Snapshot of Recent Developments: July Tax Alert

Policy Developments:

June Tax Bill Introduced

The Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill (“the Bill”) was tabled in Parliament on 27 June 2019. The Bill is available here, the Bill Commentary is here), and the Regulatory Impact Assessments are here. The Bill contains proposals in relation to:

• Modernising and improving the settings for the administration of social policy by Inland Revenue (particularly in relation to KiwiSaver and Student Loans).
• Proposals aimed at improving current tax settings within a broad-based, low-rate framework.
• Other remedial matters, including in relation to the R&D tax credit regime, thin capitalisation, employee share schemes and provisional tax.

Along with the some KiwiSaver changes which may have wide-ranging impacts, the most notable proposals are in relation to the R&D tax credit regime, in particular to extend the refundability of R&D tax credits (from the 2020-21 income year), so that the R&D tax credits will be refundable to the extent that payroll taxes are paid by a firm in each year. Refundability will not be available to entities who receive exempt income (other than income under sections CW 9 and CW 10 of the Income Tax Act 2007). Other remedial changes are being made in relation to the R&D tax credit regime to ensure that it aligns with the policy intent.

The Bill is likely to have its first reading in late July, after which it will be referred to the Finance & Expenditure Select Committee. Submissions are likely to be due in September. We will cover the bill in more detail in the next edition of Tax alert. In the interim, if you have any questions please contact your usual Deloitte advisor. 

R&D tax incentive guidance published

On 5 June 2019, Inland Revenue released updated guidance material on the Taxation (Research and Development Tax Credits) Act 2019. The guide incorporates changes made during the legislative process and covers:

• Eligible activities, entities and expenditure;
• Using, and becoming, an approved research provider;
• Claiming and receiving the tax credit; and
• Managing disputes.

Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill passes third reading with supplementary order paper introduced and receives Royal Assent

On 26 June 2019, the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 received Royal Assent. Inland Revenue’s commentary on the legislative changes will be included in the August 2019 Tax Information Bulletin.

For a summary of the new rules on GST on imports, you can read our updated article here.

A Supplementary Order Paper, SOP No. 248, was introduced before the third reading. SOP No. 248 includes a proposal to amend the Land Transfer Act 2017 so that all buyers and sellers of land will be required to provide their IRD number as part of the transaction process. Refer to our Tax Alert article on SOP No. 248. 

Finalised Inland Revenue Items:

Late filing penalties – SPS 19/04

On 31 May 2019, Inland Revenue released the finalised standard practice statement, SPS 19/04: Late filing penalties, applying from 30 May 2019. This statement, replacing SPS 12/02, sets out how the Commissioner will exercise her discretion with regard to late filing penalties. It was updated for:

• The types of returns covered (e.g. the addition of RLWT and multi-rate PIE returns); and
• The payday filing rules.

Question We’ve Been Asked - Donations: What is required to establish and maintain a fund under s LD 3(2)(c) of the Income Tax Act 2007? – QB 19/10

On 14 June 2019, Inland Revenue released a finalised Question We’ve Been Asked, 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? QB 19/10 concludes that a donee organisation can include a fund established and maintained by a non-profit entity exclusively for the purpose of providing money for charitable, benevolent, philanthropic, or cultural purposes within New Zealand under s LD 3(2)(c) of the Income Tax Act 2007. QB 19/10 examines what is required to establish and maintain such a fund, and sets out the Commissioner’s view of the matters that need to be taken into account by entities considering setting up these funds. This item complements the Commissioner’s interpretation statement, IS 18/05, Income tax: donee organisations – meaning of wholly or mainly applying funds to specified purposes within New Zealand.

Question We’ve Been Asked - GST - administrative or management services provided by an unincorporated body to its members – QB 19/11

On 19 June 2019, Inland Revenue released finalised QB 19/11: GST - administrative or management services provided by an unincorporated body to its members. QB 19/11 applies to situations where a group forms an unincorporated body to manage and administer common property (e.g. property owners, tenants or professionals). QB 19/11 concludes that an unincorporated body that provides administrative or management services to its members must register for GST if the unincorporated group is carrying on a taxable activity, and the value of its supplies of goods and services made in New Zealand exceeds the $60,000 registration threshold. An unincorporated body carrying on a taxable activity with supplies below the registration threshold may voluntarily register for GST. If registered, the body must account for GST on all its supplies of goods and services.

Income tax – Exempt income of non-resident entertainers – IS 19/03

On 17 June 2019, Inland Revenue finalised and released Interpretation Statement, IS 19/03: Income tax – exempt income of non-resident entertainers. IS 19/03 concerns section CW 20 of the Income Tax Act 2007, which provides non-resident entertainers and sportspersons with an exemption for the income that they earn from carrying out an activity or performance in New Zealand. IS 19/03 mainly assists those that are paying non-resident entertainers in deciding whether the exemption in s CW 20 applies (i.e. so that payers do not need to withhold tax from payments made).  The interpretation statement may also be useful to non-resident entertainers who are unsure about whether their income is exempt in New Zealand.

Kilometre rates for business use of vehicles - 2018/2019 income year

Inland Revenue has released the new kilometre rates for 2018/2019 income year on the Inland Revenue’s website and can be used from now. The new tier 1 rate increased from 76 cents to 79 cents.

July 2019 Tax Alert contents

• R&D tax credits - new developments
• New Zealand outlines its proposal for a digital services tax
• Changes to the collection and use of investment income information
• Ring-fencing residential rental property losses
• IRD numbers required for all property transactions