Snapshot of recent developments
Tax Alert - September 2018
Finalised Inland Revenue items
GST Treatment of Distributions Made by a Trading Trust to a Beneficiary: IS 18/02
On 31 July 2018, Inland Revenue released a finalised Interpretation Statement IS 18/02: Goods and Services Tax – GST Treatment of Distributions Made by a Trading Trust to a Beneficiary. This Statement considers the GST treatment of distributions made by a GST-registered trading trust to a beneficiary where the distribution consists of goods forming part of the trust’s taxable activity. It notes that the supply will be an associated supply, and the different timing and value of supply rules that apply to associated supplies will apply. Also considered in this statement is the issue of when supplies may trigger obligations on the trading trust to register / deregister from GST.
Effective date of GST registrations: SPS 18/03
Standard Practice Statement SPS 18/03: Effective date of GST registrations was released on 7 August 2018 and applies from 19 July 2018. Where a person is required by legislation to register for GST, registration will generally be effective from the date the person becomes liable to be registered. However where a person does not make an application to register as required, the Commissioner has discretion to make registration effective from such later date, but only under the circumstances that the Commissioner considers equitable, although this discretion is rarely applied. In the case of a voluntary registration, the Commissioner has complete discretion as to the effective date. This will usually be prospective, and in only very limited cases will the Commissioner agree that a person can be registered effective from an earlier (retrospective) date.
Options for relief from tax debt: SPS 18/04
The Commissioner has issued a finalised practice statement SPS 18/04 Options for relief from tax debt which sets out when the Commissioner may be able to provide assistance to taxpayers who are not able to pay on time, or if the imposition of penalties and /or interest is not appropriate. Depending on the circumstances, the Commissioner may be able to write off or remit amounts owing, or enter into instalment arrangements. This statement sets out the options that are available. This SPS replaces SPS 11/01 and SPS 15/03. SPS 18/04 will be published in the October 2018 Tax Information Bulletin. The options for relief from tax debt statement is now available on the Inland Revenue website.
Attribution Rule for Income from Personal Services: IS 18/03
This Interpretation Statement concerns the attribution rule for income from personal services in ss GB 27 to GB 29 and expands on “Attribution of Income” Tax Information Bulletin Vol 12, No 12 (December 2000): 49. The income attribution rule only applies where various threshold tests are met and no exemptions apply. The Interpretation Statement provides guidance on the application of each of those threshold tests and exemptions, to assist readers in determining whether the income attribution rule applies to their situation. It does not provide guidance on how to calculate the amount to be attributed. IS 18/03 will be published in the October 2018 Tax Information Bulletin, and will be available on the Inland Revenue website shortly.
Serving documents on Commissioner updated
The Taxation Review Authorities Amendment Regulations 2018 (LI 2018/127) has updated how documents are required to be served on the Commissioner in the case of:
- Objection under Part 8 of the Tax Administration Act 1994; and
- Challenges under Part 8A of the Tax Administration Act 1994.
These regulations come into force on 30 August 2018 (after having been notified in the New Zealand Gazette on 2 August 2018).
Claiming the wine equalisation tax (WET) rebate
Approved New Zealand participants of the WET rebate with an excise identification number are able to claim the rebate. This page has examples of common errors, average Reserve Bank New Zealand rates and example statements.
Liquidation proceedings – application for interim relief
Shane Warner Builders Ltd v CIR HC Christchurch  NZHC 1654, 5 July 2018
Mr Warner, the sole shareholder of Shane Warner Builders Ltd (the taxpayer company), argued that liquidation proceedings from the Commissioner should be stayed until the final disposition of judicial review proceedings that had been filed. It was contended that if the company was liquidated, it would be impossible to continue with the judicial review proceedings, ultimately rendering those proceedings worthless. The High Court declined the taxpayer’s application for interim relief as it had no defence to the liquidation proceedings, no reasonable prospect of succeeding in the judicial review application and had no position to preserve that would justify the Court granting interim relief. The full decision of the High Court can be found here.
