A Week in Review
Here we go again…
Early last week I was reflecting on the fourth anniversary of AWIR, how quickly that time seemed to have passed and how different the world is now, particularly in respect of everything that has developed over the past eight months.
Then the announcement came regarding the community spread and less than 24 hours later we were back in lock-down, although for the relief of a number of businesses I expect, only at level three, and only in Auckland in that regard.
We then had Friday’s afternoon announcement – remaining in level three until the 21st at least, but most likely to midnight on the 26th August.
The main purpose of this blurb, and yes perhaps slyly blowing my own trumpet about still writing this publication four years on, is to make an initial mention of the further financial relief measures announcement, full details of which should be included in next week’s AWIR.
There will be:
- An extension to the wage subsidy
- Modifications to the Covid-19 sick leave scheme to make it more accessible
- A likely extension to the mortgage deferral scheme.
Watch this space for all the detail next week
New “minor work” IS
IR has released Interpretation Statement IS 20/08, “Income tax – when is development or division work minor?”
The statement has application to section CB 12 of the Income Tax Act 2007, which is the land taxing provision which is potentially triggered, when any person acquires land and then commences an undertaking or scheme to develop and/or subdivide the land, within 10 years of the acquisition date.
Most of the wording of section CB 12 is black and white in terms of its interpretation, but the one requisite that is relatively cloudy and will potentially lead to the most disputes between IR and the taxpayer, is whether the work involved in completing the scheme, is more than minor. If the answer is no, then CB 12 is of no application.
For those of you who have some experience in this area, you will already appreciate that various decisions of the Courts over the years, has shown that not a lot is required to breach the minor works threshold, to the extent, that unless the subdivision is fairly basic, then it is most likely to be caught by section CB 12, and you will then need to consider the four exclusions that are linked to the taxing section, and whether any of those may negate otherwise taxation of the disposal gain.
IS 20/08 is in essence, a rewrite of IG0010, a 2005 guidance document issued by IR on the same topic. The IS commences with an acknowledgement that the main conclusions reached in the present statement remain unchanged from the previous, it simply being updated to provide clarity and to account for changes in legislation over the past 15 years. IS 20/08 does however reflect the conclusions reached in two 2015 IR published items, “QB 15/04: Income tax — whether it is possible that the disposal of land that is part of an undertaking or scheme involving development or division will not give rise to income, even if no exclusion applies”, and “QB 15/02: Income tax – major development or division – what is ‘significant expenditure’ for section CB 13 purposes?”
One notable difference between IG0010 and IS 20/08, is that IR has included a couple of safe harbours – less than $50,000 in absolute costs, and relative costs of less than 5% of the value of the land at the commencement of the scheme. If you are under both thresholds, then you have a good chance of avoiding section CB 12 application, however both thresholds must be considered, as exceeding either one will likely negate the safe harbour.
If you would like some assistance with understanding the potential application of section CB 12 to a particular land transaction (or any of the other land taxing provisions in fact), then please do not hesitate to contact me as I do write numerous detailed opinions on this topic