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A snapshot of recent developments

Tax Alert - March 2018

Building fit-out QWBA finalised

Inland Revenue has finalised QB 18/01: Can a fit-out of an existing building be “improvements” for the purposes of s. CB 11?  You can read our earlier article on the draft QWBA here. The IRD view is that a person in the business of erecting buildings who completes a fit-out of a building may then be taxable on any profit made from selling the building. The finalised version clarifies that it is unlikely that items not permanently attached to the building would be classified as fixtures. Some changes have been made to the examples provided, but no further clarification has been provided on who will qualify as being in the business of erecting buildings. In relation to landowners, the finalised version states that the key requirement for triggering the section is that the landowner made “improvements”.

Next stage in upgrade of Inland Revenue online services

The next stage in Inland Revenue’s business transformation programme will take place on 17 April 2018. This means that myIR and the contact centre will be unavailable from the afternoon of Thursday 12 April 2018 until early on Tuesday 17 April 2018.

While the first stage moved the processing of GST onto the new tax administration system, Release 2 aims to further modernise filing by moving more products to the new system, such as Employer Monthly Schedule, Fringe Benefit Tax, Gaming Machine Duty, and Withholding Tax. Changes will also be made to:

  • myIR: The ir-File service is being renamed ‘Payroll Returns’. The ‘GST’ section (and navigation tab) in myIR will change to ‘Business‘, and will include new functionality.
  • Accounting Income Method (AIM) for provisional tax: Inland Revenue advise that only the following software companies and packages will have AIM functionality in their accounting packages for the financial year starting on 1 April 2018: MYOB, (AccountsRights Live and MYOB Essentials Accounting packages), Reckon (APS software package) and Xero (Tax Practice Manager package). 
  • Common Reporting Standard (CRS) and FATCA: From 17 April 2018, financial institutions, or their tax agents, will be able to register, submit and manage their CRS and FATCA obligations online through myIR.

For more information of the changes, see Inland Revenue’s transformation programme webpage.

SPS 18/01: Retrospective adjustments to salaries paid to shareholder-employees

Inland Revenue has released Standard Practice Statement SPS 18/01: “Retrospective adjustments to salaries paid to shareholder-employees”. The statement applies from 1 April 2018 and replaces SPS 05/05: “Retrospective adjustments to salaries paid to shareholder-employees”. 

The item sets out the process for determining whether the circumstances are appropriate for the Commissioner to exercise statutory discretion and agree to retrospectively alter an amount of shareholder’s salary, irrespective of whether this alteration increases or decreases the original amount of shareholder’s salary (under s 113 of the Tax Administration Act 1994). This statement should be read with SPS 16/01: Requests to amend assessments and SPS 09/02: Voluntary disclosures (or any subsequent statements issued in replacement).

Livestock determination

Inland Revenue has updated the National Standard Costs for Specified Livestock Determination 2018, as at 8 February.

Binding rulings published

BR 17/05: University of Melbourne has been published. This ruling applies to participants receiving financial support in a post-graduate educational program.

BR 17/06: New Zealand Bloodstock Financing and Leasing Ltd has been published. This ruling covers the leasing of bloodstock for use in breeding bloodstock progeny to customers by New Zealand Bloodstock Finance and Leasing Limited.

Error in BEPS Bill

On 15 February 2018, Inland Revenue (IR) issued a note advising that it has become aware of an error in the Taxation (Neutralising Base Erosion and Profit Shifting) Bill currently being considered by the Finance and Expenditure Committee. (For more information on the Bill see our commentary here).

With respect to the restricted transfer pricing rule, the Bill is currently drafted to use the general transfer pricing ownership threshold which means this rule does not apply as widely as intended. Officials will be recommending to the Finance and Expenditure Committee that the ownership threshold is changed to align with that in the thin capitalisation rules. This change will have no impact where shareholders do not have varying rights (as is usually the case).

For further details, refer to the note[ME(-W1]  issued. Submissions on this proposed change can be made to the Select Committee by 2 March 2018.

Inland Revenue UOMI error for non-resident companies

All non-resident contractor companies, non-resident entertainer companies and agents for foreign insurers with balance dates between October and February may have incorrect use-of-money interest (UOMI) calculations. This is caused by a system miscalculation at IR. Affected taxpayers will need to contact Inland Revenue to have this error remedied.

Default assessments largely confirmed

The TRA has largely confirmed default assessments totalling $7,024,989 against an individual taxpayer who moved to Australia in 2001 but who continued to spend a considerable amount of time in New Zealand.  The disputant accepted being tax resident for the years 2007 to 2011 (TRA 027/15 [2017] Disputant S v CIR [2017] NZTRA 08, 30 November 2017).

The issues for determination included whether the disputed amounts were assessable income under ordinary concepts under section CA 1 as well as procedural issues over whether the disputant was permitted to raise process issues with regard to the basis of the default assessments, specifically the steps that the Commissioner must take when (default) assessing income using the attribution basis.

Limited discovery warranted

The High Court has allowed Cullen Group Limited (CGL) discovery of certain documents held by the Commissioner, believing them to be possible extrinsic aids to ascertain Parliament’s intention when it enacted the approved issuer levy (AIL) regime (Cullen Group Ltd v C of IR [2017] NZHC 3260).

This issue arose against the backdrop of substantive proceedings which have been set down for a three-week trial in August 2018 whereby CGL is challenging assessments issued to it by the Commissioner for NRWT.  The Court held that a limited order for discovery is warranted on the basis that there must have been some sort of report to the Minister at this time which may refer to the scope of the intended AIL regime. While the original application was too broad and would have been unduly onerous on IR, the Court ordered that certain legislative documents relating to three statutes and which relate to the definition of “associated persons” be made available for inspection.

Australian limited partnership found to be look-through for tax

In the recent decision of Resource Capital Fund IV LP v Commissioner of Taxation [2018] FCA 41, the Federal Court of Australia found that a limited partnership was not a taxable entity for Australian tax purposes, and the partners themselves were the appropriate taxable entity.  It is considered likely that the ATO (and possibly RCV) will appeal this decision and may ultimately result in legislative amendments to address some of the issue identified. You can read a summary of the case here.

 

 

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