Tax Policy Bulletin - July 2023

Tax Policy Bulletin is a regular round-up of recent tax headline news. If you'd like any further detail on the items reported in the update, please reach out to your usual PwC tax advisor. 

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Prime Minister rules out introducing wealth tax or capital gains tax if re-elected

In a statement, Prime Minister Chris Hipkins ruled out introducing a wealth tax or capital gains tax if the Labour Party is re-elected in October. The statement follows the proactive release of previously confidential policy advice received by the Government as part of Budget 2023.  The documents show that the Government received policy advice from Treasury and Inland Revenue in relation to a potential “tax switch”, whereby personal tax relief would be provided in combination with either:

• A wealth tax; 

• A “minimum tax” on high-wealth New Zealanders based on “deemed income” as a percentage of their net worth; and/or

• A tax on “supernormal profits” derived by the Big Four banks. 

The Government also received advice in relation to imposing a one-off flood levy to help fund New Zealand’s recovery from the adverse weather events earlier this year.  

Ultimately, the Government decided not to proceed with the above measures - however, it did propose an increase to the trustee tax rate to bring it to 39%. Our recent Tax Tips article contains more details on this proposal.  

The Prime Minister cited a desire to provide “certainty and continuity”, saying “under a government I lead there will be no wealth or capital gains tax after the election. End of story.” 

In other recent tax news 

• The Customs and Excise (Arrival Information) Amendment Act 2023 came into effect on 21 June 2023. This Act enhances border management by introducing streamlined processes and a digital traveller declaration. 

• Inland Revenue released a draft interpretation statement (PUB00389) on the GST treatment of unit title body corporates (UTBCs), along with two accompanying factsheets. UTBCs, composed of unit owners in buildings like apartments, allow for collective action by individual owners. The draft statement clarifies how GST rules apply in various scenarios, including pre-registration acquisitions, member-supplied services, manager's accommodation, ground rent and levies, and one-off payments received by UTBCs. 

• Inland Revenue has released final rulings on the tax treatment of crypto assets as remuneration to employees. The rulings include the following publications:

  • (BR Pub 23/04) states that regular payments in crypto assets can be considered "PAYE income payments" under the tax rules. 

  • The ruling on bonuses paid in crypto assets (BR Pub 23/05) clarifies that crypto asset payments deducted from incentive or bonus payments are classified as "bonuses" and subject to PAYE rules. 

  • The ruling on employer-issued crypto assets provided to an employee (BR Pub 23/06) addresses fringe benefits, market value, and open market value considerations. 

  • The ruling on the application of employee share scheme rules to employer-issued crypto assets (BR Pub 23/07) provides guidance on circumstances where these rules apply, considering capital interest, payment requirements, and exemptions.

The publications provide detailed guidance on the tax implications of crypto asset payments, covering aspects such as salary, bonuses, fringe benefits, and employee share schemes. 

• Inland Revenue has released an updated version (QB 23/05) of a QWBA on the impact of provisional tax for salary or wage earners receiving untaxed one-off income. The QWBA provides guidance for salary and wage earners who receive income without tax withheld, stating that if their residual income tax (RIT) exceeds $5,000, they are considered provisional taxpayers. Examples of such one-off payments include bright-line property income, employee share scheme shares without PAYE deduction, and rental property depreciation recovery income. 

• The GST implications when a registered person dies, becomes incapacitated, or goes into receivership, liquidation, or bankruptcy are addressed in interpretation statement IS 23/03. 

• Inland Revenue's recent statement (QB 23/06) addresses the GST implications of purchases made through layby, hire purchase, and "buy now, pay later" agreements:

  • For standard sales and "buy now, pay later" agreements, GST input tax deductions can be claimed at the time of payment.
  • Full GST input tax deductions are available for hire purchase agreements upon their commencement.
  • In the case of layby sales agreements, an input tax deduction can only be claimed once ownership of the goods is transferred, typically after the final payment has been made.

• Inland Revenue has issued determination NAMV 2023, providing national average market values for specified livestock at the end of the 2022–23 income year.

• Inland Revenue has released the final version of interpretation statement IS 23/04. "The interest limitation rules and short-stay accommodation" provides guidance on the application of interest limitation rules to individuals and trustees. It supersedes previous QWBA on interest deductibility for short-stay accommodation. 

• Inland Revenue has released a special report titled "Rollover relief - bright-line test and interest limitation" on amendments to rollover relief for the bright-line test and interest limitation rules. 

• Inland Revenue has issued a revised fact sheet summarising changes to the trustee tax rate proposed in the Taxation Bill (2023-24). The revised fact sheet removes the reference to settling beneficiary income back on the trust, citing uncertainty in existing tax law. The example in the commentary to the bill has also been modified similarly. For further details, refer to "Increasing the trustee tax rate to 39%" revised fact sheet.

• The Income Tax (Accommodation Expenditure - North Island Flooding Events) Order 2023 (SL 2023/119) extends the time limit for accommodation expenditure related to employees working on rebuilding and recovery projects in areas affected by the North Island flooding events. The order came into force on 6 July 2023 and extends the time limit from 6 months after the flooding event to 1 April 2024. This extension allows qualifying accommodation expenditure to be exempt income under certain conditions. 

• The Income Tax (Deemed Rate of Return on Attributing Interests in Foreign Investment Funds, 2022–23 Income Year) Order 2023 sets the deemed rate of return used to calculate foreign investment fund income for the 2022–23 income year under the deemed rate of return calculation method set out in s EX 55 of the Income Tax Act 2007. The Order sets the deemed rate of return for the 2022–23 income year at 8.15%. The deemed rate of return set for the 2021–22 income year was 6.01%. 

• The recently enacted Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 introduced amendments requiring electronic marketplace operators to collect GST on app-based "listed services" from 1 April 2024. These services include ride-sharing, ride-hailing, food and beverage delivery, and accommodation services. The special report titled "Marketplace rules for listed services" provides information on the GST rules for marketplace operators involved in these services. 

New Cases/Decisions