Snapshot of recent developments

Tax legislation and policy announcements

Budget 2021

On 20 May 2021, Finance Minister Hon Grant Robertson delivered Budget 2021. Given the already significant number of tax measures from the Labour Government, it was a relief to many that tax announcements were missing from the budget. However we did get a glimpse of what may be to come, with the detailed Budget documents providing the following insights:

• Inland Revenue has been allocated $5m over two years to “collect information on the level of tax paid by high-wealth individuals and their related entities.”
• A Digital Services Tax is not yet off the table and remains in the wings in the event that the OECD does not make sufficient progress on finding a multilateral solution to international tax.
• The government books do not yet include an estimate of any revenue gain from removing interest deductions from residential rental property. The documents note: “the fiscal impact of this policy has not yet been quantified as this depends on final policy decisions.”
• On a related note, the budget documents note: “Tax settings will continue to be broadly stable and predictable. … The Generic Tax Policy Process shall be used to develop and consult on tax policy where practicable.”
  

Check out the Deloitte Budget Hub for further commentary.

Remedial Tax Act

On 20 May 2021, the Taxation (Budget 2021 and Remedial Matters) Act 2021 was introduced and passed through all stages. On 24 May 2021, the Act received Royal Assent. The Act increases the minimum family tax credit (MFTC) threshold from $30,576 to $31,096 from 1 July 2021 and ensures that low-income working families will be better off working and receiving the MFTC, than they would be on a main benefit, on an annual basis.

Extending due dates for R&D Tax Incentive

The Minister of Revenue has recently agreed to extend due date for years one and two of the R&D Tax Incentive (RDTI). Specifically extending:

• year one (2019-20 income year) supplementary returns to 31 August 2021 for all businesses; and
• year two (2020-21 income year) general approvals and criteria and methodologies (CAM) approvals to 31 August 2021 for all businesses.
  

Amendments to give effect to these extensions will be included in the next tax omnibus bill due to be introduced in the second half of the year. As such, any claims made under the above extensions cannot be processed until the relevant bill is enacted.

Public consultation on Transport Emissions Green Paper

On 14 May 2021, Ta Manatū Waka (the Ministry of Transport) released a green paper Transport Emissions: Pathways to Net Zero by 2050, which seeks feedback on options to accelerate the transport sector meeting the draft advice and recommendations of the Climate Change Commission, and moving to a net zero carbon transport system by 2050. The paper includes tax-related suggestions to reduce fringe benefit tax on zero emission vehicles, reduce GST on the purchase of zero-emission vehicles, offer refundable tax credits on the purchase of zero-emission vehicles, replace the road user charges exemption for electric vehicles with an upfront subsidy, and increase tax depreciation for electric vehicles. More information on the release can be found here. Submissions close on 25 June 2021.

Conference of the Parties to the MLI approve an opinion on interpretation and implementation

On 3 May 2021, the Conference of the Parties to the Multilateral Instrument (MLI) approved an opinion that sets out a series of guiding principles for addressing questions about the interpretation and implementation of the MLI.

Inland Revenue statements and guidance

Employee share schemes – employer expenditure or loss income

On 18 May 2021, Inland Revenue published finalised QB 21/04 – When an employer is party to an employee share scheme, when does an employer’s expenditure or loss under s DV 27(6) or income under s DV 27(9) arise? The Commissioner’s position in the finalised statement has remained the same as in the draft statement. This Question We’ve Been Asked is relevant to any employer who is party to an employee share scheme where the employee receives a benefit under the scheme within 20 days of the end of the employer’s income year or a breach of shareholder continuity in the employer. This statement does not consider arrangements that may be subject to the application of ss BG 1 (tax avoidance) or GB 49B (employee share schemes).

Application date for depreciation of commercial buildings

On 25 May 2021, Inland Revenue released draft Questions We’ve Been Asked ED0230 - The application date for the depreciation of commercial buildings. This consultation item clarifies that the new rules for depreciation for commercial buildings apply from the beginning of the 2020-21 income year for all taxpayers, rather than from 1 April 2021. Submissions close on 11 June 2021.

GST - definition of a resident

On 28 May 2021, Inland Revenue released draft interpretation statement PUB00390 - GST - definition of a resident. This consultation item provides guidance on how to determine whether a person is a resident for GST purposes. Submissions close on 9 July 2021.

GST - registration of non-residents

On 28 May 2021, Inland Revenue issued finalised interpretation statement IS 21/03 - GST - registration of non-residents under section 54B, with the Commissioner’s position remaining unchanged from the previous consultation item. Section 54B of the Goods and Services Tax Act 1985 allows non-resident businesses that do not make supplies to end consumers in New Zealand to register for GST and recover GST input tax on goods and services acquired in New Zealand. Since section 54B was introduced, there have been legislative changes that treat certain supplies by non-residents as being made in New Zealand. These changes include the supply of remote services and low value goods. This means a greater number of non-residents must register under the standard registration provision and fewer non-residents are eligible to register under section 54B. This item provides guidance on whether a non-resident is eligible to register under section 54B.

