The Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill (or the “August Tax Bill” for short) was introduced on August 30, 2022. The Bill and the accompanying Commentary on the changes are available here
The Bill proposals at a glance
There are a range of policy and remedial items. We summarise the key policy changes below:
This is to implement the OECD’s model reporting standard for digital platforms operating in the gig and sharing economy. The reporting will apply to specified activities of sellers using the NZ digital platform. The specified activities are the provision of: commercial, short stay or visitor accommodation; personal services; the sale of goods; and vehicle rentals.
“Listed services” will be the provision of accommodation (where that accommodation would be a taxable supply for GST purposes); ride sharing and food and beverage delivery services; and activities closely related to these services. There is the ability for large commercial accommodation providers (such as hotels) to opt-out and continue to pay GST directly.
The changes here include:
- A 60-day grace period for complying with NZ employer tax obligations (such as PAYE and FBT) if an employee’s presence breaches NZ domestic law or tax treaty exemptions. This will apply from 1 April 2024.
- A “safe harbour” from NZ employer tax obligations for non-resident employers who have incorrectly determined they have no PAYE or other employment-related tax obligations. This will apply if either: there are 2 or fewer employees present in NZ at any point, or there is less than NZ$500k in gross employment-related taxes, during the year. The employee(s) would have to satisfy any NZ employment related obligations (including FBT obligations on any fringe benefits received). This will apply from 1 April 2023.
The changes here include:
- A 60-day grace period for NZ payers to meet or correct NRCT obligations.
- NZ payers will be able to consider only contract payments made by, or time spent in NZ by the contractor working for, the NZ payer when applying the NRCT exemption criteria (such as the 92-day test or NZ$15,000 de minimis).
- New information reporting requirements will apply to NRCT payers.
These changes are mainly in response to Australia’s corporate tax residence test change, but will apply more broadly. They will allow companies that are or become dual resident:
- In the case of Australian / NZ dual resident companies to retain their imputation credit accounts;
- To be or continue to be a member of a consolidated tax group; and
- To use the loss grouping rules
Integrity measures are also proposed to prevent the intercompany dividend exemption applying, and to apply the corporate migration rules, when a NZ resident company becomes dual resident in another jurisdiction.
“BTR land” will be excluded from the interest limitation rules that apply from 1 October 2021. To qualify as BTR land, at all times:
- The development must have a single owner;
- There must be at least 20 dwellings used or available for use for residential tenancies (under the Residential Tenancies Act); and
- Each residential tenancy must offer a term of at least 10 years and a personalization policy (such as the ability to keep pets)
Existing BTR developments will have until 1 July 2023 to meet the above requirements to qualify as BTR land.
From 1 April 2023, employer subsidised public transport fares provided to employees mainly for travel to work will be exempt from FBT.
Operators of utilities networks will need to apply a “component approach” to expenditure incurred on their distribution assets (meaning expenditure on such assets will be capital in nature). Where operators have previously applied a “network approach” to such expenditure in their tax returns, the change will apply from the 2024-25 income year.
Some initial thoughts on the Bill
Overall, the key changes in the August Tax Bill are those previously consulted on by Inland Revenue, albeit the likely direction of reform was not always clear at the time.
There are a couple of surprises however.
We welcome the Government accepting the last Tax Working Group’s recommendation to introduce an exemption from FBT for employer-subsidised public transport. The Commentary notes that this aligns the position with the current tax treatment of employer-provided car parks, which are generally exempt from FBT. It is intended to make the tax outcomes neutral between travelling to work by car and more environmentally friendly transport options.
The other was the decision in the Bill as introduced to apply GST in full to fund fees, including fees charged to investors in KiwiSaver schemes. Currently, fund and investment management fees charged to KiwiSaver schemes are GST exempt while for non-KiwiSaver saving schemes, typically only 10 percent of such fees are subject to GST. The Government originally justified this change on the basis of creating a level playing field. However, in late breaking news this change will be withdrawn from the August Tax Bill due to concerns raised by the industry and others that some or all of the GST cost would be passed on in the form of increased fees to investors.
In addition to the changes listed above, there are a range of remedial amendments to the residential interest limitation rules, enacted earlier this year, and the residential property “bright-line” extension (e.g. to ensure rollover relief provisions work as intended). Similarly, remedial amendments are proposed to the new GST invoicing requirements that will apply from 1 April 2023. At the risk of sounding like a broken record, the need for ongoing remedial amendments, particularly for interest limitation, reflects the haste with which the underlying policies were developed and legislated.
To highlight the importance of reviewing the August Tax Bill in detail, included amongst the remedial items is a change to the operation of the provisional tax standard uplift method (page 204 of the commentary for those interested). This is described as a “clarification” of what was always intended; we would argue otherwise. But its effect could have real (i.e. interest and penalties) consequences for taxpayers particularly as the change will have retrospective effect.
We now await the August Tax Bill’s referral to the Finance and Expenditure Select Committee and the submission due date (we expect submissions will be due be before the end of the year).
