Snapshot of recent developments

Tax legislation and policy announcements
 

Special report on the COVID-19-related legislation

On 19 June 2020, Inland Revenue released a special report, Public 2020 No 8 and No 10 which provides early guidance on the tax measures included in the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 and the COVID-19 Response (Further Management Measures) Legislation Act 2020. The guidance includes detailed analysis and examples of the temporary loss carry-back scheme (more details are included in our May 2020 Tax Alert), the Small Business Cashflow Loan Scheme and commentary on how the Commissioner will exercise her new temporary discretionary powers in relation to COVID-19 matters.
 

In-work tax credit grace period

On 29 May 2020, the Government announced a proposed change to the In-Work Tax Credit as part of the COVID-19 Response Recovery Fund. The proposal is to allow a family currently receiving the in-work tax credit to continue receiving the payments for up to two weeks when taking an unpaid break from work. Payments will stop if a recipient goes on a benefit. Draft legislation containing the proposal is expected to be introduced soon and is intended to take effect from 1 April 2021.
 

Tax write-off threshold increased to $200

The Government has enacted legislation to temporarily increase the write-off threshold for tax payable from an end of year assessment to $200 (increased from $50). This applies for the 2019-2020 income tax year only and is available for individuals whose end of year tax liability is calculated by Inland Revenue’s automatic income tax calculation process. The measure, which applies from 3 June 2020, is expected to reduce the tax bills for approximately 149,000 taxpayers.

Small Business Cashflow Loan Scheme application period extended
On 5 June 2020, the Government announced the application deadline for the Small Business Cashflow Loan Scheme will be extended from 12 June 2020 to 24 July 2020. There has been a high demand for the loans which are interest free if repaid within a year. Inland Revenue is advising applicants to read the conditions and eligibility carefully before submitting their application. More details about the scheme are included in our May 2020 Tax Alert.
 

COVID-19 Income Relief Payment Act enacted

The Social Security (COVID-19 Income Relief Payment to be Income) Amendment Act 2020 was enacted on 2 June 2020. The Act ensures that a payment received by a person under the COVID-19 Income Relief Payment Programme is treated as the person’s income for the purposes of the Social Security Act 2018. The Government announced that the payment will not be taxed.

Applications for the Programme can be made from 8 June 2020 to 13 November 2020. Payments will be made available for eligible people who have lost their jobs on or after 1 March 2020 and 30 October 2020 due to COVID-19. Approved applicants can receive payments for up to 12 weeks. Where full-time work has been lost (normally working at least 30 hours per week) applicants will be paid $490 a week and where part-time work has been lost (15–29 hours per week) payments of $250 per week will be made. More information on the Programme can be found here or on Work and Income website.

Inland Revenue statements and guidance – Finalised items

COVID-19 variation determinations released

During May and June, Inland Revenue issued eight COVID-19 Variation Determinations under the new discretion provided to the Commissioner, under section 6I of the Tax Administration Act 1994 (“TAA”). The variation determinations include:

