Snapshot of recent developments
Tax Alert - March 2020
Tax legislation and policy announcements
Consultation on proposed changes to unclaimed money
On 28 February, consultation closed on changes to the Unclaimed Money Act
1971. The purpose is to simplify the administrative processes and reduce compliance costs as part of Release 5 of Business Transformation. If amended, the new unclaimed money rules will remove the need for holders of unclaimed money to maintain physical registers, reduce the period of time which must elapse before money is deemed unclaimed and improve Inland Revenue’s ability to match unclaimed money with people.
During February, the OECD released several documents relating to transfer pricing and the taxation of the digitised economy.
- On 11 February, the OECD published, Transfer Pricing Guidance on Financial Transactions: Inclusive Framework on BEPS: Actions 4, 8-10. This is the first time the OECD Transfer Pricing Guidelines include guidance on the transfer pricing aspects of financial transactions.
- The OECD released a progress update on its Digital Economy work-streams, where members of the Inclusive Framework reaffirmed their commitment to reaching a consensus-based long-term solution to the tax challenges arising from the digitalisation of the economy by the end of 2020. The update included a statement by the OECD/G20 Inclusive
Framework on BEPS on the Two-Pillar Approach to Address the Tax Challenges Arising from the Digitalisation of the Economy. Read our Tax@hand article for more information.
- Finally, new economic analysis published by the OECD shows a proposed “two-pillar” solution to the tax challenges arising from the digitalisation of the economy would have a significant positive impact on global tax revenues. Also, see our article “OECD update on base erosion and profit shifting measures” in this issue.
Inland Revenue statements and guidance
Loss offset elections between group companies
On 13 February 2020, Inland Revenue finalised a standard practice statement on loss offset elections between group companies (SPS 20/02). In SPS 20/02 the Commissioner sets out certain practices deemed acceptable when offsetting losses by election between group companies. The practice statement also outlines the consequences of specific events that can affect a loss offset, and how taxpayers should address these outcomes. SPS 20/02 updates and replaces SPS 17/03, effective from 12 February 2020.
Treatment of the receipt of lump sum settlement payments
On 24 February, Inland Revenue published an updated interpretation statement (IS 20/01) on the income tax treatment of lump sum payments received to settle claims that are both capital and revenue in nature. The statement is essentially a re-issue of a previous item with a reference corrected.
The interpretation statement confirms that:
- Where a single undissected sum is received, it should be apportioned between its capital and revenue elements where possible.
- Any apportionment must be made on an objective basis, with the settlement agreement and any related documents being the appropriate starting point.
- The circumstances surrounding the agreement and other relevant evidence should be considered, where necessary.
- The onus of proof is on the taxpayer to show the apportionment is appropriate, especially to prove an amount is non-taxable when the lump sum includes an amount that is taxable under Part C.
- Where a payment cannot be appropriately apportioned, the whole amount should be treated the same – generally as income.
When are tax payments received in time?
The Commissioner has finalised a standard practice statement (SPS 20/01) for accepting tax payments in time. Coverage of the practice statement includes: electronic payments, debit/credit cards, Westpac over-the-counter payments, tax pooling, tax transfers, Income Equalisation Scheme deposits, primary sector business customers, and weekends and public holidays.
The practice statement confirms that cheques will no longer be accepted as a method of payment from 1 March 2020 (except in some exceptional circumstances). This practice statement is effective from 5 February 2020 and replaces SPS 19/01.
New operational position on Part 10B transfers of excess tax, effective date for ICA entries
On 5 February, the Commissioner published an operational position (OP 20/01) on Part 10B transfers of effective tax. Part 10B of the Tax Administration Act 1994 (the TAA) enables taxpayers to sometimes choose a date (the date of transfer) from which a transfer of overpaid tax will be effective. These rules have raised a question over the effect on the imputation credit account (ICA) of both transferor and transferee companies if the transferor selects an earlier date of transfer. The Commissioner has taken the position that the correct approach is for taxpayers to update the ICA for the date of transfer i.e. the effective date chosen. The operational position applies to requests for transfers made on or after 5 February 2020 (i.e. not retrospective).
In some cases, this approach contrasts with common commercial practices (prior to the release of the operational position) which may now result in further income tax, imputation penalty tax and use of money interest for the transferor company. If you are looking to transfer excess tax with an earlier date of transfer, please get in touch with your regular Deloitte advisor to consider how the operational position may affect you.
Commissioner Statement on GST liability for insurance and settlement payments to third party claimants
On 3 February, the Commissioner issued a statement (CS 20/01) which sets out her position and operational approach to the GST liability of a GST registered third party claimant when they receive a payment for damages or loss incurred, including by way of settlement agreement, under a contract of insurance. The Commissioner’s position is:
When an insurer of an insured person pays an amount to a GST-registered third-party claimant, in relation to a claim that the third party claimant has against the insured person, and the other requirements of s 5(13) of the Goods and Services Tax Act 1985 are met, then the third party claimant must return GST on the receipt of that payment.
Inland Revenue has published a guide on “How to get certainty on a tax position” (IR715). This guide defines binding rulings and explains the application process. The guide isalso helpful to understand when Inland Revenue will / will not give a ruling.
Inland Revenue has updated it’s website with prosecution guidelines
designed to ensure a consistent approach to prosecutions nationally.
Inland Revenue - draft items for consultation
Natural love and affection exception to debt remission income for
On 28 February, Inland Revenue released a draft QWBA for consultation (PUB00349). [ME1] The draft QWBA considers whether a look-through company (LTC) derives debt remission income when a close friend or family member of the LTC’s shareholder forgives a loan made to the LTC. In summary, section EW 46C of the Income Tax Act 2007 prevents the LTC from deriving debt remission income if the shareholder and the close friend or family member have natural love and affection for each other. Taxpayers can submit comments on the draft QWBA to Inland Revenue prior to 10 April 2020.
Other items of interest
Tax relief available for those affected by the summer drought or Coronavirus
Primary Industries Minister Damien O’Connor has declared a drought from the Northland Region to the northern part of Auckland (down to the Harbour Bridge). Inland Revenue is urging taxpayers affected by the drought to get in contact as tax relief is potentially available. Tax relief is also available to taxpayers affected by Coronavirus COVID-19.
February 2020 Tax Alert contents
- GST issues paper proposes some much needed R&M to the GST Act
- Another year over, and a new year just begins
- OECD guidance on financial transactions finalised
- How healthy is your tax compliance for your rental property?
- Update on OECD Base Erosion and Profit Shifting measures
- Snapshot of recent developments
- Deloitte Tax Calendar - Last Call