What’s on the Tax Policy Agenda?
Tax Alert - December 2016
In November, the Government released the latest version of the Tax Policy Work Programme (TPWP) and details of the expected timing of projects. The three main categories under which work programme projects are classified are:
- Improvements and enhancements to tax policy within New Zealand’s broad-base low-rate framework;
- International tax and Base Erosion and Profit Shifting (BEPS); and
- Business Transformation and better public services initiatives.
In recent times there has been some criticism of the extent of tax policy reform taking place and the latest TPWP doesn’t really show any signs of slowing down. That said, the TPWP is always an ambitious list and it is never the case that all the items on the list actually get started let alone completed.
There are a few new items on the list and also a couple of significant omissions from the last TPWP.
Starting with the omissions:
- Feasibility expenditure – the outcome of the Trustpower case has left taxpayers facing a painful process of analysing expenditure to determine if it is deductible under the new legal interpretation. While this issue has not made the official work programme we understand some work is underway and it is expected that there will be consultation in early 2017, but the lack of formal acknowledgement of it will be concerning for taxpayers who want the law fixed,
- Mutual recognition of imputation credits – this chestnut had been on the work programme for so long without any movement. Does its omission signal that New Zealand has finally given up on Australia coming to the party? We understand that no decision has been made to abandon this pursuit, but the expectations of progress are slim given the extent of tax reform already underway in Australia, and
- GST on low-value goods – we’ve seen the introduction of the “Netflix tax” to counter online purchases of services but there has been silence from both Inland Revenue and Customs on the work on low-value imports of goods. The removal of GST on low value goods from the work programme seems unusual, particularly given just last week Australia announced they would be requiring non-residents selling low value goods into Australia to register for Australian GST (you can get a few more details about this change from our article here)
What are the new or otherwise interesting items:
- Deductibility of holding costs for revenue account property – the Finance and Expenditure Committee has asked officials to look into the deductibility of holding costs for revenue account property (e.g. if land is being held for resale, what costs can be deducted in the interim). Also related to property, changes were introduced last year to require non-residents to have New Zealand bank accounts in order to get an IRD number (required before purchasing land). This requirement has proved problematic and resolving issues in this area features as an additional new item on the work programme,
- Demergers – our tax rules do not cope well with company restructures, so it is good to see this work progressing. We understand this matter is being fast tracked and will introduce an exemption from the dividend rules for certain demergers by Australian listed companies,
- Employee share schemes – while this isn’t a new item, the previous consultation on changes has been widely criticised. The work programme now notes that the reform will seek “appropriate and balanced outcomes”. We expect to next see these reforms in a tax bill in early 2017,and
- Business Taxation – we’ve seen the first wave of business tax changes related to provisional tax and withholding taxes come through, it is great to see the work programme still committing resources to “researching additional measures that have potential to deliver further benefits to business, reduce compliance costs and make the tax system simpler.”
In addition to the above items, it can be certain that we will continue to see a number of workstreams addressing BEPS. In early 2017 we expect to see a package of BEPS reforms out for consultation which will consider interest limitation rules, hybrid mismatch arrangements, transfer pricing and permanent establishment definitions.
For more information contact your usual Deloitte advisor.
December 2016 Tax Alert contents
- Timely revised guidance on deductibility of certain earthquake related costs
- Closely held companies bill reported back with significant changes
- Charitable change to the FBT rules? Depends on your facts
- Business tax simplification measures are a step closer
- Calculating “market rental value” on employee accommodation – guidance finally released
- R&D tax credits – our experience to date
- IR’s Operational Guidelines: Pre-Litigation Settlements
- What’s on the Tax Policy Agenda?
- A snapshot of recent developments