A Week in Review

Richard AshbyPartner, Gilligan Sheppard

Overseas Hunters – GST Implications

IR has released a draft interpretation statement PUB00307 for comment. The IS espouses the Revenue’s view of the GST treatment that should be applied by NZ hunting outfitters (NZ hunting outfitters and guides who provide hunting experiences for overseas hunters visiting NZ are referred to collectively as “outfitters”) and taxidermists, with respect to goods and services provided to overseas hunters coming to NZ for a “hunt” experience, which may or may not include subsequently taking their “trophies” home with them.

Now before you turn away and proceed to read the next “exciting” article instead, I appreciate that while most of you, like me, have never had an outfitter/taxidermist client in your lifetime, and arguably may foresee never having one going forward due to your own values of principle, I find an IS like this is still a good read, if only for the sole purpose of gaining further insight to the Revenue’s thought patterns when dealing with a scenario such as this, where a core issue to be determined, will be whether the supply should be standard-rated or zero-rated for GST purposes because the customer is a non-resident.

I would suggest there is also additional learning to be obtained from the commentary, due to the variable contractual arrangements that may exist between the parties, and the questions of a single composite supply versus two separate supplies. For example, is the hunter simply looking for the experience of shooting that prized Stag from the relative “safety” of the helicopter cabin and then leaving Mother Nature to clean up afterwards, or alternatively the full package of being able to parade the success of the hunt on their dining room wall back home to all who visit for Thanksgiving dinner.

The commentary, therefore, explores some techniques which can be used by advisors to determine the true nature of their client’s supplies, which as I have earlier suggested can equally be used in cases external to the scenario PUB00307 is actually targeted towards. Such analysis can lead to a single supply conclusion, fully standard-rated or zero-rated, or alternatively, deemed separate supply components where there may be a mix of standard-rating and zero-rating treatment.

The deadline for comment is 9th October 2019.

QWBA on Employee Contributions

The release of QB 19/12 provides IR’s answer to a “question we’ve been asked” on the FBT, GST and income tax consequences arising as a result of an employee (including a shareholder-employee) making a cost contribution towards a fringe benefit their employer is providing them with.
The employee could be making either a partial or a full contribution, and the contribution could be made to either the employer or a third party.

QB 19/12 advises:

  • For FBT purposes, the taxable value of the fringe benefit is reduced by the amount of the employee contribution, to the extent that a full cost contribution by the employee will result in no FBT liability for the employer.
     
  • For GST purposes, there are two aspects to the scenario. Firstly, to the extent that some taxable value remains to post the employee contribution, GST will be imposed on the remaining taxable value, assessed and paid in the relevant FBT return by the employer. Secondly, a contribution made to the employer is a consideration for a supply by the employer and must be accounted for in the employer’s GST return. A contribution made directly to a third party by the employee however, will not be a consideration for a supply by the employer.
     
  • For income tax purposes, a contribution made to the employer is the income of the employer and must be included in the employer’s income tax return, net of GST. The employer may then claim relevant deductions relating to the fringe benefit. However, a contribution to a third party directly by the employee, will not be the income of the employer.

Crypto-Assets – and another…

Following hard on the heels of the following first three Public Rulings of a Crypto-Asset flavour, IR has now released BR Pub 19/04: “Income tax — application of the employee share scheme rules to employer-issued crypto-assets provided to an employee”.

The first three rulings were:

  • BR Pub 19/01: “Income tax — salary and wages paid in crypto-assets” 
  • BR Pub 19/02: “Income tax — bonuses paid in crypto-assets”, and 
  • BR Pub 19/03: “Income tax — employer-issued crypto-assets provided to an employee”. 

The arrangement to which the Ruling applies is the provision of crypto-assets by an employer to an employee in connection with their employment in circumstances where: 

  • the employer is issuing crypto-assets, e.g. through an Initial Coin Offering; 
  • the crypto-asset is a “share” as defined in s YA 1;  
  • the employee is not required to pay market value for the crypto-assets; and,
  • the crypto-assets are not provided under an exempt ESS as described in s CW 26C. 

Should the above scenario exist, then: 

  • The provision of the crypto-assets by the employer to the employees is an “employee share scheme” as defined in s CE 7.
  • Section CE 2 will apply to determine the value of the taxable benefit received by the employees. 
  • The amount of the taxable benefit will be the employees’ employment income under s CE 1(1)(d). 

The ruling uses the term “crypto-asset” to cover digital assets that use cryptography and blockchain technology to regulate their generation and verify transfers. The ruling also uses the term “equity token” to cover a specific subset of crypto-asset.

The ruling applies for a period of three years beginning on 1 December 2019. 

“Exclusion” QWBA finalised

In a recent edition of AWIR, I commented on a draft QWBA that IR had issued, providing the Revenue’s view of how the business premises exclusion applied to exclude a taxpayer from taxation upon disposal of land under either section CB 6 to CB 11, or under the bright-line rules – section CB 6A.

The exclusions apply slightly differently under the aforementioned taxing provisions, and consequently IR has issued to QWBA’s, QB 19/13 (which has narrower scope for application of the provision because the land must have been used predominantly for the specified purpose and for most of the time the taxpayer has owned it) which applies to a taxing event triggered by the application of section CB 6A, and QB 19/14, which has wider potential application to a taxing event triggered by the application of sections CB 6 to CB 11.