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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2023 Election results announced
What do the general election results mean for you and your business? Our September Tax Tips articles discussed the tax policies proposed by the various political parties.
Changes in the tax bill
A Supplementary Order Paper (SOP 423) has been added to the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Bill, alongside accompanying commentary. The measures included in the SOP would amend the Income Tax Act 2007 to:
extend the deductibility of co-operative company distributions to include distributions on an additional category of shares, and
ensure the bright-line and other time-related tests in the Income Tax Act 2007 do not apply when there is a Crown/local authority buy-out of a North Island flood affected property
- ensure that the main home exclusion from the bright-line test covers situations where a person vacates their home for more than 12-months so that repairs to damage caused by the North Island flooding events can be carried out
The deductibility of co-operative company dividends amendment is aimed specifically at temporarily extending Fonterra’s existing ability to deduct certain distributions to its shareholders. These deductions would be consistent with the deductions that would have been available had Fonterra continued to apply its previous constitution. The proposed amendment would be effective for the 2022–23, 2023–24 and 2024–25 income years. Officials will develop a permanent solution to apply beyond the 2024–25 income year.
The bright-line and other time related test amendments follow the Government’s announcement of its willingness to enter into a funding arrangement with councils in regions severely affected by the January 2023 Auckland flood events and Cyclone Gabrielle. Central government support is likely to include contributions towards property acquisitions (buy-outs).
The extension to the main home exclusion from the bright-line test for North Island flood affected properties is similarly a response to the effects of the North Island flooding event. It is intended that this amendment would cover cases where a property has been so irreparably damaged by a flood or cyclone that it needs to be rebuilt. However, the 12-month period cannot currently be extended when a person has been displaced from their home as a result of a flood or cyclone and they are repairing their home rather than rebuilding it.
IR Tax Governance:
We've recently published a Tax Tips on Inland Revenue's 'Tax Goverance in Practice' campaign wherein letters were issued to more than 900 'significant enterprises', This marks an indication of Inland Revenue's heightened scrutiny around taxpayers' tax risk management practices.
In other recent tax news:
Inland Revenue has announced it is reviewing the rules relating to the donation tax credit. This review assesses specifically whether the donations tax credit regime is operating effectively, efficiently, is achieving its intended outcomes and remains fit for purpose and the future. This review is part of the regulatory stewardship programme required of all state agencies for the rules they administer. The review is expected to be completed by mid-2024.
Inland Revenue finalised interpretation guideline IG 23/01: Deductibility of software as a service (SaaS) configuration and customisation costs, considering the deductibility of the costs the taxpayer incurs in configuring or customising a supplier’s application software in a software as a service (SaaS) arrangement. Depending on the circumstances, the costs may be deductible under the general permission (s DA 1), as development expenditure (s DB 34) or as relating to depreciable intangible property.
- Inland Revenue has released technical decision summary TDS 23/12: Amalgamation and liquidation about the wind-up of a group of the taxpayer company’s subsidiaries. The decision determined a two-step approach whereby the subsidiaries would first be amalgamated by way of a short-form amalgamation, then the amalgamated company would distribute surplus assets to the taxpayer and be removed from the companies register.
Open consultations
- Inland Revenue has issued draft determination ED00249: ‘Amortisation rates for listed horticultural plants’ for consultation. The proposed determination has been updated to reflect reference to the ITA 2007 and sets out the amortisation rates (based on diminishing values) for listed horticultural plants as determined by the Commissioner and listed in the schedule to the earlier determination DET 05/01. Closed 28 September 2023
- GST - Who can group register? This considers who can group register under s 55 of the Goods and Services Tax Act 1985, including the eligibility criteria for non-companies to join or form a GST group. Closed 29 September 2023
- GST Grouping for Companies. This explains how the GST grouping rules apply to companies. Closed 30 September 2023
- Inland Revenue has issued an interpretation statement ‘Taxation of Trusts’. This explains the taxation of trusts under the trust rules in the Income Tax Act 2007. It updates and replaces IS 18/01. The statement is a general guide to how income derived by the trustees and beneficiaries of the trust is taxed, and provides an overview of the various compliance obligations imposed on settlers, trustees and beneficiaries under tax law. It does not address the proposed changes announced in May 2023. Closed 13 October 2023
- Inland Revenue has issued QWBA PUB00434: ‘Forfeited deposits from cancelled land sale agreements’, clarifying the circumstances in which a forfeited deposit from a cancelled land sale agreement is income to the seller. Closed 16 October 2023
For more information about upcoming consultations please see here for Tax Technical and here for Tax Policy.
