A Week in Review
Filing date extension
Covid-19 Variation 20/07: ‘Variation in relation to s 70C of the Tax Administration Act 1994 to extend deadline for filing statements in relation to R&D loss tax credits’, has been issued. The notice applies to loss-making companies who have undertaken eligible R&D activities during the income year and wish to cash out the related tax losses. Companies that wish to take advantage of the cash out must make an electronic application accompanying the income tax return for the relevant income year.
In this regard, the deadline for filing the 2019 income year application was 31st March 2020 (for those taxpayers with extension of time arrangements). COV 20/07 now extends the 2019 due date to 31st August 2020.
As always, the variation is subject to the condition that it applies only to taxpayers for whom the impacts of Covid-19 response measures or the consequences of Covid-19 had a material impact on them not meeting the filing deadline.
Overseas hunters – IR’s GST guidance documents
If you have any client’s involved in hunting activities, either overseas person’s coming to New Zealand to hunt, or NZ suppliers of hunting outfits, hunting guide services or taxidermist services, then IR’s latest publication may be of interest to you.
Released in this regard are Interpretation Statement IS 20/02, ‘Goods and services tax — supplies by New Zealand hunting outfitters and taxidermists to overseas hunters’, which includes a series of three fact sheets, and an accompanying Commissioner’s Statement, CS 20/20. The three fact sheets are titled:
- IS 20/02 Fact sheet 1: GST
Supplies by New Zealand hunting outfitters or guides to overseas hunters.
- IS 20/02 Fact sheet 2: GST
Supplies by New Zealand taxidermists to overseas hunters and New Zealand outfitters.
- IS 20/02 Fact sheet 3: GST
Overseas hunters in New Zealand for big game-guided hunting.
CS 20/02 is titled ‘Trophy hunting and the GST treatment of the ‘trophy fee’’ and was released to advise what IR’s operational approach to IS 20/02 will be.
IS 20/02 recognises that the overseas hunter usually receives two separate GST supplies from a hunting outfitter:
- A single composite supply of a hunting experience in New Zealand (standard GST rated)
- A supply of souvenir animal parts or a hunting souvenir (GST zero-rated export – often referred to as the ‘trophy fee’).
The latter supply in this respect, usually involves a consideration paid by the overseas hunter for the opportunity to hunt and kill a particular breed and quality of animal in New Zealand. It is IR’s view that this portion of the trophy fee should be a standard rated supply for GST. Consequently, an apportionment issue arises for the NZ supplier.
CS 20/02 attempts to the assist the NZ supplier with the apportionment issue, by establishing some standard apportionment percentages for trophy hunting animals in NZ.
The percentages are intended to recognise the increasing value to the hunter of souvenir animal parts and hunting souvenirs as the quality and ‘uniqueness’ of the trophy animal increases. Outfitters may use these percentages to apportion their trophy fees when they export souvenir animal parts or hunting souvenirs, and those valuations will be accepted by the Commissioner.
Applying CS 20/02 is optional, and is therefore not required to be followed by the hunting outfitter, however as with any departure from following published IR rates or percentages, the supplier will need to ensure they retain sufficient evidence of their calculation methodologies, particularly if they are looking to zero-rate a higher portion of the trophy fee, than the IR guidance percentages.
Finance lease definition variation
IR has released COV 20/08: Variation in relation to the definition of ‘finance lease’ in s YA 1 of the Income Tax Act 2007.
In essence the variation is intended to prevent a re-characterisation of an operating lease to a finance lease (so no longer immediate write-off for the lease payment, instead recognising a fixed asset purchase subject to depreciation deductions instead), due to the lease having extended beyond 75% of the estimated useful life of the asset, due to Covid-19 related issues.
The variation operates as follows:
‘The time period of ‘more than 75% of the asset’s estimated useful life’ referred to in paragraph (b) of the definition of ‘finance lease’ in s YA 1 of the Income Tax Act 2007 is extended to ‘more than 75% of the asset’s estimated useful life plus an additional 18 months’ where the term of the lease is extended between 14 February 2020 and 30 November 2020.’
This variation applies from 17 March 2020 to 30 November 2020.
For COV 20/08 to apply, the lease must have been entered into before 14 February 2020, the lease term must not have been more than 75% of the estimated useful life when the lease was entered into, and:
- The lessee must have been prevented or discouraged from returning the lease asset at scheduled maturity; or,
- The lessee’s business must have experienced a significant decline in actual or predicted revenue related to Covid-19, which had the consequence that the lessee had difficulty in satisfying their existing lease agreement.
Other elements of COV 20/08 are:
- A lessor and lessee are not required to adopt the same treatment of the lease asset as both parties can make their own decision about whether they rely on the variation.
- Taxpayers do not need to take the same approach to all leases they have entered into for the same class of lease asset.
The variation applies to leases that are extended between 14 February 2020 and 30 November 2020 and is not limited to leases where the lease term would otherwise have ended during that period