Snapshot of recent developments
Tax Alert - May 2022
Tax Legislation and Policy Announcements
UOMI rates amended
On 7 April 2022, the Taxation (Use of Money Interest Rates) Amendment Regulations 2022 were notified in the New Zealand Gazette and amended the Taxation (Use of Money Interest Rates) Regulations 1998 to increase the taxpayer’s paying rate of interest on unpaid tax from 7.00% to 7.28% per annum. The Commissioner’s paying rate of interest on overpaid tax remains unchanged at 0.00% per annum.
The regulations apply on and after 10 May 2022.
FBT rate for low-interest loans increased
On 7 April 2022, the Income Tax (Fringe Benefit Tax, Interest on Loans) Amendment Regulations 2022 were notified in the New Zealand Gazette. The regulations, which come into force on 1 July 2022, amend the Income Tax (Fringe Benefit Tax, Interest on Loans) Regulations 1995.
The regulations increase the rate of interest that applies for fringe benefit tax purposes to employment-related loans from 4.50% to 4.78%. The new rate applies for the quarter beginning 1 July 2022 and for subsequent quarters.
Consultation - Tax treatment of expenditure on distribution networks
On 12 April 2022, the Inland Revenue published a tax policy discussion document, Tax treatment of expenditure on distribution networks. Officials intend to recommend legislative amendments to change the law to confirm that the component items approach applies to distribution networks from 1 April 1993 (when the current depreciation rules were introduced). The legislative amendments will:
- Define a “distribution network”, and
- Provide that for a distribution network:
- The items of depreciable property are its component items, as identified in a depreciation determination and not the network itself, and
- That component items are the relevant items of property for determining whether repairs and maintenance expenditure is deductible.
Inland Revenue suggests the proposed legislative amendments are likely to have no material impacts on owners of distribution networks and that the proposed amendments simply confirm that the component approach is the correct approach (despite case law) and thus retains that longstanding practice, which has been, for the most part, consistently applied by owners of distribution networks since 1 April 1993. Deadline for comment is on 25 May 2022.
Consultation – Working for Families Tax Credits
On 20 April 2022, Inland Revenue and the Ministry of Social Development (MSD) launched a public consultation as part of the Government’s review of Working for Families (WFF), to understand how it can better meet the needs of families. The review will not affect current WFF payments.
The Government wants to focus on:
- Supporting low-income working families, while maintaining support for beneficiary families;
- Options that focus support to families with the lowest incomes, rather than providing more general support; and
- Making sure families are better off when working more hours and helping with the costs for people in work.
Feedback can be provided to the MSD through an online survey, by email or post. The closing date for submissions is 31 May 2022. Full details of the consultation proposals and how to submit can be found here.
Minister of Revenue Speech – “Shining a light on unfairness in our tax system”
On 26 April 2022, Minister of Revenue David Parker gave a speech at Victoria University of Wellington Te Herenga Waka titled “Shining a light on unfairness in our tax system” which provided comments on New Zealand’s tax system. While no specific tax policy announcements were made, the speech provides the Minister’s perspective on New Zealand’s tax system as well as detailed progress on the development of a “Tax Principles Act” and a high-wealth individual research progress.
Inland Revenue statements and guidance
Outgoing Commissioner of Inland Revenue
Naomi Ferguson’s tenure as Commissioner of Inland Revenue is coming to an end, with her final date as Commissioner being confirmed as Friday 27 May 2022 after nearly 10 years in the role. During the last 10 years Naomi oversaw the successful implementation of the START system at Inland Revenue. We congratulate Naomi for her achievements whilst at the helm of Inland Revenue and wish her well for the future. The new Commissioner has not yet been announced.
International Tax Disclosure Exceptions
On 31 March 2022, the Inland Revenue published Determination ITR33 – 2022 International tax disclosure exemptions. Section 61(1) of the Tax Administration Act 1994 requires a person who has control or income interest in a foreign company or an attributing interest in a Foreign Investment Fund (FIF) at any time during an income year to disclose that interest. Section 61(2) allows the Commissioner to exempt any person or class of persons from this requirement if the disclosure is not necessary for the administration of the international tax rules.
