A Week in Review

SOP to current tax Bill

A SOP (supplementary order paper) to the current tax Bill making its way through Parliament (Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill) will:

 close the potential GST loophole recently identified by IR in respect of the sale of assets by a non-profit body. The legislative amendment will treat a sale of an asset as being in the course or furtherance of the non-profit body’s taxable activity, and thereby subject to GST output tax unless the non-profit body has made an election in respect of the asset in accordance with new section 20(3KB) of the GSTA85. A non-profit body will be able to make an election with respect to current assets it holds at the time of the legislative amendment, which will be treated as disposing of the asset and reacquiring it, which will trigger an output tax liability however only to the extent of previous input tax claims made on supplies that relate solely to the asset prior to the election date;

 amend the time period for a person to acquire replacement property in relation to the roll-over relief for properties affected by the 2010/2011 Canterbury earthquakes from the end of the 2018/19 income year to the end of the 2023/24 income year; and,

 amend section FH 5 of the ITA07 to effectively neutralise cross-border arrangements which would otherwise have generated tax deductible payments in NZ, which are not taxed as income of the payer in the foreign jurisdiction due to a mismatch in the tax treatment of the payer.

DTA amendments now in force

A recent edition of AWIR provided narrative on the amendments being made to the double tax treaty agreement between NZ & Hong Kong, to effectively widen the exchange of information provisions with a view to eradicating potential tax evasion and avoidance.

In order for the amendments to take effect, both jurisdictions had to separately ratify the change, Hong Kong doing so on 15th June and NZ on the 28th June. As a consequence of the ratifications having been completed, the amendments will come into force on the 9th August 2018, with the first of the automatic exchanges of information due to occur prior to 30th September 2018.

First Step in Avoiding 2019 UOMI

For most clients with a standard 31 March balance date, the first payment of 2019 provisional tax is due in just over a week on the 28th. It is timely to remind your client’s therefore, that in order to take advantage of the new UOMI calculation rules, they must ensure that the payment required under the standard method of calculating provisional tax instalments, is made on or before the relevant instalments due date.

For those clients who qualify for the safe harbour provisions due to their residual income tax for the tax year likely to be less than $60,000, paying all required instalments by the due date, will prevent any UOMI being charged until post their terminal tax due date.

The new UOMI calculation rules (effective 2018 and later income years), also provide for a separate effective “safe harbour” for those whose RIT will exceed $60,000, by preventing any UOMI from being charged until post the final instalment date – usually 7th May. Provided the relevant income year’s first two instalments have been calculated using the standard calculation method, and that both instalments have been paid on time as required, your client has the opportunity to in essence avoid any UOMI costs.

This elimination of potential UOMI can be achieved by adjusting your clients final instalment payment amount (which now occurs post the end of the relevant income year) to account for any difference in the tax payable on their actual profit for the income year just finished (actual in this case equating to the best draft result they can ascertain in the 5 week period between year-end and the final instalment due date) and the total provisional tax already paid over the first two instalments.

Certainly a fairer UOMI calculation regime in my view compared to the previous “crystal ball gazing” requirements under the old rules.

Richard Ashby BBus, CA, CPA PARTNER
Em: [email protected] Ph: +64 9 365 5532 Fx: +64 9 309 5260 Mb: +64 21 823 464