Tax Round Up: April - June 2023

Issued: 18 April 2023

This consultation item includes a draft Interpretation Statement (“IS”) and draft Question We’ve Been Asked (“QWBA”) dealing with the main home exclusions to the bright-line tests.

IS – Income tax – How absences affect the main home exclusion to the bright-line test

This draft IS considers how the main home exclusions to the bright-line tests are impacted by periods of absence by the person, for example holidays, secondments or renovations.

Different main home exclusions apply depending on when the person acquired the land, and this may materially impact the outcome.

For land acquired on or after 27 March 2021, which is subject to the 10-year bright-line test (or 5-year test for new build land) in s CB 6A, the relevant main home exclusion is contained in s CB 16A. For this exclusion to apply, the land must have been used “predominantly for a dwelling” that was the person’s “main home”, meaning more than 50% of the land by physical area must be used as the person’s main home. The main home exclusion in s CB 16A cannot apply otherwise, although there is a separate apportionment mechanism under the bright-line test in s CB 6A which has the effect of ensuring the portion of the land used for main home purposes is not taxed. The main home exclusion in s CB 16A also only applies when all days in the bright-line period are “exempted predominant main home days”.  This generally requires that the land was actually used as the person’s main home, although there is a 12-month “buffer” rule that treats up to 365 consecutive days of absence as being main home days (as well as certain days of construction, if those exceed the 12-month buffer). If all days of ownership are not “exempted predominant main home days”, then the main home exclusion in s CB 16A does not apply.  However, there is a separate apportionment mechanism under the bright-line test in s CB 6A which has the effect of excluding main home days when calculating the amount of tax owing.

For land acquired from 29 March 2018 to 26 March 2021, which is subject to the 5-year bright-line test in s CZ 39, the relevant main home exclusion is contained in s CZ 40. This is a more straightforward exclusion and generally requires only that the property was used as the person’s main home for more than 50% of the time they owned it during the bright-line period. This is an “all or nothing” test.

QWBA - If a person has two or more houses, which home is their main home for the purpose of the main home exclusion to the bright-line test?

This draft QWBA sets out the process to determine a person’s main home when they own two or more houses for the purposes of the bright-line test. This is necessary because as a person can only have one “main home” for purposes of the main home exclusions.

The draft QWBA considers that the main home exclusion is an objective test that considers where a person has the greatest connection and other factors like the time a person has occupied the home, where the persons immediate family lives, where the social ties are strongest, the person’s economic ties and employment and business interests are in relation to the home, and where the person’s personal property is.

Links: PUB 00429-IS

PUB00429-QWBA

Relevant dates: Submissions on both drafts closed 30 May 2023.  We will cover any further developments in a future Tax Round Up once the items have been finalised.

Issued: 20 April 2023

This Interpretation Statement (and accompanying Fact Sheet) focuses on the application of the 5-year bright-line test in section CZ 39 in the context of certain family and close relationship transactions. The bright-line test under s CZ 39 applies if a person first acquired an estate or interest in residential land on or after 29 March 2018 but before 27 March 2021.

The Interpretation Statement concludes that the s CZ 39 bright-line test applies to the following transactions (assuming all other requirements of s CZ 39 are met):

• a disposal from parents (as individuals) to their child;
• a disposal from a company (which is not a look-through company (LTC)), where the parents are shareholders, to their child;
• a disposal from parents, who are the trustees of a trust and hold the land in that capacity, to their child who is a beneficiary of the trust;
• a disposal by one partner to themselves and their new partner, to the extent of the new partner’s share in the land;
• a subsequent disposal from the two partners to a third party; and
• a disposal from beneficiaries under a will (or rules governing intestacy) to a third party to the extent that the disposed interests do not equate to (are not the same as) the original shares acquired under a will (or rules of intestacy).

In each case, the taxable disposal will be deemed to have occurred at market value if the consideration for the disposal is below market value.