• COV 20/01 - Variation to section HB 13(3)(b) of the Income Tax Act 2007: This variation, valid between 13 May 2020 and 30 June 2020, extended the time to make an election to be a look-through company for the 2019 income year provided the election was received by 30 June 2020. 
• COV 20/02 – Variation to section EI 1 of the Income Tax Act 2007. Section EI 1 of the Income Tax Act 2007 allows a person to spread income from timber to previous income years. A person must apply in writing to the Commissioner no later than 1 year after the end of the income year in which they derive the income. Under this determination, the time for making that application, for income derived in an income year ending between 25 March 2019 and 31 May 2019, has been extended to 31 July 2020 using s 6I of the TAA. A further extension has since been provided for this issue – see COV 20/06 below.
• COV 20/03 – Variation of the application of s 15D(2) Goods and Services Tax Act 1985 to extend time to make an application to change GST taxable period. Issued on 6 June 2020, taxpayers with a 6-month GST period ending on 31 March 2020 were provided with an extension until 30 June 2020 to elect to move to a monthly rather than six-monthly GST return period, subject to the taxpayer not subsequently electing to change from a 1- month taxable period before 30 September 2020. 
• COV 20/04 – Variation in relation to s DB 31 Income Tax Act 2007 to extend time for writing off bad debts. This variation, issued on 6 June 2020, applied to a person who wished to claim a deduction in the 2020 income year for a bad debt. The variation recognises that the impact of COVID-19 meant that some taxpayers were not able to write off debts as bad during their 2020 income year, and so the Commissioner extended the time for writing off debts as bad for a short period until 30 June 2020. The variation is subject to the two conditions that the person did not write off the debt by the end of the 2020 income year as a result of the impacts of COVID-19, and that the person takes into account only information that was relevant as at the end of their 2020 income year.
• COV 20/05 – Variation in relation to s RP 17B(4) of the Income Tax Act 2007 to extend time for tax pooling transfers. This variation, issued on 11 June 2020, allows an extension of time for taxpayers to use a tax pooling intermediary to arrange the transfer of an amount to satisfy an obligation for provisional tax, terminal tax or use of money interest on the provisional tax or terminal tax for the 2019 income year. The time period is extended to 365 days after a person’ terminal tax date for the 2019 tax year. This is subject to the conditions below: 
  • The transfer relates to a contract the taxpayer has with the tax pooling intermediary that is in place on or before 21 July 2020 to purchase tax pooling funds; and
  • In between the period January – July 2020, the taxpayer’s business must have experienced, or will be expected to experience a significant decline in revenue as a result of COVID-19, which means that in respect of the 2019 tax year the taxpayer was either:
    (a) unable to satisfy their existing commercial contract, or
    (b) was, prior to this variation, not able to enter into a commercial contract with a tax pool and the decline in revenue is related to COVID-19.
    The variation applies to the period 11 June 2020 to 7 April 2021.
• COV 20/06 – Variation to section EI 1 of the Income Tax Act 2007. This variation issued on 18 June 2020, supplements COV 20/02 – Variation to section EI 1 of the Income Tax Act 2007, which extends the income years for taxpayers who wish to allocate timber income derived in an income year ending between 25 March 2019 and 30 June 2019 (previously 25 March 2019 and 31 May 2019) to any one or more of the previous three income years. The date the application in writing must be received has been extended to 31 July 2020.
• COV 20/07 - Variation in relation to s 70C of the Tax Administration Act 1994 to extend deadline for filing statements in relation to R&D loss tax credits. This variation, issued on 24 June 2020, extends the time period for filing a statement in relation to R&D loss tax credits or R&D repayment tax to 31 August 2020.
• COV 20/08: Variation in relation to the definition of “finance lease” in s YA 1 of the Income Tax Act 2007 applies to prevent a lease inadvertently becoming a finance lease for a reason related to COVID-19.
  

CPI adjustments for 2020

During May 2020, Inland Revenue published annual adjustments as a result of the Consumer Price Index (CPI) movement to the following statements:

• OS 19/03: the square meter rate for the dual use of premises for the 2020 income year is set at $42.75 (2019: $41.70). 
• DET 19/01: The annual adjustment to the standard-cost for household boarding service providers has been updated to $191 (per boarder). 
• DET 19/02: The short stay accommodation rates have been updated and the daily standard-cost is $51.00 for an owned dwelling and $46.00 for a rented dwelling. 
• DET 09/02: The annual adjustment to the standard-cost household service for childcare providers has been updated. The hourly standard cost (per child) is $3.70. The annual fixed administration and record keeping standard cost has risen to $361.
• The kilometre rates for the business use of vehicles for the 2020 income year are not yet available. Inland Revenue has advised taxpayers to continue to use the 2019 rates and if there is a material difference when the rates are available, to make an amendment through section 113 or section 113A of the TAA.
  

SPS 20/03: Request to amend assessments

On 2 June 2020, the Commissioner issued SPS 20/03 - Requests to amend assessments. This statement sets out Inland Revenue’s practice for exercising the Commissioner’s discretion under section 113 of the TAA to reopen and amend assessments to ensure their correctness. This statement applies from 2 June 2020 and replaces all previous statements regarding the exercise of the discretion under section 113.
 

