Snapshot of recent developments
Tax Alert - November 2019
Policy and legislative developments
FIF deemed rate of return reduces
On 26 September 2019, an order in council came into force which reduces the deemed rate of return for taxing foreign investment fund interests to 5.86% for the 2018-19 income year (reduced from 6.44%). The rate is based on taking an average of the five-year Government bond rate at the end of each quarter, plus a margin of four percentage points. The cabinet paper which provides information to Ministers on how it is determined and the reasons for the change has been made available here.
Partnership Act re-enacted
The Partnership Law Act 2019 received the Royal Assent on 21 October 2019. The purpose of the Act is to re-enact, in an up-to-date and accessible form, the Partnership Act 1908. The Act does not make any substantive policy changes. It applies to every partnership regardless of when it was formed. Schedule 4 of the Act contains consequential amendments to a number of enactments including the Goods and Services Tax Act 1985 and the Income Tax Act 2007. This Act comes into force immediately after the expiry of the 6-month period that starts on the date of Royal assent, i.e. 22 April 2020.
Finalised determination for depreciation rate
The tax depreciation rate for pushrod/cable propelled pipeline camera inspection systems (not including pipeline crawlers) has been finalised and will apply for the 2019 and subsequent income years. DEP105 provides for an estimated useful life of 4 years, a 50% DV rate or a 40% SL rate.
These rates have been added into the “Dairy Plant”, “Fishing", Medical and Medical Laboratory", “Oil and Gas” industry categories, and the “Compressed Air Plant (where not industry specified)”, “Factory and Other Sundries”, “Reticulation Systems including Power Generation (excluding electrical, communications and gas reticulation)” and “Water and Effluent Treatment (where not industry specified)” asset categories.
Draft Inland Revenue items released
What to do when GST incorrectly accounted for
A draft QWBA PUB 00352 has been released asking the question: “if a supplier determines they have incorrectly accounted for GST on a supply, can they make an adjustment under section 25 or are they limited to amending their return?” This situation could arise when a supplier subsequently offers a discount for poor quality, or when the supplier wishes to reduce consideration because GST was incorrectly charged.
Submissions close on 12 November 2019. Deloitte does not agree with the outcomes in this draft item and will be submitting. If ultimately Inland Revenue’s position is not changed, we will be advocating for a legislative change.
Alteration of rights attached to shares acquired for disposal
On 21 October 2019, Inland Revenue issued two draft rulings for consultation. The draft PUB 00369 is a re-issue of rulings BR Pub 17/04 and BR Pub 17/05 which are set to expire in March 2020. They concern an arrangement where a shareholder holds shares in a company and the shares were acquired for the purpose of disposal. Subsequently, the rights attached to the shares are altered and the following apply:
- The shares are in a company registered under the Companies Act 1993.
- The alteration is not structured as a cancellation and issue of shares.
- Consistent with the rulings originally issued, the rulings conclude that:
- An alteration of share rights does not result in a disposal of personal property for the purposes of s CB 4.
- The time of acquisition of the shares where the rights attached to them are altered after acquisition is the time the shares were acquired before the alteration.
Once finalised, it is proposed that the rulings will apply for an indefinite period from 1 April 2020.
Inland Revenue has released a draft interpretation statement and two Questions We’ve Been Asked (QWBA) covering aspects of short-stay accommodation for consultation:
- PUB00347 (interpretation statement): GST treatment of short-stay accommodation. The draft confirms the supply of short-stay accommodation will not be an exempt supply and then discusses the requirements for registration, the main consequences of registration and what happens when the property is sold or the short-stay accommodation activity ceases.
- PUB00346 (QWBAs): If property held in a trust is rented out by a beneficiary of the trust for short accommodation, who should declare the income, and what deductions can be claimed? The draft states that the income belongs to the beneficiary as they’re the one granting the licence to the guests to stay. Non-capital costs related to the earning of income can be claimed although they may need to be apportioned if they also relate to private use of the property.
If property held in a trust is rented out by the trustees for short-stay accommodation, who should declare the income? The draft states that income belongs to the trustees and will have to be declared in the trust’s tax return unless and to the extent it is allocated as beneficiary income. Non-capital costs related to the earning of income can be claimed although they may need to be apportioned if they also relate to private use of the property.
The deadline for comment is 3 December 2019.
November 2019 Tax Alert contents
· OECD proposes a “unified approach” to addressing the digitalization of the economy
· New compulsory online BEPS disclosure forms now required!
· Stop Press: Inland Revenue releases Multinational Compliance Focus
· Thin capitalisation calculations in a BEPS world
· Attention Wholesalers & Distributors – Are you part of the chosen few?
· Provisional tax changes: Two years on
· Uncertain tax positions – it’s now time to report these in your financial statements
· Deducting holding costs for privately used land that is taxable on sale
· Recent Developments