A Week in Review
Employer-Issued Crypto-Assets
A new draft public ruling (PUB00344), examines the application of the employee share scheme rules and the associated income tax treatment, where an employer has issued to an employee, in connection with that persons employment, a crypto-asset which satisfies the s.YA 1 definition of a “share”.
The ruling only applies to employees and not to those who provide goods or services to the employer or who are self-employed.
Where the crypto-asset is a “share” for income tax purposes and the employee is not required to pay their employer market value for the crypto-asset they are issued with, then the value of the taxable benefit will be determined in accordance with the provisions of s.CE 2, and the benefit amount itself will be deemed to be the employees’ employment income under the provisions of s.CE 1(1)(d).
“Crypto-assets” are digital assets that use cryptography and blockchain technology to regulate their generation and verify transfers. Satisfying the “share” definition which would then trigger the application of PUB00344, could occur in the context of an Initial Coin Offering or a Token Generating Event (or by other similar means), by the employees’ employer.
The timing of the benefit is determined by the “share scheme taxing date”, which in simple terms is the date on which the employee would be deemed to hold the shares just like any other shareholder in the company. Under an employee share scheme, this is now defined as being the time at which there is no material risk that the ownership of the shares may change.
When the share scheme taxing date has been deemed to have occurred, the quantum of the benefit to the employee will be the difference between the market value of the crypto-asset on that date, and the amount actually paid by the employee to receive the crypto-asset.
Since the benefit derived by an employee from an employee share scheme is not included within the definition of a PAYE Income Payment contained in s.RD 3, to which the PAYE rules would then apply, the tax payable on the benefit is the direct responsibility of the employee themselves.
The deadline for comment on PUB00344 is 6th August 2019.
Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill
Introduced into Parliament during the week, this Bill has as its main objectives, continuation of the Government’s simplifying and modernising of social policy administration, further improving the application of NZ’s broad-base, low-rate framework, and further encouraging research and development expenditure.
The proposals contain amendments to the existing KiwiSaver scheme rules, to take advantage of the new payday employment information filing regime, which can now facilitate a faster transfer of employer contributions to a members fund, IR forwarding contributions on the basis of the payday information its received, which will be before the contributions have actually been received by IR.
The new legislation would also see from the commencement of the 2020/21 income year, R&D tax credits becoming more broadly refundable, with the cap based instead on the quantum of payroll taxes paid by the business each year.
The recent administrative review of the income tax treatment of trusts has also identified several areas of the law which could be improved, including clarifying the relationship of the residence rules to trustees and their obligations under the Income Tax Act 2007, and clarify the rules relating to the value of a settlement.
And in a couple of land related proposed amendments, firstly it has been identified that while the main home exclusion for the bright-line test requires that a person use the land as their main home for most of the time they own the land, situations can arise where the period that a person owns land under this general definition can differ from the period that the bright-line test applies to. Consequently there is a desire to align the period of ownership for the main home exclusion for the bright-lines test with the bright-line period. Secondly, the Bill contains a remedial amendment to clarify that a one-off payment for the grant of a permanent easement is not taxable.
We wait now for the FEC’s report once the Bill has passed its first reading and has been sent to them for their review and comment.
Omnibus Tax Bill Now Law
Further to last week’s update that the Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial) Act 2019 had passed its third and final reading, the legislation received the Royal Assent on 26th June 2019 and consequently is now law.