Snapshot of recent developments
Tax Alert - December 2021
Tax Legislation and Policy Announcements
Legislation Act 2019 now in force
On 28 October 2021, most provisions in the Legislation Act 2019 (the Act) were brought into force by the Legislation Act 2019 Commencement Order 2021. The Act improves accessibility of the law by incorporating the Interpretation Act 1999 to ensure the main provisions of NZ legislation concerned with Acts and secondary legislation are in one statue. Part 2 of the Act updates and re-enacts the 1999 Act to improve accessibility to the principles and rules of interpretation.
Legislation amending RSP and Working for Families Tax Credits
The Taxation (COVID-19 Support Payments and Working for Families Tax Credits) Act 2021, introduced on 23 November, passed through all stages in the House on 25 November 2021. The Act:
- Increases the Family Tax Credit from $5,878 to $6,642 per year for the eldest child in a family and $4,745 to $5,412 per year for subsequent children from 1 April 2022
- Provides for a scheduled CPI indexed increase to Best Start from $3,120 to $3,388 per year from 1 April 2022
- Increases the family credit abatement rate for the Family Tax Credit and the In-Work Tax Credit from 25 percent to 27 percent from 1 April 2022
- Increases the Minimum Family Tax Credit threshold from $31,096 to $32,864 from 1 April 2022, and
- Includes amendments that adapt the current Resurgence Support Payments into the COVID-19 Support Payments (CSP) framework. The CSP framework will continue to support eligible businesses affected by COVID-19 restrictions, but it will not be activated by a change in Alert Levels. The CSP framework will allow the Governor-General, by Order in Council, to authorise grants to be made to eligible persons financially affected by a public health measure, a business circumstance, or a matter related to COVID-19.
Inland Revenue statements and guidance
GST and finance leases
On 7 November 2021, Inland Revenue released draft Interpretation Statement PUB00357 – GST and finance leases. This consultation document explains how to classify finance leases for the purposes of the time of supply and value of supply rules. It also explains how to account for GST on finance leases when applying any special time and value of supply rules. Submissions close on 17 December 2021.
Variation to extend deadline for applying R&D tax credits
On 8 November 2021, Inland Revenue issued COVID-19 variation determination COV 21/05 - Variation to section 68CC(3) of the Tax Administration Act 1994. In summary the variation extends:
- To 7 December 2021 the time by which a person with a late balance date, to be entitled to R&D tax credits under s LY 1 of the Income Tax Act 2007 must apply for criteria and methodology approval for the 2020-2021 income year.
- By three months (to 30 November 2021 for February balance date and to 31 March 2022 for June balance date) the times by which a person with balance dates between 28 February 2022 and June 2022, to be entitled to R&D tax credits under s LY 1 of the Income Tax Act 2007, must apply for criteria and methodology approvals for the 2021-2022 income year.
This variation applies in circumstances where the planning or conduct of eligible R&D or the ability to appropriately obtain necessary information, seek advice and formulate an application under s 68CC of the Tax Administration Act 1994 on time has been materially delayed or disrupted by the COVID-19 outbreak and its effects. This variation applies from 9 November 2021 to 30 June 2022.
Establishing and maintaining a public fund
On 11 November 2021, Inland Revenue released a draft Questions We’ve Been Asked PUB00372 - What is required to establish and maintain a “public fund” under s LD3(2)(d) of the Income Tax Act 2007? A person who donates money to a donee organisation can receive a donations tax credit or deduction. A donee organisation includes a “public fund” established and maintained exclusively for the purpose of providing money for one or more specified purposes within NZ. Since 1 April 2020, a public fund must be registered with the Department of Internal Affairs’ Charities Services (if it is entitled to be registered under the Charities Act 2005), and the name of the fund must be on the list of donee organisations the Commissioner publishes for a donor to receive a donations tax credit or deduction. This consultation document considers what is required to establish and maintain a public fund under s LD 3(2)(d) of the Income Tax Act 2007. It complements IS 18/05 - Income tax – donee organisations – meaning of wholly or mainly applying funds to specified purposes within New Zealand and QB 19/10 - Donations – what is required to establish and maintain a fund under s LD 3(2)(c) of the Income Tax Act 2007? Submissions close on 24 December 2021.
