Tax Bill re-introduced continued

Following on from last week’s edition where I covered a number of the proposed changes included within the latest tax Bill, the remaining proposals include:

GST – the present mixed-use asset rules contained in sections 20(3JB) and 20G will be repealed, with cases where GST apportionment continued to apply being dealt with using the same general GST apportionment rules that apply to other assets. These general rules would allow an apportionment percentage to be calculated based on days of taxable use. This is a similar method to the current formula in section 20G, but the calculation would be less prescriptive and would not be limited to the set of “mixed-use assets” described in section DG3 of the Income Tax Act. The proposed repeal of sections 20(3JB) and 20G would have an effect on the registered person’s first adjustment period beginning on or after 1 April 2024.

GST - prescribing an information disclosure requirement for GST persons claiming a taxable use on purchases of land, aircraft, or pleasure craft – in essence a “big brother is watching you” collection regime to enable Inland Revenue (IR) to better monitor and promote compliance by registered persons who have previously claimed large input tax deductions (or acquired zero-rated land) but no longer appear to be proceeding with, or carrying on, a taxable activity (for example, they have been continuously filing GST returns with no or low sales). It is expected that the earliest possible implementation date to apply the new disclosure rules would be for land, pleasure craft, or aircraft acquired on or after 1 April 2024.

Interest limitation – providing for an in-perpetuity exemption from the interest limitation rules for build-to-rent dwellings that meet the asset class definition. Now don’t get too excited, because in order to qualify for this exemption, you have to satisfy a new “build-to-rent land” definition, which means land to the extent to which, together with any other contiguous land owned by the same person, it has 20 or more dwellings where each dwelling is used, available for use, or being prepared or restored for use, as a dwelling occupied under a residential tenancy to which the Residential Tenancies Act 1986 (RTA) applies; where every residential tenancy has the option of a 10-year term, with the ability to give 56 days’ notice of termination; where every tenancy agreement includes a personalisation policy, and where at no time it after it first meets the above requirements does it fail to meet those requirements. The exemption would apply to new and existing build-to-rent developments, the latter where the new definition requirements are satisfied by 1st July 2023.

FBT – a proposed amendment which would exempt from FBT, public transport fares that are subsidised by an employer mainly for the purpose of their employees travelling between their home and place of work. Provided the public transport is via a bus, train, ferry, tram or cable car, the employer would not have to pay FBT on such benefits. The proposed amendments would have effect for fringe benefits provided on and after 1 April 2023.

Bright-line – clarifying the bright-line test exclusion for inherited property. Inherited residential land is effectively exempt from the bright-line test. This outcome is achieved through three different sections in the Income Tax Act – sections CB 6A(2B), CZ 39(7), and FC9 – but it is not always clear that they operate together. The amendments will work to clarify that the bright-line test does not apply to the transfer of the land from the deceased to a beneficiary beneficially entitled to the residential land under the terms of the deceased’s will or the rules governing intestacy, including any intervening transfer to an executor or administrator, or to a scenario where the executor or administrator of the estate or the ultimate beneficiary sells the residential land. The proposed amendments would take effect on the day after the date the Bill receives the Royal Assent.

Land tax provisions – partitioning of land among co-owners. The proposed amendment would ensure that the allocation of subdivided land among the co-owners of the original undivided land does not constitute a disposal for the land sales provisions. This exclusion would apply to the extent that the value of the allocated properties under the partition aligns with the co-owners’ interests in the original undivided parcel of land and contributions to development and construction costs. Any difference in these proportions (including any wash-up payments between the parties) would continue to be subject to income tax where applicable, as this difference would represent an economic change in ownership and actual disposal. The proposed amendment would have effect for partitions occurring on or after 27 March 2021.

GST – improvements to the place of supply rules. The proposed amendments would enable a broader range of suppliers to use the proxies available to non-resident suppliers of remote service and distantly taxable goods to determine the GST treatment of their supplies. Section 8(4) currently allows the non-resident supplier of goods that are in New Zealand at the time of supply and the GST-registered recipient of those goods to make an agreement that the supply is made in New Zealand – however it has been acknowledged that it can be burdensome to enter into and manage these agreements in circumstances where non-resident importers have a lot of GST-registered customers. The amendment proposes replacing the requirement to have an agreement with the recipient of the goods with an option for the non-resident supplier to unilaterally treat the supply as being made in New Zealand. The non-resident supplier would implement this by charging 15% GST on the supply of the goods. The proposed amendments would take effect on the day after the date the Bill receives the Royal Assent.

This article from the 'A Week in Review' newsletter was originally published Monday 19th September 2022. If you have any questions or would like a second opinion on any national or international tax issues, please contact me [email protected].?

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