Snapshot of recent developments
Tax Alert - June 2017
BEPS Multilateral Instrument signed
On 8 June 2017, the Minister of Revenue Judith Collins signed OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) alongside Ministers and high-level officials from 68 other countries and jurisdictions. The MLI gives signatories the ability to update a worldwide network of several thousand existing double tax treaties to adopt recommendations from the OECD’s BEPS Action plan, which would include articles on permanent establishment avoidance, treaty abuse, dispute resolution and hybrid mismatches.
The extent to which the MLI is incorporated in New Zealand will turn on the final positions of both New Zealand and our contracting treaty partners. The Minister has indicted that it is likely that New Zealand’s treaties will begin to be modified from 2019. New Zealand’s position on which tax treaties are covered and which provisions from the MLI are adopted is detailed in the officials’ issues paper released in March earlier this year, as reported in our March Tax Alert.
On 25 May 2017, the New Zealand Budget was delivered by Minister of Finance Steven Joyce. Shortly after, Deloitte published its annual comprehensive Budget summary and analysis. In this report, Deloitte’s team of experts analysed this year’s major announcements and their likely impact on business, health, transport, household resilience and the wider economy. Key tax takeaways of the Budget include increasing the lower two income tax rate thresholds for individuals, tax relief for families, and proposals to claw back the negative consequences for businesses from the Supreme Court decision in Trustpower (refer to the article in this issue on feasibility expenditure). There were no business tax changes announced in Budget 2017.
Following Budget announcements, the Taxation (Budget Measures: Family Incomes Package) Bill was also introduced on 25 May 2017, and received royal assent on 29 May 2017. The Budget Bill makes consequential changes to the individual provisional tax rates for the 2018-19, and 2019-20 tax years, by lowering the standard uplift method of 105% to 100% (5% uplift to 0% uplift), and 110% to 105% (10% uplift to 5% uplift).
Taxation of employee share schemes: start-up companies
On 30 May 2017, the Government released an officials’ issues paper proposing a new deferral scheme for start-up companies offering employee share schemes. Broadly, the deferral rules ensure that employee share scheme benefits are taxed in a similar way to equivalent cash remuneration, and prevent benefits equivalent to share options being provided tax free.
Elect to file your annual FBT returns annually by 30 June
Small employers have the option of filing FBT returns annually. From 1 April 2017, the annual filing threshold increased for employers whose gross PAYE and ESCT contributions do not exceed $1 million. Businesses that wish to file their FBT returns annually must elect to do so by the end of the first quarter, i.e., 30 June.
Minimum financial reporting requirements for foreign trusts – officials’ issues paper released for public consultation
Officials have released an issues paper on the minimum financial reporting requirements for foreign trusts. The paper sets out the proposed requirements for the preparation of financial statements for foreign trusts following the recently enacted amendments to the foreign trust disclosure rules. To obtain a copy of the issues paper please email email@example.com.
Inland Revenue releases draft Interpretation Statement: Income tax – Taxation of trusts
On 3 May 2017, Inland Revenue released draft interpretation statement, PUB00261: Income Tax – Taxation of trusts (draft IS) for consultation. This draft IS is an updated summary of the law as it applies to the trust regime. The item does not consider the foreign tax credit regime as it applies to trusts, the application of double tax agreements, or the application of tax avoidance. The deadline for comment is 27 June 2017.
Inland Revenue releases draft QWBA: Goods and services tax – whether a racing syndicate can be a registered person
On 26 May 2017, Inland Revenue released a draft Question We’ve Been Asked PUB00280: Goods and services tax – whether a racing syndicate can be a registered person (QB 17/04). The item considers whether a racing syndicate, whose activities are limited to the ownership (or leasing) of one or more horses for racing, can be registered for GST. In particular, QB 17/04 considers when the activities of a horse racing syndicate will be excluded from the “taxable activity” definition because they are being carried on as a “private recreational pursuit or hobby”. The Commissioner has released an operational statement to note that taxpayers not carrying on a taxable activity must cancel their registration with a deregistration date on or before 30 June 2017.