GST - goods purchased on deferred payment terms
On 16 November 2021, Inland Revenue released draft Questions We’ve Been Asked PUB00330: GST - goods purchased on deferred payment terms. This consultation document explains when a person registered for GST on a payment basis can claim an input tax deduction for goods purchased on deferred payment terms as follows:
- Generally, a person registered for GST on a payment basis can claim input tax deductions only when and to the extent that payment has been made. This includes goods purchased under a standard sales agreement or goods purchased on a buy now, pay later basis.
- However, if the person has entered into a hire purchase agreement for the purchase of goods, they can claim the full input tax deduction in the taxable period in which they enter into the agreement instead of when the instalment payments are made.
- If the agreement is a layby sales agreement, the person can claim an input tax deduction only in the taxable period in which property in the goods is transferred, typically after the final payment has been made.
Submissions close on 24 December 2021.
Fact sheet for treatment of meal expenses
On 26 November 2021, Inland Revenue published the fact sheet to the Interpretation Statement IS 21/06 - Income tax and GST – Treatment of meal expenses, that was issued in July this year. The statement considers the income tax and GST treatment of meal expenses incurred by self-employed people. It also discusses the treatment of meal allowances paid to employees and entertainment expenditure. This fact sheet includes a table indicating deductibility of meal expenses in different scenarios, including self-employed, employees and shareholder-employees and look-through companies and entertainment expenses.
Early withdrawal discretion - flooding in Tairawhiti Gisborne region
In early November 2021, significant rainfall and flooding affected the Tairawhiti Gisborne region. Currently the event has been classified as a ‘localised adverse event’. At this time the Commissioner has not exercised her 'class of case' discretion for early withdrawals from (or late deposits to) the income equalisation scheme. Taxpayers are however able to apply on a case-by-case for basis for that discretion. More Inland Revenue support for affected businesses, individuals and families can be found here.
During the past month, the OECD has provided the following tax updates:
- On 31 October 2021, the OECD Secretary-General, Mathias Cormann, welcomed the G20 Leaders’ declaration, recognising the historic tax agreement reached by the OECD/G20 Inclusive Framework on Base Erosion Profit Shifting (BEPS). This followed the G20 Finance Ministers and Central Bank Governors pledging support for the OECD BEPS proposal on 13 October and vowing to work together to achieve a possible 2023 start date, consistent with the OECD’s implementation timeline. The Secretary-General said the OECD stands ready to facilitate the work needed to ensure the timely and effective implementation of the two-pillar solution as they’re moving into the implementation phase of the agreement. Countries must move as quickly as possible to bring both pillars into effect.
- On 9 November 2021, the Tax Inspectors Without Borders (TIWB) Annual Report 2021 was released. The report describes TIWB and its relevance in the context of the COVID-19 pandemic; provides details on TIWB activities, trends and achievements and provides information on results obtained and lessons learned over the past year; highlights TIWB participation at international events and the initiative's communications; and sets out the work plan for the year and provides an overview of the previous year's objectives and performance. The event “Tackling tax avoidance and evasion in the post-pandemic era” was also held on the same date.
- On 22 November 2021, The 2020 Mutual Agreement Procedure (MAP) Statistics and the 2020 MAP Awards were presented during the third OECD Tax Certainty Day. MAP Statistics play an important role in monitoring BEPS Action 14 minimum standard, providing an objective and global frame of reference, as well as a country specific view. The statistics allow measurement of progress and show where further work is needed.
Global News Focus
ATO not to extend PE Residency Transitional Position
The ATO has recently released their decision that after careful consideration of the current status of the COVID-19 pandemic compared to the circumstances at the start of the COVID-19 compliance approach for permanent establishments (PEs) in March 2020, including the easing of travel restrictions both in Australia and abroad, it will not be further extending the Compliance Approach for PEs beyond the current end date of 31 December 2021.
The ATO has separately published a minor addendum to Taxation Ruling TR 2002/5 which provides an example on the issue of temporal permanence in the context of COVID-19. This will continue to provide assurance that the ATO will take into consideration the impact of COVID-19 when determining whether a PE exists in Australia.
Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert.
December 2021 Tax Alerts
- COVID-19: Some business support gets a red light
- Removal of Depreciation Rate Finder
- Clough v Commissioner of Taxation: A Lesson in Poor Execution
- Physical or virtual Christmas celebrations: what employers need to remember
- Extreme tax powers could be used for almost anything
- Will Technical Decision Summaries help with Inland Revenue decision making transparency?
- The false economy of working quickly
- Snapshot of recent developments