A Week in Review

Depreciation on commercial buildings 

The passing of the Covid-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (the Amendment Act) re-introduced the entitlement for owners of commercial buildings to claim depreciation on the building itself.

Apparently, however, there has been some confusion as to the effective date of the legislative change, and in case you were not quite sure, IR’s release of the four page QB 21/05 titled ‘The application date for the depreciation of commercial buildings’, will now leave you in no doubt as to whether the date you can commence claiming deprecation on commercial buildings is 1st April 2020 or the beginning of the 2020-2021 income year.

Clearly if all your client’s have standard 31st March balance dates, then you can save yourself that one non-chargeable unit of time and move on to something more productive. However, if your clients are non-standard, then all you need to know is that the relevant date is the first day of their 2021 income year – so a December balance date and the new rule is effective 1st January 2020.

GST and debt factoring 

IR has released Public Ruling BR Pub 21/03 – Debt factoring arrangements, which in essence addresses the question of whether or not you can claim a GST input tax deduction for the difference between the face value of the debt and amount you receive from the Factor. For example, you made a taxable supply for $100 and you have sold the debt now owing to a Factor for $80 – can you claim GST input tax on the $20 difference?

Historically it was argued that the $20 could be claimed under the bad debt provisions contained in s.26 of the GSTA, and the Revenue accepted this position in both a PIB and its technical rulings. However this position was overturned by good old Judge Barber, who concluded that s.26 could not be used to claim GST input tax deductions in these scenarios, because there was not a bad debt at the time the debt was sold to the Factor.

Factors can operate on both a recourse and a non-recourse basis. With the latter, once the debt is sold to the Factor, they cannot then come back to you with their hands out, should it later transpire to them that the debt is doubtful or uncollectable. With the former however, the Factor will often pass the debt back to you, take some money back, and then leave you to chase your customer for payment.

So, in the non-recourse scenario, it is unlikely you will ever obtain a bad debt deduction under s.26, unless you can show that the debt was ‘bad’ (which is a separate topic in itself) and had been written off in full prior to sale to the Factor (perhaps to a Factor who acquires bad debts as part of its business model). In this situation, you would claim the full amount of the debt as an input tax deduction under s.26, but then return output tax with respect to any amount received from the Factor.

In the recourse scenario, again likely to be no claim under s.26 at the time the debt is sold to the Factor (because it is not ‘bad’ at that point), however a claim under s.26 could subsequently arise, if the Factor passes a doubtful/uncollectable debt back to you, and you eventually end up writing it off as bad.

Finally, just a trap for the unwary – for payments basis registered persons who sell the debt to a Factor (and are yet to have accounted for any output tax on the supply since no payments have been received), while most will appreciate the need to account for output tax on the payment received from the Factor, be mindful also of s.26A, which also requires GST output tax to be paid on the remaining book value of the debt when the debt is factored – i.e. the $20 difference in my above example.

If you have any questions or would like a second opinion on any national or international tax issues, please contact me [email protected]. 

Cryptoasset QWBA’s finalized

In a previous ‘A Week in Review’, I have mentioned IR’s QB 21/06 and QB 21/07, which respectively addresses the tax treatment of cryptoassets received from airdrops and hard forks. Both of these QB’s have now been finalized.

The initial receipt of airdrops (QB 21/06) is likely to be taxable where the person has a cryptoasset business, has acquired the cryptoassets as part of a profit-making undertaking or scheme, has provided services to receive the airdrop (and the cryptoassets are payment for the services provided) or they receive airdrops regularly and the receipt has hallmarks of income. Not falling into one of these boxes means that your receipt is unlikely to be taxable. Further, a subsequent disposal of the cryptoasset is likely to be taxable where either you fell into one of the first three aforementioned boxes, or you acquired the cryptoassets with a purpose or intent of disposal.

Moving on to hard forks (QB 21/07) now, the initial receipt likely to be taxable where the person has a cryptoasset business or acquired the cryptoassets as part of a profit-making undertaking or scheme, with the subsequent disposal likely to be taxable where the person has a cryptoasset business, disposed of the cryptoassets as part of a profit-making undertaking or scheme, acquired the cryptoassets for their disposal or acquired the original cryptoassets for the purpose of disposing of them (where the person receives the new cryptoassets through an exchange).

IR suggests in both QB’s that subsequent disposals are likely to be taxable, so I would suggest it is prudent to use this as your starting position and then investigate what’s different in your scenario which could lead to an alternative conclusion.