A snapshot of recent developments 

Below is a summary of key developments since our last Tax Alert.

Legislative developments

On 15 June 2016, the Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill was read for a first time and referred to the Finance and Expenditure Committee.  Parliament has set the submission date as Friday 29 July 2016. Refer to our May Tax Alert which outlines the contents of this bill.

Tax Cases

Over the past month, the following tax cases have recently been released:

• Taxpayer’s inconsistency cause of action struck out – Commissioner of Inland Revenue v Michael Hill Finance (NZ) Ltd.
• Deduction for management fee disallowed – Honk Land Trustees Limited v Commissioner of Inland Revenue.
• No deduction for depreciation loss for cost of embankment – Queenstown Airport Corp Ltd v Commissioner of Inland Revenue.

Inland Revenue items

Inland Revenue has certainly been busy over the past month.

Notification of pending audit or investigation

On 28 June 2016, Inland Revenue released a Standard Practice Statement (SPS 16/03) which concerns the notification of a pending audit or investigation.  Replacing SPS 07/02, SPS 16/03 sets out the Commissioner’s practice for notifying taxpayers of a pending audit or investigation or advising them that one has begun.  The key changes in practice relate to the introduction of a new communications framework in sections 14 to 14G of the Tax Administration Act 1994.

Donee organisations and gifts

On 29 June 2016, Inland Revenue released a Question We’ve Been Asked - QB 16/05.  This question concerns when donee organisations such as charities, schools, religious, sporting and cultural organisations may issue a donation receipt for payments made to them by individual supporters.  The release replaces:

• Charitable donations: fund raising functions and sponsorship” – Public Information Bulletin No 125, March 1984; and
• “Cost of function ticket: when charitable portion can qualify for rebate” –Tax Information Bulletin Vol 6, No 2, August 1994.

Donee organisations and when funds are applied wholly or mainly to specified purposes within New Zealand

Inland Revenue has re-released an issues paper for consultation which is relevant for donee organisations that apply some of their funds to purposes outside of New Zealand.  While Inland Revenue currently accept that the “wholly or mainly” requirement is met where 51% or more of the funds are applied within New Zealand, the issues paper suggests increasing this threshold. It is proposed however, that any changes made as a result of the process following the issues paper will apply prospectively.  The conclusions reached are the Commissioner’s initial views and therefore interested parties are invited to make submissions by 29 July 2016.

How to claim a foreign tax credit where the foreign tax paid is covered by a double tax agreement

On 16 June 2016, Inland Revenue released a comprehensive draft Interpretation Statement on how to claim a foreign tax credit where the foreign tax paid is covered by a double tax agreement.  Submissions are due 29 July 2016.

Goods and Services Tax – single supply or multiple supplies

On 16 June 2016, Inland Revenue released a draft interpretation statement for consultation which outlines the difference between multiple supplies and a composite supply.  As supplies can be zero-rated or made at the standard rate, Inland Revenue suggests a three part test for determining whether the supply is composite or multiple supplies.  Submissions close on 29 July 2016.

Updated draft guidance issued on “permanent place of abode”

On 29 June 2016, Inland Revenue released PUB00276, a draft revision to paragraphs [28] – [156] of Interpretation statement IS 14/01 – updating the guidance on the meaning of “permanent place of abode”.  The revision has occurred as a result of the Diamond case where the Court of Appeal disagreed with the Commissioner’s position on the application of section YD 1(2) of the Income Tax Act 2007.  The draft now incorporates the Court of Appeal’s guidance on this matter.  Submissions on the draft can be made until 10 August 2016.   

Dispute resolution draft standard practice statements released for consultation

On 30 June 2016, Inland Revenue released two draft standard practice statements, ED0187 and ED0188.  These drafts will replace SPS 11/05 (Disputes resolution process commenced by the Commissioner of Inland Revenue) and SPS 11/06 (Disputes resolution process commenced by a taxpayer) respectively.  The changes reflect:

• Developments to the term ‘response period’ as defined in the Tax Administration Act 1994; and
• The new communications framework contained in sections 14 to 14G of the Tax Administration Act 1994.

Submissions are due 12 August 2016.  As the review has been limited to the above two matters, Inland Revenue will not accept submission points outside of this scope.

Draft QWBA on the date of acquisition of land for income tax purposes

On 28 June 2016, Inland Revenue released a draft Question We’ve Been Asked - PUB00220, concerning the issue of when land is acquired under section CB 15B of the Income Tax Act 2007.  This is the section that determines the date of acquisition of land for most of the land provisions.  This draft concludes that the relevant date is when the first interest in the land, to be disposed of, was acquired.  This date will be when a binding sale and purchase agreement is made or when an option is exercised.  For companies who acquire land prior to formation, they are treated as acquiring land at the time of agreement.  Note also that the date of acquisition may differ based on the particular facts of a transaction.  The draft also examines the start-date for the application of the bright-line rules, noting that this date is distinct from the date land is acquired under section CB 15B.    Submissions are due by 19 August 2016.

For information on any of these items, please contact your usual Deloitte tax advisor.

Tax Alert July 2016 Contents:

• Taxing multinationals – What exactly is New Zealand doing about it?
• New Zealand trust disclosure rules: Not fit for purpose but fixable
• Update on GST on low value goods
• Withholding tax now applies to bright line residential land sales by offshore vendors
• Government sets out framework for taxing inbound investment