A Week in Review

IR has released a draft QWBA (PUB00314), which provides the Commissioner’s initial views on the question – When is the sale of a lifestyle block sold within the bright-line period excluded from the bright-line test? 

The answer lies with whether either the exclusion for farmland or the exclusion for the “main home” of the seller can be applied. Being the more complex of the two exclusions, most of the commentary in the draft QWBA is surrounding the definition of farmland, and whether the land in question could satisfy a number of objective tests to show that either the land owner has been working the land in a farming or agricultural business being carried on by them, or because of the land’s area and nature, it would be capable as being worked as a farming or agricultural business. 

It is the Commissioner’s initial view, that the majority of lifestyle blocks would not qualify for the farmland exclusion, simply due to the fact that either the owner would not be able to satisfy the “carrying on of a business” test themselves, or that due to the area and nature of the land, there would be a limit to the scale of operations that could be carried on from the land to satisfy a farming or agricultural business argument (particularly where not capable of producing a profit).

Eliminate the farmland exclusion due to the aforementioned factors, and you are left with the “main home” exclusion, which most of you will no doubt be aware of by now, requires the satisfaction of two limbs (in addition to being able to show the lifestyle block contained your “main home”) – more than 50% of the land has been used for a dwelling that was the main home of the seller, and the seller has used the land for this purpose for more than 50% of the time they have owned the land.

The second limb is arguably quite black and white in its analysis – have you used the land for the required purpose for more than half the time you have owned it – yes or no?  However the first limb is where most of the likely disputes between the IR reviewer and the taxpayer will arise. This is because the Commissioner accepts that “dwelling use” is not simply limited to the land upon which the physical dwelling is situated, nor just to the surrounding curtilage, but to any land that the seller can show has been used frequently, repeatedly or customarily in connection with or for the benefit of the dwelling. This can include land for grazing the family pets, growing domestic crops or simply to enhance the enjoyment or aesthetic value of the dwelling – such as a covenanted native bush.

Once you are over the line however, establishing potential application of the “main home” exclusion, you are just left with checking that neither of the exceptions to the “main home” exclusion apply – already claimed twice in the two year period preceding the bright-line date or you have a regular pattern of  acquiring and disposing of “main homes”.

Comment on PUB00314 is requested no later than 12th October 2018.

Sale of Subdivided Land – Bright-line?

Released at the same time as PUB00314 is another draft QWBA which considers the question – When is the sale of a section subdivided from a residential property sold within the bright-line period excluded from the bright-line test?

PUB00315 is somewhat shorter in length than its predecessor, with commentary only required on the potential application of the “main home” exclusion to the sale of subdivided land. 

Once again we see discussion on the two limbs requiring consideration for any “main home” exclusion claim by the seller – predominant actual use of the land as a “main home” dwelling by the seller, and in that respect, predominantly for most of the time the whole land has been owned by the seller.

It should be noted in the first instance, that the legislation recognises the bright-line period as that commencing on a date when the undivided land was registered in the name of the seller (noting there may be other commencement dates when title registration does not occur), and not that when the subdivided section title is first registered.

In relation to the first limb of the exclusion test, again land that is “used… for a dwelling” is not limited to the land on which the dwelling is situated or to the surrounding curtilage (like a yard and garden). Land used for a dwelling can also include other areas the seller uses frequently, repeatedly or customarily in connection with or for the benefit of the dwelling.

So satisfy the 50% or more actual use requirement of the first limb, and you then just need to ensure you have used the land in this way for more than 50% of the time you have owned it, which in the case of subdivided land, will be from the date the undivided land title was registered in your name, until you enter into a binding agreement to sell the subdivided land title. In this regard, you will need to consider what happened to the new title of land post subdivision (did you construct a new dwelling etc which will naturally change the use of this piece of land now), and the time factors involved pre and post the subdivision activity.

Importantly, you should take note, that even if you can get across the “main home” exclusion threshold, the relevance of the two exceptions to the ability to claim the “main home” exclusion is highly dependent on the number of new titles that you have created from the undivided land. This is due to the Commissioner’s draft view that each new land title equates to one claim of the “main home” exclusion, so if you have created more than three sections (including the original dwelling section) and then dispose of all three titles, only two of the sales can qualify for the “main home” exclusion due to the “no more than two previous claims in the preceding two year period” restriction.

Comments are requested no later than 12th October 2018.

R&D Documents Released

In case you are interested, IR has now released various documents that were used in the drafting of the recent discussion paper that was issued for public feedback on the proposals for introducing a new R&D tax credit.

You will note that numerous parts of the various documents have been blacked out for sensitivity reasons, however there is sufficient narrative to still provide you with a good level of insight into the Official’s discussion on the proposals.

The documents can be found here – http://taxpolicy.ird.govt.nz/publications/2018-other-r-and-d-reports/overview.

Debit or Credit Card Fees – GST?

IR has released QB 18/14, which is a QWBA providing the Commissioner’s view on the GST implications for suppliers associated with the fees they may charge their customers to recover the cost of providing a card processing facility.

QB 18/14 covers 3 scenarios and the GST treatment for the supplier where:

• the supplier provides the payment facility directly to the customer
• the supplier has arranged for an agent to provide the payment facility to the customer on the supplier’s behalf, and
• the supplier contracts with a third party to provide a payment facility to the customer.

It is the Commissioner’s view, that in all three cases, where the supply for which the customer uses their debit or credit card to pay for the transaction is itself subject to GST, then the card fees charged by the supplier are simply part of the overall consideration for the supply, and consequently are also subject to GST.

The commentary in QB 18/14, expands on that already provided in IS 17/03 – Goods and Services Tax – single supply or multiple supplies, the issue in essence being whether the fee forms part of the consideration for the goods or services being supplied (so there is a single composite supply of the goods or services and the payment facility) or whether the fee is a separate supply of a payment facility.

 

Richard Ashby BBus, CA, CPA
PARTNER

Em: [email protected]
Ph: +64 9 365 5532
Mb: +64 21 823 464