The Interpretation Statement concludes that the s CZ 39 bright-line test does not apply to the following transactions:

• disposal from parents who are nominees or bare trustees for their child to their child;
• a disposal from a person who dies to an executor or administrator;
• a disposal from an executor or administrator to the beneficiaries under a will or rules governing intestacy;
• a disposal from some of the beneficiaries under a will or rules governing intestacy to the other beneficiaries; and
• a disposal from beneficiaries under a will or rules governing intestacy to a third party to the extent of their original shares in the land acquired under the will or rules governing intestacy.

Inland Revenue noted that a separate item is intended to be released later in 2023 dealing with application of the 10 year (or 5 year for new builds) bright-line test in s CB 6A, but that the conclusions reached in IS 23/02 are likely to apply to s CB 6A.   

Links: IS 23/02

Fact Sheet

Relevant dates: applies from date of issue

Issued: 27 April 2023

This Interpretation Statement (“IS”) deals with the GST implications where there is a specified agent of an incapacitated person or a mortgagee in possession of land or property of a mortgagor.

The IS reiterates the earlier view last issued on the subject in 1995 in that where a registered person dies or is in liquidation, receivership, or voluntary administration, the specified agent will be liable to fulfil the GST obligations related to the taxable activity of the incapacity person.

Where a person is adjudicated bankrupt and therefore considered to the incapacitated person, the Commissioner’s view is that the Official Assignee will generally not be a “specified agent” and will therefore not be responsible for the GST obligations relating to the bankrupt person’s taxable activity (however there is an exception where the Official Assignee has used its power under Schedule 1(i) of the Insolvency Act 2006 to carry on the bankrupt person’s taxable activity in which case they will be a specified agent responsible for the bankrupt’s GST obligations).

In the case of a mortgagee in possession of land (or other property where mortgagee carries on the taxable activity of the mortgagor), the Commissioner may deem to the mortgagee to be the registered person from the date they took possession of the property until the date they cease to be in possession. This is not automatic (unlike for a specified agent), but provided the Commissioner is notified appropriately he may deem the mortgagee to be the registered person for this purpose.

Links: IS 23/03

Relevant dates: applies from date of issue

Issued: 1 May 2023

This technical decision summary (“TDS”) of a binding private ruling addresses an in-specie distribution of unit trust assets to a unitholder in the course of winding up a unit trust. The ruling specifically considers whether the distribution will constitute a dividend.

The Tax Counsel Office (“TCO”) concluded that any in-specie distribution by the Unit Trust of its assets to the Unitholder after the “Date of Consent” will fall within s CD 26 and should not be a dividend to the extent the distribution consists of available subscribed capital (“ASC”) calculated under ss CD 23 and CD 43 or an available capital distribution amount (“ACDA”) calculated under s CD 44.

In reaching this conclusion, TCO confirmed that the unit trust is a “company” for income tax purposes and the usual rules under s CD 26 for taxing distributions on liquidation should apply. TCO confirmed that, for the unit trust in question (under the terms of its trust deed), the first step legally necessary to achieve “liquidation” was the provision of written consent by the unitholder to the trustee (referred to as the “Date of Consent”). Anything occurring after this date would be considered as occurring “on the liquidation of the company” for purposes of s CD 26.    

Links: TDS 23/05

Relevant dates: n/a

Issued: 2 May 2023

IR released two draft Questions We’ve Been Asked (“QWBA”) publications addressing rentals to flatmates.

• PUB00397-1 considers how the main home exclusion from the bright-line test may be impacted by renting to flatmates.
• PUB00397-2 considers the deductibility of expenditure for a person who rents to flatmates.

We summarise both items below.

PUB00397-1: Income tax – bright-line test – main home exclusion – renting to flatmates

This draft QWBA concludes that a person may qualify for the main home exclusion from the bright-line test if they live in their home and rent out a room in their home to a flatmate.

The scope and application of the main home exclusion will, however, depend on when the person acquired the land because different main home exclusions apply depending on the date of acquisition.

