December Tax Alert

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Snapshot of Recent Developments

Tax Alert - December 2019

Policy and legislative developments

 

Updated R&D information and draft guidance on the latest proposals now available

Inland Revenue has published updated information on R&D. This includes a guide on claiming the R&D Tax Incentive, a fact sheet on the R&D Tax Incentive supplementary return, and draft guidance on proposed changes to the R&D Tax Incentive included in the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill.

Suggestions for improvements to the draft guidance close on 11 February 2020.

 

FBT rate for low interest loans reduced

The Income Tax (Fringe Benefit Tax, Interest on Loans) Amendment Regulations 2019 come into force on 26 December 2019 and amend the Income Tax (Fringe Benefit Tax, Interest on Loans) Regulations 1955. The regulations reduce, from 5.77% to 5.26%, the rate of interest that applies for fringe benefit tax purposes on employment-related loans. The new rate applies for the quarter beginning 1 October 2019 and for subsequent quarters.

 

OECD update on MLI

An OECD announcement dated 30 October 2019 notes that representatives covering a total of 90 jurisdictions have signed the Multilateral Instrument (MLI), which will now cover over 1,600 bilateral tax treaties (once all ratification processes have been completed). Instruments of ratification, acceptance or approval covering 37 jurisdictions have been deposited with the OECD, and the MLI now applies to 99 tax treaties concluded among these jurisdictions. The OECD status document showing the deposit and entry into force dates has been updated as of 26 November 2019. You can also follow the progress of the MLI through Deloitte’s MLI status tracker.

 

OECD releases further guidance on CbC reporting

The OECD/G20 Inclusive Framework on BEPS has released additional interpretative guidance to give greater certainty to tax administrations and MNE Groups on the implementation and operation of Country-by-Country (CbC) Reporting (from BEPS Action 13). In addition, a summary of common errors made by MNE Groups in preparing CbC reports has also been posted on the OECD website. The release of this summary will help MNE Groups in avoiding these errors and tax administrations in detecting them where they occur.

Draft Inland Revenue items released

ED0222: Loss offset elections between group companies

Inland Revenue has released ED0222: Loss offset elections between group companies. This is a draft standard practice statement which will replace SPS 17/03 once it is finalised. The draft SPS sets out the application of certain pre-requisites and other aspects of the loss offset provisions. It also discusses the requirements for giving notice to the Commissioner, the practice for part-year losses, what happens if one of the parties has a reassessment, and the requirements for a valid election and/or subvention payment. Submissions close on 31 January 2020.

 

ED0218: Student loan repayments

Inland Revenue has released ED0218: Student Loan repayments – options for relief, which is a draft standard practice statement setting out how the Commissioner of Inland Revenue will exercise her discretion when borrowers apply for hardship relief.  Submissions close on 24 December 2019.

 

PUB00326: Income tax - when is development or division work minor?

On 7 November 2019, Inland Revenue released a draft interpretation statement PUB00326 which updates IG 0010: “When is development or division work minor”. The update reflects the change of wording from section CD 1(2)(f) of the Income Tax Act 1994 (which IG0010 was based on) to section CB 12 of the Income Tax Act 2007.  The central conclusions are largely unchanged. The updated draft statement also reflects the conclusions reached in two more recent public items:

  • “QB 15/04: Income tax — whether it is possible that the disposal of land that is part of an undertaking or scheme involving development or division will not give rise to income, even if no exclusion applies”, Tax Information Bulletin Vol 27, No 4 (May 2015); and
  • “QB 15/02: Income tax – major development or division - what is ‘significant expenditure’ for section CB 13 purposes?”, Tax Information Bulletin Vol 27, No 4 (May 2015).

Submissions close on 19 December 2019.

 

Consultation on correct tax treatment of derivative contracts

On 6 November 2019, Inland Revenue Officials released a draft financial arrangement determination on the correct tax treatment of MKP Milk Price Futures Contracts, which are derivative contracts traded on the NZX Derivatives Market. Draft determination 31 – NZX milk price Future Contracts: an expected value approach, proposes an expected value approach to the taxation of these contracts when they are entered into by farmers who do not use IFRS and who enter into the contracts for the sole purpose of hedging the price received for all or part of their anticipated future milk production. Inland Revenue proposes to release this determination in order to clarify and simplify the tax treatment of these contracts. The finalised determination is intended to apply to all such transactions entered into on or after 1 April 2020.

The closing date for submissions is 13 December 2019.

 

Tax cases

Dowden v Commissioner of Inland Revenue [2019] NZHC 2729

In this appeal from a TRA decision, Mr Dowden challenged the Commissioner’s assessments for PAYE, student loan deductions, GST and income tax over an eight year period on the basis that his former partner was running the business at this time and was therefore liable for the tax assessed. The Court dismissed the appeal, instead agreeing with the TRA’s determination. Some of the assessments were potentially affected by the time bar rules in sections 108 and 108A of the Tax Administration Act 1994. The Court also agreed with the TRA decision that as Mr Dowden’s true tax position was misleading and deliberately so, and because income had been omitted, section 108 did not apply.  It also found that Mr Dowden had knowingly failed to disclose all material facts in relation to his GST returns so the GST returns were also not time barred.

 

Other items of interest

Inland Revenue Annual Report

Inland Revenue has released its annual report for the year ended 30 June 2019. This contains some interesting statistics and facts about the money collected and its sources, how it is distributed, the services offered, how Inland Revenue has helped taxpayers meet obligations, governance, performance, financial accounts and more.

December 2019 Tax Alert contents

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