Snapshot of recent developments
Tax Alert - September 2017
Multilateral Convention tabled at Parliament
The Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting was tabled in Parliament on 8 August 2017. Minister of Revenue Judith Collins notes that tabling the Multilateral Convention is “another step forward” in New Zealand’s fight against BEPS and stopping multinationals from exploiting tax rules. Click here for Parliament’s press release.
Negotiations for a tax treaty between Croatia and New Zealand
Croatia and New Zealand have agreed to negotiate a double tax agreement. Two way trade between the countries is not currently significant, with trade only being NZ$4.8m in 2014. Click here to find out more.
New Zealand and China undergoing treaty revision
The Government has welcomed a second round of negotiations between China and New Zealand’s tax officials to update the Double Taxation Relief (China) Order 1986. Minister of Revenue Judith Collins notes that the “aim is to agree to a new treaty, adopting modern treaty language and concepts, including agreed measures to deal with base erosion and profit shifting.”
New Zealand to strengthen double tax agreements with India and San Marino
On 8 August 2017, Minister of Revenue Judith Collins announced that New Zealand’s tax agreements with India and San Marino have been updated to allow for the effective exchange of information. The Third Protocol to New Zealand and India’s tax agreement has a new article relating to the collection of taxes. Similarly, New Zealand’s tax information exchange agreement with the Republic of San Marino implements the current international standard for exchange of information between the two countries.
New Trusts Bill
On 1 August 2017, Minister of Justice Amy Adams introduced the Trusts Bill into Parliament. The Bill represents the first significant change in New Zealand trust law in over 60 years. With around 300,000 to 500,000 trusts operating in New Zealand today, Ms Adams says that “the Trustee Act 1956 is out of date and in need of a refresh.”
The proposed changes in the Bill are largely founded on the Law Commission’s recommendations in 2013 and the exposure draft of the Bill released in November 2016. Ms Adams hopes that the “Trusts Bill will provide better guidance for trustees and beneficiaries, and make it easier to resolve disputes.” The Bill will come into force 18 months after the date on which it receives Royal Assent. The Bill is expected to be enacted before the September election. The Bill has received notable media attention and widespread concern from corporate law firms (see here).
Inland Revenue releases draft Interpretation Statement on tax avoidance
On 7 August 2017, Inland Revenue released PUB00305: Review of Interpretation Statement on Tax Avoidance, a review on the current Interpretation Statement on tax avoidance. We note that it is not the purpose of the review to undertake a fundamental reconsideration of the Commissioner’s approach, but the Commissioner accepts that it may be possible to refine the approach in the statement in light of further consideration, experience, and other cases and judicial comment.
The deadline for comment is 15 September 2017.
Inland Revenue report on tax secrecy tabled in Parliament
On 15 August 2017, an Inland Revenue report was tabled in Parliament. The report reviews the current exception to the tax secrecy rules to allow Inland Revenue more flexibility in disclosing information to other government agencies. The aim of the report is to increase Inland Revenue’s administrative efficiency and reduce the need for individuals to provide duplicated information to multiple agencies.
New privacy information sharing agreement between Inland Revenue and Ministry of Social Development
A new information sharing agreement between Inland Revenue and the Ministry of Social Development signed in July has come into effect on 31 August 2017. The new agreement brings together current information sharing arrangements into one agreement, and enables sharing of information for targeted housing assistance and verifying income for student allowance entitlements. For more information, see the Order in Council, the text of the agreement and the regulatory impact statement.
Business Transformation update
Inland Revenue (IR) has published their latest Business Transformation update. IR are currently in the process of getting ready for the release of Stage 2 in its Business Transformation plan which will be phased in around April 2018. Stage 2 involves moving FBT, Gaming Duty, AEOI, FATCA reporting and withholding tax onto IR’s new system. Changes taking place from April 2018 include collecting PAYE information within IR’s system which will allow the pre-population of income tax returns to begin.
From April 2019, employers and payroll intermediaries would no longer be required to file an employer monthly schedule. Instead, they will have to file every payday. The Government will also reduce the electronic filing threshold from $100,000 of PAYE and ESCT to $50,000 a year. The release of Working for Families will also be brought forward to 2019 to coincide with the processing of income tax for the 2018/19 tax year. IR has also announced that they are on track with implementing the new provisional tax calculation method, “Accounting Income Method” in April 2018.