For residential land acquired between 29 March 2018 and 26 March 2021, the main home exclusion operates on an all-or-nothing basis (it either applies to fully exempt the sale, or does not apply and the sale is fully taxable).  This can be contrasted with the main home exclusion that applies to residential land acquired on or after 27 March 2021, where an apportionment approach is required.

For land acquired between 29 March 2018 and 26 March 2021, provided the person lived in the house for more than 50% of the bright-line period, and the person used the property “mainly” as their personal residence (generally on a square metre basis), then the main home exclusion is likely to be available (i.e. the sale may be fully exempt from tax). If the owner did not live in the home for more than 50% of the time or the owner rents out a sizeable area of the home for the exclusive use of flatmates, then it may be the home was not “mainly” used as the person’s personal residence and the main home exclusion is not available (i.e. sale may be fully taxable).

For land acquired on or after 27 March 2021, to the extent the person has not lived in the house for a period of time during the bright-line period then a day-count apportionment may be required and a portion of the gain on sale may be taxable. For the period where the person does reside in the home, then renting out a room to flatmates should generally not disqualify the land from being treated as “predominantly” being used for a dwelling that is the person’s “main home”.  Where there is only one dwelling on the property then the ”predominant” use test should generally be met. If a person lives in the home and rents out a room to a flatmate, then generally the person is still using the dwelling as their residence (even if they use less than 50% of the home personally).

PUB00397-2: Income tax – deductibility of expenditure – renting to flatmates

This draft QWBA addresses the issue of deductibility where a person rents a room in their home to a flatmate and provides guidance on how to apportion expenditure incurred in deriving rental income.

IR’s guidance involves dividing the property into three main areas: (1) the owner’s private use areas, (2) the flatmate’s exclusive use area, and (3) shared areas. Expenses relating to the flatmate’s exclusive use area will generally be 100% deductible and expenses relating to the shared area can generally be treated as 50% deductible.

IR considers the following types of expenditure can generally be deductible (in accordance with the above methodology):

• insurance;
• local authority rates (including water rates);
• electricity, gas, internet and other utilities;
• repairs and maintenance; and
• interest (provided the land is used predominantly as the person’s main home).

Additional conclusions in the draft QWBA include:

• the interest limitation rule will not apply if the land is used predominantly for the person’s main home;
• the residential ring-fencing rule will not apply if more than 50% of the land is used for most of the income year by the person as their main home; and
• although the mixed-use asset rules are unlikely to apply (because the home is unlikely to be unoccupied for at least 62 days during the income year), if the mixed-use asset criteria is satisfied then the exclusion for long-term rental property is likely to apply and the person will not be subject to the mixed-use asset rules.

Links:    Pub00397-1

Pub00397-2

Relevant dates: Submissions on both drafts closed 13 June 2023.  We will cover any further developments in a future Tax Round Up once the items have been finalised. 

Issued: 3 May 2023

This Operational Statement covers when employee allowances for additional transport costs for home to work travel are exempt from income tax under s CW 18 so PAYE does not have to be deducted.

The statement clarifies that an allowance will only be exempt from income tax to the extent the amount relates to “additional transport costs”. These are costs to an employee of travelling between their home and place of work that are more than would ordinary be expected.

To qualify as “additional transport costs” the cost must be attributable to one or more of the following factors:

• the day or time of day when the work duties are performed;
• the need to transport any goods or material for use or disposal in the course of the employee’s work;
• the requirement to fulfil a statutory obligation;
• a temporary change in the employee’s place of work while in the same employment;
• any other condition of the employee’s work; and/or
• the absence of an adequate public passenger transport service that operates fixed routes and a regular timetable for the employee’s place of work.