Lease surrender payment deemed to be income
Easy Park Ltd v Commissioner of Inland Revenue
The Court of Appeal has held that Inland Revenue was correct to treat lease surrender payments as revenue receipts in a ruling over the former Whitcoulls building in Wellington (now home to the flagship Glassons store). The payment at issue arose when Whitcoulls decided to leave the site, which Easy Park treated as a capital payment and therefore not taxable. The Court of Appeal unanimously decided that rent is indisputably income and that the lease surrender payment essentially had the same characteristics as the payment of rent in the hands of Easy Park. Easy Park’s argument that it was capital in nature because it was part of the capital asset that Easy Park purchase when it bought the Whitcoulls building was rejected by the judges. Given that the law on treatment of lease surrender payments was changed in 2013, it is unlikely that this case will be appealed.
The full judgment can be found here.
Default income tax assessments upheld
Krasniqi v CIR
On 14 August 2018, the High Court delivered its judgment regarding an appeal of aspects of a TRA decision from 2017, broadly the correctness of default income tax assessments issued to Mr Krasniqi for the 2015 to 2011 income years. The issues under appeal included process issues under section 138G(2) and whether unexplained deposits and funds paid and applied to Mr Krasniqi’s behalf were assessable to him as income under “ordinary concepts”. Upon issuing the default assessments, the onus passed to Mr Krasniqi to establish on the balance of probabilities that the assessments were wrong, why they were wrong and by how much they were wrong. Mr Krasniqi failed to persuade Wylie J that the TRA was wrong in the decisions it reached and dismissed all matters of the appeal (including the Commissioner’s cross-appeals).
Tax Working Group – latest release of Secretariat papers
On 6 August 2018, another series of papers was released by the Tax Working Group (TWG). These papers do not necessarily reflect the views of the TWG, the Government, or the final view of the Secretariat. The following papers were released:
- Tax Policy Report: Estimating the underreporting of income in the self-employed sector: summarises research work undertaken by Victoria University of Wellington in conjunction with Inland Revenue which estimates the underreporting of income in the self-employed sector in New Zealand.
- Government reviews that could impact the Tax Working Group: provides a brief overview of Government reviews, inquiries and policy work that could significantly intersect with the work of the TWG.
- Tax and the environment – Paper 1: Frameworks: introduces frameworks for taxing negative externalities and taxing resource rents, and also considers the use of tax concessions and hypothecation for environmental reasons.
- Environmental tax frameworks – findings of external reviewers: summarises the findings of two external reviewers which were appointed by the TWG to review the Secretariat paper "Tax and the environment – Paper I: Frameworks."
June Bill SOP introduced
Last week, the Government introduced a supplementary order paper (SOP) to the Taxation (Annual Rates, Modernising Tax Administration, and Remedial Matters) Bill which will:
- extend tax relief for Canterbury businesses affected by depreciation issues following the earthquakes. Specifically it extends the depreciation roll-over provisions for a further five years to the end of the 2023-24 income year; and
- amend the Goods and Services Tax Act 1985. This is discussed in an article in this edition of Tax Alert.
The press release made by Revenue Minister Stuart Nash can be found here.
Customs and Excise Act 2018 Commencement order
While the Customs and Excise Act 2018 was assented to on 29 March 2018, only a few sections came into force at that time with the rest on a date to be specified. The Customs and Excise Act Commencement Order 2018 (LI 2018/148) brings the rest of the Customs and Excise Act 2018 into force on 1 October 2018.
2018-19 Public Rulings Work Program
The work programme for the new year has now been finalised and is available on the website. There is a balance between items that were in progress last year and new items. It is pleasing to note that Inland Revenue has included on the list an item on provisional tax (some specific interpretive issues) which Deloitte suggested be added.
September 2018 Tax Alert contents
- Tax Alert - September 2018
- IRD guidance on withholding tax for non-resident directors fees
- GST change for non-profit organisations: Inland Revenue’s proposals released
- Transfer pricing: developments in debt pricing
- BEPS guidance released to provide clarity
- Automatic refunds and new tax return rules for individuals
- Recent developments