Snapshot of recent developments
Tax Alert - February 2021
Tax legislation and policy announcements
Taxation (Income Tax Rate and Other Amendments) Act 2020
The Taxation (Income Tax Rate and Other Amendments) Act 2020 (“the Act”) was introduced on 1 December 2020 and received Royal Assent on 7 December 2020. Deloitte has also published an article on the Act.
The Act includes the following tax amendments, mostly with effect from 1 April 2021 income year, unless otherwise stated below:
- A new personal income tax rate of 39 per cent on annual income over $180,000;
- All fringe benefit tax rates are increased consequentially;
- A new employee superannuation contribution tax (ESCT) rate of 39 per cent, with the ESCT threshold being $216,001 upwards;
- A new 39 per cent resident withholding tax rate on interest with effect from 1 October 2021;
- Additional disclosure requirements on trustees (compulsory from 2021-22 income year; the Commissioner may also require trustees to provide information back to 2013-14 income year);
- A new information gathering power (section 17GB) for the Commissioner to gather information she considers relevant for tax policy reasons, with effect from the enactment date. The Commissioner must not use the information collected under this section as evidence in proceedings against a person, but this does not apply to any information the Commissioner subsequently obtains under another section of the Tax Administration Act 1994; and
- An increase in the minimum family tax credit threshold for the 2020-21 and later tax years.
June tax bill report back date pushed out
The Finance and Expenditure Committee report back date to the House on the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Bill (June Tax Bill) has been deferred by 4 months to 4 March 2021. The due date was previously set for early December 2020.
Small Business Cashflow Loan eligibility criteria expanded
On 18 December 2020, the Government announced that Cabinet will amend the Small Business Cashflow Loan scheme by introducing revised eligibility criteria with effect from 28 January 2021 (originally February 2021). The Small Business Cashflow Loan scheme is administered by Inland Revenue. Deloitte has published an article regarding this.
Public consultation on the Pillar One and Pillar Two Blueprints
On 16 December 2020, the OECD published the public comments they received on Pillar One and Pillar Two Blueprints. On 14 and 15 January 2021, the OECD held a public consultation meeting focused on the key questions identified in the consultation document and raised in the written submissions received.
Protocol to NZ -Switzerland Treaty comes into force
On 10 December 2020, the amending protocol, signed on 8 August 2019, to the New Zealand - Switzerland Income Tax Treaty (1980), came into force.
Inland Revenue statements and guidance
Guidance on setting up a business asset sale
Inland Revenue has already started to publish guidance on sale price allocation rules for both the buyer and seller. It states both parties need to agree on how the sale price is allocated between taxable and non-taxable assets and allocate the sale price for all assets in line with market value. Inland Revenue will investigate the sale and correct the sale price allocation if they find that the buyer and seller did not allocate the sale price reasonably in the same way in their income tax returns or did not allocate it in line with market values. This supports legislation introduced in 2020 to govern purchase price allocations in asset sales, which we wrote about in July 2020.
Finalised kilometre rates
Inland Revenue has set the rates for the 2019/20 income year. Compared to the prior year, the Tier One rates are slightly higher to reflect the small increase in the cost of owning a vehicle. However, Tier Two rates are slightly lower to reflect the decrease in the overall costs of operating a vehicle. If the 2020 tax return has been flied using the 2018/19 rates, Inland Revenue can reassess the return upon being notified of this.
Tier One Rate per km
Tier Two Rate per km
Petrol or Diesel
Salary, wages and bonuses paid in cryptoassets
On 11 January, Inland Revenue issued two revised rulings: BR Pub 21/01 Income tax – salary and wages paid in crypto-assets and BR Pub 21/02 Income tax – bonuses paid in crypto-assets. While these rulings replace BR Pub 19/01 and BR Pub 19/02 respectively, the tax treatment in the rulings remain the same. The rulings have been replaced as some aspects of the arrangement originally ruled on and the commentary may be inconsistent with the Wages Protection Act 1983. BR 19/01 and BR 19/02 will be withdrawn on 28 February 2021 but the Commissioner will continue to be bound by those rulings for arrangements entered into on or before 28 February 2021 until 1 September 2022.