Where any of these factors is present, then the next step is to determine whether the employee incurred the transport costs in connection with their employment and for the employer’s benefit or convenience.  If so, then the employer must consider how much of the travel allowance is exempt under the additional transport cost exemption and calculate how this compares with the allowance paid to the employee to determine the taxable amount (if any). If the costs the employee incurred are equal to or greater than the actual allowance paid, then the entire allowance is exempt.

Link: OS 23/01

Relevant dates: applies from date issued

Issued: 4 May 2023

This technical decision summary (“TDS”) of a Tax Counsel Office (“TCO”) adjudication decision (on 2 February 2023) relates to a situation where a taxpayer was involved as a director of several companies and an employee of one. One of the businesses was put into liquidation and the liquidators initiated legal proceedings against the business, the taxpayer, and other parties.

The taxpayer settled the proceedings with the liquidators out of court which involved the taxpayer being required to pay a settlement amount to the liquidators.

The main issues addressed in the decision are:

• whether the taxpayer had incurred the settlement amount; and
• whether there was sufficient nexus between the settlement amount and the taxpayer’s income for the amount to be deductible; and if so,
• does the private limitation or capital limitation apply to deny the deduction.

The TCO decided the settlement amount was incurred by the taxpayer, however the amount was not deductible due to being insufficiently linked to the taxpayer’s income. Further, the private and capital limitations will apply to deny the deduction. TCO noted that even if the settlement amount satisfied those tests (because it was sufficiently linked with the taxpayer’s employment income), then the employment limitation would have prevented deductibility.

Links:  TDS 23/06

Relevant dates: n/a

Issued: 5 May 2023

This technical decision summary (“TDS”) of a Tax Counsel Office (“TCO”) adjudication decision (on 20 January 2023) relates to expenditure by an individual taxpayer who owns a rental property unit in a six unit complex.

Remediation work was carried out on the complex as a whole by the body corporate and was paid for by special levies which were apportioned and payable by each unit holder. Additional internal painting work was also arranged and paid for by the taxpayer while the property was untenanted.

The TCO decided the capital limitation applied to deny a deduction claimed by the taxpayer for the special levies. However, the deduction for the painting expenditure was allowed.

The basis for the decision is that the remediation work changed the character of the rental complex and there were significant improvements to some parts. However, the painting did not result in any substantial change to the block, and the purpose was to restore the internal walls to the state they were in when freshly painted and accordingly was deductible revenue expenditure.

Links: TDS 23/07

Relevant dates: n/a

Issued: 8 May 2023

This draft interpretation statement discusses how GST applies to various transactions between a unit title body corporate (“UTBC”), its members and third-party suppliers.

For a GST-registered UTBC, the transactions covered in the item include the GST treatment of:

• goods and services acquired by the UTBC before registration;
• services that a member supplies to the UTBC;
• a UTBC’s supply of manager’s accommodation;
• a UTBC’s payments of ground rent and levies it charges to members for ground rent; and
• one-off payments the UTBC receives, e.g. insurance payments, settlement payments, court awards and payments from the Ministry of Business, Innovation and Employment under the Leaky Homes Financial Assistance Package.

The item also notes that external submitters asked the Tax Counsel Office (“TCO”) to consider the GST treatment of distributions from a GST registered UTBC to its members. TCO considers the law could be made clearer and has referred the issue to IR Policy and Regulatory Strategy to consider.

Links: PUB00389

Fact Sheet 1

Fact Sheet 2

Relevant dates: Submissions closed 20 June 2023.  We will cover any further developments in a future Tax Round Up once the item has been finalised.

Issued: 9 May 2023

This draft interpretation statement will update and replace a 2002 interpretation statement (IS3387) and addresses a variety of GST issues relating to court awards and out-of-court settlements.

