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A snapshot of recent developments

Tax Alert - June 2018

Tax Working Group update

The Tax Working Group (TWG) has thanked the New Zealand public for its submissions on the future of tax, of which 6,700 were received. The chair, Sir Michael Cullen, noted that respondents are split in terms of their views of the current tax system and on whether taxes can improve house affordability. The submissions will help inform the interim report to Ministers due in September 2018. At the same time, the TWG also released the results of the quick polls here.

The TWG has also released the first tranche of official’s papers generated by Inland Revenue and Treasury. These papers outline the preliminary advice of those organisations, and are intended to assist the TWG in its initial consideration of the relevant topics.  The advice does not represent the views of the TWG or the Government, and the reports will be updated as officials consider public submissions and hold discussions with the TWG. 

Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT)

MBIE has released two case studies on AML/CFT compliance to assist Phase 2 entities in understanding the new requirement which come into effect:

·         1 July 2018 for lawyers, conveyancers, and some trust and company services;

·         1 October 2018 for accountants and bookkeepers; and

·         1 January 2019 for real estate agents.

It is important to be aware of these changes / new reporting requirements and how they might affect you. The Department of Internal Affairs has released a comprehensive guideline for accountants to help them with meeting their obligations.

Deloitte 2018 Country Guide: The Link between Transfer Pricing and Customs Valuation

This year’s edition of Deloitte’s annual guide on the link between transfer pricing and customs valuation has now been published and has been expanded to include six new countries. This is an authoritative and comprehensive tool that compiles essential information regarding the customs-related requirements and implications of related party pricing and retroactive transfer pricing adjustments in numerous key jurisdictions around the world.

Breach of GST warranty confirmed

The Court of Appeal has dismissed an appeal from the High Court (Ling v YL NZ Investment Ltd CA [2018] NZCA 133) and held that the High Court was correct to conclude, on the balance of probabilities, that the vendor of a property was liable to be registered for GST at settlement date. Ms Ling sold a property to the respondent and in the agreement she warranted that she was not registered under the GST Act in respect of the transaction and would not be so registered at settlement.  Being registered for this purpose includes being liable to be registered.  The Court found she was liable to be registered as at settlement, and so the warranty was incorrect.

Determination released: National Average Market Values of Specified Livestock Determination 2018

Inland Revenue released the “National Average Market Values (NAMV) of Specified Livestock Determination 2018” on 16 May 2018. This determination is made under section EC 15 of the Income Tax Act 2007 and applies to any specified livestock on hand at the end of the 2017/18 income year. The NAMVs are used by livestock owners to value their livestock on hand where owners have elected to use the herd scheme to value livestock in an income year.

Order which gives effect to multilateral agreement comes into force

The Double Tax Agreements (Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting) Order (2018/72) gives effect to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the Convention). The Order comes into force on 14 June 2018.

The dates on which the Convention comes into force and when it takes effect in relation to each DTA, and the extent of the modification to each DTA, will be publicised by the Inland Revenue Department here.

PUB00300: Income tax and GST – writing off debts as bad

Inland Revenue has released PUB00300: Income tax and GST – writing off debts as bad for consultation. This draft public ruling is an update of BR Pub 05/01 Bad Debts – Writing off debts as bad for GST and income tax purposes. This has been issued because the existing ruling has become outdated. The Commissioner of Inland Revenue has not changed her position on the tests to apply in deciding whether or not a debt is “bad”, and what actions are sufficient to “write-off” a bad debt. This draft ruling only covers questions of when a debt becomes “bad” and when the bad debt will have been “written off”. Consultation for this draft ruling closes on 4 July 2018.

Taxation (New Due Date for New and Increased Assessments) Commencement Order 2018 (2018/73)

This Order brings section 142AB of the Tax Administration Act 1994 into force on 18 June 2018 in relation to GST. This section was enacted by the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Act 2018, and sets a new due date for certain assessments. This section doesn’t apply to assessments made in the absence of a return and to which s 106(1) applies. It also doesn’t set a new due date for an increased assessment for a default assessment. The Order means that for GST purposes, on or after 18 June 2018, section 142AB applies to a new assessment or an increased assessment and section 142A doesn’t apply. Finalised Item: QB 18/09 Income tax – can sharemilkers and contract milkers deduct farmhouse expenditure using the approach in IS 17/02?

Sharemilkers and contract milkers who live on the farm are likely to incur farmhouse expenditure that has some nexus with their business.  The Commissioner has been asked to clarify whether sharemilkers and contract milkers can claim a 20% deduction of farmhouse expenditure following the type 1 approach used in IS 17/02 which concerns deductions for farmhouse expenditure where that expenditure has both private and business elements.   This finalised QWBA confirms that a 20% deduction is available following the approach in IS 17/02 without calculating actual business expenditure in certain circumstances.

Finalised Item: SPS 15/02 Remission of penalties and use-of-money interest

This statement applies for taxpayers requesting remission of penalties and use-of-money interest under sections 183A, 183ABA and 183D of the Tax Administration Act 1994. Inland Revenue recognises that penalising a taxpayer for a small non-compliance action may be counterproductive and might even reduce voluntary compliance. Further, Inland Revenue considers treating taxpayers in a similar tax position fairly and consistently to be important. The full statement can be found here.

 Change for Inland Revenue claiming legal costs

A landmark High Court judgment means that Inland Revenue (and potentially now corporates and other government departments) cannot get costs for the time its in-house lawyers spend on bankruptcies and liquidations. (Commissioner of Inland Revenue v New Orleans Hotel (2011) Limited [2018] NZHC 971 (7 May 2018)). The court has traditionally followed a 1984 decision (Henderson Borough Council v Auckland Regional Authority) that allows costs to be awarded even if the successful party used in-house counsel. However, the judge preferred to follow a 2017 Court of Appeal judgment that concluded costs under the rules has to be confined to “legal costs billed by a lawyer retained by a party litigant for legal services provided by that lawyer to that litigant.” The CIR is considering whether to appeal the decision.

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