Certain remedial payments are considered “extra pay” for the purposes of PAYE
On 18 August 2017, the Income Tax (Employment-related Remedial Payments) Regulations 2017 (LI 2017/241) came into force. The regulations declare a remedial payment made to correct the underpayment of employment-related entitlements (such as annual holiday pay) as “extra pay” for the purposes of the Income Tax Act 2007. Under the PAYE rules, employers are required to use a different method to calculate the amount of tax they must withhold from a payment that is classified as “extra pay”, than for a payment of salary or wages. The Commissioner has also clarified that a backdated remedial payment of holiday pay is an employment-related remedial payment and is treated as extra pay for the purposes of PAYE (CS 17/02: Tax treatment of backdated remedial payment of holiday pay)
Options to trim employer PAYE costs proposed
On 9 August 2017, Minister of Revenue Judith Collins welcomed the release of PAYE error correction and adjustment, an officials’ issues paper targeted at reducing the costs to employers incurred in administering PAYE information. The proposals in this paper allow employers to make adjustments consistent with their payroll practices, and give employers the ability to use their payroll software to make corrections to returns already filed via myIR, or in certain circumstances, make corrections in a subsequent return. The proposals are not intend to remove the current ability for employers to correct their errors non-digitally, i.e. on paper.
Submissions on the paper close on 15 September 2017.
Foreign trusts and financial statements
The Tax Administration (Financial Statements – Foreign Trusts) Order 2017 will come into force on 2 October 2017. The Order prescribes minimum requirements for preparing financial statements and will apply when a foreign trustee is required to furnish a tax return to Inland Revenue on behalf of the foreign trust.
2017-18 Public Rulings Work Programme
The 2017-18 Public Rulings Work Programme has been finalised. The programme for this year includes a review of Inland Revenue’s Interpretation Statement on tax avoidance, and a number of new GST, property and items from the PIB Review Project.
SPS 17/01: Income equalisation deposits and refunds
Inland Revenue has finalised SPS 17/01: Income equalisation deposits and refunds. The item sets out the Commissioner’s statutory discretionary powers to accept income equalisation deposits for a tax year outside the specified period, and accept refund applications for a tax year outside the specified period. The finalised item does not differ substantially to its draft version.
Income Tax (Deemed Rate of Return on Attributing Interests in Foreign Investment Funds, 2016-17 Income Year) Order 2017
On 3 August 2017, the Income Tax (Deemed Rate of Return on Attributing Interests in Foreign Investment Funds, 2016–17 Income Year) Order 2017 prescribed the deemed rate of return used to calculate the return on attributing interests in foreign investment funds at 6.28% for the 2016-17 income year. The prior year’s rate was 6.77%.
PUB00258: Income tax – whether full or partial disposal where a person contributes an asset to a partnership as a capital contribution
On 16 August 2017, Inland Revenue released a draft Question We’ve Been Asked for consultation. The Commissioner’s view is that, where a person contributes an asset to a partnership as a capital contribution, this would constitute a full disposal. This includes revenue account property, trading stock, and depreciable property disposals.
The deadline for comment on this item is 27 September 2017.
Tax Information Bulletin – August 2017
The August 2017 edition of Tax Information Bulletin has been published. This edition covers the latest tax developments in CRS, QWBAs relating to key-person insurance policies, and RWT / NRWT in relation to non-cash dividends. There is also coverage of key tax cases to date.
Large Enterprises Update – August 2017
Inland Revenue has published the August 2017 edition of Large Enterprises Update. In this issue, Inland Revenue reminds us of key upcoming provisional tax due dates, and other reminders concerning a company’s imputation credit account, small value loans, payments by electronic transfer and more.
September 2017 Tax Alert contents
- New Zealand makes BEPS announcements
- Deloitte 2017 BEPS Global Survey
- Election 2017
- Do your contracts comply with the new Transfer Pricing Guidelines
- Inland Revenue targeting FBT – Are you ready?
- Get your GST matters right before settlement
- Survey shows room for improvement in the way New Zealand taxes business
- A snapshot of recent developments