Something for everyone in the new tax bill
Tax Alert - October 2021
By Emma Marr
If you’re thinking it’s been a long time between omnibus tax bills, you’re right – before this month’s bonanza of tax reform was released, it had been nine long months since the last omnibus tax bill was introduced. Inland Revenue has not wasted the gestation period, there is a lot in the Taxation (Annual Rates for 2021-22, GST and Remedial Matters) Bill 2021, from GST reform to changes to local government tax rules, and a host of remedial changes. As if that wasn’t enough, the Government has swiftly followed that up with a Supplementary Order Paper (SOP) primarily covering one of the hottest tax topics of recent times, the interest limitation rules on residential property, and snuck in an additional option for calculating FBT that might reduce the FBT payable by some employers.
The first and arguably most important feature of the Bill is to set the annual tax rates for the 2021-22 income year. The government can’t collect tax without this Bill being passed, so you can be certain at least a component of it will be enacted by 31 March 2022. There is nothing new in these rates, which include the top personal tax rate of 39% on income over $180,000 which applied from 1 April 2021.
The star of the Bill is GST, and as well as some policy changes, there are a host of remedial changes – and the word “remedial” is doing a lot of heavy lifting here. Anyone registered for GST will want to read our article GST reforms in this edition on the GST changes , because there are some fairly fundamental changes to invoicing and some other useful remedials coming your way in 2022.
Eagerly awaited details on the deductibility of interest on residential property introduced in the SOP are covered in our article Property tax details revealed in this edition, as well as remedial changes to the bright-line test, including an improvement to the way the rules apply to homes under construction. You’ll want to read that promptly, because the rules will have retrospective effect from 1 October 2021 when they are passed.
The Bill will also make the tax status of cryptoassets clear, with proposals to exclude them from GST and from the financial arrangement rules entirely. You can read our article Tax rules are catching up with cryptoassets in this edition for more detail on these rules.
Employers who have been wrestling with the prospect of paying FBT at the single rate of 63.93% will be relieved to know the government has had a change of heart and found a compromise that should be good news for some. You can read about this change in New FBT rate option in this edition.
Local authority tax
The rules for taxing local authorities are changing in some respects. A wholly-owned council-controlled organisation (CCO), port company, or energy company will be able to pay exempt dividends to the local council that owns them, in the same way that wholly-owned companies can pay exempt dividends to their corporate shareholder.
The Bill will also limit deductions relating to donations and financing costs. The commentary to the bill states that this is to prevent local authorities accruing tax losses when they are largely exempt from tax, and using those losses to reduce the tax of CCOs in the same tax group.
Therefore, local authorities will no longer be able to deduct donations to charitable organisations or other public benefit gifts. There will also be limits on deductions for finance costs of local authorities, so that the total deductions cannot exceed costs incurred on:
- Loans made to a council-controlled trading organisation (CCTO);
- Borrowings to acquire shares in a group company that is a CCTO; and
- Base price adjustments for financial arrangements involving CCTOs.
Local authorities will no longer be able to convert excess imputation credits to losses, or use imputation credits within a consolidated group if the credit is attached to a dividend derived by the local authority.
These changes will apply from the 2022-23 income year.
Other changes include:
- Changes to the rules that apply to foreign currency hedges against a foreign investment taxed under the fair dividend rate method.
- Updates to the list of charities on the overseas donee list.
- Removing time limits on sharing of information that enables COVID-19 related initiatives between government agencies.
- Creating an offence for using electronic sales suppression tools. These tools alter point-of-sale data to understate or conceal revenue, resulting in lower (or no) tax payments. A range of penalties would apply for the manufacture, supply, use, acquisition, or possession of such a tool, ranging from $5,000 to $250,000, and stronger shortfall penalties for unpaid tax resulting from the use of such tools.
- Changes to expand the scope and make remedial amendments to the hybrid and branch mismatch rules, in particular in relation to the imported mismatch rule.
- Improved access to tax pooling for taxpayers in a number of circumstances, including those in their first year of paying provisional tax.
- Preserving shareholder continuity in corporate spin-outs for subsidiaries of the spun-out company.
- Allow capital gains to be preserved in a share-for-share exchange, so that the capital gains can be distributed tax-free in a future liquidation.
- The SOP included some technical amendments to the business continuity test (BCT) rules enacted earlier in 2021 that enabled losses to be carried forward after a breach in shareholder continuity if there were no major changes to the business.
There is a lot in the Bill and we encourage you to read the more detailed articles that follow, as they are very useful guides to the changes coming. Please contact your usual Deloitte advisor if you would like to discuss how the changes in the Bill will impact on you or your business.
October 2021 Tax Alert contents
- Something for everyone in the new tax bill
- GST reforms: GST is moving into the digital age and other remedials proposed
- Property tax details revealed
- Tax rules are catching up with cryptoassets
- New FBT rate option announced – but how helpful is it?
- COVID-19 Updates – October 2021
- Tax Governance: Inland Revenue’s latest compliance campaign
- Economic income and tax on a collision course? Inland Revenue’s effective tax rate project is about to start
- IBOR reform - time to check the tax impact
- Snapshot of recent developments