New holding period tests in the NZ/Australia Double Tax Agreement

On 17 June 2020, Inland Revenue issued Commissioner’s Statement CS 20/03 - NRWT for dividends paid to companies: Administering the new holding period tests in Article 10 of the NZ/Australia Double Tax Agreement (and in agreements with other countries). With effect from 1 January 2019, Article 8 (1) of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”) modified article 10 of New Zealand’s double tax agreement with Australia with regard to the holding period for shares before a dividend can be paid at reduced rates. Prior to the application of the MLI it was necessary to hold shares for 12-month holding period prior to the dividend payment date in order to use the zero rate, but there was no holding period requirement to use the 5% rate. The effect of the MLI is to introduce a 365-day holding period requirement in order to both the five percent rate and zero rate. A further change is that the holding period requirement can be met having regard to share ownership after a dividend is paid as well as before. If a shareholder has not satisfied the holding period requirement at the time a dividend is paid, but may satisfy it in the future, the Commissioner’s view is that NRWT must be withheld from the dividend at the 15% rate, and a refund sought once the holding period test has been satisfied.

The same approach will also apply to New Zealand’s double tax agreements with Mexico and Canada, as NZ has agreed for these DTAs to be covered agreements under the MLI. The MLI does not apply to China, but this rule has been written directly in the recently negotiated China Double Tax Agreement that came into force in 2019, so the same approach will be applied.

Healthy homes standard deductions

On 17 June 2020, Inland Revenue released Questions we’ve been asked QB 20/01 – Can owners of existing residential rental properties claim deductions for costs incurred to meet Healthy Homes Standard. This document is a finalisation of the previous draft issued in February 2020. Refer to our previous article for more information on this.

Temporary loss carry-back regime

On 15 June 2020, Inland Revenue released IS 20/03: Income tax – section GB 3B and GB 4 of the Income Tax Act 2007 – temporary loss carry-back regime. This statement focuses on the Commissioner’s view of the application of the specific anti-avoidance provisions relevant to companies using the temporary loss carry-back regime (i.e. section GB 3 – arrangement for carrying back net losses: companies and section GB 4 – arrangements for grouping tax losses: companies).

National Average Market Values of Specified Livestock Determination 2020

On 26 May 2020, Inland Revenue issued a determination which includes the national average market values of specified livestock and shall apply to specified livestock on hand at the end of the 2019-2020 income year.

GST: supplies by New Zealand outfitters and taxidermists to use overseas hunters

On 25 May 2020, Inland Revenue issued the finalised interpretation statement IS 20/02: Goods and services tax – supplies by New Zealand hunting outfitters and taxidermists to overseas hunters.

The following factsheets were also released:

• IS 20/02 FS 1: GST – Supplies by New Zealand hunting outfitters or guides to overseas hunter
• IS 20/02 FS 2: GST – Supplies by New Zealand taxidermists to overseas hunters and New Zealand outfitters
• IS 20/02 FS 3: GST – Overseas hunters in New Zealand for big game guided hunting

Inland Revenue also issued Commissioner’s Statement CS 20/02 Trophy hunting and the GST treatment of the “Trophy Fee” which is effective from 25 May 2020.

Inland Revenue - draft items for consultation

UN Joint Staff Pension Fund

On 28 May 2020, Inland Revenue released a draft Question We’ve Been Asked (QWBA) PUB00348: Income tax – monthly retirement payments from the United Nations Joint Staff Pension Fund. It is available for public consultation until 9 July 2020. This QWBA sets out the tax treatment for retired UN staff who are New Zealand tax residents and transitional residents.

July 2020 Tax Alert contents

• June tax bill – a mixed bag
• Welcome relief for taxpayers: the next chapter in the feasibility journey
• Purchase price allocation: A square peg for a round hole
• Land sales changes – are you in a regular pattern?
• Changes are on the way for the income tax treatment of leases subject to NZ IFRS 16
• R&D tax credits – latest developments and key considerations
• Operational taxes update: FATCA & CRS, QI and Investment Income Reporting
• Airbnb hosts, holiday home owners – have you got your head around the complexities of GST?
• COVID-19 - Infrastructure and tax: Shovels ready
• COVID-19: The latest wage subsidy information
• Snapshot of recent developments