In particular, the draft statement discusses:

• the need for a sufficient connection and reciprocity between a payment and a supply to be present within a transaction for the payment to be “consideration” for a supply;
• how to determine whether a sufficient connection exists and the need to consider the legal arrangements actually entered into (noting that the label used is not determinative of its legal nature);
• the different types of court awards and out-of-court settlements. The item discusses compensation for loss, awards based on restitution, a court order varying a contract by reducing the price of the goods, payments made on the alteration or termination of a contract, payments made for an agreement not to pursue further legal proceedings (a forbearance to sue), and payments made for a continuing wrong;
• the effect of different GST accounting bases (i.e. whether the supplier or recipient account for GST on an invoice basis or a payments basis);
• claiming GST input tax deductions in a later period;
• payments received under a contract of insurance, where a registered person receives an amount from an insurer and the amount is deemed to be consideration for a supply made by the registered person (regardless of whether the recipient of the payment is party to the contract of insurance).  Note that the Commissioner has released an operational position on this issue, see CS 20/01; and
• apportionment of a sum that is only partly in consideration for a taxable supply.

Links:    PUB00423

Fact Sheet

Relevant dates: Submissions closed 14 June 2023.  We will cover any further developments in a future Tax Round Up once the item has been finalised.

Issued: 11 May 2023

IR has provided the Commissioner’s 2023 adjusted standard-cost for household service for childcare providers and for short-stay accommodation.

The adjusted rates for the 2023 income year are:

Childcare household service:

• Hourly standard cost (per child) - $4.30
• Annual fixed administration and record keeping standard-cost - $418.00

Short-stay accommodation (daily standard cost per guest):

• Owned dwelling - $59.00
• Rented dwelling $53.00

Links:    DET 19/02 (CPI 2023): Standard-cost household service for childcare providers
DET 19/02: Standard-cost household service for childcare providers
DET 19/02 (CPI 2023): Short-stay accommodation
DET 19/02: Short-stay accommodation

Issued: 11 May 2023

IR has provided the Commissioner’s 2023 annual adjustment to the standard-cost household service for boarding service providers, in accordance with Section 91AA of the Tax Administration Act.

The adjusted rate for the 2023 income year is $222.00 as the weekly standard cost (per boarder).

Links:    DET 19/01 (CPI 2023)
            DET 19/01

Issued: 11 May 2023

This update to OS 19/03 states the Commissioner’s annual adjustment to the square metre rate for the dual use of premises, in accordance with section DB 18AA of the Income Tax Act 2007.

The adjusted rate for the 2023 income year is $51.05. This reflects inflation of 6.7% from March 2022 through March 2023 in accordance with the annual movement of the Consumer Price Index through this period.

Links:    OS 19/03 (CPI 2023)
            OS 19/03

Relevant dates: applies for the 2023 income year (1 April 2022 to 31 March 2023 for most taxpayers)

Issued: 11 May 2023

IR has updated the set kilometre rates which can be used to calculate expenditure claims for business use of a motor vehicle, and to estimate reimbursement of expenditure incurred by employees for the use of a private motor vehicle for business purposes. There is an increase in the tier one rate to reflect an increase in running costs due predominantly to an increase in fuel costs.

The rates for the 2023 income year are set out in the table below. (Note that the tier two rate applies to the business portion of any travel over 14,000kms per year.)

Links:   OS 19/04 (KM 2023)
OS 19/04A: Commissioner's statement on using a kilometre rate for business running of a motor vehicle - deductions
OS 19/04B: Commissioner's statement on using a kilometre rate for employee reimbursement of a motor vehicle

Issued: 15 May 2023

Inland Revenue has finalised four public ruling that concern payments of crypto assets made to employees in the course of their employment. The rulings are re-issues of public rulings released in 2019 and 2021 and generally only make minor clarifications without changes to the substantive conclusions.

Overall, the Commissioner’s view is that the provision of crypto assets (from employer to employee) will be subject to PAYE as “salary or wages” or as bonus payment.

In terms of FBT, the Commissioner is of the view that “benefit” can be interpreted widely enough to include crypto assets and impose and the payments can be subject to FBT.

