A Week in Review

Per Diem Allowance Rate Set
It is a common practice in NZ’s Screen Production Industry, for both contractors and entertainers (resident and non-resident) to receive a daily per diem allowance as a result of the screen production they are working on, requiring them to be away from their usual place of residence. The allowance is to cover food and other minor incidental expenses.

Payments made to the contractors and entertainers, are usually caught by the schedular payment rules, requiring tax to be withheld by the payer when the payments are made. Schedular payments fall with the definition of “PAYE income payments”, which in essence means that the per diem allowance (considered a schedular payment itself) paid is also subject to the tax deduction rules, unless a specific exemption applies.

In this regard, IR has just released the following Determination:
Determination: amount of a particular schedular payment (being per diem allowances paid in the screen production industry) that shall be regarded as expenditure incurred in production of payment

As the title suggests, and as provided for by section RD 8(3) of the ITA07, the Commissioner can determine an amount or proportion of any PAYE income payment considered to be expenditure incurred in deriving that income, which then results in only amounts being paid by the payer in excess of this amount, required to be subject to a tax deduction.

Applying the Determination, from 1st July 2018, a daily threshold of $80 has been set, however it will not apply where the recipient has also been provided with the goods and services to which the payment relates. Should this situation arise, the per diem will be fully taxable, even if the value of the goods and services provided is less than $80.

“Trust’s” – an interpretation statement

The use of trust’s, either as a trading vehicle or for holding investments, has increased significantly over recent years, although I would suggest often, because they have just been seen to be “flavour of the month”, numerous people have had their advisors recommend them, with the client having minimal knowledge of how they actually operate and what are the real benefits (if any), to the person for which the structure has been put in place.

For many a professional advisor as well, fully understanding the NZ tax rules as they apply to trusts, is not always easy, particularly dealing with questions such as:
 What affect does the migration of the settlor have on the way the trust is taxed?
 What withholding tax obligations arise for the trustees if income derived by the trustees is passed through to the beneficiaries as beneficiary income?
 Can we add a tax loss company as a beneficiary of the trust and then allocate trustee income to the company to utilise the benefit of the tax losses?
These and other questions can all be answered in IR’s recently released 131 page interpretation statement on “Taxation of Trusts – Income Tax”, IS 18/01. Happy reading…I’m up to page 6…

New WfFTC & PPL Extension

1st July 2018 sees the commencement of the new Best Start tax credit (“BSTC”) which replace the previous Parental Tax Credit (“PTC”), and the extension of the qualifying period from 18 weeks to 22 weeks for paid parental leave (“PPL”).

BSTC is available to all qualifying families with a child due or born on or after 1st July 2018 (including those born before 1st July that had an expected due date post 1st July). The payment is to assist families for the child’s first three years, and amounts to up to $60 per week for the child’s first year, then reducing by 21c per every dollar family income exceeds $79,000 for years two and three, with $0 entitlement once family income exceeds $93,858.

Where the person is entitled to PPL, they cannot receive BSTC at the same time, but entitlement to a credit can commencement once PPL has ended.

The number of keeping in touch hours under PPL (permits the employee to stay connected with their employer, performing work from time to time) increases to 52 hours from the previous 40 hours.

Non-disclosure rights limited

While the legislation came into effect some 13 years ago (22nd June 2005), there is still plenty of confusion of the difference between the professional legal privilege that can be claimed in respect of lawyer/client communications, and the non-disclosure rights attached to tax advice documents. The rights to the latter is in fact very limited, and to assist in a better understanding of the concept, IR has just released operational statement OS 18/02: “Non-disclosure right for tax advice documents”.

OS 18/02 sets out in detail, how an information demand will be issued by IR, how an advisor claims a right for non-disclosure, what is considered to be a “tax advice document” and what is considered to be “tax contextual information”.

It is this latter term that those who are advising their clients must clearly understand, considering I would suggest the number one question you get asked by your client prior to being engaged to provide any advice, is “will Inland Revenue be entitled to see this?”
While the actual advice you provide to your client may be protected (and even then it depends on the nature of certain aspects of the advice), the tax contextual information contained within your advice document will not be. So what exactly is “tax contextual information” therefore?

The commentary in OS 18/02 essentially commences with the Commissioner suggesting that she will limit inquiries in respect of independent advice on the interpretation of tax laws sought by taxpayers from tax advisors, unless she is of an opinion that the information provided presently by the relevant parties, does not lead to a complete factual description of the transactions under review, or, where the parties have refused to answer questions in relation to the transactions under review. Where this situation occurs, the need to request any relevant “tax advice documents” may arise.

Upon the receipt of such a request, the information that is not afforded any non-disclosure protection and must therefore be provided (“tax contextual information”), includes but is not limited to:

 facts or assumptions relating to the transaction identified in the information demand and to which the advice relates, whether the transaction has occurred, or is expected to occur or is assumed to have occurred by the creator of the tax advice document;
 a description of steps involved or expected to be involved in the performance of the transaction;
 relevant information such as the names of the parties involved, the purpose of the transaction, relevant dates, amounts, conditions, formulae, etc.

So, if your client for example has approached you for advice on whether a future disposal of land may be subject to tax, and one of the background facts they give which is included in the tax advice document is that they only intended to keep the land for a short period of time to take full advantage of the present rate of capital growth in the property market, then IR will essentially be entitled to obtain knowledge of this key fact, when subsequently trying to determine whether section CB 6 should apply to the disposal transaction (land acquired for purpose or with intention of disposal).

So as an advisor, I suggest you proceed with caution, mainly from the perspective of your client fully understanding the non-disclosure rules to avoid any unpleasant surprises for them in the event of a subsequent IR review, and it is certainly a delicate balance because naturally as their advisor, you need full disclosure of all relevant facts so you can be confident that you have advised them correctly.

As a final point, note that to constitute a “tax advice document”, it must have been intended that the document was to have been confidential between the advisor and their client, so it would be useful in my view in this regard, to contain a brief statement to this effect in the advice document itself.