QWBA - Can a payment that compensates for the time value of money be taxable income if it is outside the statutory definition of “interest”?
On 4 April 2022, Inland Revenue published a finalised Question We’ve Been Asked (QWBA) QB 22/01: Can a payment that compensates for the time value of money be taxable income if it is outside the statutory definition of “interest”? The finalised QWBA has not changed from the draft previously issued. If a payment to compensate for the time value of money is outside the scope of the statutory definition of “interest” in the Act, the payment may still be income under a provision other than s CC 4(1) of the Income Tax Act 2007 (which taxes interest).
Consultation - GST –Standard rated services supplied by airport operators to international airline operators
On 5 April 2022, the Inland Revenue published PUB00410: GST – Are certain services supplied by airport operators to international airline operators zero-rated? for public consultation. This draft Questions We’ve Been Asked (QWBA) discusses the GST treatment of garbage disposal, lighting and security, aircraft parking and terminal services supplied by airport operators to international airline operators. Inland Revenue proposes that these services are standard-rated, not zero-rated. This QWBA reviews the PIB in light of later court cases and changes to the GST Act 1985. The deadline for comment is 17 May 2022.
COVID-19 Determination – Extension of time for tax pooling (amended)
On 6 April 2022, COV 22/15 - Variation in relation to s RP 17B(4) of the Income Tax Act 2007 to extend the time for tax pooling transfers was amended. To use funds in a tax pooling account to satisfy a tax obligation for the 2021 income year, s RP 17B(4) of the Income Tax Act 2007 requires a transfer request to be made on or before either 75 or 76 days after the terminal tax date. For the 2021 income year, the time within which a request must be made has been extended to the earlier of 183 days after a person’s terminal tax date for the 2021 income year or 30 September 2022.
COV 22/15 was amended to clarify that the last date upon which a taxpayer can make a transfer request is 30 September 2022.
COVID-19 Determination - Definition of “finance lease” in s YA 1 of the Income Tax Act 2007
On 6 April 2022, Inland Revenue published COV 22-16 - Variation in relation to the definition of “finance lease” in s YA 1 of the Income Tax Act 2007. This variation applies to lessors and lessees who may have agreed to extend lease terms (or intend to do so) because supply chain constraints resulting from COVID-19 have made it difficult to obtain new assets or replacement assets (e.g. motor vehicles) when existing leases expire. The time period in the definition of “finance lease” has been extended using s 6I of the Tax Administration Act 1994 to allow certain extended leases to continue to be treated as operating leases.
Interpretation Statement - Income Tax – deductibility of costs incurred due to COVID-19
On 14 April 2022, the Inland Revenue published IS 22/01 - Income Tax – deductibility of costs incurred due to COVID-19. This statement considers whether a business may claim an income tax deduction for costs it incurs due to the COVID-19 pandemic.
This IS applies to businesses that have carried on operating during the pandemic, if a business has ceased operating (temporarily or permanently) refer to IS 21/04 Income Tax and GST – deductions for businesses disrupted by the COVID-19 pandemic.
Interpretation Statement - GST and finance leases
On 14 April 2022, the Inland Revenue published IS 22/02 – GST and finance leases. The IS explains how to classify finance leases for the time of supply and value of supply rules. It also explains how to account for GST on finance leases when applying any special time and value of supply rules. The term “finance lease” is not defined for GST purposes, it is a commercial term that describes the lease of an asset for a fixed term when the amounts payable by the lessee relate to the value of the leased goods and not the value of their use. The terms and conditions of a finance lease will vary from lease to lease; accordingly, every finance lease agreement needs to be considered on its own terms.
QWBA – Donations - What is a public fund?