The Commissioner also considers whether crypto assets issued by an employer and provided to an employee will constitute an “employee share scheme” (ESS) (as defined in s CE 7) that provides employees with a taxable benefit under s CE 1(1)(d). The ruling provides that if the cryptoasset provides the employee with some interest in the capital of the company, then this will constitute an ESS, and the employee will be deemed to have derived a taxable benefit under s CE 1(1)(d) if they are not required to pay market value for the cryptoassets (assuming they are not provided under an exempt ESS).

1.     BR Pub 23/04: Income tax – salary and wages paid in cryptoassets.

This ruling considers in which situations employee remuneration paid in cryptoassets will be a “PAYE income payment” for which the employer will have a PAYE obligation.

2.     BR Pub 23/05: Income tax – bonuses paid in cryptoassets

This ruling considers an arrangement where an employee receives payment of an amount of cryptoassets as a bonus in connection with their employment.

3.     BR Pub 23/06: Income tax – employer issued cryptoassets provided to an employee

This ruling considers when employer issued cryptoassets paid to an employee will be a fringe benefit, and how to calculate the taxable value of the benefit.

4.     BR Pub 23/07: Income tax – application of the employee share scheme rules to employer issued cryptoassets provided to an employee

This ruling considers when the provision of cryptoassets to an employee will constitute an employee share scheme in respect of which an employee derives a taxable benefit that is employement income under s CE 1(1)(d).

Links:    BR Pub 23/04
            BR Pub 23/05
            BR Pub 23/06
            BR Pub 23/07

Relevant dates: BR Pub 23/04 and BR Pub 23/05 apply from 2 December 2022 to 30 November 2027.  BR Pub 23/06 applies from 30 July 2022 to November 2027.  BR Pub 23/07 applies from 1 December 2022 to 30 November 2027.

Issued: 15 May 2023

This ruling considers an arrangement where a New Zealand-resident unit trust, the Fonterra Shareholders’ Fund (“FSF”), acts as an investment vehicle for non-milk-supplying investors (public investors) and farmers supplying milk to Fonterra (supplying shareholders). Investors can purchase units which give holders economic right in Fonterra shares, but do not give a legal interest in Fonterra shares.

IR’s conclusions include that:

• the FSF qualifies as a "foreign investment variable-rate PIE" as defined in s YA 1;
• the FSF's interest in the shares is an investment of a type referred to in s HM 11;
• income derived by the FSF from its interest in the Shares is income of a type referred to in s HM 12; and
• income attributed by the FSF to its investors will be "excluded income" provided certain criteria are met.

The ruling also covers redemptions of units and distributions by FSF to unit holders.

Links: BR Prd 23/01

Relevant dates: rulings applies from 28 March 2023 to 31 July 2028

Issued: 22 May 2023

This Question We’ve Been Asked (“QWBA”) explains when a person registered for GST on a payments basis can claim an input tax deduction for goods purchased on deferred payment terms.

IR’s view is that:

• for a standard agreement (e.g. as a store credit account offering deferred payment terms) which is not a hire purchase or layby sales agreement, the general time of supply rule for payments basis persons applies. This means the person can claim an input tax deduction to the extent that payment has been made in that taxable period, but cannot deduct future instalments until they are actually paid;
• for a hire purchase agreement, the person can claim a full input tax deduction when they enter into the agreement. This is specifically provided for in s 9(3)(b) of the GST Act, and gives the purchaser a timing advantage in that they can claim an input tax credit in the period in which they enter into the agreement, before any instalment payments are made; and
• for a layby sales agreement, the person can claim an input tax deduction only when the property in the goods is transferred. This is typically when the final payment has been made.  However it could also be after a specified portion of the total price has been paid if the terms of the agreement allow property in the goods to be transferred to the purchaser before the final instalment is paid.

Links: QB 23/06

Relevant dates: applies from date of issue

Issued: 2 June 2023

This 78 page interpretation statement (“IS”) and accompanying Fact Sheet, applicable to natural persons and trustees only, considers how the interest limitation rules apply to interest incurred for property used to provide short-stay accommodation. The IS also addresses other income tax rules which may be relevant to any interest that is deductible. The length of this IS reflects the increasing complexity of the taxation rules applicable to residential land.

