Article

Tax fact or fiction?

Tax Alert - February 2022

By Robyn Walker
 

Tax is a topic that everyone seems to have an opinion on, and when the subject comes up in a social setting it can lead to some lively discussions, but also some not quite accurate sharing of “facts” about tax rules. Below are some of the commonly shared tax misconceptions.

Utes are not subject to Fringe Benefit Tax (FBT)

There is no exemption from FBT for utes, instead, there is an exemption for “work-related vehicles”. To qualify as a work-related vehicle, a vehicle must not be predominantly for carrying passengers (a ute could qualify, or a vehicle which has had its rear seats removed or bolted down), the vehicle must have prominent signwriting with the business name or logo (magnetic signs are not sufficient) and the only private use of the vehicle can be home to work travel with only incidental stops on the way (all other private use must be prohibited). A ute parked up at the sports field or the boat ramp means it is not a work-related vehicle and FBT should be paid.

If an employee pays some fuel costs, there is no FBT on a vehicle

Having an employee contribute to the costs of running a work vehicle can reduce the taxable value of the vehicle fringe benefit, but it is unlikely to eliminate it. Generally, the taxable value of a vehicle that is fully available to an employee for private use is calculated quarterly as the GST inclusive cost price of the vehicle multiplied by 5%. Any employee contributions are subtracted from this amount before the result is multiplied by the relevant FBT rate (which could be 49.25% or 63.93%)

Employees can be paid in gift vouchers without tax

When employees receive payment in cash then PAYE is to be deducted by the employer. When an employee is paid “in-kind”, then FBT is generally the relevant tax to be considering. Paying an employee in gift vouchers in any substantial way will result in the employer needing to pay FBT (which will likely equate to around the same amount of tax, or more, than what would be owing if the employee was paid in cash). There are two exceptions to this rule. The first is the “de minimis rule” which provides that no FBT is payable if an employer has provided no more than $22,500 of unclassified fringe benefits to all employees in the last 12 months, and no employee is receiving more than $300 of benefits in a quarter. The second is the exemption from FBT for charities; however, this exemption does not apply to “short-term charge facilities” (which could include the use of a credit card or vouchers) where the annual value is more than $1,200 or 5% of the employee’s salary and wages.

If land is owned for 10 years, there won’t be any tax when it is sold

Whether or not the sale of land will be subject to tax can vary based on a wide set of circumstances, and it is not true that any tax obligations automatically disappear once land has been owned for 10 years. The Income Tax Act 2007 contains a wide range of circumstances where land can be taxed, some are time-bound and expire 10 years after the acquisition, some have variable tax timelines dependent on when actions occur, and some don’t expire at all.

The bright-line test does not apply to the family holiday home

The bright-line test has the potential to apply to any residential land which is sold within the relevant bright-line period (which could be either 5 years or 10 years) if the land isn’t going to be taxed under any other land tax rule. The only exception to the bright-line test is if the property has been the “main home” of the owner (with a slightly different rule for property owned by a trust). A person can only have one main home, and this is the residence with which the person has the greatest connection (factoring in, for example, where immediate family live, where the person’s employment is based, business or economic ties, social connections); in this case, a holiday home is unlikely to qualify for the main home exemption.

Only income from New Zealand shares is subject to tax in New Zealand

This is false, any New Zealand tax resident is subject to tax in New Zealand on income earned anywhere in the world. While there are various ways to calculate tax on income from foreign shares, any investment income is taxable.
On a related note, it is also a common misconception that foreign exchange gains are not subject to tax. Any New Zealand tax resident with a foreign currency bank account is potentially subject to tax on exchange rate movements (realised or unrealised).

Inland Revenue will never find out…

With its new computer system and information sharing arrangements there is very little which can escape the attention of Inland Revenue. Inland Revenue automatically receives details of property sales so will know how long a property was owned and if it was sold within the bright-line period. Inland Revenue receives all investment income data, so know what investments taxpayers have in New Zealand. Inland Revenue routinely exchanges data with almost 100 other countries and therefore has a lot of data about foreign income sources, including bank accounts and investments. Inland Revenue also routinely collects data to detect potential non-compliance with tax laws, this includes collecting data from building supply businesses to detect “cash jobs” being completed by tradies; requesting customer data from cryptocurrency businesses; and requesting sales data from various digital intermediary platforms.

Please contact your local Deloitte advisor if you have any queries.

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