A Week in Review

Limited partnership an ‘overseas person’?

The Overseas Investment Amendment Act 2021 (No 17 of 2021) received the Royal assent on 24 May 2021. It is the second of two omnibus bills introduced in 2020 to amend the Overseas Investment Act 2005. The bills have come from the Government’s Phase Two Reform of the Overseas Investment Act. They aim to ensure that risks posed by foreign investment can be managed effectively, including heightened risks during the ongoing economic fallout from Covid-19. They also aim to ensure that high quality, productive investment could more easily proceed.

From a taxation perspective, the new legislation makes an amendment to the definition of ‘offshore person’ in s 3(1) of the Tax Administration Act 1994, due to concerns that the Overseas Investment Act did not address whether limited partnerships were covered by the definition of an overseas person. This lack of clarity was causing significant uncertainty about whether limited partnerships were partnerships for the purposes of the Act, which in turn could result in non-compliance with the Act, because an overseas person may not be aware they were covered by the relevant definitions.

The amendment stipulates that a limited partnership would be an overseas person if it is an overseas limited partnership within the meaning set out in section 4 of the Limited Partnerships Act 2008. Additionally, the amendment stipulates that any other limited partnership registered under that same Act would be considered an overseas person where:

• a general partner of the limited partnership is an overseas person,
• more than 25 percent of the persons having the right to control the composition of the governing body of the limited partnership are overseas persons,
• more than 25 percent of the partnership interest is held by an overseas person; or,
• an overseas person can control more than 25 percent of the voting at a meeting of the partners of the limited partnership.

2021 square metre rate adjustment 

You may recall that the passing of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 saw the introduction of new section DB 18AA into the Income Tax Act 2007, which provided taxpayers with a more simplified method for the calculation of deductions for premises that are used for both business and personal purposes.

Undoubtedly, all of us have clients who use their private residence for both business and private purposes. This business use may give rise to deductions that can be claimed by the business owner, however we all appreciate the associated compliance cost burden of having to tally up all the numerous individual expense items that need to be recorded and apportioned between business and personal use, when considering the amount of tax at stake.

In this regard, the square metre rate option provided a simplified process, setting a fixed utility cost rate per metre (electricity, gas, home and contents insurance, telephone, mobile and internet charges), to which your client only needed to then calculate and add their premise costs (mortgage interest, rates, and rent). The square metre rate is set by using information obtained from Statistics NZ, which IR then uses to calculate the national average, annual cost of utilities for the average sized New Zealand household.

IR has advised that the square metre rate for the 2021 income year (1 April 2020 to 31 March 2021) is set at $44.75.

You can find more information on the use of the square metre rate option, by referring to Operational statement OS 19/03, ‘Square metre rate for the dual use of premises’.

Specified livestock NAMV

If you are in this space, then you are likely to be interested that IR has just published the ‘National Average Market Values of Specified Livestock Determination 2021’. The determination is made in terms of section EC 15 of the Income Tax Act 2007 and applies to specified livestock on hand at the end of the 2020–21 income year.

The national average values are used by taxpayers that are in the business of livestock farming to value their livestock on hand, where the taxpayer has elected to use the herd scheme to value livestock in the income year. You can search IR’s website for ‘National Average Market Values of Specified Livestock Determination 2021’ to ascertain all the juicy bits.