Broadly, the IS concludes that:

• Where a person provides short-stay accommodation in their holiday home, the interest limitation rules will apply to the interest incurred for the holiday home if the holiday home meets the definition of disallowed residential property (“DRP”), i.e. it is land in New Zealand with a place configured as a residence or abode. This will not be the case if your holiday home is new build land, i.e., it has a place that is a configured as a self-contained residence or abode and a code compliance certificate has been issued on or after 27 March 2020 evidencing that the place was added to the land or converted into a residence or abode.
• If you provide short-stay accommodation in your main home (whether by renting a room or the entire home), the main home exception applies, and the interest limitation rules do not apply to interest incurred for your home. However, interest and most other expenses will need to be apportioned between your private and taxable use of the home.
• If you provide short-stay accommodation in a separate dwelling on the same land as your main home (and that land is not farmland), the interest limitation rules will apply to the interest incurred for your short-stay dwelling, unless your short-stay dwelling is new build land. If you have one loan for both your main home and short-stay dwelling, you will need to apportion the loan interest between your main home and the short-stay dwelling.
• If you provide short-stay accommodation in a separate property used only for short-stay accommodation, the interest limitation rules apply to the interest incurred for your short-stay dwelling unless the dwelling is new build land.
• If you provide short-stay accommodation on your farm or lifestyle block, the interest limitation rules will not apply if the land meets the definition of “farmland” in the Income Tax Act 2007, i.e., land that is being worked in the farming or agricultural business of the land’s owner or land that, due to its area and nature, is capable of being worked as a farming or agricultural business. Due to their small size, lifestyle blocks are generally unlikely to be used, or capable of being worked, in farming or agricultural businesses, so will not be farmland. If this is the case, the farmland exception from DRP will not apply.

Links: IS 23/04, Fact Sheet

Relevant dates: applies from date of issue

Issued: 12 June 2023

This Public Ruling replaces BR Pub 18/06, which expired on 20 June 2023. It is substantially the same as BR Pub 18/06 but has been updated to reference the new Education and Training Act 2020 and the Ministry of Education’s revised Education Circular 2021/03.

Broadly, GST is not chargeable on payments made to the school board of a state or state integrated school by parents or guardians of domestic students enrolled at such a school, where the payments are made to assist the school with the cost of delivering the education that the student has a statutory entitlement to receive free of charge.

However, GST is chargeable on payments made for supplies of other goods or services, not integral to the supply of education to which the student has a statutory entitlement to receive free of charge, where those supplies are conditional on the payments being made.

Links: BR Pub 23/08

Relevant dates: applies indefinitely from 21 June 2023

Issued: 12 June 2023

On 22 February 2023, the Commissioner issued three public rulings (BR Pub 23/01 – 23/03) relating to the GST treatment of directors’ fees and board members’ fees (summarised in our previous Tax Round Up). One of the Commissioner’s conclusions was that a professional director or board member (a person holding multiple directorships or board memberships) without any other associated taxable activity (such as a legal or accounting or consulting practice) does not carry on a taxable activity just by virtue of holding multiple offices.

This draft QWBA is intended to supplement and clarify that guidance, and considers the GST treatment of a director or board member who provides their services through the use of a personal services company (“PSC”). The Commissioner considers that the situation with the most certain outcome is where the PSC contracts with the company that requires a director for the provision of the director’s services. In this situation, the services provided by the PSC are not excluded from the definition of taxable activity by section 6(3)(b) of the Goods and Services Tax Act 1985, because the PSC is not engaged as a director. Rather, it is supplying the services of a person to fulfil the director role, and accordingly, the PSC can register for GST.

