Snapshot of recent developments
Tax Alert - September 2020
Tax legislation and policy announcements
COVID-19: further management measures act enacted
The COVID-19 Response (Further Management Measures) Legislation Act (No 2) 2020 introduced on 4 August 2020 was passed under urgency and enacted on 6 August 2020. This Act aims to assist with the impact of COVID-19 and includes key tax amendments around eligible R&D expenditure, providing an in-work tax credit entitlement extension, and the Commissioner’s additional power to modify time periods and remit UOMI on provisional taxpayers’ terminal tax for the 2020-21 tax year. A special report on the legislation can be found here.
OECD Papers released
During August, the OECD released the following two papers:
- A working paper reassessing the regressivity of VAT by drawing on tax microsimulation models constructed for 27 OECD countries. The VAT is found to be either roughly proportional or slightly progressive in most of the countries examined. New Zealand is one of the three countries that have slightly regressive VAT, because the application of Goods and Services Tax is so broad with few exemptions available. In the broader context of COVID-19, the findings suggest there may be scope in many countries for VAT reform to increase revenue.
- A report discussing the main features of job retention schemes deployed by countries during COVID-19 lockdown (i.e. Wage Subsidy scheme in the case of New Zealand) and the ways these should be adjusted as restrictions to economic activities are gradually being withdrawn. The report includes discussion on whether firms who receive job retention support should be allowed to pay dividends and other forms of profit sharing in the same year. While bans may send a clear message that such support is for job retention only, they also have potential limitations.
Inland Revenue statements and guidance – Finalised items
Income tax – when is development or division work “minor”?
On 13 August 2020, Inland Revenue released Interpretation Statement IS 20/08 – Income tax: when is development or division work “minor”? which was previously open for public consultation. It is important to note that the Commissioner has set “safe harbour” figures for the absolute and relative costs to assist taxpayers with compliance. This statement applies from 13 August 2020.
COVID-19 variation for GST registered persons changing to making exempt supplies of accommodation
On 17 August 2020, Inland Revenue issued Determination COV 20/09 – Variation to sections 52(3) and 52(4) of the Goods and Services Act 1985. This statement applies to GST registered persons with a taxable activity of supplying accommodation, who between 14 February 2020 and 31 October 2020, change to making exempt supplies of accommodation leaving them with no taxable activity. Under ordinary circumstances, the taxpayers are required to notify the Commissioner whether or not they intend to carry on any taxable activity within 12 months from the date they cease having taxable activity. The Commissioner will not cancel their GST registrations if she believes the customer will carry on any taxable activity within 12 months from the date their taxable activity ceased. This statement extends the 12 month period to 18 months, subject to the conditions that the taxpayers ceased their taxable activity of supplying accommodation as a consequence of COVID-19 and they notify the Commissioner of the cessation in accordance with the set requirements. The variation applies from 17 March 2020 to 31 October 2020. You can read more about GST on short-stay accommodation in our article from July 2020.
Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert.
September 2020 Tax Alert contents
- COVID-19 represents unique opportunity for businesses to reconsider their options when it comes to motor vehicles
- Snapshots of recent developments