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A snapshot of recent developments

Tax Alert - March 2017

Business tax bill receives royal assent

On 21 February 2017, the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (BT Act) received royal assent.  Significantly, the BT Act aims to simplify business tax processes (especially for small to medium businesses) and includes changes to the provisional tax and use of money interest (UOMI) regime.

The BT Act also tightens the disclosure rules for foreign trusts and implements the G20/OECD standard for the Automatic Exchange of Financial Account Information to effectively counteract offshore tax evasion.  Inland Revenue has released a special report setting out more detail on some of the above measures. Look out for the other articles in this issue which cover the UOMI and business tax measures which will apply from 1 April 2017.

Closely Held Companies Bill

Further amendments in the form of two supplementary order papers have been added since the Taxation (Annual Rates for 2016 – 2017, Closely Held Companies, and Remedial Matters) Bill was reported back late last year. Supplementary Order Paper No 260 (SOP) was introduced on 9 February 2017 to provide for deductibility of seismic costs where an earthquake prone notice has been issued for the building under section 133AK of the Building Act 2004.  SOP No 261 includes technical changes to the debt remission proposals so that they operate as intended.  This SOP further provides measures to enable businesses affected by the Kaikoura earthquake to defer depreciation recovery income in certain situations.

As we were compiling Tax Alert, this Bill has completed its second reading in Parliament.  It is however expected to be enacted before 31 March 2017.

Draft interpretation statement on New Zealand patents

On 28 February 2017, Inland Revenue released a draft interpretation statement, entitled PUB00262: Income Tax – Treatment of New Zealand Patents (“draft IS”).  The draft IS will only apply to patents registered and applicable for use in New Zealand under the Patents Act 2013.  Some of the Commissioner’s views have changed because of legislative changes, including views on the treatment of:

  • renewal fees, which are now considered to be revenue expenditure and deductible in the year incurred (the previous statement treated renewal fees as part of the depreciable cost of the patent); and
  • expenditure for underlying intangible items after asset recognition, which are now considered to be depreciable.

Submissions on the draft IS are due 11 April 2017.

Court of Appeal dismisses Queenstown Airport Corp’s appeal

In a decision released on 27 February 2017, the Court of Appeal has dismissed an appeal by Queenstown Airport Corp Ltd, confirming the High Court position that the Commissioner was correct in declining the depreciation deduction for a runway end safety area  and supporting embankment.

Goods and Services Tax – single supply or multiple supplies

On 22 February 2017, Inland Revenue released a draft interpretation statement, PUB00228: Goods and Services Tax – single supply or multiple supplies (Statement) for re-consultation.  This Statement sets out the general principles for determining whether a supply of multiple elements (supplied together in a single transaction) is a single composite supply (with one GST treatment) or multiple separate supplies (that may have different GST treatment).

The deadline to comment on this Statement is 22 March 2017.

Australian tax update: GST on low value imported goods

Australia has introduced its low value goods legislation which imposes GST on offshore sales of low value goods to Australian consumers and will cover any goods valued at AUD 1,000 or less at the time of supply made on or after 1 July 2017.

GST and unit trust QWBAs

Inland Revenue released two draft Questions We’ve Been Asked: PUB00277aa GST treatment of fees payable to manager of a unit trust (AA QWBA) and PUB00277bb GST treatment of outsourced services in relation to a unit trust (BB QWBA).

The AA QWBA concludes that fees payable to the manager of a unit trust are not subject to GST as they are consideration for an exempt supply as a financial service under section 14(1)(a) of the Goods and Services Act 1985 (GST Act).  Instead, a contract with investors should qualify as a financial service, which is exempt under this section.

The BB QWBA concludes that, in the event where services for a unit trust are provided by a third party to a manager of a unit trust, the supply of administrative services is a GST taxable supply.  In the event where investment management services are supplied by a third party (and the third party has full control over investment decisions), this supply is exempt as a financial service under section 14(1)(a) of the GST Act.

GST Ruling on traffic enforcement activities by local authorities

Inland Revenue has finalised Public Ruling – Goods and Services Tax – Traffic enforcement activities by local authorities – GST output tax on infringement fees retained – Treatment of fines – GST input tax on acquisition of goods and services (Public Ruling).  It is the Commissioner’s view that a traffic infringement is not subject to GST and input tax deductions are available to the extent that goods and services are used in traffic law enforcement services or in making taxable supplies.

PUB00291: Disposition of Real Property for Inadequate Consideration – BR Pub 05/02 to 05/10 – Notice of Withdrawal

Inland Revenue has issued a draft notice of withdrawal of binding public rulings 05/02 – 05/10.  These binding public rulings, which consider gift duty and income tax implications of dispositions of real property for inadequate consideration (in the event where part of an estate was either retained by or returned to the vendor by way of a grant of a life estate, lease, or licence), may no longer be applicable in light of the repeal of gift duty and the Court of Appeal’s ruling in CIR v Vector Limited (2016) 27 NZTC 22-065.

The deadline to comment on this draft notice of withdrawal is 21 March 2017.

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