The following is a brief summary of the specific policy measures contained in the Bill:
- Confirmation of annual rates of income tax for the 2021-22 tax year: The Bill proposes that the annual rates of income tax for the 2021-22 tax year be set at the rates currently specified in sch 1, pt A of the Income Tax Act 2007. Schedule 1 has been amended, effective from 1 April 2021, to include a tax rate of 0.390 for taxable income of $180,001 upwards.
- Granting 11 charities overseas donee status: The Bill proposes 11 New Zealand charities with overseas charitable purposes be granted overseas donee status and listed in sch 32 of the Income Tax Act 2007 with effect from 1 April 2021. The Bill additionally proposes a change to the sunset clause for the New Zealand Memorial Trust – Le Quesnoy’s donee status. The Bill will grant this trust overseas donee status until 31 March 2025. The Bill also proposes to remove 8 charities whose activities have ceased.
- Local authority taxation: dividends and deductions: The Bill proposes a series of measures to improve the integrity of local government taxation and help prevent local authorities from effectively transferring the benefit of their exempt status to their taxable council-controlled organisations.
- Changes to the fair dividend rate foreign currency hedges rules: The Bill proposes a series of technical amendments to the fair dividend rate foreign currency hedges rules (FDR FX hedges rules). These are designed to improve the functionality of the FDR FX hedges rules from a practical perspective and reduce compliance costs for taxpayers with large numbers of hedges.
- Use of tax pooling to satisfy a backdated tax liability: The Bill proposes allowing the use of tax pooling to satisfy a tax obligation where there is no existing tax assessment or the tax obligation has not been quantified. This proposal includes safeguards to avoid incentivising the non-filing of tax returns by taxpayers.
- Removal of sunset provision from COVID-19 information-sharing provision: The Bill proposes the removal of the time limit from the COVID-19 information-sharing provision, which will allow it to remain in effect without the need for repeated extension through Orders in Council. This is designed to “future-proof” this provision by ensuring that Inland Revenue is able to share necessary information throughout the life-cycle of the pandemic and the initiatives that support New Zealand’s recovery.
- Penalising the sale or possession of sales suppression software: The Bill proposes the introduction of penalties on the sale and acquisition of sales suppression software. This initiative is designed to address the serious risk that sales suppression software poses to the integrity of New Zealand’s tax base.
- Remedial amendments: A number of remedial matters are also addressed in the Bill.
The following GST-related reforms are also included in the Bill:
- Exclusion of cryptoassets from GST and financial arrangements rules: The Bill proposes the exclusion of cryptoassets from GST and the financial arrangements rules to ensure that these rules do not impose barriers to developing new products, raising capital, and investing through cryptoassets. The Bill additionally proposes allowing GST-registered businesses that raise funds through issuing cryptoassets with similar features to debt or equity securities to claim input credits for their capital-raising costs.
- Domestic leg of the international transport of goods: The Bill proposes that the domestic leg of the international transportation of goods be zero-rated. This is intended to ensure that partially irrecoverable GST costs are not embedded in the final price of the goods paid by the consumer and that the tax system does not create incentives to pick one transport carrier over another. This will bring New Zealand’s rules into line with those of Australia, which similarly zero-rate the domestic leg of the international transport of goods.
- Improvements to the GST apportionment rules: The Bill proposes 2 amendments to the GST apportionment rules in the Goods and Services Tax Act 1985. These rules are used to determine GST input tax deductions when an asset is used partly to conduct a GST-registered business and partly for a private or exempt use. The first reform would ensure that the apportionment rules do not overtax sales of appreciating assets that are partly used for business and partly used privately (such as farmhouses and home offices) by allowing a deduction that correctly reflects the non-taxable use. The second reform would reduce compliance costs for smaller GST-registered suppliers by allowing them to apply to Inland Revenue to approve an alternative apportionment method (this application process is currently limited to large taxpayers with more than $24 million of annual turnover).
- Secondhand input tax credits on supplies between associated persons: The Bill proposes an amendment to allow a secondhand goods input tax credit on supplies between associated persons equal to the tax fraction of the original cost of the good at the time it was purchased by the first person in the chain of associated persons. This will ensure registered persons are not overtaxed in respect of land they purchased from an unregistered associated person.
- Modernising the GST invoicing rules and information and record-keeping requirements: The Bill proposes amendments that modernise the GST invoicing rules by replacing the requirements for the issue of documents with requirements for the provision of information, with no prescribed formats. The proposed information requirements will replace the formal requirements that registered persons must create and retain tax invoices for taxable supplies and also credit notes and debit notes for adjustments to taxable supplies. The processes for calculating GST payable for each taxable period remain unchanged.
- Clarifying rules for groups of companies: The Bill proposes amendments to the rules relating to groups of companies. An amendment introduces the term “GST group” for a group of companies that choose to register as a group under the Goods and Services Tax Act. Other amendments clarify the application of the GST rules for the representative member as the maker and receiver of supplies for a GST group.
Source: Tax Bill introduced, Inland Revenue website, 8 September 2021.