Snapshot of recent developments
Tax Alert - July 2021
Tax legislation and policy announcements
Effective dates for MLI between Malaysia and New Zealand
On 1 June 2021, the Multilateral Convention (2016) (MLI) entered into force in respect of Malaysia and the Malaysia - New Zealand Income Tax Treaty will be covered and affected by the MLI. For New Zealand and Malaysia, the MLI takes effect on 1 January 2022 with respect to taxes withheld at source on amounts paid or credited to non-residents, and on 1 December 2021 with respect to other taxes withheld at source to on amounts paid or credited to non-residents.
Early withdrawal from income equalisation scheme - Canterbury flooding
On 1 June 2021, the Minister for Rural Communities, Damien O’Connor, declared the flooding affecting the Canterbury region as a medium-scale adverse event. It is affecting those taxpayers’ ability to comply with tax obligations. Inland Revenue has discretion to allow early refunds, particularly in such events, from the income equalisation scheme. All applications for an early refund must be in writing and it will take approximately 20 days for Inland Revenue to process.
Commissioner’s discretion to remit interest on Canterbury Flood Event
On 8 June 2021, the Tax Administration (Canterbury Flood Event) Order 2021 (“The Order”) came into force. The Order declares the Canterbury Flood Event to be an emergency event for the purpose of s 183ABA of the Tax Administration Act 1994. The Order will apply to taxpayers that are physically prevented by the Canterbury Flood Event from making a payment required by tax law by the due date. The effect is that taxpayers may ask the Commissioner to remit interest charged under Part 7 of the Tax Administration Act 1994 for failing to make payments on a due date. The Commissioner may then remit the interest if she is satisfied that it is equitable that the interest be remitted; the taxpayer asked for the relief as soon as practicable; and the taxpayer made the payment as soon as practicable. The Order expires and is revoked on 31 August 2021.
Deemed rate of return on foreign investment fund attributing interests
On 18 June 2021, the Income Tax (Deemed Rate of Return on Attributing Interests in Foreign Investment Funds, 2020-21 Income Year) Order 2021 (“The Order”) came into effect. The Order sets, for the 2020–21 income year, the deemed rate of return used to calculate foreign investment fund income under the deemed rate of return calculation method set out in s EX 55 of the Income Tax Act 2007, to be 4.43% (down from 5.05% for the 2019-20 income year).
Extension of R&D tax incentive application due dates
Inland Revenue has published an update that the Minister of Revenue David Parker, has agreed with a due date extension to 31 August 2021 for year one (2019-20 income year) supplementary returns, and year two (2020-21 income year) general approvals and criteria and methodologies (CAM) approvals. The Minister will include this extension in the next tax Bill which is due to be introduced to Parliament in the second half of 2021. The intention of this extension is to give businesses more time to consider how the R&D tax incentive eligibility criteria applies to their activities and to make an application.
Inland Revenue statements and guidance
Excusing estates from filing income tax returns
On 8 June 2021, Inland Revenue released draft operational statement ED0231 - Excusing Estates from filing income tax returns. This consultation document sets out a change in the Commissioner’s approach to applying the income tax return filing exemption in s 43B of the Tax Administration Act 1994 to estates. Submissions close on 7 July 2021.
Income tax treatment of accommodation provided to employees
On 10 June 2021, Inland Revenue published Operational Statement OS 21/01 - Income tax treatment of accommodation provided to employees. The Commissioner’s view has remained unchanged from the draft version. This statement deals with the tax treatment of the provision of accommodation by the employer or the payment of an allowance to the employee; and reimbursement by the employer of accommodation expenditure incurred by an employee (also known as expenditure on account). The purpose of this statement is to clarify when these circumstances apply and to assist in determining the amount of tax payable.
Apportioning expenditure for motels and hotels
On 17 June 2021, Inland Revenue released draft QWBA PUB00391 - If I run a hotel, motel or boarding house and live on site, what expenditure can I claim? This consultation document states that if a person has a business of providing accommodation through a hotel, motel, boarding house, or other business premises, and live on-site, any expenses they incur relating solely to the running of their business are fully deductible. However, expenses relating to their private quarters or family life are not deductible as they are private or domestic in nature. If the expenses relate to both their private quarters and their business, they can claim a deduction to the extent that the expenses relate to the running of their business. This requires a person to calculate the portion of these mixed expenses that are attributable to their business. Submissions close on 30 July 2021.