However, the Commissioner concedes that the outcome may be less certain in the situation where a director contracts directly with the company to be a director but is obliged to account for the directorship fees to the PSC because the director is an employee of the PSC. Where the director/employee has fiduciary obligations to account to the PSC for the fees (where the PSC is allowing the person, as its employee, to act as a director for the third-party company), then it may be considered that the PSC is supplying the services of the director as part of a taxable activity and the PSC can register for GST.

Links: PUB00424

Relevant dates: The deadline for comment is 6 July 2023

Issued: 15 June 2023

This draft determination will set an updated depreciation rate for gaming machines (electronic) used in the ordinary course of business in the leisure industry. Relevant gaming machines include machines such as pinball, air hockey and virtual reality gaming machines. The proposed determination does not apply to gambling machines.

Inland Revenue notes that it has been asked to reconsider what depreciation rate should apply and to extend the estimated useful life from 5 to 6.66 years for these assets, due to technological advancements and industry practice.  The existing rates were set 30 years ago and it is considered that the rates require update. The draft determination provides a 6.6 year estimated useful life, with a 30% DV rate and 21% SL rate.

Links: ED00248

Relevant dates: The deadline for comment is 27 July 2023.  The determination once finalised is intended to apply for the 2023/24 and subsequent income years. 

Issued: 16 June 2023

This technical decision summary (“TDS”) of a Tax Counsel Office (“TCO”) adjudication decision (on 16 March 2023) relates to a dispute over whether the Taxpayer, a company in the business of providing accounting and tax advisory services to clients, was entitled to claim GST input tax deductions in respect of goods and services provided to the Taxpayer in connection with client matters, where those clients were removed from the NZ Companies Register when the Taxpayer worked on their matters. Further, Customer and Compliance Services, Inland Revenue (“CCS”) also sought to disallow input tax deductions claimed for goods and services for which the Taxpayer did not hold the required tax invoices and for goods and services provided to it in relation to a property that it leased.

In summary, TCO concluded that the Taxpayer was not entitled to any disputed input tax deductions for which it had failed to show it held the required tax invoices. These included disputed input tax deductions for which tax invoices had been provided, but the invoices did not show the Taxpayer as the recipient of the supply. Further, the Taxpayer was not entitled to disputed input tax deductions relating to goods and services provided to it in connection with client matters where the clients were removed from the Companies Register when the Taxpayer worked on their matters, nor for goods and services provided to it in connection with a property it leased.

Links: TDS 23/08

Issued: 20 June 2023

This technical decision summary (“TDS”) of a Tax Counsel Office (“TCO”) decision in a Private Ruling application discusses whether the Applicant, a New Zealand based company that developed, manufactured and sold a range of products in New Zealand and overseas, was entitled to a deduction for expenditure incurred in renewing a number of registrations with an overseas regulator in respect of products it manufactured for a customer.

Based on the specific facts of this ruling application, TCO decided that the registration costs for the particular registrations:

• are deductible under section DA 1 of the Income Tax Act 2007 (“the Act”); and
• section DA 2(1) (“the capital limitation”) of the Act does not apply to deny the deduction.

In relation to the first point, TCO considered that the registration costs were incurred undertaking the necessary work to renew the product registrations with the overseas regulator so that the Applicant could continue to sell the products in that overseas market. Accordingly, TCO concluded that the general permission is satisfied, on the condition that the registration costs must have a direct link to the work required to register the products with the overseas regulator.

In relation to the second point, TCO considered that the capital limitation did not apply for the following reasons:

• The Applicant needed to renew the registration to continue distributing its products in the overseas market, suggesting the expenditure was operational and therefore revenue in nature.
• The recurrent nature of the registration costs supports the view that the expenditure is of a revenue nature.
• The renewal of registrations and the monitoring of changing standards are continuous, and no enduring benefit or identifiable asset is created by the registration costs.
• The registration costs were part of the ordinary business of the Applicant. They were a cost of operating the Applicant’s business, rather than establishing the business structure.

Links: TDS 23/09