Variation to the effective date of a notice of election to imputation group

On 28 April 2021, Inland Revenue published Determination COV 21/02 - Variation to section FN 7(5) of the Income Tax Act 2007. This variation recognises that some taxpayers who did not take steps to address a debit balance in their imputation credit account before 31 March 2020 could have used a tax pool or other option to reduce the balance subsequently, but the impact of COVID-19 on their profits has been such that these options will adversely affect their cashflow. Hence, eligible taxpayers will be able to give a notice of an election to form an imputation group between 28 April 2021 and 30 September 2021 that will be effective from the start of the tax year ending 31 March 2020, allowing use of the credits of the related company to reduce the debit balance.

Negative interest and withholding taxes

On 30 April 2021, Inland Revenue issued a finalised Question We’ve Been Asked QB 21/02 – Whether “negative interest” payments are subject to withholding taxes. In short, the answer is no. It explains the application of the resident withholding tax (RWT) and non-resident withholding tax (NRWT) rules to situations where negative interest is charged on an advance of money or a loan. The Commissioner has been asked this question by banks and financial institutions because they wish to have appropriate processes in place should the RWT and NRWT rules apply to negative interest payments and they are required to withhold tax.

Tax treatment of cryptoassets received from an airdrop and a hard fork

On 3 May 2021, Inland Revenue released consultation documents PUB00405 - Income tax - tax treatment of cryptoassets received from an airdrop and PUB00405 - Income tax - tax treatment of cryptoassets received from a hard fork. In short, these two draft statements state that if a person has a cryptoasset business, or acquired the cryptoassets as part of a profit-making undertaking or scheme, then the receipt of cryptoassets from an airdrop or a hard fork will be taxable; if a person has a cryptoasset business or disposed of the cryptoassets as part of a profit-making undertaking or scheme or acquired the cryptoassets for the purpose of disposing them, then the disposal of cryptoassets that were received from an airdrop or a hard fork will be taxable. Submissions closed on 25 May 2021 for both consultation items. Our comments on an earlier consultation document were covered in the February 2021 Tax Alert.

Charities business exemption - business carried on in partnership

On 7 May 2021, Inland Revenue issued finalised QB 21/03 - Charities business exemption - business carried on in partnership. This statement states that income derived by a charitable entity from a business can be exempt under s CW 42 of the Income Tax Act 2007 if the business is carried on by a charitable entity in partnership with a non-charitable entity, subject to other requirements (such as the control and territorial restrictions) are satisfied.

2021 CPI updates

On 12 May 2021, Inland Revenue updated the following statements to reflect the annual CPI adjustment to the following amounts for the 2021 income year.

• DET 19/01 - standard-cost household service for private boarding service providers. The updated weekly standard-cost per boarder is $194.
• DET 09/02 - standard-cost household service for childcare providers showing. The updated hourly standard cost (per child) is $3.75 and annual fixed administration and record keeping standard-cost is $367.
• DET 19/02 - standard-cost household service for short-stay accommodation providers. The updated daily standard-cost for each guest for owned dwelling is $52 and for rented dwelling is $47.
• OS 19/03 - Square metre rate for the dual use of premises. The updated square metre rate is $44.75 which has increased by $2 compared to the previous tax year.

National average market values of specified livestock

On 26 May 2021, Inland Revenue published NAMV 2021 - National Average Market Values of Specified Livestock Determination 2021. This determination is made under section EC 15 (determining national average market values) of the Income Tax Act 2007 and shall apply to specified livestock on hand at the end of the 2020-2021 income year.

A type of attributing interest in a FIF for which a person may not use the FDR method

On 12 May 2021, Inland Revenue issued Determination FDR 2021/02 - A type of attributing interest in a foreign investment fund for which a person may not use the fair dividend rate method (The Colchester Global Bond Enhanced Currency Fund NZD Hedged Accumulation Class - Z Shares). The determination states that any investment by a New Zealand resident investor in the NZD Hedged Accumulation Class Z-Shares of the Colchester Global Bond Enhanced Currency Fund is a type of attributing interest for which the investor may not use the fair dividend rate method to calculate foreign investment fund income from the interest.

Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert.

June 2021 Tax Alert contents

• New business continuity test – Inland Revenue releases guidance
• Intra-group service charges – are your group’s processes up to date?
• The wage subsidy debate continues… over a year on, was the scheme a success? And are you safe from audit?
• Advantage sports: being a team player can reduce your tax bill
• Are your records up to standard?
• Mileage reimbursement rates – what you need to know
• Snapshot of recent developments