The New Zealand Government introduced its annual Tax Bill on 30th August 2022. By the 31st August one of the main changes (although unheralded by the Government the day before) was scrapped after loud and unrelenting complaints on a proposal to impose GST on financial services provided to managed funds and Kiwisaver funds.
As a general rule there is no GST imposed on financial services, and the Government was proposing to vary that rule for managed funds and Kiwisaver funds. Their argument was that some GST was being charged (as not within the excluded “financial services”) but the percentage varied between fund managers, and to have a level playing field the proposal was to introduce GST on all fees and services. The impact of imposing GST would have meant individual holders would bear that GST impost, to the detriment of their savings. The amount involved was eyewatering.
While “GST on Kiwisaver” hogged the limelight, there are many other changes signalled in the Bill, and covered in the 225 page summary! Yes, we have read it.
Here are our highlights:
The Annual tax rates will not be changing. Which includes the threshold of when a tax rate kicks in. ‘No change’ here was expected, but disappointing especially given the level of inflation continues to erode the spending power of every person in New Zealand. Other than introducing a new high rate of 39% at a new $180,000 threshold last year, the rates and thresholds have not changed for over 10 years. We know the Government needs every tax dollar it can get, but 10 years is a long time to have inflation whack you in the pay packet. Changing the thresholds is National Party policy, and it would have stolen some thunder to meet that challenge head on before next year’s election.
The Platform Economy. Great name, but what does it mean? “The platform economy … refers to economic activity facilitated by digital platforms … that connect buyers with sellers who provide their skills, assets, and labour.” The platform economy has become an increasingly popular means of deriving income and conducting business (or getting rid of unwanted Christmas presents), yet the size of it is unknown. And how much the Government is missing out on income tax and GST is also unknown. Certainly, there is tax leakage here, so it makes sense to start the process of collecting the information. The proposal would require platform operators based in New Zealand to provide Inland Revenue with information about the sale price of transactions such as short-term rental of property and vehicles, personal services like ride sharing, food deliveries, as well as sale of goods. The gathering of information would be required from both New Zealand and overseas platform operators, likely starting 1 January 2024, with reporting early the following year. The Inland Revenue are looking at passing that information on to overseas tax authorities where their tax residents are referenced.
GST and Marketplace rules for Accommodation and Transportation Services. This is an amendment to extend the Marketplace rules to capture “listed services” – which in the main will be holiday accommodation, transport of people and food delivery via marketplace operators withholding GST from the services. Proposed date 1 April 2024. There will be an opt out for large commercial accommodation suppliers. There are various other changes in this area including a complicated rule where the ultimate supplier is not registered for GST.
Cross-Border Workers – reform. Covid triggered a lot of people to ‘return home’. Many retaining their employment with overseas employers (remote working). There is a raft of changes here to ensure that the employee is taxed in New Zealand without triggering employer tax liability for their own operations – “Safe-Harbour Employers”. Changes will affect PAYE, Super Tax, Fringe Benefits, as well as Non-Resident Contractors Withholding Tax. Reform in this area is welcome and much needed as the way we work has changed in the last 10 years or so.
Dual Resident Companies. Changes are proposed where there are group companies in different countries affecting loss offsets, consolidation and imputation rules, as well as changes on dividends and corporate migration.
GST apportionment, adjustment and mixed use assets. This one is back to the future for some. In April 2011 new rules were introduced that required taxpayers to estimate the level of business use of an asset, then claim GST based on this, with annual reviews for potential adjustments (removing the principal purpose test). The compliance was considerable, along with the fact each taxpayer had to pay GST on the full disposal value, with claiming back the previously unclaimed GST at the end. The proposal intends to allow taxpayers to elect whether small cost assets can be claimed in full on purchase (cost under $10,000 excluding GST) if used principally for taxable supplies, and no claim if principally private or exempt use. And for opting out of GST where the asset has a minor business use (such as a small portion of a property for home office). This latter change has qualifying criteria, which will need to be met. For those with annual adjustment reviews, the time period will be reduced and a time period introduced for real property. The much despised mixed use asset rules would be repealed.
Interest deduction on Residential Property. A new “build to rent” rule would be introduced to allow residential landlords on-going interest deductibility where they qualify. There are some hurdles to jump, including the property must have a minimum of 20 separate dwellings on the one site (could be apartments), a minimum of 10 year lease terms for the tenant (although the tenant can give notice earlier), and a “personalisation policy”, which seems to require the landlord to allow the tenant some flexibility on making changes to the property (presumably only inside– magenta and gold wallpaper perhaps), pet policies etc. This proposal is clearly designed to encourage landlords to provide more long term residential rentals to the market, including refurbishing existing properties. The interest deductibility is an enhancement of the “new build” rules that allow landlords an interest deduction for a limited period of time. It appears that landlords will still potentially be caught by the loss ringfencing rules.
Housing remedial changes. Yes, still more of these, also known as ‘clarifications’ and ‘corrections’ in relation to the Bright-line rules. Inheritance situations, Rollover relief, clarifying about ‘original settlors’, original land, new land, resettlements, original dates, co-ownerships, part shares and acquisition dates etc.
Trust changes.
“Foreign Trusts” v new “Foreign Exemption Trusts”. “The “foreign exemption trust” definition applies for the disclosure rules in the Tax Administration Act. The “foreign trust” definition applies for working out how its distributions are taxed under the Income Tax Act. The two definitions apply for different purposes and can therefore operate independently. A trust will often be both a “foreign trust” and a “foreign exemption trust” at the same time. However, it could also be a “foreign exemption trust” but not a “foreign trust”.”
Deregistering Trusts. “The proposed amendment would create an explicit power for the Commissioner of Inland Revenue to deregister a trust if the trust does not meet the requirements for registration under section 59B of the Tax Administration Act 1994. This power would be exercised on the Commissioner’s own initiative or on application by the trust.”
Changes involving Settlor and residual beneficiaries’ disclosures; Updating Trust information; Testamentary Trust changes for foreign income exclusion; Backdating foreign trust registrations; new Civil Penalties for failure to comply; updating definitions and adding clarifications of meanings; imputation credits and distributions. Minor changes to “Non-Active Trusts” to enable more to qualify.
GST remedial changes, clarifications and other things. Pretty boring, but some changes around zero-rating land transfers, especially leases; Joint venture changes; input deductions before the asset or services is available to apply to making taxable supplies; information requirements and record keeping. And so many more exciting changes. Can’t wait until they are all enacted before clarifications, amendments and remedial changes are announced.
