Tax Bill returns from the Finance and Expenditure Committee with modifications

By Robyn Walker

The Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill (“the Bill”) has been considered by the Finance and Expenditure Committee (“the Committee”) and has had a number of changes recommended by the Committee.

The namesake of the Bill is the new GST rules which will apply to imported low value goods. These amendments have had a number of changes from the original proposals, aimed at ensuring that the rules will be easier to comply with. Most notably the start date for the regime has also been deferred for two months, moving from 1 October 2019 to 1 December 2019. This will provide more time for those who have to apply the rules to design and implement the systems required to comply. For more detail on these proposals, refer to GST legislation one step closer to enactment in this edition of Tax Alert.

The other major policy change in the Bill related to the ring-fencing of residential rental losses. These rules will continue to apply with effect from the beginning of the 2019/20 income year (1 April 2019 for most taxpayers), with the policy substance of the rules largely unchanged from the original Bill (refer to our March 2019 Tax Alert). A number of submitters expressed concern about the complexity of the legislative drafting, and it is pleasing that on the recommendation of the Committee, the rules have been completely rewritten and reorganised into a much more understandable set of rules. The rules, however remain fairly complex. Taxpayers with residential rental properties should set aside some time to understand these rules; noting that the Committee has also recommended that the rules not apply to employee accommodation, to companies other than close companies, and to government enterprises. We will provide more details on these rules in our July 2019 Tax Alert.

A Supplementary Order Paper (SOP) was added to the Bill in March adding an extended power to the Commissioner of Inland Revenue to make temporary, minor modifications to tax legislation to correct errors, resolve ambiguity or reconcile inconsistencies. This proposal has had a chequered past, having been removed from a previous Bill by the Committee. However, the concerns of the last variant of the proposals have largely been fixed, and the Committee is making only minor suggested changes. Our April 2019 Tax Alert contains details of these proposals.

The Bill contained a number of other proposals, which have been reviewed and tinkered with as necessary, including:

• PAYE and employee share schemes – changes are being made to ensure that tax rules do not cause undesirable financial reporting outcomes;
• Amendments to ensure beneficiaries of trusts do not become settlors of the trust when low amounts of beneficiary income are left outstanding;
• Allowing co-operative companies to make taxable distributions to certain shareholders.

The Bill has also had some additional changes added to it, either at the request of submitters or Officials. Most notable, are the following additions:

• The extension of the current exemption from tax for non-resident oil rigs. This exemption was due to expire on 31 December 2019, but has been extended for a further five years;
• An amendment to an associated person rule in the Goods and Services Tax Act 1985 to ensure there is no overreach;
• A tweak to the binding rulings regime to ensure the rules work as intended;
• An amended to the GST exemption which applies to residential property which has been rented for a period of five years prior to sale;
• Tweaks to how the ACC rules apply;
• Clarifying the how Inland Revenue officers are bound by secrecy rules, in particular making it an offence to disclose information which may adversely affect the integrity of the tax system or prejudice the maintenance of the law.

From here the Bill will continue on its journey through Parliament, with it still needing to complete its second reading, committee of the whole house, and a third reading before it receives Royal Assent. We would expect this to happen in the next one to two months.

June 2019 Tax Alert contents

• How are you affected by new individual tax assessment regime?
• Cautionary tale of GST in land transactions
• IR and ATO release administrative approach to determining residence
• What’s the buzz with tax and charities?
• KiwiSaver – flexibility, suspensions, and those over 65
• Depreciation myths debunked
• GST legislation one step closer to enactment
• GST obligation changes for digital services to Singapore
• Correcting errors under s. 113 update
• Snapshot of recent developments