Snapshot of recent developments

Tax Alert - April 2021

Tax legislation and policy announcements

Applications close soon for Resurgence Support Payments

Applications for the second round of the Resurgence Support Payments for the alert level increase on 28 February opened on 8 March in myIR and will close on 12 April 2021.

Special report on Resurgence Support Payments

On 23 February 2021, the special report on the Taxation (COVID-19 Resurgence Support Payments and Other Matters) Act 2021 was released. The report summarises the legislative changes, the rationale and consequences of the changes. The Act does not include the details of what will be published about applications; however this report notes the current policy on what information will be published. The information will be published on a searchable database on Inland Revenue’s website and will include the name of the recipient of the grant, the amount paid, and the period of alert level escalation for which this payment relates. However, these will not be published if the recipient has fewer than three employees, or the amount paid is capped at four times the declared revenue decline.

Budget 2021 Date

On 24 March 2021, Finance Minister Grant Robertson announced that Budget 2021 will be delivered on Thursday 20 May 2021. The Budget will focus on the Government’s overarching objectives for this Parliamentary term which are: continuing to keep New Zealand safe from COVID-19, accelerating the recovery and rebuild and addressing key issues like climate change, housing affordability and child poverty.

Direct credit refund date for totalisator duty, lottery duty, casino duty and unclaimed money

Tax Administration (Direct Credit of Totalisator Duty, Lottery Duty, Casino Duty, and Unclaimed Money) Order 2021 was published on 22 March 2021. This Order in Council specifies 27 April 2021 as the date on and from which totalisator duty, lottery duty, casino duty, and unclaimed money may be refunded by direct credit under section 184A of the Tax Administration Act 1994 to a bank account nominated by the taxpayer.

MLI entered into force in respect of Chile

On 1 March 2021, the Multilateral Convention (2016) (MLI) entered into force in respect of Chile and will have effect on the Chile – New Zealand Income Tax Treaty. For Chile, the MLI takes effect on 1 January 2022 in respect of taxes withheld and other taxes. For New Zealand, the MLI takes effect on 1 January 2022 in respect to taxes withheld and 1 September 2021 for other taxes.

Inland Revenue statements and guidance

COVID-19 company tax residency

Inland Revenue has extended their current guidance on the impact of COVID-19 on company tax residency to apply until 1 October 2021 (it was to be reviewed at 1 April 2021), when the position will next be reviewed.

Revenue Alert on diverting personal services income

On 29 March 2021, Inland Revenue released Revenue Alert RA 21/01 – “Diverting personal services income by structuring revenue earning activities through a related entity such as a trading trust or a company: the circumstances when Inland Revenue will consider this arrangement is tax avoidance”. This Revenue Alert was re-issued ahead of the increase in the top marginal tax rate on 1 April 2021 and reiterates the Commissioner's view on this matter which follows the Supreme Court's decision in the Penny and Hooper case. This statement replaces RA 11/02.

Attribution - income from personal services

On 19 March 2021, Inland Revenue issued Interpretation Statement IS 21/02 – “Income tax – Calculating income from personal services to be attributed to the working person”. It provides guidance on how to calculate the amount of income from personal services that is attributed to the working person under the attribution rule in s GB 27 to s GB 29 of the Income Tax Act 2007.

2021 International tax disclosure exemption

On 31 March 2021, Inland Revenue published Determination ITR32 – “2021 International tax disclosure exemption”. The statement allows certain groups of residents who have a control or income interest in a foreign company or an attributing interest in a foreign investment fund (FIF) to be exempt from the disclosure requirement for the income year corresponding to the tax year ended 31 March 2021. The 2021 disclosure exemption also removes the requirement for a non-resident or transitional resident to disclose interests held in foreign companies and FIFs.

Clarification of the Government Service Rule

On 1 April 2021, Inland Revenue issued Commissioner’s Statement CS 21/02 – “Clarification of the Government Service Rule”. This Statement clarifies the interpretation of the Government Service Rule as set out in the Interpretation Statement on Tax Residence – IS 16/03, and sets out the Commissioner’s position in relation to whether a person is “absent” for the purposes of section YD 1(7) of the Income Tax Act 2007.

Common Reporting Standard jurisdiction determination

On 26 March 2021, Inland Revenue released determination AE 21/01 – “Participating jurisdictions for the Common Reporting Standard (CRS) applied standard”. The determination adds Albania, New Caledonia, Nigeria, Peru and Turkey to New Zealand’s list of participating jurisdictions for the purposes of the CRS applied standard. This determination also contains a full list of Participating Jurisdictions with effect from 1 April 2021.

Employee share schemes – employer expenditure or loss income

On 15 March 2021, Inland Revenue published draft Questions We’ve Been Asked PUB00385 – “When an employer is party to an employee share scheme, when does an employer’s expenditure or loss under s DV 27(6) or income under s DV 27(9) arise?”

This draft statement is relevant to any employer who is party to an employee share scheme and considers the timing of any deduction or income arising for the employer under s DV 27(6) and DV 27(9) of the Income Tax Act 2007. This draft item does not consider arrangements that may be subject to the application of s BG 1 (tax avoidance) or s GB 49B (employee share schemes).

The draft statement states that the relevant expenditure, loss and income will arise when the related “employee amount” that is inserted into the calculation formula in s DV 27(7) is recognised for the employee share scheme employee. Submissions close on 27 April 2021.

Real estate sector the focus of new Inland Revenue campaign

Inland Revenue is turning its hidden economy focus on to the real estate sector, including both the under reporting of income and overstating of expenses. Inland Revenue analysis of this sector suggests that real estate agents / salepeople are claiming a high level of expenses relative to their income. If Inland Revenue is concerned that a taxpayer is overclaiming expenses they will receive a letter from Inland Revenue asking for proof of expenses. Deloitte is available to help resolve any tax issues.

Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert. 

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