2024 Tax Bill reported-back; nears enactment

The Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Bill (the “Bill”) has been reported back by the Finance and Expenditure Committee (the “FEC”) with several changes in response to public submissions. The Bill now awaits enactment, which will need to be by 31 March 2025.

We highlight some of the key changes recommended by the FEC below. The Officials’ summary of submissions is extensive at almost 300 pages, reflecting the omnibus nature of legislative measures in the Bill. Most submissions, while considered, have been rejected.  The FEC’s report on the Bill and Officials’ report on submissions are available here: Tax Bill reported back.  

Generic tax response measures for emergency events.

The Bill allows certain tax relief measures, such as depreciation rollover relief and tax exemptions for employer welfare contributions, to be triggered via Government regulation rather than changes to legislation. The FEC has recommended simplifying the enabling legislation and including the ability to extend the end date for relief. (The Bill, as introduced, had a 5-year window for recovery-related activities to be completed.) The FEC has also recommended Officials consider the future inclusion of intangible property in this new provision, noting there was insufficient time to reach a conclusion for purposes of the Bill.   

"Scheme pays” option for meeting NZ tax liabilities on foreign superannuation transfers.

This is primarily designed to facilitate UK pension transfers to New Zealand without triggering adverse UK tax consequences. The Bill as introduced mandated that the scheme pays option should be offered by all KiwiSaver schemes, not just those accepting UK pension transfers (called QROPS). In response to concerns raised by KPMG around the additional costs of forcing all KiwiSaver schemes, including those not targeted at UK migrants, to offer scheme pays, the FEC has recommended that it be optional for non-QROPS KiwiSaver funds. 

Allowing retrospective registrations for Approved Issuer Levy (“AIL”) where there was a genuine oversight or error.

The Bill, as introduced, allowed a retrospective AIL registration application within 2 years of the first interest payment date if Inland Revenue was satisfied that certain criteria are met. Registration can be backdated to no earlier than 1 April 2025, including if there was a genuine error before 1 April 2025 and application is made within the 2-year timeframe. The FEC agreed with KPMG (and other submitters) that this 2-year time limit should be removed. Instead, the time between the application and the first interest payment date is one of the criteria Inland Revenue may consider. It remains the case that registration cannot be backdated prior to 1 April 2025, however. The FEC has also recommended adding AIL to the list of taxes for which tax pooling can be used to settle historic liabilities, at Inland Revenue’s discretion. 

Changes to clarify the application of various tax rules for partnerships and limited partnerships (“LPs”).

The Bill clarifies that LPs are eligible to apply for RWT-exempt status. The FEC has recommend that the requirement to carry on a “taxable activity” for RWT-exempt status for a LP be removed and for LPs to be treated as a member of a group of companies (where applicable) for purposes of meeting thresholds to be exempt from RWT. In response to various submissions, including by KPMG, a number of the LP-related legislative clarifications have also been extended to general partnerships, such as allowing partners of general partnerships to include their share of partnership income in the corresponding tax year to that of the partnership. Changes to the AIL rules will also clarify that where an LP borrows from a third-party non-resident lender, the LP can register as approved issuer rather than the individual partners. 

PIE eligibility changes.

The Bill contains changes to specific eligibility criteria to be a Portfolio Investment Entity, to restrict banks and deposit takers and to exclude certain interest income received from associated persons from qualifying. In response to submissions by KPMG, the FEC has agreed that interest income derived from associates that are foreign PIE equivalents should continue to qualify. Officials have also noted our concerns about interest relating to indirect third-party lending arrangements being non-qualifying as an area for future consideration.

PIE eligibility changes.

The Bill contains a number of land tax amendments, including to clarify the application of the bright-line rules for taxing residential land. The bright-line related remedials are relatively unchanged. A non-bright line change in the Bill is to remove the ability to spread income on disposals of land to the Crown. The FEC has recommended a savings provision be included where such disposals are the subject of a binding ruling prior to 26 August 2024.   

International tax remedials.

The Bill contains a range of remedial amendments, including to the thin capitalisation calculation of non-debt liabilities. The FEC has recommended a number of drafting improvements and extending the exclusion from the non-debt liabilities calculation to shareholder funding to a NZ indirect subsidiary. The Bill also clarifies that the transfer pricing rules and deemed dividend rules apply concurrently, regardless of whether an application for matching treatment is made. As originally proposed, this change would apply retrospectively to income years beginning on or after 1 July 2009.  In response to concerns raised with this application date, it will now apply from the date the Bill is enacted. Finally, the FEC has recommended clarifying that the deemed source rule under New Zealand’s domestic law does not apply to technical service fees paid to Indian residents (which are subject to the New Zealand-India Double Tax Agreement) or to fees for technical, management, or similar services that are treated as royalties under an applicable Double Tax Agreement.   

Aligning income tax and FBT treatment for employee benefits.

The Bill contains a measure to ensure a similar tax treatment where an employer reimburses an employee for the cost of a flu vaccination rather than providing it “on premises” or via voucher. In response to submissions, the FEC has recommended this income tax exemption be extended to all health and safety benefits which qualify for the FBT exemption. 

For additional commentary on measures in the Bill as introduced, refer to our August 2024 Taxmail available here: KPMG Taxmail: August Tax Bill.