A Week in Review

Non-Resident Entertainers & Sportspersons IS

Further to the original consultation document PUB00317, IR has now released the finalised version of its statement clarifying the circumstances in which an exemption from schedular payment withholding tax may apply to payments being made to non-resident entertainers and sportspersons. The exemption can apply to activities or performances which:

• occur under a government cultural programme, where it belongs to, and is funded by, either the NZ Government or an overseas central government;
   
• occur under a cultural programme that is wholly or partly sponsored by a government, where the NZ Government or an overseas central government provides more than minimal funding;
   
• occur as part of a programme that belongs to certain types of overseas bodies; or,
   
• relates to a game or sport, where the participants are official representatives of a body that administers the game or sport at a national level in an overseas country.

IS 19/03 is primarily focussed on the intended application of s.CW 20 of the Income Tax Act 2007 – “Amounts derived by visiting entertainers including sportspersons”. Included in the commentary is also a brief outline of the likely tax implications for the visiting non-resident should s.CW 20 not have application, which firstly will require a determination of whether there is a “contract of services’ (employee therefore PAYE) or a “contract for services” (contractor therefore schedular withholding tax), and secondly, whether the payments may still be exempt from tax under the relevant provision (usually Article 17) of a double tax treaty agreement. In this last respect, note that all DTA’s are unfortunately not created equal – for example the NZ/Aus DTA providing NZ a right to tax the visiting Aussie, whereas the NZ/US DTA only providing that same right where the payments to the American will exceed $USD10k.  

QWBA on Donee Organisation Requirements

Also following up on the earlier consultation document PUB00337, IR has finalised its answer on the question of a donee organisation looking to establish and maintain a fund which meets the requirements of s.LD 3(2)(c) of the Income Tax Act 2007, and has released QB 19/10 in this regard.

S.LD 3 provides the legislative definition of the meaning of charitable or other public benefit gift, which if satisfied, will usually provide a donor making a cash gift of $5 or more to the donee organisation, with a refundable tax credit or an income tax deduction. Satisfying the s.LD 3(2)(c) requirements therefore, can be critical for a donee organisation which relies heavily on sourcing its funding from the general public – often a small fish in a very large pool – the tax credit element for the potential donor making the donee organisation perhaps more attractive than some of the other fish in that pool.

The s.LD 3 definition includes a fund established and maintained exclusively for the purpose of providing money for charitable, benevolent, philanthropic or cultural purposes within NZ. In this regard, QB 19/10 states that the fund must be established and maintained by a non-profit entity. It must comprise an actual stock of money or other assets set aside for the purpose of providing money for one or more specified purposes within NZ. It requires maintaining the actual stock of money or other assets consistent with the book entries which must show that the fund has been set up on a “firm or permanent basis” for the required purpose. The fund’s money is required to be used for, or used to provide money for, the required purpose. Such a fund must be maintained for the required purpose throughout its lifetime, including the disposal of the fund’s money or other assets if wound up.

The QWBA also sets out a number of exceptions to the “required purpose” use of its funds, including for example, to meet or reimburse costs it incurs specifically in administering the fund.

Omnibus Tax Bill Passes 3rd Reading

The Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill (114-3) passed its third reading in Parliament on 20 June 2019 and now awaits the Royal assent.

The passing of this legislation now confirms both the introduction of the new GST on low-value (<$1,000) imported goods and the ring-fencing of residential rental losses rules. While the latter retains its April 1^st 2019 (for standard balance date taxpayers) commencement date, note the amended commencement date for the former, deferred for two months from the original proposed date of 1^st October 2019, to now a start date of 1^st December 2019.

Also just in case you blinked and missed it, a last minute SOP added to the Bill, will see all buyers and sellers of residential land, having to provide their IRD numbers on their land transfer tax statements before a transfer of title will be permitted to proceed. Presently where the property contained a main home for the buyer or seller, either party as relevant could claim that the transaction was a non-notifiable transfer and not have to provide their IRD number as a result.

The original basis for the exclusion, was that in most cases a home owner did not incur tax obligations in relation to the transfer. However, not collecting IRD numbers for those transfers limits IR’s ability to enforce compliance with property-related tax laws, including its ability to identify land transfers that might be relevant for the purposes of the bright-line test and other land-related tax obligations.

The new disclosure rules will come into effect on 1^st January 2020, although there will be a six-month transitional period, where if an agreement to transfer land is entered into before 1^st January 2020, the tax statement does not need to comply with the new requirements if the transfer is registered on or before 1 July 2020.