It's (nearly) a wrap
It's (nearly) a wrap
As the year winds down, Darshana Elwela, reflects on the “tax” year that was and what to expect in the year ahead.
Capital gains tax…so close, yet so far
2019 began with a bang with the public release of the Tax Working Group’s final report.
For a few frenzied months, a possible capital gains tax was the talk of the town. In April, the speculation was quashed with the Prime Minister announcing that her Government would not introduce a capital gains tax in this, or any future, term. (Ditto it would seem for the Opposition.)
Game over for capital gains tax? Not quite. New Zealand’s ad hoc approach to extending the tax rules to capture more capital gains as income seems set to continue. This includes strengthening the current test to tax those with a regular pattern of buying and selling private use land.
With a capital gains tax off the table, where to now for New Zealand’s tax policy?
Well, the Tax Working Group’s 98 other recommendations are largely still “not out”.
Some recommendations – tax relief for “black hole” feasibility expenditure and a review of loss continuity rules – will be progressed in the new year. The other recommendations have been included on Inland Revenue’s tax policy work programme for future consideration. However, their timing is unclear, particularly with an election on the horizon.
BEPS 2.0 and other developments
The unfinished business of ensuring highly digitalised multinational businesses pay their “fair” New Zealand share of tax (aka BEPS 2.0) has received some focus this year.
There are two possible courses for New Zealand: stick with the OECD process aimed at a developing a multilateral taxing solution or go it alone. While the preference is for the former, the Government has signalled that a unilateral digital services tax is an option. Early 2020 should provide some clues as to which approach is favoured.
The 2018 interest limitation (including thin capitalisation), transfer pricing, hybrid mismatches and permanent establishment changes (aka BEPS 1.0) now apply to everyone. For June to September balance dates, there are new online BEPS disclosure requirements that must be completed for the 2019 tax return filing. Everyone else will need to complete these for the 2020 tax return.
A number of New Zealand’s Double Tax Agreements, including with Australia and the UK, have also been updated for BEPS-related changes under the Multilateral Instrument.
It is critical that multinationals turn their minds to whether they are impacted.
Multinationals whose New Zealand subsidiaries have Australian parents should also take care due to a change in how Australia interprets tax residence, due to central management and control. New Zealand subs may now be “dual resident”, with potential impacts on both sides of the Tasman.
And from 1 December, overseas retailers and marketplaces selling products to New Zealand consumers are required to register and withhold New Zealand GST on shipments with a value of NZ$1,000 value or less. This is of course taxes New Zealand consumers, rather than the foreign seller.
Inland Revenue focus and activity
Much of Inland Revenue’s early 2019 focus was on migrating income tax into its new $1.8 billion IT system, as part of its Business Transformation programme. If not apparent already, online engagement is increasingly Inland Revenue’s expectation, for both individuals and business.
For individuals, this means their income and tax information will now be displayed on their online MyIR account, with automatic refunds or tax bills for most.
For business, the new system allows most tax types to be managed online. A greater focus on electronic data exchange is also evident from the new PAYE “payday” reporting rules (which apply from 1 April this year) and investment income information reporting requirements (from 1 April 2020) for business.
In the second half of 2019, Inland Revenue’s focus has been on:
- Multinational enterprises, with the release of its compliance focus for 2019-20 and the release of updated international and transfer pricing questionnaires for these.
- Following up with individuals on information received about their foreign accounts under the Common Reporting Standard, with a request for disclosure where foreign income may have been omitted.
- Compliance with the bright-line test and new rental property loss ring-fencing rules.
- Purchase price allocation mismatches between vendors and purchasers. A consultation document to “clarify” the allocation rules has also been released.
Going forward, expect to get even more targeted questions as the new system delivers better quality data and Inland Revenue refines its risk analytics. Are your business systems and processes keeping pace?
The year ahead – exciting times?
So, what’s in store for the year ahead?
- A new tax bill early next year will include several of the issues discussed above.
- Enactment of the Taxation (KiwiSaver, Student Loan, and Remedial Matters) Bill can be expected prior to 1 April. (This includes enhancements to the R&D tax credit regime, enacted earlier this year.)
- The Government’s 2020 Budget is likely to build on its 2019 “Wellbeing” Budget.
- While we do not expect tax to be a significant feature of the upcoming Budget, that is likely to change as the parties gear up for next year’s general election. Subject to the fiscal position, tax will be a, if not “the”, hot button election issue. Hopefully, policies will be sustainable rather than simply transactional.
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