A Week in Review

Richard AshbyPartner, Gilligan Sheppard

NPB Asset sales & GST…

IR has released an issues paper entitled “GST on assets sold by non-profit bodies (NPB’s)”. The paper sets out proposals to amend the GST legislation in order to clarify the GST rules applying to the sale of assets by charities and other NPB’s.

The prime reason for the legislative change proposals, is IR’s recent closer look of what constitutes a NPB’s taxable activity, and the potential reduction in GST payable by the NBP because the new interpretation will see some supplies which would previously have been considered part of the taxable activity, now being non-taxable supplies as they do not have a sufficient connection with an activity from which money (or other consideration) is derived. In IR’s view, this change of interpretation creates a revenue risk, as the existing rules for claiming input tax deductions (basically any GST incurred that does not relate to an exempt activity) have not changed.

The proposals to counter the perceived revenue risk are to:

  • treat any goods/services for which an NPB has claimed GST inputs to be subject to GST as part of its “taxable activity” if they are later sold by the NPB
  • apply the same treatment if an event equivalent to a sale such as an insurance pay-out or GST deregistration occurs
  • for NPBs who may not have expected to have to pay this GST, allow a 12 month period in which the GST input tax claimed can be repaid so as to treat the asset in question as never having been part of the NPB’s taxable activity, and
  • include a savings provision that preserves all tax positions taken before 15 May 2018 by NPBs for the scope of their taxable activities.

Submissions on the issues paper are due by 15th June 2018.

Special Reports on New Legislation…

IR has issued four special reports on various changes brought about by the recent enactment of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018.

Reports have been issued with respect to:

  • the extension of the bright-line test to five years
  • the provision of IRD number to Portfolio Investment Entities (requirement of investors to provide an IRD number to a PIE within 6 weeks of joining, otherwise the PIE is required to close the account)
  • PAYE reporting changes and changes to the payroll subsidy scheme (payday reporting from 1st April 2019), and
  • the taxation of employee share schemes (taxing point being the time at which an employee is treated as having earned the shares and to hold the shares likes any other shareholder).

The June 2018 TIB will include full coverage on the new legislation.

Copies of the four reports can be located here – http://taxpolicy.ird.govt.nz/

BEPS Bill Reported Back…

The Taxation (Neutralising Base Erosion and Profit Shifting) Bill has been reported back to Parliament. The legislation was introduced in December 2017, containing measures proposed to prevent multinationals from using:

  • artificially high interest rates on loans from related parties to shift profits out of New Zealand (interest limitation rules)
  • hybrid mismatch arrangements to that exploit differences between countries’ tax rules to achieve an advantageous tax position
  • artificial arrangements to avoid having a taxable presence (a permanent establishment) in New Zealand
  • related-party transactions (transfer pricing) to shift profits into offshore group members in a manner that does not reflect the actual economic activities undertaken in New Zealand and offshore, and
  • certain tactics which can be used by non-cooperative multinationals to stymie an Inland Revenue investigation, such as withholding relevant information that is held by an offshore group member.

It is intended that most of the provisions will come into force for income years commencing on or after 1st July 2018.

A copy of the Officials report on the submissions to the Bill can be found here – http://taxpolicy.ird.govt.nz/publications/2018-or-nbeps-bill/overview

Specified Livestock Values released…

Usually published in May each year, the National Average Market Values of Specified Livestock Determination 2018 has been issued, applying to any livestock on hand as at the end of the 2017/18 income year.

A copy of the determination can be found here – http://www.ird.govt.nz/technical-tax/determinations/livestock/national-averages/livestock-nationalavemarketvalues-2018.html

Budget 2018…

I left this update until last since essentially there were no surprises, and from a legislative perspective, most, if not all, of the proposals are already in Bill’s awaiting enactment, or have been issued in discussion documents, awaiting submissions and are likely to be included in Bill’s to be introduced later this year. The latter includes the proposals to ring-fence residential rental property losses, and the introduction of an R&D tax credit to supplement the existing cash-out regime.

More money was however thrown at IR, both to assist in cracking down on tax dodgers (as Revenue Minister, Stuart Nash stated in his media release) and identifying legislative opportunities to improve tax compliance via the use of third party reporting and withholding taxes. Interesting is the Minister’s view that an investment of $31m will provide a return to the Government of $183m over the next four years. Time will tell how grounded these forecasts actually are.

A useful summary of the Budget can be found here – http://www.wolterskluwer.co.nz/wp-content/uploads/2018/05/2018_BudgetReport.pdf

Richard Ashby BBus, CA, CPA

PARTNER
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