Compulsory zero-rating of land rules for commercial leases
On 29 June 2021, Inland Revenue issued finalised QWBA QB 21/08 - GST - How do the compulsory zero rating of land rules apply to transactions involving commercial leases? The Commissioner’s answer remains unchanged from the draft version and covers various factual situations, such as stand-alone lease assignments, lease assignments in the context of business asset sales and lease procurement services in the context of business asset sales.
GST public ruling on debt factoring arrangements
On 17 June 2021, Inland Revenue released Public Ruling BR Pub 21/03 - Goods and Services Tax - Debt factoring arrangements. This statement applies to the arrangement that is the sale, by a GST registered person (the Assignor), to a third party (the Factor), on a recourse or non-recourse basis, of an outstanding debt at a price less than the debt’s face value. This statement considers whether a GST input tax deduction can be claimed for a bad debt write-off when a debt is factored.
Application date for depreciation of commercial buildings
On 22 June 2021, Inland Revenue issued finalised Question We’ve Been Asked (QWBA) QB 21/05 - The application date for the depreciation of commercial buildings. The Commissioner’s answer remains unchanged from the draft version, stating that the new rules for depreciation for commercial buildings apply from the beginning of the 2020-21 income year for all taxpayers regardless of the taxpayers balance date.
Deductions for businesses disrupted by COVID-19
On 29 June 2021, Inland Revenue published finalised Interpretation Statement IS 21/04 - Income tax and GST - deductions for businesses disrupted by the COVID-19 pandemic. The Commissioner’s position remains unchanged from the draft version. This statement considers whether a business can claim an income tax deduction for expenditure or loss incurred where a business has downscaled or stopped operating because of the COVID-19 pandemic. This statement also briefly considers the GST implications of these events.
Deloitte Global News Focus
Global corporate tax and withholding tax rates
Deloitte has recently published Global Corporate Tax and Withholding Tax Rates 2021 which provides corporate income tax, historic corporate income tax, and domestic withholding tax rates for close to 150 jurisdictions.
Capitalisation of Software-as-a-Service costs
A recent International Financial Reporting Interpretations Committee (IFIRIC) decision regarding the capitalisation of Software as a Service costs (SaaS) may be quite different to how many people have previously thought about the ability to capitalise costs associated with customisation of SaaS products. This could materially impact your business depending on your previous policy. The tax consequences of any change in accounting positions should be considered by taxpayers. This Deloitte accounting alert had further information about this change.
Remote work: Setting the right strategy
The landscape of remote work is changing rapidly as the pandemic has accelerated the future of work. For many businesses, there will be reduced importance as to where work is done and increased focus on how work is done, leveraging robotics, automation, digital capabilities, connected platforms, tools and techniques. We are seeing remote work come to life in several scenarios today, and each has different features, challenges and possible approaches. In this Deloitte Asia Pacific Dbrief, our Deloitte experts review alternative employment models and where these may or may not be attractive remote work solutions.
The key news updates from the OECD over the past month are as follows:
- On 17 June 2021, heads of tax crime investigation from 44 countries welcomed the launch of the second edition of Fighting Tax Crime - The Ten Global Principles. The report also presents 33 country profiles (including New Zealand), detailing countries’ domestic tax crime enforcement frameworks as well as highlighting the progress made in implementing the Ten Global Principles.
- On 22 June 2021, the OECD published Model Reporting Rules for Digital Platforms: International Exchange Framework and Optional Module for Sale of Goods. Reflecting the interest of a number of jurisdictions to permit the extension of the scope of the Model Rules to the sale of goods and the rental of means of transportation, the OECD has developed an optional module allowing such jurisdictions to implement the Model Rules with an extended scope. Exchanges of information under the Model Rules are operationalised by an international legal framework in the form of the Multilateral Competent Authority Agreement.
Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert.
July 2021 Tax Alert contents
- EVs, car fees, and the role of tax in the path to net zero
- Alert Level 2 again: What this means
- Property tax consultation launched
- Practical guidance on the purchase price allocation rule
- Volatility in price of Bitcoin raises tax questions
- Tipping point: Business leaders embrace a new role for the tax function
- Progress towards a multilateral solution in international taxation
- Snapshot of recent developments