Special Determination S53 released
On 4 May 2017, Inland Revenue released Special Determination S53: Application of the financial arrangement rules to a public-private partnership agreement. This determination relates to an arrangement involving the finance, design, construction and on-going provision of operational services in respect of the Facilities by a limited partnership under a public–private partnership agreement with the Crown.
Managing GST online
Taxpayers can now file GST returns, pay GST, and review their GST accounts online via myIR. Taxpayers can also receive GST letters and messages and customise how they receive notifications relating to their GST obligations. Tax agents may also access myIR on behalf of their client.
GST non-resident business claimants: change to the registration criteria
A non-resident business can register for GST and have their registration backdated to 1 April 2014 if they do not make nor intend to make taxable supplies in New Zealand and are not, and do not intend on becoming, a member of a group of companies making taxable supplies in New Zealand. A non-resident business may also register where the only GST they incur is an amount paid to the New Zealand Customs Service.
Australian Federal Budget 2017-18
Deloitte Australia has published a report on the Australian Federal Budget for 2017-18. The report includes summaries of the key tax measures announced in the Budget, including a major bank levy and measures targeted at housing affordability. The Budget also reaffirms the Government’s commitment to reduce the corporate tax rate to 25% by 2026-27 for businesses with a turnover of less than AUD 50 million. There were no major developments in the area of multinational tax, apart from a retrospective amendment to the multinational anti-avoidance law with effect from 1 January 2016 and the tightening of the foreign resident capital gains tax rules.
Labour Party policy announcement
The Labour Party has announced its policy to fix the housing crisis, and intends to “create a level playing field for families” by removing ring-fence losses on rental properties so that they can no longer be used to offset against other income, increase the bright-line test to five years in order to target speculators who buy houses with the aim of making a quick capital gain, and ban foreign speculators from buying existing New Zealand homes.
Act Party policy announcement
The Act Party has proposed to reduce tax thresholds and cut the corporate tax rate to 25%. Individual income tax thresholds will be adjusted for inflation as follows: anyone who earns up to $14,000 a year would pay 10% tax instead of 10.5%, and a person earning between $14,001 and $48,000 would be taxed at 15% instead of 17.5%. Anything above the $48,001 threshold would be paying 25%. These tax brackets would reduce government revenue by $4.4 billion a year and will be paid for using government surpluses.
Inland Revenue releases draft Interpretation Statement PUB00255: Goods and services tax – compulsory zero-rating of land rules
On 12 May 2017, Inland Revenue released a draft Interpretation Statement PUB00255: Goods and services tax – compulsory zero-rating of land rules for public consultation.
This interpretation statement is meant to be yet another reminder to taxpayers of the need to apply the GST compulsory zero-rating for land where relevant, and an instruction of how to use these rules correctly. Inland Revenue has provided numerous examples and an illustrative flowchart, nevertheless the draft document does not address some issues that can arise in practice, and submissions are expected (the last day for submissions is 23 June 2017). If you wish to submit on this or you have any specific issue that you wish us to include in our submission, please let your usual Deloitte contact know.
The Forgotten Impact: Kaikoura earthquake – Wellington still paying the price
Deloitte has published a report on the effects of the November 2016 Kaikoura earthquakes in Wellington. Broadly, the report concludes that Wellington faces major challenges in building up its resilience to another potential earthquake. Currently, Wellington is losing about $1.25 million a week in productivity alone (setting aside the value reduction in building stock), totaling about $30 million to date.
State of the State New Zealand 2017: Fit for the future
Deloitte has published the State of the State 2017 report in partnership with Victoria University of Wellington’s School of Government. The report examines and identifies shocks that may affect Kiwi households over time, and smaller scale shocks that threaten individual wellbeing. State of the State 2017 proposes four recommendations for our Government to consider implementing in order to boost resilience and ensure New Zealand is fit for the future.
June 2017 Tax Alert contents
- Material advancement and tangible progress on feasibility expenditure
- New Zealand implications of Australian debt pricing decision
- Good news: resident withholding tax compliance issues relating to dividends are now resolved for companies
- Business Transformation – where are we now?
- GST best practice: a timely reminder
- Mileage rate released by Commissioner of Inland Revenue
- A snapshot of recent tax developments