August Tax Bill

There are a large number of remedial changes to the GST Act (about 22 different parts of the Act are impacted). Generally, the changes are positive in that they clarify areas of uncertainty or parts of the GST legislation that simply do not work. Some changes will reduce compliance costs. Key changes to note are:

• Removal of the requirement to notify Inland Revenue of an election to zero-rate financial services (a “B2B election”). Taxpayers will be able to make this election by taking the GST position in GST returns from 1 April 2025.
• Enabling services provided to temporarily imported commercial vessels to be zero-rated.
• Providing greater flexibility for taxpayers to have taxable period end dates other than month end.
• Allowing for one-off adjustments for a change of use to apply to assets purchased before 1 April 2023.
• Allowing for the GST on accommodation booked through an electronic marketplace to be accounted for at the time of check-out rather than when a payment is made or an invoice is issued for the accommodation.
• Giving unregistered suppliers of services made through an electronic marketplace the option of including the flat rate credit as taxable income for income tax purposes. (The current rules treat the income as exempt, which then requires the supplier to apportion expenses.)

These amendments largely support current operational practice and are welcome.  

• Clarifying that limited partnerships can apply for Resident Withholding Tax (“RWT”) exempt status.
• Allowing limited partnerships to register and deduct AIL on interest derived by non-resident partners through the limited partnership.
• Clarifying that partners of partnerships that operate to a non-standard balance date can include their share of partnership income in the corresponding tax year to the partnership’s income year. Alternatively, partners can instead choose to apportion the income, based on their tax year, by election in their tax return.
• Confirming that non-resident limited partners do not have NZ tax return filing obligations if the only NZ-sourced income derived through a limited partnership is non-resident passive income (e.g., NZ interest and dividends) from which NRWT has been deducted at the correct rate and as a final tax liability.

The Bill also contains measures aimed at avoidance of the associated persons rules, through use of limited partnerships and look through companies.  

• Changes to the associated persons rules to associate limited partnerships in certain circumstances, by treating them as companies for the purposes of the associated persons tests, where these are interposed to break association with a non-partner.
• Changes to the limited partnership and look through company aggregation rules to also capture association with non-partners and non-look through company owners.

There are some helpful amendments to the bright-line rules for taxing residential land to clarify that: 

• The bright-line test period does not re-start when land is partitioned between co-owners.
• Transfers by executors, administrators and beneficiaries of an estate are excluded from the rules.
• Rollover relief also applies to parties in civil unions and de facto relationships. 

The amendments here are a mix of taxpayer and tax authority friendly measures:

• Excluding interest-free loans from a settlor of a trust in calculating the non-debt liabilities of the trust when the settlor has made one or more settlements totalling 10% or more of the value of the total settlements on the trust.
• Extending the exclusion from non-debt liabilities for interest-free loans provided by, and redeemable shares held by, members of the same wholly-owned group of companies to also include non-corporate members, such as a settlor of a trust, trustee of a trust, or individual.
• Clarifying that where the group debt percentage calculation is zero because non-debt liabilities are greater than the total assets (i.e., the entity is insolvent), interest deductions will be disallowed.   
• Clarifying that the transfer pricing rules and deemed dividend rules can apply concurrently where there is a transfer pricing adjustment (including where the other party does not apply matching treatment).
• Applying the seven-year time bar under the transfer pricing rules to other income tax adjustments that may flow from a transfer pricing adjustment. 

These changes are to address concerns that the Portfolio Investment Entity (“PIE”) rules could be used in ways that were not intended from a policy perspective:

• Excluding registered banks and licenced non-bank deposit takers from becoming PIEs.
• Excluding interest received from associated persons in certain circumstances from being “qualifying” PIE income.  (Importantly, interest will not be excluded where it relates to the pass through of third-party funding or is derived from another PIE or PIE-like entity.) 

• Extending the application of the (elective) securitisation tax regime to debt funding special purpose vehicles if they have an originator that is a trust and if a beneficiary or shareholder of the SPV is treated as holding the securitised assets for financial reporting purposes, or is a member of the same wholly-owned group of companies whose financial statements include those assets.
• Clarifying that the “sale of business” exclusion from tax for restrictive covenant payments applies where a person sells their shares in the company carrying on a business and the other shareholders do not.