First step legally necessary to achieve liquidation when a liquidator is appointed
On 11 December 2020, Inland Revenue issued Questions We’ve Been Asked QB 20/03 – First step legally necessary to achieve liquidation when a liquidator is appointed. The statement concludes that the first step legally necessary to achieve a short-form liquidation is a resolution by the shareholders or board of directors or, where applicable, another overt decision-making act provided for in a company’s constitution to adopt a course of action that will end in removal from the register. In comparison, the first step legally necessary to achieve a long-form liquidation is a shareholders’ resolution appointing a named liquidator as required by the Companies Act 1993.
Prohibiting Fair Dividend Rate method for Foreign Investment Funds income from specific investments
On 7 December 2020, Inland Revenue issued five determinations (FDR 2020/02, FDR 2020/03, FDR 2020/04, FDR 2020/05 and FDR 2020/06) which prohibit the use of the Fair Dividend Rate method to calculate foreign investment fund income from interest in certain investments.
Special financial arrangement determinations for public-private partnerships
Inland Revenue has published three special financial arrangement determinations which were issued on 17 December 2020:
- Special Determination 27B – Convertible Notes in Respect of a Limited Partnership Interest. This determination replaces Special Determination 27A to take into account amendments to the convertible notes under the 2020 amendments.
- Special Determination 28B – Arrangements Rules to the Design and Construction Phase in a Public-Private Partnership. This determination replaces Special Determination 28A to take into account 2020 amendments to the project.
- Special Determination 29B – Application of the Financial Arrangements Rules to a Public-Private Partnership. This determination replaces Special Determination 29A and take into account 2020 amendments to the arrangement.
The following documents are out for public consultation
- IRRUIP15 – Income tax: trusts and the Australian/New Zealand Double Tax Agreement (DTA). The focus of this paper is the access to the Australia/New Zealand Double Tax Agreement for trusts. It examines if a trust can access the benefits under the DTA and how residency is determined for a trust. It then explores the DTA’s accommodation of trusts as fiscally transparent entities to understand exactly what that means in the Tran-Tasman context for both trustees and beneficiaries. Finally, there is an analysis of the credit allowance provisions that provide relief for tax paid in the other jurisdiction. Submissions close on 1 March 2021.
- PUB00359a – Charities business exemption – when it must be used and PUB00359b – Charities business exemption – business carried on in partnership. These two draft Question We’ve Been Asked documents consider the situations in which a charitable entity needs to use the business income exemption in s CW 42 (which contains additional territorial and control restrictions) rather than in s CW 41 of the Income Tax Act 2007, and whether income derived by a charitable entity from a business will be exempt under s CW 42 if the business is carried on by a charitable entity in partnership with a non-charitable entity. Deadlines for submissions on both consultation documents are 1 February 2021.
- ED0225 – Administration of the imported mismatch rule – section FH 11. This draft operational statement is intended to clarify the Commissioner’s expectations as to how taxpayers will meet their self-assessment obligations when applying the imported hybrid mismatch rule in s FH 11 of the Income Tax Act 2007 to payments to members of their control group, and how the rule will be administered by Inland Revenue in relation to such payments. Submissions close on 5 February 2021.
- ED0224 – Deduction notices. This draft standard practice statement sets out Inland Revenue’s power to issue a deduction notice to recover outstanding amounts of tax from a third party and provides guidance on how the Commissioner will use such notices. The statement updates and replaces SPS 11/04 – Compulsory deductions from bank accounts. Submissions close on 5 February 2021.
- ED0226 – Retention of business records in electronic formats, application to store records offshore and keeping records in languages other than English or te reo Māori. This draft standard practice statement provides guidelines on the retention of business records in electronic format and sets out the Commissioner’s practice when considering an application to store business records offshore and when considering an application to keep records in a language other than English or te reo Māori. Submissions close on 5 February 2021.
Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert.
February 2021 Tax Alert contents
- COVID-19 backup support for business revealed
- Revised Inland Revenue guidance on tax avoidance – Happy New Year?
- R&D Tax Incentive Regime – Planning for the year ahead
- What’s new in the world of GST?
- Inland Revenue and OECD provide further guidance on COVID-19 related transfer pricing issues
- How do continued COVID-19 border restrictions impact tax
- More guidance on cryptoassets – hard forks and airdrops explained
- Snapshot of recent developments