set aside the bankruptcy notice.
The High Court declined to grant the adjournment sought and / or set aside the bankruptcy notice on the basis that there were no exceptional circumstances or principled basis for doing so.
Application for leave to appeal dismissed
Lin v CIR  NZSC 54, 20 June 2018
This case dealt with an issue of interpretation of the double tax agreement (DTA) between New Zealand and China. The Court of Appeal found that Ms Lin, a New Zealand resident, was not entitled to a credit against income tax liability for tax spared by China on income earned by the Chinese companies in which Ms Lin had an income interest.
The Supreme Court declined leave to appeal and found that two developments were strong indications that the arguments Ms Lin wished to pursue if leave was granted were not points of sufficient importance to justify leave to appeal to the Supreme Court. The Court also found that there was no appearance of a miscarriage of justice. The two developments that led to this decision are:
- The effect of the change made by Parliament to the CFC regime in 2009 was that, from that time, the CFC regime required the attribution to a NZ shareholder of a CFC of the passive income of the CFC but not the active income (Ms Lin’s tax liability in the present case predated 2009). As tax sparing incentives were designed to promote active business, this meant that it was unlikely that a CFC would ever benefit from a tax sparing provision in relation to income attributed to it in New Zealand.
- A new DTA is currently being negotiated between New Zealand and China. Although New Zealand has a long-standing policy of not agreeing to tax sparing provisions, it is anticipated that even if the new DTA allowed for tax sparing provisions, it would make clear one way or the other what credit should be available to a New Zealand tax resident.
Automatic Exchange of Information reminder
New Zealand has signed up to the Automatic Exchange of Information (AEOI), a global OECD initiative to combat tax evasion, and as part of this, financial institutions will provide Inland Revenue with information about foreign tax residents with financial accounts in New Zealand, in line with the Common Reporting Standard (CRS).
Inland Revenue has issued a reminder that CRS registrations for New Zealand financial institutions began 17 April 2018 in myIR. Tax agents, with authorisation, are able to register and report on behalf of existing clients for a CRS account within myIR. All New Zealand financial institutions needed to submit information to Inland Revenue by 30 June 2018.
July 2018 Tax Alert contents
- New Zealand companies may be Australian resident under ATO ruling
- Stop press – June Tax Bill introduced