A Week In Review
Gifts of Food and Drink
IR has recently published a clarification with respect to the issue of whether a gift of food and/or drink to a client, customer or supplier is fully deductible, or subject to the limitations of the entertainment regime and consequently only 50% deductible. Confusion appears to have arisen due to a December 2011 Business Tax Update that suggested a taxpayer could generally claim 100% of the costs of gifts such as food and wine, which was followed by a February 2012 article in the same publication that tried to explain the issue further by stating the expenditure was fully deductible as long as it’s not provided or consumed away from the taxpayers business premises. IR has noted some taxpayers now treating the expenditure as fully deductible while others have only been claiming 50%. In Agents Answers Issue 193 (August 2016), IR has outlined its present position, that if gifts of food and/or drink that will provide a private benefit to the recipient and a business benefit to the taxpayer are provided off the taxpayers premises, then the 50% limitation rule will apply. While IR will not be devoting resources to identify where incorrect claims may have been made, over-claimed deductions identified during an audit will be adjusted, however it is unlikely shortfall penalties will be imposed where the taxpayer can point to previous reliance on the Business Tax Update articles.
LTC Deductions
An issue brought to my attention last week which I have not had to consider in any great detail to date, but is certainly worthy of a reminder in my view, is that the deduction limitation rules apply regardless of whether the LTC is in a profit or loss position for the income year. Often referred to as the loss limitation rule, section HB 11 is actually titled “LIMITATION ON DEDUCTIONS BY PERSONS WITH INTERESTS IN LOOK-THROUGH COMPANIES”. Consequently, if the owner’s basis is calculated to be less than the deductions amount for the current income year, then the limitation will apply to restrict the claimable amount to the level of the owner’s basis. It should be noted however, that the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Bill presently before Parliament intends to remove the deduction limitation rule for LTC’s, effective from the commencement of the 2017/18 income year.
Tax Bill Update
Following on from the final comment in the last paragraph, what is the progress status with respect to the latest taxation Bills? You may recall that there are presently two of significance before the House, the previously mentioned “Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Bill” and the more recently introduced “Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill”. Both pieces of proposed legislation include a number of amendments which will no doubt be welcomed by our clients, particularly the latter with its use of money interest changes that to a large extent will make all of our crystal balls redundant.
The Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Bill which was introduced on 3rd May 2016, is presently with the Finance and Expenditure Committee (submissions having been due by 29th July 2016) and a report is due by 15th December 2016. The Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill which was introduced on 8th August 2016, is also with the Finance and Expenditure Committee (submissions having been due by 9th September 2016) and a report is due with respect to this Bill by 11th February 2017.
Our Aussie Friends..
For those of you who have clients doing business across the ditch (in the UK recently I was asked if you can just jump on a ferry to get from NZ to Aus!), the ATO has recently commenced issuing guidance to its compliance approach with respect to transfer pricing issues. In its draft discussion paper on offshore marketing hubs, the ATO is proposing a 5-tier grading system which will prescribe which companies must tell the ATO of their marketing arrangements, ranging from low risk green level entities which can essential apply 100% mark-up to costs with minimum risk of any compliance activity, to those entities that will be required to fully disclose all aspects of the arrangements. The ATO is also presently reviewing offshore procurement hub arrangements, so we can expect to see a similar discussion document issued in this respect shortly.
Note that for those of you looking to acquire property in Australia, most States have been active recently in introducing a foreign purchasers surcharge (NSW the latest with 4%) in an attempt to reduce foreign ownership issues, and similar to our own recently enacted Resident Land Withholding Tax effective from 1st July 2016, Australia has introduced a foreign resident capital gains tax withholding regime with application from the same date. The rules require any purchaser acquiring Australian real property valued at $2million or more from a foreign vendor to withhold 10% of the purchase price and pay it to the ATO. Vendors can apply to the ATO to vary the amount.
Richard Ashby BBus, CA, CPA
PARTNER
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