Government's controversial tax Bill unpacked

On 30 August 2022 the Government released its Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill (Bill). On 8 September it was announced that the bill was re-introduced into Parliament as previously proposed, but having reversed the controversial amendments to the New Zealand KiwiSaver scheme. 

The Bill will be referred to a select committee for consideration and submissions, and will be passed by 31 March 2023.

The remaining proposed changes include:

• implement information reporting and exchange framework for activities being facilitated by digital platforms in the sharing and gig economy
• collect GST on accommodation and transportation services provided through electronic marketplaces
• reform the GST apportionment and adjustment rules
• clarify the GST treatment of legislative changes
• modernise and clarify the rules for employers and payers in relation to cross-border workers
• ensure New Zealand companies affected by recent changes to Australia’s corporate residency tax rules have uninterrupted access to New Zealand’s loss grouping, consolidation and imputation credit regimes
• address integrity issues with the application of the domestic dividend exemption and corporate migration rules to dual resident companies
• introduce a fringe benefit tax exemption for public transport, and
• introduce an exemption from the interest limitation rules for build-to-rent assets.

The below is a summary of some of the key amendments  by the Government.

GST

The most controversial amendment was to charge GST on fees paid on KiwiSaver accounts from April 2026. To much relief, in a statement released the day after the Bill was introduced, Revenue Minister David Parker confirmed the government would not proceed with the GST changes proposed in legislation introduced.

The Bill proposes to implement that the current GST rules for electronic marketplaces that apply to remote services and certain imported goods be extended to apply to “listed services”. Listed services include taxable supplies of accommodation, ride-sharing, beverage and food delivery services, and other services that are closely connected with these services. This extension will require marketplace operators to collect and return GST on these services provided through electronic marketplaces. This will take effect on 1 April 2024.

The Bill proposes a suite of changes to the GST apportionment and adjustment rules that are intended to reduce compliance costs imposed on businesses.  This includes:

• Introducing a principal purpose test for goods and services acquired for $10,000 or less (GST exclusive) that would allow a registered person to claim a full GST input tax deduction, and
• Allowing GST registered persons to elect to treat certain assets that have mainly private or exempt use as if they only had private or exempt use.

Rollover Relief for bright-line tax and interest limitation rules

Rollover relief is proposed to extend in relation to the bright-line to include further transactions where there is no significant change in ownership. This relief involves deferring the taxing point until there is future disposal of the property that does not qualify for rollover relief. Under the current legislation, rollover relief is only available where a person disposed of their property to a trust and then later that trust disposed of the property to the original settlor, or in the situation where the settlor of the trust disposed of their property to the trust and then sold it to a new owner.

The amendments will also allow for a person to transfer the same land to themselves in a different capacity where there is no intervening transfer to a third party and the bright-line acquisition date for the land when they dispose of it to a third party in that different capacity is the bright-line acquisition date they first had. This can now be between that person and themselves in their capacity as settlor, beneficiary or trustee. 

These amendments are proposed to have retrospective effect to 27 March 2021 meaning they have the same effective date as the originally enacted provisions.  This would mean that have effect for the interest limitation rules on October 2021 for loan drawdown for residential property on or after 27 March 2021 and for the bright-line test for disposals occurring on or after 1 April 2022.  These are very positive changes which broaden the scope of rollover relief.

Build to Rent

The Bill proposed to insert a definition of build to rent land which would not be subject to the input interest limitation rules. However, if the land fails to meet the definition at any point the interest limitation rules would apply. Build to rent land would mean land to the extent to which, together with any other land owned by the same person:

• Has 20 or more dwellings;
• Each dwelling is available for use or being prepared or restored for use as a dwelling to provide under a residential tenancy;
• Every residential tenancy has the option of a 10 year term with the ability to give 56 days’ notice of termination;
• Every tenancy agreement includes a personalisation policy; and
• At no time it after it first meets the above requirements does it fail to meet those requirements.

Cross-border Workers

With the opening of the borders and the new-found ability for the masses to work in and out of New Zealand, the Government has introduced key changes for these cross-border workers. 

The proposed changes acknowledge that employees working in New Zealand for a non-resident employer (whether they be doing this as a remote worker, business traveller, or on assignment to a New Zealand business) are in different compliance circumstances to employees of resident employers. The key amendments aim to allow these rules to be applied more flexibly in specific circumstances, including introducing a grace period and allowing the Commissioner of Inland Revenue to enable a cross-border employer of cross-border employees pay PAYE annually in special circumstances. The PAYE bond provision is repealed and the PAYE equity and employer’s superannuation contribution tax (ESCT) rules will be clarified.

Amendments are proposed to be made to non-resident contractor rules (NRCT) which apply to contract payments for the performance of services by non-resident contractors and the supply of personal property or services by other persons.  The purpose of NRCT rules is to manage the flight risk of contractors departing New Zealand having completed their work and collected payment but have not paid the New Zealand tax that is due.  Unless a contract payment is considered exempt the payer is required to withhold NRCT tax at the rate of 15% from each contract payment.  The proposals in the Bill aim to create more flexibility for payers including introducing reporting requirements, improving flexibility of payments, and simplifying the approach the schedule at payment thresholds. 

Dual Resident Companies

The proposed amendments will allow dual resident companies to off-set income tax losses against profits of other group companies, be a member of a consolidated group, and retain that imputation credit account balance. 

Amendments are proposed to disallow dual resident companies that tie-break to another country (outside of New Zealand) to use the domestic dividend exemption.  While this is unfavourable for taxpayers, this does address a “loophole” and ensures equal treatment of both domestic and international companies with New Zealand connections.

Foreign Trust

Several amendments are proposed to be implemented regarding the treatment of foreign trusts. This includes giving the Commissioner of Inland Revenue the power to deregister trusts that do not meet the registration requirements, clarifying that residential beneficiaries are subject to the same disclosure requirements as discretionary beneficiaries, and requiring contact trustees to update information within 30 days of that information changing.

The Bill proposed to introduce a new Civil penalty of up to $1,000 for failure to comply with the foreign trust disclosure rules.

Deceased estates

Of note, the Bill proposes to allow for the tax returns of a deceased person to include reportable income received up to 28 days after their date of death and ensure that non-active trusts and estates that derive small amounts of income are not required to file a tax return and therefore not required to comply with the new trust disclosure requirements.

While the Bill contains a wide range of amendments, the above are some of the key proposed changes that will affect New Zealand taxpayers. 

If you would like to understand how these proposals might impact you, please get in touch with our tax team.

The above is intended for informational purposes only and should not replace specific tax advice.  For personalised advice on all tax issues please contact Julia Johnston  or Josie Berliner at Saunders & Co