A snapshot of recent tax developments

Tax Alert - February 2017

Guidance on seismic assessment costs now finalised

Inland Revenue has finalised Questions We’ve Been Asked 16/08 – Income tax – deductibility of the costs of obtaining a detailed seismic assessment of a building (“QBWA”).  The QBWA considers whether expenditure incurred in obtaining a detailed seismic assessment (“DSA”) of a building is deductible.  The Commissioner concludes that DSA costs are revenue and therefore deductible in most circumstances.  The exception is where DSA costs are incurred as part of an existing capital project, in which case they are capital and non-deductible.

Changes to filing GST online

Inland Revenue’s improved My GST online service is available from 7 February 2017.  Users of the updated system will be able to:

  • File GST returns through myIR accounts;
  • Access GST account information, including statements and notices;
  • See when GST returns and payments are due;
  • Include attachments to support GST returns; and
  • Request the transfer of GST refunds to another GST account.

In addition to this, the Tax Administration (Direct Credit of GST Refunds) Order 2016 states that from the same date, GST may be refunded by direct credit under section 184A of the Tax Administration Act 1994 to a bank account nominated by the taxpayer.  This means GST refunds can now be paid electronically.

CRS: Draft AEIO guidance released

In preparation for the implementation of the OECD’s Common Reporting Standard (“CRS”) for the Automatic Exchange of Financial Account Information in Tax Matters, Inland Revenue has released a 189-page draft guidance document.  The draft guidance seeks to help financial institutions prepare for their obligations as early as possible and outlines how they will be affected and their CRS responsibilities.  Following the enactment of the relevant legislation, a finalised guidance document will be prepared which will take into account public submissions on this draft.

Inland Revenue is inviting feedback or questions by 28 February 2017.

Inland Revenue’s internal approach to managing changes or perceived changes to interpretation or practice

On 12 January 2017, Inland Revenue published its internal approach for dealing with changes to (or perceived changes to) its tax and social policy technical interpretation or practice of administering tax legislation.  The broad approach has four steps.

  1. Identify a potential change or perceived change situation.
  2. Establish whether the position being proposed is actually a change from the Commissioner’s earlier position or could be seen as a change.
  3. Determine how to apply that “new” position if there is a change, or perceived change, in position.
  4. Determine how (when and in what format) to communicate the Commissioner’s approach to the matter internally and externally.

Generally, where the change results in a position less favourable to taxpayers, the position will be applied prospectively.  If unfavourable to taxpayers, the Commissioner may apply the change retrospectively under section 113 of the Tax Administration Act 1994.  Prior settlements and time-barred periods are unaffected by subsequent changes in position in either direction. 

Inland Revenue finalise piece on the derivation of professional services income

On 20 December 2016, Inland Revenue finalised IS 16/06: When is income from professional services derived (“IS 16/06”).  For tax purposes, there are two main methods for determining when an amount of income has been derived: cash basis or accrual basis.  While there is no general rule of law requiring particular professions to account for income using one method or the other, Inland Revenue prescribes a number of factors (based on case law) that should be considered when determining which method is appropriate for a particular business or profession.

Income tax treatment of unclaimed amounts of $100 or less

On 31 January 2017, Inland Revenue released Public Rulings BR Pub 17/01 Income Tax – Treatment of unclaimed amounts of $100 or less and BR 17/02 Income tax – Treatment of unclaimed amounts of $100 or less – amounts held on trust (“Public Rulings”).  The Public Rulings, effective from the 2017/2018 income year, provide guidance on when amounts of unclaimed money under section 4(1) of the Unclaimed Money Act 1971 of less than $100 are derived as income when received in the course of business (not capital in nature).

Draft rulings released on the income tax treatment of the alteration of rights attached to shares

On 6 November 2016, Inland Revenue released two draft rulings relating to the income tax treatment of the alteration of rights attached to shares and the disposition of these shares under the personal property provisions (i.e. section CB 4 of the Income Tax Act 2007).  The rulings clarify that altering rights attached to shares does not involve the disposal of shares.

Judith Collins appointed as Minister of Revenue

On 18 December 2016, Prime Minister Bill English announced the new Cabinet line-up and that Judith Collins has been appointed as the Minister of Revenue (replacing Michael Woodhouse).

BEPS update

A number of BEPS-related documents have been released, including the following.

  • An updated version of the BEPS Action 4 report, which includes further guidance on the design and operation of the group ratio rule and issues specific to the banking and insurance sectors.
  • A discussion draft on the follow-up work on the interaction between the treaty provisions of the report on BEPS Action 6 and the treaty entitlement of non-CIV funds
  • Key details of jurisdictions' domestic legal frameworks for CbC reporting (related to BEPS Action 13).
  • Additional interpretive guidance on the CbC reporting standard (related to BEPS Action 13).

Commissioner’s interim operational position on calculating PAYE on non-resident seasonal workers’ holiday pay

Inland Revenue has released the Commissioner’s interim operational position on calculating PAYE on non-resident seasonal workers’ holiday pay.  Under the position, a non-resident seasonal worker should be subject to the “NSW” tax code and attract a PAYE withholding rate of 10.5% on their New Zealand-sourced employment income. 

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