Snapshot of recent developments

Research and development tax credit regime proposals update

On the 7 September 2018, background papers and briefing notes prepared between November 2017 and April 2018 by Policy Officials on the introduction of a research and development tax credit were released. These formed part of the advice provided to Ministers in the lead up to the release of the consultation paper in April 2018. Other related documents are also available on the Ministry of Business, Innovation & Employment and Treasury websites.

Tax Cases Update:

Charitable Tax Credits Allowed

Roberts v CIR [2018] NZHC 2153

A taxpayer challenged a decision of the Commissioner of Inland Revenue who had disallowed charitable tax credits for gifts made by way of executed Deeds of Gift. These had been permitted for the previous five years.

The issues for consideration were the correct meaning of “a monetary gift of $5 or more that is paid …” under s LD 3(1)(a) of the Income Tax Act 2007 and whether the forgiveness of debt executed by the taxpayer constitutes “a monetary gift of $5 or more”. Cull J found in favour of Mrs Roberts finding that the forgiveness of the debt met the definition of gift and that a monetary gift of “$5 or more” does not require a cash payment.

Extension of Time Denied

Lopez v CIR [2018] NZHC 2329

This case concerns various procedural matters, mainly relating to an application to the Court for an extension of time in which to reply to the Commissioner’s Statement of Position (SOP) for the companies. There was an alternative argument presented that exceptional circumstances prevented Mr Lopez from issuing a detailed SOP. The Court dismissed this case in light of the evidence produced by an Inland Revenue officer that Mr Lopez had had ample opportunity to raise and discuss any issues in dispute with the Commissioner, but did not pursue these. The Court also found that the exceptional circumstances rule in section 89K of the Tax Administration Act 1994 (“TAA 94”) did not apply because the companies had not yet filed their SOPs.

Court rules taxpayer filed “misleading” returns- time bar overruled

NZTRA 07 (Case 7/2018) 30 August 2018

In this case, the Commissioner alleged that the taxpayer carried on business and employed people, but failed to return GST or PAYE or pay income tax in relation to this business between 2003 and 2011. The taxpayer argued that they had not personally run the business, but that another person had. Taxation Review Authority has dismissed the taxpayer’s challenge, finding as a matter of fact that he had carried on the business, and confirmed the Commissioner’s assessments relating to PAYE obligations and income tax and GST liabilities. Because the taxpayer had not disclosed income earned from this business, the tax return filed was “misleading” in terms section 108(2)(a) of the TAA 94 . Because the taxpayer was an experienced businessman who was well aware of his tax obligations, his failure was deliberate and so the exception to the time bar rule was applied (hence why assessments went back to 2003).

Finalised Inland Revenue Items:

Income Tax and Goods and Services Tax – Writing Off Debts as Bad: BR PUB 18/07

On 29 August 2018 Inland Revenue released a finalised binding ruling (BR PUB 18/07) Income Tax and Goods and Services Tax – Writing off debts as bad. This is an update to the previous ruling “BR Pub 05/01 Bad Debts – Writing off debts as bad for GST and income tax purposes”. The update is largely a modernised version of the original which explains when Inland Revenue will consider a debt written off as bad. The only significant change to note is that the new ruling no longer considers the impact of the financial arrangement rules specifically in the context of bad debts.

GST treatment of fees that suppliers charge customers for using a credit or debit card: QB 18/14

On 7 September 2018 Inland Revenue released this finalised item which considers the GST treatment of credit or debit card fees charged by suppliers to customers. These are fees charged by suppliers to recover the cost of providing a card processing facility. It considers the GST treatment where:

• 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; or
• the supplier contracts with a third party to provide a payment facility to the customer.

The item concludes that in all 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 or services.

Determining “market rental value” of employer provided accommodation – boarding schools: Commissioner’s Statement CS 18/01

On 30 August 2018 the Commissioner issued a statement which is supplementary to CS 16/02 to set out concessionary treatment that will apply in respect of on-site accommodation provided to employees of boarding schools only. This is in light of the fact that on-site boarding school accommodation is likely to be subject to reduced market value, compared to similar off-site accommodation that is not readily quantifiable, due to unique restrictions and expectations that would apply to any tenant.

Goods and Services Tax – single supply or multiple supply: IS 18/04 (reissue of IS 17/03)

During Public Consultation on QB 18/14: GST treatment of fees that suppliers charge customers for using a credit or debit card the Commissioner signalled that she would be re-issuing IS 17/03: Single supply or multiple supplies. The Commissioner was aware that some taxpayers had read example 4 of IS 17/03 as suggesting that a credit card surcharge would always be a separate exempt supply of financial services.  This is not the Commissioner’s position.  IS 17/03 has therefore been re-issued as IS 18/04 to clarify that the provision of a payment facility will not always be an exempt supply of a financial service.

Spreading of income and expenditure under deferred payment arrangement: Special Determination S60

On 7 September 2018 Inland Revenue released Special Determination 60: “Spreading of income and expenditure under deferred payment arrangement”

This determination applies to the applicants in relation to a deferred payment arrangement. Under the deferred payment arrangement, a company assigned its rights to future cashflows to the applicants in partial satisfaction of existing debts owed by the company to the applicants.

The determination sets out that the right of the applicants to receive the deferred payments is a “financial arrangement” as defined in section EW 3 of the Income Tax Act 2007. The determination sets out the method to be used by the applicants to spread income under the financial arrangement.

October 2018 Tax Alert contents

• Government announces R&D tax incentive scheme details
• Shining a light on the Tax Working Group Interim Report
• Payday reporting for employers and intermediaries is going digital … Are you ready?
• Accounting for deferred tax on employee share schemes
• Global Tax Reset - Transfer Pricing Documentation Summary
• A Snapshot of Recent Developments