A Week in Review
Using Electronic Signatures on IR Documents
IR has issued a Standard to provide guidance with respect to accepting electronic signatures on documents and information provided to it.
The Standard provides that an electronic signature will be accepted wherever a conventional signature would usually suffice, as long as the option to use an electronic signature is specified in the relevant document or its associated guidelines.
Any electronic signature used must comply with the secured authority definition contain in section 209 of the Contract and Commercial Law Act 2017, and that when used, the signatory must accept that they cannot later deny having affirmed the document or information provided IR. This latter aspect is on the basis that the signatory is solely responsible for safeguarding their authentication credentials and the management of any delegations to use the signature that they authorise.
An electronic signature is deemed to be the person’s verification of the authenticity and accuracy of the information or documentation submitted to Inland Revenue.
Bright-line Revisited
The Election is almost upon us, and once again the air is rife with whispers of the words “capital gains tax”, and whether certain Parties will introduce one, should they win the Vote.
I thought it might be timely therefore to revisit the Bright-line test, which some would argue is already a quasi-capital gains tax, because of the way it indiscriminately taxes any gain made on a disposal of residential land within two years of its acquisition date, unless the vendor can claim the “main home” exemption.
It is hard to believe that in just over a fortnight, it will be two years since the new rules were introduced, Bright-line potentially applying to any residential land which a person first acquired an estate or interest in, post 1st October 2015.
The taxing provision itself is contained in section CB 6A of the Income Tax Act 2007 (”the Act”), essentially as a supplement to the existing section CB 6, which itself requires income tax to be paid on any gain arising on the disposal of any land, where a purpose or intention of acquiring the land, was to dispose of it.
Section CB 6 has existed for many years, and will continue to take precedence over section CB 6A (which only applies where sections CB 6 to CB 12 do not), however it relies on a subjective analysis of what the taxpayers intentions were when they acquired the land. While the onus has always been on the taxpayer to mount a challenge to IR’s submission a disposal intention or purpose existed (which included the usual “deep pockets” appreciation by our clients), I have usually found over the years that IR still wants to be pretty certain of their position prior to moving to a NOPA/assessment phase. This has often lead to lengthy delays and frustrated clients as a consequence (who just wanted their cases finalised in some way), while IR internally struggled to make up their mind whether their case was strong enough.
Section CB 6A removes any question of subjective intention, automatically subjecting the disposal to taxation, if the residential land is sold within the two year Bright-line period. This is regardless of the reason behind the disposal. For example, there is no carve-out for financial hardship, where there may have been a clear intent at acquisition to hold the property long term (so it would not be taxable under section CB 6), but say the loss of a job may have resulted in the investment property having to be sold due to reduced cash flow to fund the debt payments.
A few things to note about section CB 6A:
– Even if you acquired the property pre 1st October 2015, if you transfer the title to an associated party post that date (say trustees to personal name or vice versa), you effectively reset the clock, as there is no time benefit for prior associated vendor ownership as there is for a number of the other land tax provisions.
– Section CB 6A applies to residential land wherever owned, so it does not just apply to NZ based land.
– Just because you sell the residential land on day 731, which essentially means it is no longer subject to Bright-line, does not mean that you are no longer exposed to being assessed for tax by IR on an intention or purpose of resale basis. Section CB 6 still exists (and as mentioned should be considered pre section CB 6A anyway, although if Bright-line applies, there may not be a need to think through the other taxing provisions, unless there is some benefit in doing so).