On 5 December 2018, the Government introduced the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill (114-1) into Parliament. The Bill is expected to have its first reading on 12 December 2018.
The Bill introduces amendments to the Goods and Services Tax Act 1985, Income Tax Act 2007, Tax Administration Act 1994, Student Loan Scheme Act 2011 and Child Support Act 1991.
The following is a summary of the main amendments:
GST on supplies of low-value imported goods to consumers in New Zealand
Proposed amendments to the Goods and Services Tax Act 1985 will apply GST to imported goods valued at or below $1,000 supplied to New Zealand-resident consumers, by requiring offshore suppliers (as well as marketplaces and redeliverers) to register and return GST on these supplies. Customs will continue to collect GST on imported consignments valued above $1,000. GST would not apply to supplies of low-value goods made to New Zealand GST-registered businesses. It is proposed that the amendments apply to supplies made on and after 1 October 2019.
Ring-fencing residential property deductions
Proposed rules in the Bill are intended to ensure that investors will no longer be able to deduct expenditure relating to their loss-making residential investment properties from their other income (for example, salary or wages, or business income), to reduce their tax liability. This will be done by allocating deductions for residential land to the next income year, to the extent those deductions exceed income from residential land. The Government considers that in conjunction with the extension of the bright-line test, ring-fencing losses from rental properties would make property speculation less attractive and level the playing field between property investors and home buyers. The new rules will not apply to a person’s main home or a property that is rented out and used privately such as a bach. The rules are proposed to apply in full from the start of the 2019–20 income year.
Social policy matters
- Student loan borrowers who receive schedular, election-day and casual agricultural income will have student loan repayments deducted from their income by their employer.
- The definition of “net adjusted income” that is used for student loan purposes and the definition of “family scheme income” that is used for Working for Families tax credits will be more closely aligned.
- Student loans will transition to Inland Revenue’s new computer system, START, from 1 April 2020. This provides Inland Revenue with an opportunity to stop charging loan interest to New Zealand-based borrowers from this date.
- An amendment clarifies the operation of the day count test in ss 22 and 23 of the Student Loan Scheme Act 2011 for determining if a borrower is a New Zealand or overseas-based. An unintended change occurred in the rewrite of the Student Loan Scheme Act in 2011 that omitted a tiebreaker provision which made it unclear if borrowers who return to New Zealand after more than five months but less than six months overseas are New Zealand or overseas-based. The proposed amendment to s 23 reinstates the tiebreaker provision to ensure that a borrower cannot be treated as absent from New Zealand for the purpose of the 184-day test for any day on which they are treated as being physically in New Zealand under s 22. That is, borrowers who return to New Zealand after being overseas for less than six months would not become overseas-based borrowers.
- Proposed amendments to the Child Support Act 1991 will give the Commissioner the discretion to grant an exemption from paying child support to the victim of a sex offence in cases when there is not a convicted offender. The amendments also give the Commissioner the discretion to determine the most appropriate start date for the exemption.
Other policy matters
- The Bill sets the annual income tax rates that will apply for the 2019–20 tax year. The annual rates to be confirmed are the same that applied for the 2018–19 tax year.
- An amendment is proposed to the Income Tax Act 2007 to address an issue with the tax treatment of pre-1990 forest land emissions units. The issue arises when the units are securitised through a sale and compulsory buy-back transaction, which is effectively a lease of the units in exchange for a loan.
- Changes are proposed to the Tax Administration Act 1994 and the Goods and Services Tax Act 1985 to allow tax records to be kept in te reo Maori. The proposed changes are not intended to affect, replace or alter existing taxpayer obligations or disclosures required, for example by s 24 of the Goods and Services Tax Act or s 32 of the Tax Administration Act, for tax documents that are relied on by third-party taxpayers when they take a tax position.
- The Bill proposes to remove a non-tax obstacle relating to financial reporting requirements for employers electing to account for PAYE on benefits provided to employees under an employee share scheme.
- When an amount of income is allocated by a trust to a beneficiary but retained in the trust, and no interest is paid by the trust to the beneficiary, such a beneficiary may become a settlor. This is because they meet the definition of “settlor” in s HC 27 of the Income Tax Act by transferring value to the trust. This could be an overreach in some cases. A proposed change amends the Income Tax Act to ensure that, in certain circumstances, such beneficiaries do not become settlors.
- Proposed amendments clarify that a co-operative company may elect to make a fully imputed cash distribution of profits attributable to a specific group of shareholders of the company, provide the company’s constitution permits distributions to be made to a specific group of members, and the amount paid to each shareholder is determined by the level of trading activity between the members and the company.
- A proposed amendment clarifies that an entity does not have to be remunerated directly for its activities to be considered a financial institution for the purposes of the G20/OECD Common Reporting Standard (CRS). It is proposed that s 185O of the Tax Administration Act 1994 be amended with a Pt 2 added to sch 2, where all such clarifications can be located.
- A proposed amendment to the Income Tax Act 2007 clarifies that loss of earnings insurance proceeds are taxable in all circumstances, including when the rights to receive these proceeds are assigned to another company.
- A technical amendment is proposed to the transitional rules that accompanied the substantive reform of the life insurance business taxation rules, to ensure the law better reflects the policy intent of those rules.
Remedial and maintenance items
- A proposed amendment to the Goods and Services Tax Act ensures that services that consist of arranging of underlying services supplied directly in connection with moveable personal property located outside New Zealand at the time the underlying services are performed are zero-rated, in line with the policy intent and the previous treatment that applied prior to 1 October 2016.
- Amendments are proposed to the Goods and Services Tax Act to clarify the scope of the rules allowing businesses to deduct GST incurred on costs of raising capital.
• It is proposed to amend s 20G of the Goods and Services Tax Act for the purposes of the formula for apportioning input tax in relation to assets that are used partly for business use and partly for private use, but which are also unused for a period. This is intended to correct the exclusion from the formula for input tax relating solely to private use.