A Week in Review

UOMI Calculation Basis Changed

Introduced in 1997, the setting process for calculating the Commissioners paying rate of UOMI, has remained basically unchanged for the past 23 years – the Reserve Bank of NZ 90-day bill rate less 1%.

In these current troubled times however, with the official cash rate potentially set to continue its downward trend, there is a real risk now that application of the setting formula could actually produce a negative interest rate.

To prevent this from happening, the Taxation (Use of Money Interest Rates Setting Process) Amendment Regulations 2020 (LI 2020/35), comes into force on 9 April 2020, specifying a floor of 0%.

And in case you were interested (it is Monday after all), the setting process for the taxpayer’s paying rate is currently calculated using the Reserve Bank of NZ floating first mortgage new customer housing rate plus 2.5%. No proposed change in this regard.

KiwiSaver Bill completes second reading

Introduced into Parliament in June 2019, the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill (158-3) has recently passed through the second reading stage and now awaits its third and final reading.

The Bill has as its focus continuing the Government’s programme of simplifying and modernising tax administration, predominantly via a transition to IR’s new technology platform, which will see the implementation of further changes in a few weeks’ time (note last week’s AWIR article on the forthcoming IR shutdown dates) – this rounds updates primarily in relation to KiwiSaver and Student loans.

Also included in the Bill are extensions to the refundability of R&D tax credits, and due to a subsequently introduced SOP, clarifications to the donation tax credit rules (no credit entitlement with respect to gifts made by way of debt forgiveness) and introduction of a new withdrawal category in the KiwiSaver Act 2006 that would allow members with life-shortening congenital conditions to withdraw their savings early.

Child Support Amendment Bill introduced

The Child Support Amendment Bill (228-1) has been introduced into Parliament.

Its proposed changes are planned to come into effect from 1^st April 2021, and include:

• moving the second phase of the initial penalty to 28 days after the due date to give IR time to contact the customer with the aim of working with the person to get them back on track.
   
• the $5 minimum penalty rule will no longer apply. The penalty charged at the expiry of the due date will be 2% of the outstanding balance. That will ensure that the 2% penalty imposed is in proportion to the amount outstanding.
   
• for people new to the child support scheme, a grace period will apply during which late payment penalties will not be charged. The grace period will start on the first due date and will apply for the following 60 days. It will allow a liable person the time to adjust to making financial support payments.
   
• a newly liable person will pay their financial support obligations by automatic deduction from source deduction payments made by their employer. That will be regardless of whether or not they have defaulted on their obligations. The amendment will encourage compliance by helping newly liable parents to get their payments right from the start.
   
• there will be time limits placed on reassessing child support years by introducing a rule that would restrict the reassessments of a child support year to a four-year period from the end of the relevant child support year. That proposal will reduce uncertainty for parents.
   
• the definition of income used for child support is amended to better reflect a parent’s financial capacity by incorporating investment income and no longer offsetting losses from earlier years.

Detailed commentary on the Bill can be found here – www.taxpolicy.ird.govt.nz/publications/2020-commentary-child-support-bill/overview.