On 14 April 2022, Inland Revenue published Question We’ve Been Asked (QWBA) QB 22/02 - Donations - what is required to establish and maintain a “public fund” under s LD 3(2)(d) of the Income Tax Act 2007? A person who donates money to a donee organisation can receive a donations tax credit or tax deduction. A donee organisation includes a “public fund” established and maintained exclusively to provide money for one or more specified purposes within New Zealand. A public fund must be registered with the Department of Internal Affair’s Charities Services (if entitled to be registered under the Charities Act 2005) and the name of the fund must be on the list of donee organisations the Commissioner publishes for a donor to receive a donations tax credit or tax deduction.
The QWBA discusses the requirements that, in the Commissioner’s view, must be fulfilled to establish and maintain a public fund under s LD 3(2)(d) of the Income Tax Act 2007.
The IS complements IS 18/05 - Income tax – donee organisations – meaning of wholly or mainly applying funds to specified purposes within New Zealand and QB 19/10 - Donations – what is required to establish and maintain a fund under s LD 3(2)(c) of the Income Tax Act 2007?
COVID-19 Determination – PIE exit rules
On 20 April 2022, Inland Revenue published COV 22/17 - Variation in relation to ss HM 25(3)(a) and HM 72(2)(b) of the ITA 2007 (PIE exit rules). This variation provides extra time under s HM 25(3)(a) of the Income Tax Act 2007 for a PIE to remedy a failure to satisfy the requirements of s HM 14 (minimum number of investors) and s HM 15 (maximum investor interests) before it will lose PIE status, where that failure is due to COVID-19 response measures or because of COVID-19.
The variation applies from 18 March 2022 to 30 September 2022.
BR Pub 22/01 - 22/05 Income tax – Australian limited partnerships and foreign tax credits
On 29 April 2022, Inland Revenue published BR Pub 22/01 – 22/05. These five Rulings address the ability of a New Zealand resident partner of an Australian limited partnership to claim foreign tax credits for Australian income tax and dividend withholding tax paid by the partnership on Australian source income. The Rulings concern Australian limited partnerships that are corporate limited partnerships for Australian tax purposes and are treated under Australian tax law as companies while in New Zealand they retain partnership and flow through tax treatment.
Pre-population of IR 833 Bright-line residential property sale information return attachment
Inland Revenue has made changes to the IR 833 Bright-line residential property sale information return attachment. This form will now automatically show in a taxpayer's income tax return if Inland Revenue thinks the taxpayer has a bright-line sale. The property information (including title number, address, date of purchase and date of sale) will pre-populate if the return is filed in myIR or through the income tax return gateway service. This form can also be manually added if a sale needs to be declared. MyIR will also show a table of property sales for the sales Inland Revenue has notified the taxpayer about.
New Inland Revenue Calculators
- Property Interest Phasing Calculator – allows you to work out how much interest is deductible if a residential property was acquired before 27 March 2021 and the interest is subject to phasing.
- New build interest apportionment calculator – allows you to work out how much interest is deductible if the property has both a new build and a non-new build and you are required to apportion the interest deduction.
Deloitte Global News and Resources
Technology in Focus
On 30 March 2022, Deloitte Global released Technology in Focus, the third report in our Tax Transformation series. The report taps into insights of 300+ tax and finance leaders globally and examines how technology has ushered in an entirely new age of transparency for the tax function.
The key findings are:
- 70% of the surveyed tax and finance leaders predict revenue authorities will have more direct access to their systems within three years. Businesses will increasingly feel like they are operating in glass houses.
- 86% are implementing a next-generation cloud-based ERP system such as S/4 Hana or Oracle Cloud.
- Tax leaders rank strengthening operational transfer pricing (48%), improving tax data management and governance (46%), and preparing for future digital tax administration requirements for direct tax (45%) as three of the biggest drivers of tax technology investment over the medium term.
- 80% say their function is evolving toward blended operating models which combine outsourcing, in-sourcing, and co-sourcing tax operations, with the precise contours determined by the specific process and geographic location.
ITR M&A Special Focus 2022
Deloitte Global has published an article in the International Tax Review on M&A tax considerations for private equity transactions in the Asia Pacific region, with a focus on key trends, common tax due diligence and tax structuring issues, and the impact of BEPS 2.0.
Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert.