Vol 33 No 6 July 2021

CONTENTS 1 In summary

3 New legislation Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 Order in Council – LI 2021124 - Tax Administration (Direct Credit of Problem Gambling Levy Refunds) Order 2021 133 Ruling BR Prd 21/03: Zap NZ Limited 136 Question we've been asked QB 21/04: When an employer is party to an employee share scheme, when does an employer's expenditure or loss under s DV 27(6) or income under s DV 27(9) arise? 140 Interpretation statement IS 21/03: GST – Registration of non-residents under section 54B 162 Operational statements OS 21/01: Income tax treatment of accommodation provided to employees 2021 CPI adjustment to Operational Statement OS 19/03: Square metre rate for the dual use of premises Kilometre rates for the business use of vehicles for the 2021 income year 176 Determinations National Average Market Values of Specified Livestock Determination 2021 Determination FDR 2021/02: A type of attributing interest in a foreign investment fund for which a person may not use the fair dividend rate method.

ISSN 1177-620X (Online) Inland Revenue Department Tax Information Bulletin Vol 33 No 6 July 2021

YOUR OPPORTUNITY TO COMMENT Inland Revenue regularly produces a number of statements and rulings aimed at explaining how taxation law affects taxpayers and their agents. Because we are keen to produce items that accurately and fairly reflect taxation legislation and are useful in practical situations, your input into the process, as a user of that legislation, is highly valued. You can find a list of the items we are currently inviting submissions on as well as a list of expired items at www.taxtechnical.ird.govt.nz (search keywords: public consultation). Email your submissions to us at [email protected] or post them to: Public Consultation Tax Counsel Office Inland Revenue PO Box 2198 Wellington 6140 You can also subscribe at www.taxtechnical.ird.govt.nz/subscribe to receive regular email updates when we publish new draft items for comment.

Ref Draft type Title Comment deadline ED0231 Operational statement Excusing estates from filing income tax returns 7 July 2021

PUB00390 Interpretation statement GST – definition of a resident 9 July 2021 Inland Revenue Department Tax Information Bulletin Vol 33 No 6 July 2021 IN SUMMARY

New legislation IN SUMMARY Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 3 The new legislation includes measures to: • allow businesses to claim greater deductions for feasibility expenditure • loosen the loss continuity rules • extend the bright-line test, and • require consistent allocation of the purchase price of property in an asset sale. Order in Council – LI 2021124 132 Tax Administration (Direct Credit of Problem Gambling Levy Refunds) Order 2021 An Order in Council was made to include refunds of the problem gambling levy as a tax type refundable by direct credit under section 184A of the Tax Administration Act 1994.

Ruling BR Prd 21/03: Zap NZ Limited 133 This ruling concerns the application of the GST voucher rules to the Zap NZ Limited digital gift card and loyalty scheme. Under the scheme, customers purchase Zap, which Zap holders can redeem for goods or services supplied by participating retailers.

Question we've been asked QB 21/04: When an employer is party to an employee share scheme, when does an employer's 136 expenditure or loss under s DV 27(6) or income under s DV 27(9) arise? This question we've been asked is relevant to any employer who is party to an employee share scheme where the employee receives a benefit under the scheme within 20 days of: the end of the employer's income year; or a breach of shareholder continuity in the employer (for example, due to an employee share scheme winding up as a result of an acquisition).

Interpretation statement IS 21/03: GST – Registration of non-residents under section 54B 140 Section 54B of the Goods and Services Tax Act 1985 allows non-resident businesses that do not make supplies to end consumers in NZ to register for GST and recover GST input tax on goods and services acquired in NZ. Since it was introduced, there have been legislative changes that treat certain supplies by non-residents as being made in NZ, including the supply of remote services and low value goods. This means a greater number of non-residents must register under the standard registration provision and fewer non-residents are eligible to register under s 54B. This item provides guidance on whether a non-resident is eligible to register under s 54B.

Operational statements OS 21/01: Income tax treatment of accommodation provided to employees 162 This statement is intended to clarify and simplify the tax rules around employer-provided accommodation. 2021 CPI adjustment to Operational Statement OS 19/03: Square metre rate for the dual use of 175 premises This update to OS 19/03 shows the annual adjustment to the square metre rate for the dual use of premises. Kilometre rates for the business use of vehicles for the 2021 income year 175 The table of rates for the 2020/2021 income year for motor vehicle expenditure claims.

1 Inland Revenue Department Tax Information Bulletin Vol 33 No 6 July 2021 IN SUMMARY (continued)

Determinations IN SUMMARY National Average Market Values of Specified Livestock Determination 2021 176 This determination establishes the national average market value (NAMV) of specified livestock for 2021.

Determination FDR 2021/02: A type of attributing interest in a foreign investment fund for which a 179 person may not use the fair dividend rate method Any investment by a New Zealand resident investor in the NZD Hedged Accumulation Class Z-Shares of the Colchester Global Bond Enhanced Currency Fund is a type of attributing interest for which the investor may not use the fair dividend rate method to calculate foreign investment fund income from the interest.

2 Inland Revenue Department Tax Information Bulletin Vol 33 No 6 July 2021

NEW LEGISLATION This section of the TIB covers new legislation, changes to legislation including general and remedial amendments, and Orders in Council.

Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021

On 30 March, the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 was granted Royal assent and passed into law. The new legislation includes measures to: NEW LEGISLATION • allow businesses to claim greater deductions for feasibility expenditure • loosen the loss continuity rules • extend the bright-line test, and • require consistent allocation of the purchase price of property in an asset sale.

Feasibility expenditure (Sections CH 13, DB 66 and DB 67 of the Income Tax Act 2007) The Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 contains changes codifying when businesses can deduct expenditure over five years related to completing, creating or acquiring property (business assets) that is later abandoned. Immediate deductions are also available for such expenditure that in total is $10,000 or less in an income year. Together, the changes are intended to set out the circumstances when expenditure can be deducted for property that but for abandonment would have been depreciable property or revenue account property. The rules complement the current tax depreciation rules in situations when property is abandoned and not completed. Deductions for expenditure in relation to abandoned property are clawed back as taxable income if the property is subsequently completed, created or acquired. This effectively puts a taxpayer in the position that they would have been in if they had never abandoned the property. Taxpayers may be able to obtain certainty on the tax treatment of feasibility expenditure (including for abandoned and completed property) incurred in particular arrangements by applying for a ruling from Inland Revenue's Tax Counsel Office. Background From a policy perspective, the economic value of business expenditure that is expected to decline in value should be either immediately deductible or, when it provides an enduring benefit, deductible over time if that benefit declines over time. When the tax system does not provide for that treatment, an economic distortion is created. An example of this distortion arises with feasibility expenditure incurred by taxpayers to determine the practicability of a proposal to acquire or create property that will decline in value over time. The Income Tax Act 2007 generally denies immediate deductions for expenditure when it has a connection with property that has the potential to yield future economic benefits beyond the current income year. If the expenditure is required to be capitalised and the property is not completed, the expenditure is not recognised for tax depreciation purposes and is unable to be deducted for tax purposes, resulting in what is referred to as "black hole" expenditure. This creates an incentive for businesses to complete capital projects that would otherwise be abandoned. The non-deductibility of this expenditure effectively raises the cost of risky investments in new property (where the chance of a viable outcome is uncertain) and therefore can act as a barrier to businesses committing resources to developing new property – which is important to innovation and driving productivity improvements. The new rules are intended to sit alongside the Income Tax Act's rules for tax depreciation and Inland Revenue's interpretation statement IS 17/011 for businesses that regularly incur feasibility expenditure.

1 Interpretation statement IS17/01: Deductibility of feasibility expenditure. Tax Information Bulletin Vol 29, No 3 (April 2017) available at www.taxtechnical.ird.govt.nz/tib/volume-29---2017/download-tib-vol29-no3 3 The alter amendments not do the that rules exist for: to for this provide that deductions expenditure system appreciated. gains inproperty the if tax taxed appropriate only be it would does, to sometimes invalue that decline and is shares. expected Whileproperty not land, goodwill for expenditure deductions The related give amendments tax such not as do to invalue, that decline to is expected property not expenditure where it relates that to is property abandoned. to invest seeking property, innew by providing barriers for businesses The greater reduce rules tax of abandoned. deductibility 2 acquiring creating, or property. completing, The is to amount equal the of the available deduction expenditure the incurs taxpayer related to making progress towards the property. incurredThe inrelation must expenditure be sections to underboth making progress towards creating completing, acquiring or analysis". under "Detailed circumstances this will insome rule abandoned), the override general depreciation This inmore is below rules. detail explained the if immediate expenditure 67allows Given DB deductions that been not has than is section less $10,000(even the if property goodwill. items, for certain land,shares such as adeduction allow or not 67does DB section 66,new DB with section is the case As • • this provision and: is less $10,000or towards creating the if total expenditure completing, acquiring or property to incurred inan income year that subject be could inthe income an year for immediate expenditure 67allows DB deduction incurredSection inrelation to making progress is completed, created property acquired or the abandoned within spreading the period. five-year 66(2)).However, DB (section abandoned was therethe property is entitlement no to any if remaining the of deduction portions inthe starting income year period spread over meeting afive-year proportions the inequal be conditions can Deductions above apply to not expenditure does items,The certain land, shares on such as deduction and goodwill. • • • if: acquiring property expenditure to taxpayers 66allows deduct incurred DB inrelationSection to making progress towards creating completing, or Key features analysis". under "Detailed inmore below detail explained the of general test permission relating the and effect application ThisThe affect not is to amendments do also deductions. • • • • • • • • v Commissioner ofInland Revenue, The amendments to respond concerns private the by the following 2016decision sector Supreme inTrustpower Court Limited Department Revenue Inland

SC 74/2015 [2016] NZSC 91. 74/2015 [2016]NZSC SC – no deduction for the expenditure deduction no underany is allowed other provision inthe Act. the expenditure is related revenue or account to depreciable property property, and for the expenditure deduction no underany is allowed other provision inthe Act. with the is outcome abandoned progress the that is on completed, property created not the property acquired, or and – be: would the property rights. variety plant patents projects unsuccessful software consents resource research and development property incurredcosts abandoning of inthe course company administration costs $10,000 –this inmore is below) detail explained circumstances depreciation insome immediatetax allow (although the do deductions rules the if expenditure than is less

revenue account property depreciable property, property, including depreciableintangible or 2 which limited the deductibility of expenditure of that which limited the incurred is deductibility property subsequently on Tax Information Bulletin

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NEW LEGISLATION New sections DB 66 and DB 67 override the 67override limitation 66and DB for DB expenditure nature. sections New acapital of 23. DB the or insection revenue rules EE, account property insubpart rules depreciation to 66by treating may DB the tax The subject then income. property under section as be the amount deducted that is property laterFor abandoned completed, created CH 13claws allowed acquired, or the back deductions section new Department Revenue Inland Figure 1: Illustrates the application of the of Figure new rules 1:Illustrates the application Tax Information Bulletin

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NEW LEGISLATION abandoned property is subsequently completed, created property expired. has acquired or spreadingabandoned the before period five-year However,abandonment. below, discussed there as is entitlement no to any the if remaining the of deduction portions inthe for the starting year of expenditureDeductions period, are over afive-year spread (one-fifth) proportions inequal within but potentially could fall theactivity broad rules. wording the otherwise of feasibility expenditure that type another with This such asset on feasibility is items is abandoned. associated because is typically not is available not for expenditure land, shares developing such of A deduction inthe as course acquiring on and goodwill property thatand expenses have relationship an indirect with the property, administration such as general or overhead costs. that costs including direct ordinarily would considereddeducted, the be to "cost" revenue depreciable or be of account property, underany other provisions deductible The intention otherwise thenot of Act. is to abroad expenditures range of permit to be is toThe equal the available deduction expenditure incurred the has taxpayer inrelation property, to which is the abandoned creating to completing, applied acquiring or the been property.has taxpayer. inthat However, money further no may reflected with to be adecision the proceed not property for small businesses toundertaken complete, create acquire or the will property. such likely adecision documented by For the larger be projects, Progress will, generally, that made progress further been no will has be when adecision considered abandoned be to be property, revenue intangible and/or of account property. depreciableproperty, types including certain be would by reference that is acquiring Theor is that defined property term subsequently abandoned. to completed "property" if property 66is DB directedat expenditure section New incurred inrelation by taxpayers to making progress towards creating completing, Spread feasibility expenditure deduction rule for analysis Detailed expenditureThe amendments apply to incurred qualifying inthe 2020-21and later income years. Application date Department Revenue Inland (water years. treatment over five parts inequal The expenditure plant and deductible reservoir). will be relation to making progress towards creating that, it if were have depreciableproperty property completed, would been study desalination the 66,the expenditure DB collective as expenditureUnder incurred section deductible was in will be Tax impact nanotechnology.desalination and waterenergy needs output, for the plant to demand. forecast is meet The future shelved project pending advances in Workto after determines the interms wider network. is an assessment it the is on abandoned project uneconomic, of and researches plant, and operating adesalination how building water of connected from thepracticability plant be could to prevent water restrictions. The studies desalination. of of It the out company is anumber viability the on exploring carries Company awater B, management company, is ways on working to and drought, demand meet intimes low-aquifer of inflows study –nanotechnology apply 2:When the new sections Example years. over five relevant parts inequal expenditure deductible will be that, it if were (windturbines).completing property created The havedepreciable property completed, or would been progress and made the expenditure towards into 66came This DB incurred effect was is after creating because section or the extent relate that not it does revenue or that to account other land or is depreciable property property. property not 66to DB completed, under section created been acquired, or deductible had the it property will be depreciation purposes expenditure.capital whether of Regardless this not or expenditure for inthe cost have included the of would property been expenditureThe anemology relates structure the expanding of capital such, to and, as is the the of business possibility Tax impact is abandoned. project At the end the of 2021–22income year, the studies regarding the site are to inconclusive as reliability wind supplyand the of relevant geography. to (anemology) the local and speeds with wind frequency measuring the 2020–21income year associated generator, an electricity Company A, It incurs windfarm. establishing anew expenditure of the in is practicability exploring studies –wind apply 1:When the new sections Example Tax Information Bulletin

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NEW LEGISLATION not when the relevant is abandoned. property The time correct for considering whether the expenditure the general is satisfies when permission the expenditure is incurred, Revenue inInland interpretationprinciples statement IS 17/01:Income –Deductibility tax of feasibility expenditure). is under the provisions new likely abusiness of under existing already deductible not (if to law be deductible with inline the However,existing business. expenditure feasibility that is recurrent theincome-earning process of ordinary and incurred part as expenditure already feasibility business exists, incurred inrelation to will still to have nexus business to anew need the sufficient Similarly, income-earning activity,or deductible. the where expenditure be and will not a will have incurred soon too been situations In underthe rules. wheredeductible the expenditure is incurred any before is to decision made enter into the business that the expenditure must have to aconnection an existing the inorder of income-earning process or taxpayer to business be limitation,The the the override but not rules capital general new requirements. permission The general requires permission Application general of permission Department Revenue Inland progress the on property, with the remaining spread deductions evenly over the nextfour years. return, the of expenditure inthe to made made 2022income tax one-fifth make was when be adecision can being further no 66given relationship DB its under section with The of depreciable property. expenditure deductible Adeduction be would Tax impact afterthe project balance date and the is inthe decision made 2021–22income year the to project. abandon spent on had been amounts further (fitout). No havedepreciable property would been completed, the completed property related work The abandoned to apotential the of refit company's premises for lighting the Had been work and heating. constraints. to not The flow to team due make work finance plant. cash decides any progress further the on energy efficiency for the 2020–21income year. The expenditure astudy includes the of company's directed at improving the energy efficiency The team finance at Company Eis considering the expenditure inprogress work debited inits account after balance date starts 5:When the deduction Example arrangements). relates excepted 66as DB to financial the acquisition section of shares from excluded of the scope (which are specifically The expenditure it 66as with DB connected Company Dacquiring under section the shares is deductible not inthe firm Tax impact However,the firm. Company to D'sbid acquire is unsuccessful. the firm Companybuilt upby the Dsubsequently and other firm. incurs consulting legal expenditure diligence adue of inundertaking tomade explore acquiring the shares inorder inthe to firm retain existing the firm's staff, management and the client list However, acquiring or theacquiring shares the products that inanother products. firm is comparable is offering adecision it provides to the commercial products rangeCompany of to It Dis initially diversify clients. seeking considers either directly –acquisition shares of apply 4:When not will the new rules Example the expenditure of design another some if provision resulted property). (for example, indepreciable intangible 66except DB to the under section extentThe expenditure deductible design the expenditure be under would is deductible Tax impact (and improved cheaper) aircraft to acomparable company thewhen market. acompeting brings overseas The company incurs expenditure The is multi-year shelved designs. project initial incosting and airframe scoping the project dusting. aerial as crop Thepropeller for aircraft. such redesign is visibility purposes intended and pilot to performance improve flight Company an aeronautics C, company, small of single for amodel plans canopy to has redesign the cockpit and airframe rights property –design apply 3:When the new sections Example Tax Information Bulletin

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NEW LEGISLATION property and revenue excluded. account thatproperty property, is and property specifically the will likely taxpayer project, have capital abetter the of understanding sharespecific depreciable remaining of between costs that, by the a on time it made is that progress expected been has studies. This tangible the case, out feasibility being carries materially revenue on advancing account will be such aproject and therefore regularly the if immediately business deductible expenditure progressing tangibly or to that preliminaryas be not which is or so project is directed towards not aspecific The Revenue Inland interpretation statement IS 17/01:Income –Deductibility tax offeasibility expenditure that notes • • • limited to) necessarily not the following: (but are include would method their of apportionment chosen insupport to hold Records expected that be would taxpayers reasonable apportionment. There abandoned. was that maythe other time applied that and methods the equally will provide be property afair be can at and out-of-scope estimates on property professionals in-scope the respective of of values by qualified may based one be the expenditure towards the relevant item instances property. of in some that Amethod considered and reasonable be fair could the contribution inthe circumstances. and reasonable consider fair The of reflect would to should method be person objective what the most an accurate, be that but it applied must reflect method expenditure. the apportionment It is necessary not and circumstances the on relevant will depend Whether and reasonable is facts related fair an apportionment to the may used. apportionment of be method reasonable to inhow they taxpayers approach exercise.circumstances. the apportionment Any This and flexibility fair provides some inthese for how expenditure apportioned to be needs approach aparticular methodology or specify not The legislation does underthe rules. thedepreciable property, of for adeduction expenditure then only aportion will qualify revenueor account property. Where an amount expenditure of relates to amixture depreciableand non- of, for example, under the only to rules the extent deductible Expenditure will be that with it is connected making progress towards depreciable Apportionment Department Revenue Inland was incurredwas increating structure. business anew Company F'sexisting nexusgeneral exists No between and the permission. smelter business expenditure. feasibility The latter the satisfy not it does 66because expenditure DB The feasibility incurred undersection by Company Fis deductible not Tax impact withdraw participants from the the consortium other project. However, two because proceed not the development does to matters advise on industrial such as relations, environmental finance, issues and negotiating ajoint venture agreement. an smelter. aluminium study feasibility own consultants and The engagesvarious its the of company project undertakes also determine the construction the environmental and operating and costs to assess and operating consequences building of studyto afeasibility supply coal.Company which it to other can with and conducts Fforms companies aconsortium two Company F, to construct involved inaproject is an considering operator acoalmine, an of smelter aluminium becoming the permission general satisfy not does 7:Expenditure Example expenditure, yet had not commenced. abusiness The expenditure is merely income-earning activity. preliminary to or establishing abusiness At the time incurring of the the general permission. satisfy not it does 66because The DB expenditure under section incurred by is Willow deductible not Tax impact clients to aclient compile database. market $3,000on She spends research,business. aconsultant to put together former brochures plan, abusiness and contacts toAfter redundant made investigate an architect, from decides Willow as being her job her architecture own starting the permission general satisfy not does 6:Expenditure Example from the scope of section DB 66. DB section of from the scope Categories expenditures of that that relate is and property excluded account to depreciable property/revenue property both 66. DB that section of isproperty from excluded the scope expenditures categories of of Details directly that attributed be can to depreciable property, revenue account property, or Any records in terms to they what were complete, detailing create their what of was, looking plan property acquire. or Tax Information Bulletin

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NEW LEGISLATION account property, completed. had it been limited to be the extent would any"Apportionment", deduction the expenditure relates revenue or to depreciableproperty under for the above expenditure discussed relating 66.As DB optionmay to available undersection the be abandoned adeduction revenue depreciable or resultingof account deductible, not and from are property the project otherwise to the cost capitalised be cannot theIf that costs property were the of the incurred abandoned viability inexploring found inInterpretation be can property Statement IS 12/03:Deductibility ofRepairs and Maintenance –General Principles. is the relevant completed. Guidance how to awhole on as even identify though the considered project be and abandoned that smaller may items it some is possible the property overall of the project, In developing of process the of project. objective may that distinct of project that produce anumber itemsIt acapital is possible together property of the achieve overall Partial abandonment Department Revenue Inland An alternative apportionment methodology could be chosen by Company H if it was also fair and reasonable. by Company fair chosen also it Hif was be could An alternative methodology apportionment income year. commencing inthe 2020–21 period, 66over expenditure$11,000 ($55,000×50%40%)of DB afive-year under section aresult, Company As Hclaims the of rules. (that the scope depreciable and revenue to outside is, those account property) the of rules within scope assets of the proportion reduced 66.This is by 40%to DB further reflect proportion section of scope involve could method thediligence 50%of expenditure apportionment expenditure, and reasonable potentially afair within know not whether Company have it Hdoes As would the purchased shares at the time the or it incurred assets the due Tax impact year not to proceed with either option. duringthe 2020–21income decides is forvendor the are asking high, and so shares too both assets and for just the business the on information gatheredBased from the diligence due exercise, Company Hdetermines that the pricesthe respective assets. diligence expenditure committing totalling $55,000before to to as whether adecision to buy the shares the or underlying company, and revenue account depreciable property the 40%of which property. comprises of value Company Hincurs due Company His considering purchasing either the shares the inacompetitor of company the or assets underlying business shares assets 9:Company business underlying unsure or have whether would it bought Example and reasonable. by Company fair chosen also it Gif was be could An alternative methodology apportionment revenuedepreciable or account property, that property. intellectual such life intangible as is fixed property not 66to DB the extent under section is that allowed not A deduction the expenditure relates that to acquiring is property not have inrelation would successful, been the had it transaction, been to revenue account property. athird inthe circumstances and reasonable the is 66.This of method of value DB fair apportionment because under section related $11,000(33percent of fees approach result would the legal inadeduction of on $33,000 it to paid the transaction) the expenditure inthe fees income year exceeds $10,000.Company legal Gconsiders on allocation that and reasonable afair the total amount of because expenses) for legal 62(deduction DB is available fees not undersection for the legal A deduction Tax impact fromoffer adifferent competitor. fees. Company $33,000for the Gpaid legal the remaining However, trading stock. Company is the G'soffer rejected manufacturer as receives the of product ahigher intellectual and an additional for property, $5million and the rights including brand formulation for the "recipe" or product, After to advice alaw engaging the provide on Company transaction, firm legal Gmakes for the $10million of an offer by acompetitor produced with along that anycleaning product remaining is out business, going of stock that of product. to is acquire seeking amanufacturerCompany the for an outdoor intellectual cleaning products, G, various of property apportioned to be needs 8:Deduction Example Tax Information Bulletin

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NEW LEGISLATION property was completed. was property greater depreciation available be underthe the if tax would rules rules be underthe than feasibility otherwise deductions would is completed and depreciated. where example been Afurther the had that the property haveallowed deductions would been this if accelerate to would take deduction advantage may abandoned the partially of five-year the be property example, The clawback is directed at situations where may incentivised taxpayers be to prematurely property. on work For abandon is subsequently created, property acquiredabandoned completed. or expenditureThe feasibility an integrity include measure rules (referred to the "clawback") as that where applies previously Clawback deductions of depreciable or revenue account property. intended that the the requirements satisfies expenditure the of cost it if otherwise of part may to subsequently be deductible be However, it is below), CH by 13(discussed the the of expenditure if application clawback denied effectively insection been has item more for allow the not same which do than expenditure. of deduction one rules, This the of income tax is afunction is available for this deduction expenditure. income tax further 67,no DB section 66or DB is undersection claimed Once adeduction Only onededuction is the allowed for relevant expenditure depreciation from forexcluded tax purposes. the cost the of completed property then anydepreciable property), expenditure 67is DB relating under section that to deducted previously the has property been this 67.In DB situation,expenditure is available under section completed (resulting be the if property would inan item of complete but not did it within that theproperty income year so it depreciated, then could for the be then adeduction had incurred expenditure theIf person inmerely into purchasing looking the to property, started make or construct or the 67inthis DB situation.actually is available for the not under section acquired. cost the of A deduction property acquires who that must applythe an item depreciation aperson is from depreciable property of rules the year the property This 67is areplacement DB not means depreciation elsewhere Section assets. for tax for low-value underthe Act. deductible However, like the requirements 66,the DB expenditure the general provisions permission section of must satisfy be and not inan income year. less $10,000 or There is requirement no abandoned. that be the property expendituresaving measure. That immediately by the the if feasibility total taxpayer expenditure be is, can deducted incurred is 67is DB acompliance that cost section to reflect 66,with DB inasimilar way modifications to 67works DB section Section Immediate deduction feasibility for expenditure Department Revenue Inland depreciation rules. the underthe cost 67as tax the DB of vehicle is deductible The undersection cost the of vehicle is deductible not Tax impact income year totals $8,000. Retailer Jacquires vehicle to expenditure assist asecondhand with The deliveries. vehicle and associated incurred during the property –depreciable immediately claimed be cannot 11:When the deduction Example is allowed. not adeduction Otherwise, fees. 66for theDB legal Company available, Iis is acquired if entitled otherwise under section anddeduction no to property adeduction intangible and therefore property life intangible life depreciableproperty. have fixed the have fixed If access would rights been been relating fees 66for the DB legal to negotiationssection with whether on landowners will depend the access would rights for the resource taken under consent be can 19.Whether is costs DB already adeduction not or available undersection adeduction 66for the DB resource This consent undersection costs. is because Company take adeduction Icannot Tax impact (from Ato Bto Fand from Ato Cto Dto F)are abandoned. aresult investigations, its As of with to Company aroute proceed Idecides from Ato Eto alternative Fand the two routes to the the land on alternative Dand E. routes C, B, via points resource more of includes fees than consent and costs legal $10,000for negotiations with landowners to acquire access rights in investigating three different potential routes (Ato line for the power Bto Ato F; Cto Dto Ato F; Eto F).The expenditure from Point power toCompany to to aline network transport add its Ineeds Ato Point F. The company incurs expenditure abandonment 10:Partial Example Tax Information Bulletin

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NEW LEGISLATION to be an apportionment between depreciable/revenue and other account property). between property an apportionment to be there 66 (for instance, DB in claiming a deduction needs under section the of claiming of process a deduction part as undertaken This will require the expenditure what an of understanding property relates to, which is an exercise that is likely to have been 66. DB undersection allowed items was revenue depreciable or for of which adeduction account property created, completed acquired. or other In the words, relevant is inrelation not assessment but to to individual the wider project, determiningIn whether the require the rules clawback that applies, an analysis is property each subsequently of of separate piece by theundertaken taxpayer. revenue havedepreciable or would account been property. This being aproject of may to due the part all or be abandonment of manyIn situations items multiple on work abandon will simultaneously that, ataxpayer completed, if acquired created, or 66. DB expenditure undersection that deducted been has and monitor whether order toIn subsequently from identify to arises the any need taxpayers applythe property clawback, Abandoned subsequently property created, acquired orcompleted after that income year. is acquiredafter more similar property the or relates, income year than to years which the the if seven deduction or last property is subsequentlythat created property are the completed or more clawed deductions not abandoned if back than years seven This taken was in the under the means year immediately rules. deduction the and final following income year for which the fifth time limit alignsseven-year with the general record business retention requirements inthe Tax Administration 1994,starting Act To compliance and costs provide minimise greater time to limit applies The aseven-year the clawback. to taxpayers, certainty to expenditure that immediately under the minimis rule. $10,000de been has deducted 66inrelationDB to the property. The requirement that to income amounts apply not as include were does previously deducted CH 13deems anThe amount income equivalent of clawback to previously section innew the taken deductions under section the property.abandoned this of measureThe is to to effect position where into put taxpayers havehad they they asimilar tax never would been situation where the subsequently that taxpayer acquires is property. property similar to the abandoned The is clawback completed, created inthe income year that applies property acquired. or the abandoned This inthe applies also Department Revenue Inland after the end of the income year in which the final deduction was taken under section DB 66. DB after taken was under section the end the of deduction income year inwhich the final takenThe earlier for the previous deduction study is completed more is the than clawed not years property as back seven Tax impact years later and seven begins it is to operational and the connected widerwaterand reservoir supply network. for greater water infrastructure Company led Bto has earlier nanotechnology. its on restart work the of plant Development after growth population Company with inthe to not region plant, and the B'sdecision adesalination A decade proceed need 2continued –example clawed back not 13:Previous deduction Example However, depreciableproperty. of this of the of cost expenditure it some if forms base part may deductible be 66.This DB means thatunder section Company Kis required to return clawback Year inits $10million income of return. 9tax Yearbeing (that Year completed within years is, deduction from year of was the seven final the property this 9.In case, 5) The clawback provision is triggered inthe year that the is relevant subsequently created, property acquired completed, or Tax impact theusing information from the previous studies. YearIn completed inYear to 7Company being reinstate with Kdecides Hills, the property inGusty project the windfarm 9 Years 1to 5. This to inthe is starting year results Company the abandoned. deductions inequal in project $2million Kof period, five-year The incurred $10million over by Company a fees. various on Kis deductible expended was $10million to abandonment, studies inYear these of One involves with abandoned the the on creation Hills, work project inGusty awindfarm of 1.Prior may reconsidered be inthe future and result inthe creation generation electricity of assets. generating the Following initial options. study many process shelved. the of However, options will be options these of some generator, an electricity Company K, regularly studies undertakes different to of determine power the practicability clawed back 12:Previous deduction Example Tax Information Bulletin

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NEW LEGISLATION and their respective specifications. plans relatingdesign property, to required which may the abandoned acquired the to of details include assets be for the project determining character, the appearance, quantity or the of property, regard purpose may function, had to any be and project where character, it aresemblance has inappearance, In quantity or that to abandoned. thewas property purpose function, inthe legislation. is Acquired likely property isThe defined not property similar to term to abandoned be "similar property" continuation that abandoned. the was of property that true ishold for property created completed or by ataxpayer. the is created likely this In completed or property a to case, be However, that that abandoned. is theproperty similar to was original as) property the (but not same to this is expected not thatthan is property created completed or by the taxpayer. will have taxpayers greater This to is acquire because opportunity to noteIt that requirement is important the "similar property" that only attaches to is property acquired by ataxpayer, rather difference or property. even to has aslight the modification abandoned property for the to is rules apply where acquiredneed is similar property to protect against the if the acquired clawback ineffectual being A feature the of clawback acquired is that to that applies The property it also that is "similar" to abandoned. the was property Similar property applyingthe of clawback. for theexpenditure basis purpose and reasonable afair on to make this of is an apportionment subsequentlyonly some created, necessary it will be acquired completed.this or In case, thatIt expenditure is possible relate could to potential multiple items revenue depreciable or of account property, which of Department Revenue Inland flat bed washer and the clawback does not apply to the engineering and design expenditure deducted under section DB 66. DB applyto not washer and the the clawback expenditure engineering and design undersection does bed deducted flat to directly to the applied acquired able be being barrelwasher not washer. Accordingly, the barrel washer is similar to not the the well for the work engineering as and as design flatbed vegetables, of clean other also and can types quantity potatoes of different the two washers arebetween different. in that significantly This the is barrel reflected clean alarger washercan However, washer haveThe inthat barrel similar functions potatoes. wash they washer and flatbed both the specifications Tax impact for the barrel to washer due used specifications. differing relating work be and design washer cannot to bed the flat barrel washer, The original engineering to and is to which able is clean vegetables. more awider range of able wash potatoes toCompany However, acquire plant. Mdecides washing potato anew washer, instead bed acquiring of aflat it acquires a Two years later, resistant fungus new varieties aresult, potato have planted resulting As crop been yields. inincreased costs. design 66for the DB engineering and acquire not Company under section plant. Mclaims the washing and does potato adeduction that the to Company project abandon reduces crops, disease Mdecides potato to Due fungal of form anew and facilities. washer and incurs for costs integrating potato engineering and design the machine new flatbed into the existing processes facility. washing additional potato apreferred After on Company options, considering of a Mdecides option of anumber that an will to facility include anew develop Company handling order operations, In Mseeks to vegetable its expand property 15:Acquisition non-similar of Example to the extent it relates completed (the that the residential of project been to not has part and retail apartments space). 66inrelation DB section to the hotel However, to after claw abandoned. it was any back expenditure necessary it be will not CH 13will applyto claw property. Section completion any the of back abandoned expenditure under that deducted was such is and as considered and is location the to inthe function same be the same the on original performs design, is based Although there the are differences completed hotel some and between the original construction the plans property for it, Tax impact adjustments)(with restarted. when the some project off simply finished was The property originally (hotel previously was planned. as accommodation) abandoned purpose same However, and larger agym andoriginal includes swimming pool. design the the site hotel the on same and serves is located internationalas travel with upagain, completion the of picks hotel from its in2025.The the of hotel design is modified tourists coming into stopped the country. However, the on work hotel resumes the in2023(but not rest the of development) overseas indefinitely in2021because put hold on and retailapartments and was Progress stopped space. the on project Company Lis constructing ahotel the on Auckland alarger of waterfront part development that as residential includes hotel of development 14:Restart Example Tax Information Bulletin

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NEW LEGISLATION • • • Therefore, the features following the of bright-line 5-year test will continue: CB premises "residential 16Aand of the exclusion business inthisreport. inthe definition outlined further section special land",as for the bright-line settings The other test policy remain except the for the same, changes to the main exclusion home in extended from arising Income 5years to under the 10years. bright-line marginal rate. test at income aperson's tax is taxed been has The timeframe, bright-line gains from within residential acquired test, which aspecified taxes and sold property bright-lineExtended test section (new 6A) CB Key features buyers home measure ownership and first help New Zealand's home is lift rates. intended to support receivecan will reduce the amount investors are prepared they will buy. to houses of and the pay number for agiven house The the toof Government's response reduce investor advantage investors that demand the for property. tax property Decreasing The extension factors. to supply and demand-side of the by bright-line anumber is unaffordability caused Housing test is part Background The bright-line extended from test 5years to been has 10years. 54Dand 54Eofthe54C, Tax Administration Act 1994) 17,GB 52,GB 10,FO 53,and FM18,FO YA 3A, CZ39,EL20,FB (Sections 6A, CB 1ofthe Income Tax Act 2007;sections theExtending bright-line test Land criteria. deductibility toexpenditure meeting under the the depreciation subject relevant may revenue deductible or rules, account be property 66once the is DB relevant completed, created clawed back property undersection acquired. notedabove, or deductions As situation, There income. all the are is previously entitlement no deductions taxable clawed claimed as back to the remaining resulting this In 66have claimed. DB inthe been clawback triggered available under section being all the before deductions may reinstated ended, has be situations, property spreading and the completed before some period In five-year abandoned furtherNo deductions once clawback is triggered Department Revenue Inland deduction portions for Years portions deduction 3to 5. return for Years portions the deduction income inYear 1to taxable 2as 3.Company entitlement no Nhas to the remaining to CHThe 13applies the expenditure clawback inYears insection deducted 1to 2,meaning that Company Nis required to inYearabandoned 1but is subsequently resumed and then completed inYear 3. that, completed, if will result project Company indepreciable property. acapital Work Nis undertaking is the on project clawback 66and DB provision insection deduction between 16:Interaction Example – – – – The current exclusions and other forms relief of will continue to apply–that is: below). premises –see business as excluded not to changespremises to (subject to provide short-stay ensure used is accommodation property treated residential as land and predominantly relevant business as land used or operative district farmland include not "Residential plan. land" does owner an arrangement has to adwelling and bare build for it, erecting land that on adwelling may under the used be "residential of The definition land"covered by the bright-line test landthat includes adwelling land where has it, on the The that rules of, is determine acquired and when when the the and disposed bright-line property is counted from. period date from which the bright-line is counted) the of period transferor. receive who those land under arelationship agreement will property continue to take the on bright-line date start (the under the bright-line taxed be not test any on and gain, transfers under arelationship agreement will property continue treated the to transferor at so be cost, adisposal as will will continue exempt, totransfers be death, by the and any beneficiary upon disposal subsequent below), amain –see home as used was property tothe main will continue changes home (subject excluded to to ensure be the the for exclusion the only periods applies Tax Information Bulletin

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NEW LEGISLATION 3 Table scenarios and whether 1outlines some the bright-line 10-year or 5-year applies. closed. toprocess sign atender that document withdraw cannot states their the until offer person days 5working after the tender has the of tender it is part commonas withdrawn is offer that time. For one example, acertain be before An cannot irrevocable revokedpurchaser 23March 27March before before or on be 2021,provided the 2021. not could offer The bright-line 10-year acquired after or applyto on not property 27March test aresult as by the does made an of offer carve-out Irrevocable offer date). counted is then from the typically the date period 10-year 5or the land is transferred to the purchaser (generally the settlement determines acquiresWhile the date whether property aperson the notedthat bright-line 10-year or 5-year be it should applies, when land is acquired 17/02. inQB conditions (even some –like met). if to There –stillformed getting be report need abuilding of or finance discussion is further the land purchase, purchaser acquire will first an interest atypical In inthe contract landwhen abinding to purchase the land is When an estate orinterest in land is acquired analysis Detailed The extended bright-line acquired has an estate test aperson if interest or applies inthe after or land on 27March. Application date • • • • • • Department Revenue Inland

start-date-for-2-year-bright-line-test Available at www.taxtechnical.ird.govt.nz/questions-we-ve-been-asked/2017/qb-1702-income-tax-date-of-acquisition-of-land-and- from other land sales. under the arising bright-line from gains asale Losses test taxable will remain to offset they may ring-fenced used so only be aresult as changes of to deductions to amended below). the(subject main exclusion home –see to the bright-lineVendors subject for property test will continue deductions according allowed rules to be to tax ordinary anti-avoidance remain, rules Specific to to counter circumvent used and trusts companies being the bright-line test. YAin section the 1of Tax Income New Zealand. is who outside avendor living established or 2007)–inshort, Act bright-line by anyone will applyto isResidential who RLWT an taxable "offshore sales (defined tax land withholding person" aregular has who pattern group or buying of their persons, and selling of main by aperson, home. used be cannot and also preceding the date sale, of year period inthe two twice italready if has used been used The be main exclusion home cannot held through properties multiple trusts. The main exclusion home is available to held intrust. However, the properties main exclusion home for use cannot people 3 Tax Information Bulletin

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NEW LEGISLATION 4 nominated purchaser. as an "estate obtain interest" or not does the to nominee inthe the land until test. 10-year Thissubject they is have because been must have nominatedthat 27March before been to person remain to the bright-line 5-year subject they will be test, otherwise Where and purchase agreement entered asale been has into 27March before but the purchaser then is nominee", "and/or Nominees Table bright-line date examples 1:Extended test application Department Revenue Inland

his share. his to the bright-line 10-year subject will2021, he be test for his share to the test 5-year the of subject property. for will James be Will is nominatedin. nominates James after 28March the on 26March Will other as 2021.Because owner the of property intends with to his purchase brother the property Will, available but Will to wasn't sign the agreement when put he the offer is and accepted signed 26March He on lists aproperty the on 2021.He nominee". "and/or offer purchaserJames's himself as nominee as added purchaser 18:Additional Example to theis bright-line 10-year subject test. nominates the nomination the trustees is 1April the on (after made purchaser as 1April. on 26March) Because the property upthe trust by family her trust, which isShe up. intends family owned She sets and yet set to to be be for the property is and accepted signed 26March on aproperty on 2021.She lists offer theMelissa's nominee". "and/or purchaser herself as 17:TrustExample purchaser as nominated on 2 April,on each signingthe change inthe agreement. except the above, purchaser agree and seller areducedAs on price condition and the agreement is satisfied unconditional. goes 24 March. 2April, On the purchaser informs the that vendor the 2021. The accepts the is vendor on and the offer signed ASAP 18 March on to report Purchaser abuilding subject an offer submits Example and ASAP is signed. and ASAP withdrawPurchaser not the does offer, accepts 27 March on seller withdrawn 16Marchon be until 2021.The cannot offer 22 March. atender of Purchaser that process part as an offer closes submits is signed. ASAP withdrawnbe until 28March. 27March on accepts offer Seller and 22 March 2021.The tender states document that the cannot offer tender of that Purchaser process on part as offer closes submits but the purchaser accepts the above, counter-offerAs 27 March. on 24 March, purchaser accepts 25March. on Purchaser 19March on offers counter-offers 2021,seller on until sign ASAP not 27March.24 March, but does Purchaser 18March on offers verbally 2021,seller accepts on March. but the accepts the seller and signs offer 27 on the above, ASAP As and purchase agreement 24March. signed (ASAP) Purchaser 21March on offers accepts 24March. on 2021,seller Sale (such as obtaining finance or a building report), not alater not report), abuilding or date finance conditions when those obtaining (such settlement areor as satisfied occurs. agreement the purchaser and the seller. between This when the includes accepts with an vendor offer standard conditions satisfied to be the land purchase, acquisition dateapply (the 4,inatypical the or page 5-year notedon test). 10-year is generally As when there is abinding The date acquisition of acquired first an estate (when the interest person or inthe land)is relevant for determining which bright-line test will The following scenarios deal with conditional offers with conditional deal The scenarios following The following scenarios deal with irrevocable offers with irrevocable deal The scenarios following The following scenarios deal with revocable offers with revocable deal The scenarios following What bright-line test applies? on 24 March,on which is 27March. before The agreement binding test5-year entered applies. was into 24 March, 2 April on when not the conditions were satisfied. agreement to conditions) entered (subject was into on The purchaser acquired the land when the binding 5-year test applies. able toable revoke their 27March. before offer the purchaser was applybecause not does The carve-out Extended test applies. 23March before or on made applies. for offers carve-out therefore to the extended subject test, the is prima facie Although the purchaser acquires the 27March land on and 5-year test applies. test 10-year applies. Extended 5-year test applies. have interest an equitable at that inthe property point). not and the purchaser does verbal contract is binding, not transactions a test 10-year (for property applies Extended test 10-year applies. Extended 5-year test applies. Tax Information Bulletin 4

Vol 6July 33No 2021 15

NEW LEGISLATION years if it was used as the taxpayer's main home for five years. the main for five home taxpayer's as used years it if was have not would under the to bright-line pay aperson tax that exclusion test rentedhome works, was for a property out for four with alonger bright-line without any test involved. For much more example, changes as income be could to the way the main This all-or-nothingperiod. inthe context approach sense made ashorter of bright-line However, period. it is appropriate not the owner's as main for more home the than of time used itout providedit 50percent for is some was owned, the of bright-line for the rented main exclusion home was where qualify could the property aperson theof main exclusion. home For example, underthe bright-line main is home taxed not A person's either to test. Prior was out this fully inor fully amendment, aproperty Background amain for upto home as 12months implications. without used to tax be not theallow property the to A12-month owner's as applies main is buffer home. actually used thebut rather property only for the applies period The "main exclusion" home from the bright-line that an nothing so on all or basis, amended it longer no applies test been has 23Cand CZ40,DB YA 16A, CB (Sections 6A, CB 1ofthe Income Tax Act 2007) Amendments to the mainexclusion home to amended refer been 54Dhas to CB CZ40. 16Aand new both Section transactions. much arefund RLWT too land transactions if to relative obtain paid been has for their to liability land their overall income tax Where RLWT the 54Dof TAA withheld, section been has the 6of ITA RL and section for aform their to ataxpayer file permit versions the of main exclusion). home the 54Eof TAASection the CZ40of ITA to amended CB section 16Aand refer new been has to section both (that both is, • • RLWT amain exemption home: as will continue certificates is available where used to be aproperty the main seller's home. was property and where the erecting or buildings; – including where land,dividing landinto is developing of aseller inthe lots, business the 54Eof TAASection provides that the Commissioner to is able issue an RLWT exemption inlimited certificate circumstances relevant acquired for properties the date before application the of test. 10-year to amended references include been 1(2)(a)has that test RL CZ39and CZ40,so is afive-year to still sections new Section residential of to applies sales within landmade also ten years acquisition of (where the bright-line 10-year test is relevant). With the extension the of bright-line that so 1and RLWT 54Chave updated test RL years to been from ten five sections years, the 1of ITA This RL years. within is provided for insection five the 54Cof TAA. and section (RLWT)Residential residential of tax to land withholding applies sales RLWT occurs by an land made "offshore the if sale person" (Section RL 1ofthe Income Tax Act 2007(ITA) and sections 54C–54E ofthe Tax Administration Act 1994(TAA)) tax Residential withholding land CZ40. CB 16Ato section the shifted from of The section test 5-year main exclusion been home has that for the purposes applies The income charging provision for the bright-line 5-year CZ39. CB 6Ato section shiftedfrom section test been has • • The bright-line 5-year test continues to apply inlimited circumstances to residential land acquired after: or on The bright-line 5-year test (section CZ39) Department Revenue Inland as main home days (provided for in new section CB 16A). main days home as section (providedfor innew the owner's bright-line as main for the home whole including days withinused the period, 12-month that buffer are counted acquired thisFor properties after applies), or on is where 27March 2021(excluding it carve-out is where offer the irrevocable main for more home than 50percent CZ40). the of bright-line section (new period this is where carve-out), the offer it owner's acquired to was For properties the 27March before irrevocable subject 2021(or 27Marchbefore 2021. 27 March aresult 2021as by the made revoked an of offer purchaser 23March before or on be the 2021,if not could offer 29 March 27March 2018but before 2021, Tax Information Bulletin

Vol 6July 33No 2021 16

NEW LEGISLATION

shifted to new section CZ40.Tableshifted to section new 2outlines the previous law and the law. new to applyto acquired properties This 27March before after been (or has that carve-out). offer to date the irrevocable but subject The offers). existingacquired for irrevocable main exclusion after home or continues on to 27March the carve-out 2021(subject that an so on all-or-nothing amended it longerThe no applies main exclusion been home has inrelation basis to residential land Main homeexclusion section (new 16A) CB analysis Detailed acquired exclusion properties home well continues 27March as before as 2021. to applyfor such properties, the revoked purchaser 23March 27March before before or on be 2021,providedthe 2021.The not could offer existing main after 27March 2021.However, acquired after or apply to on not property 27March aresult it 2021as by does made an of offer to the bright-line 10-year subject The to main exclusion acquired home amended applies property test, or that on property is, Application date • • • Key features Department Revenue Inland – – – The legislation provides for this follows: as are the of amain calculation. home, as counted main days home as for the is where used purposes not theabove, property counted their not or theiras Periods main as home, main home. 12-months of that less or are within the discussed buffer the legislation owned, provideswas that used not the is was taxpayer where required only the to for periods property pay tax the of time the it main as for However, some home used CB 6A. been has is income under section the if property property apply, not CB 16Adoes derives the from the selling main amount the exclusionIf section home innew the full person – – treated the main as will be home main days is home as used if: Days not when the property period. line The legislation is provides that from excluded the bright-line aproperty test it if is the owner's main for bright- the home full area the main home. taxpayer's as basis) requirement predominantly afloor (on used been that has the property To the main home. taxpayer's as is actually used the property for the period(s) within the be exclusion, there is still a Instead, that an it nothing so on all or basis. only applies amended it longerThe no applies main exclusion been home has as a main home exceeds 12-months, the main home exclusion does not apply. not amain exceeds 12-months, the home as main exclusion home does upto used not 12months that was amain for periods home as at the atime. If the period property used not was property accounted to be for. need not main does home taxpayer's other In the words, main exclusion home still the if applies this of isThe that effect there is a12-month buffer, to the from or being within aproperty of which achange use of extent to which the property was not used as the main home (as this is the period in respect of which the of is gain taxed). the this inrespect main as (as home is theextent period used not was to which the property the the This counted(or main as home. as) ensures that reflects the of cost the the is of proportion property deductible acquisition cost and any used improvements). to was is capital the reduced inproportion time The the deduction property the claim (which includes for the can the 23Creduces taxpayer cost DB the the of property deduction section New only income attributable has theirtaxpayer not to counted main was (or thehome their days as main the home). property This price. price) from theensures by the sale amain multiplied sale home as used/counted that was days the the property counted amain or home amain (that of as home as the proportion is, used was attributable the property to the period CB 6A(7)provides that income is reduced by the section the amountNew person's calculated by subtracting the value CB 6A(7). section the of derives from land is the disposing amount reduced by income reference the of person period, to the in formula CB 6A(6)provides days excluded that has (that section main the days) if home New person is, inthe bright-line isthe main immediately counted home. is where the period after or person's before the aperiod property andthe days non-main (the days of home non-main 365days home of counted are less or period), inaperiod Tax Information Bulletin

Vol 6July 33No 2021 17

NEW LEGISLATION 5 below. quantificationinto section account See income. out inworking ataxpayer's that 12months), taken 12months exceeding to exceeded be any period will need anon-main home period was non-main home completely applyto not the bright-line take theIf the outside main exclusion property home does there test (that because is, to tax. subject amain is home as used not exceeds 12months, the was entire use non-main for which of home the property period aperiod If main for that home period). longer no their and they it if was rented overseas their out while as main (for example, home the the property using property upto of 12months covers It also periods moving where out andsettlement sale). the is and moving in,between taxpayer not or This there between is intended (for example, may periods vacant to provide be for out aproperty leeway moving inor of than less of 12months after or before period main use. home rented or vacant main it if was home the out their for person's a as Therefore, as main home. will stillused qualify the property was is immediately during which the providedthe property period afteris or before counted aperiod amain period, home as main home upto the of person's as 12months under which anya 12-month applies buffer period that is used not the property main forthe "all of home days"Despite the the inthe requirement person's bright-line as used that must period, be the property section (new 12-month 16A(6)) CB buffer Table 2:Previouslaw new and law Department Revenue Inland

under section CB 6A(6) (see quantification section below). quantification section CB 6A(6)(see under section apply and Catherine not aresult,to the must calculate main exclusion 2027) exceeds 12months. home As does her income Catherine's as main (2025 home used not that was apply here not theThe period the property single as 12-month does buffer it in2030. until inher again lived home she sold Catherine in it her until in2023.She lived purchased home she went from her on 2025to OE 2027.When she returned, she apply not does 21:12-month buffer Example at 50percent main home. least the person's used as was the property basis, predominantly The main at "predominantly" home. Erica's whether, as used test was looks area the property period afloor on theUnder previous both and current law, the apply. main exclusion home would forthe all of bright-line This is because init with in2022.She lived aflatmate it in2027. aproperty until purchased Erica she sold exclusion home 20:Main Example below). quantification section his mainas (see home used was for which the property the but period his income is reduced to CB reflect 6A, Instead, to William section is subject William's not main forbright-lineUnder the it home was full the applyas not change, the main exclusion home does period. including the intention test, may still apply). rules, the of landsale to have apply and William not pay would CB (though other 6Awould tax no aspects previous section for most the of bright-line aresult, (that As William's more main as home. is, than period 50percent) used was the house for the main exclusion home the if current qualify William would for the exclusion settings were changed not because years and rented init for five lived in2023.He it it in2032. for four selling years before William aproperty purchased exclusion home 19:Main Example one dwellingone – YA the for aperson, Section main means, of home: 1definition that the main for was the home person… period], residentialof [the bright-line landif, the of for most period disposes who apply to not aperson CB 6Adoes CB 16A:Section Previous law sale and purchase agreementsale is entered into is when settled). –not the sale is the on transferred day the property The starts bright-line to (when the typically the owner and ends is the on sold day period the property (a) 5 the land has been used predominantly for adwelling used the been land has That aresidence as by the is person…. mainly used dwelling that the main for was the home person… predominantly forbright-line a used the been landhas period], residential of disposes who landif, the forof all days [inthe applyto not aperson CB 6Adoes CB 16A:Section section New New law New one dwellingone – YA the for aperson, Section main means, of home: 1definition (a) That is used as aresidenceThat as by the person… is used Tax Information Bulletin

Vol 6July 33No 2021 18

NEW LEGISLATION the taxpayer's main home. The following examples illustrate The examples the main following home. taxpayer's how the works: formula not was the property the on actual at and end the valuations of the period start the of is property based option to no pay tax There purposes. income for tax the main then home taxpayer's as becomes used not was attributable the property to the period it is held. over The the amount period from the this proceeds property of is the formula sale toThe evenly effect apportion amount Unadjusted Total is days days the of total inthe number bright-line period. daysincludes that the 12-month are applies. buffer counted main days home as because Adjustment It also amain home. is as days days the of total during the number bright-line used was where the period property The for the formula adjustment CB excluded 6A(7)is: amount insection Quantification formula (11)) 6A(7)to (CB the of property.disposing They them. are required not impact not to it applythe does as formula is simply the income amount from disposal they derive the from main person's home, the person's as is never used property the of time it the If main for is some home owned. the person's as is used the if property This used to only be formula needs that (7): is the amount calculated under subsection is reduced by the adjustment excluded the of property income from the amount disposal CB 6A(6),the person's Under section the all but of not their time as it main for is some home held. their property used has aperson if CB 6A(6)applies section New sectionQuantification (new 6A(6)) CB Department Revenue Inland Therefore, either to way the pay on need sale. the and Greg any not and Deb main exclusion do home applies tax are they than is are inBrisbane, less the apply for 12 months). the 12-month inBrisbane periods would each period buffer (as considered and not Greg's inDeb situation, was their main Regardless, when home they property the if Dunedin locations. thesuch extent as to which they live ineach property, and their family, employment and other ties social, to each the of consideredto be to determine they which one have the greatest with. connection This considering include factors would and circumstances which they the facts need have particular the homes, greatest two has When connection. someone is likely live there, property their and Greg's to theyDeb it typically Dunedin main is –as be home likely the with home year they go to Brisbane for 3months over winter. Whilethey are inBrisbane, they stay inan apartment that they own. and GregDeb are retired 2031.Every it inJanuary They inMarch and live acquired inDunedin. 2022and sold the property applies 23:12-month buffer Example his main as for a6-month home period. actually not the despite using property main exclusion Gerald home applies his Therefore, main as home. the property the where used immediately12 months, and Gerald it was by aperiod followed than less his main as was home the using property and not overseas was Gerald theThe period as 12-month applies buffer in2026. property the inuntil move not did sold 2022.He He six months his inJanuary later purchased home overseas. was he Gerald as applies 22:12-month buffer Example Income from disposal −excluded adjustment amount Adjustment days Total days is the amount of income the person derived from disposing of the of is from property. derived disposing the amount income the of person ×Unadjusted amount Tax Information Bulletin

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NEW LEGISLATION Adjustment Cost days means and total days the have cost inCB 6A. the meaning as of residential the same land. follows: 23as DB undersection claimed that 23Creduces DB be the can deduction section new CBWhere 6A(6)applies, section new to the bright-line subject 23for the DB cost property of test. under section claim adeduction can A person Cost residential some of land reduced 23C) (DB Department Revenue Inland Using the formula in section DB 23C(2),Everly's DB adjustment excluded theUsing insection formula amount is: 13 March 2030.Her total days is 2,851and her adjustment days is 1,934. 22(Everly),Continuing Everly with the residential Example bought transferred and it landfor $1million, was to her on Cost residential 24continued: of reduced land Example adjustment amount: Excluded Shanti's bright-line income is follows: calculated as days is 1,403.The unadjusted amount is (the $1million. amount the on derived sale) total days is 3,096and adjustment the of formula, 20May 2025and 22March 2029,inclusive). For the(between purposes 2033(inclusive) 20May is 2025and 9November 3,096.Her main days home The days of total 1,403 total between number 2033). 9 November her main (from as home the day afterproperty out (23March she moved – 2029)until the the date property she sold the when she longer no used the 12-month she period exceeded buffer applyto not her because exclusionhome does The days when Shanti inthe 9-month period are went overseas counted even main though the "main days, full home" as it for $1million. 2033when she sold 9 November until 22March intheshe lived property 2029.Tenants later inafew weeks moved and Shanti rented out until the property When her not main home. she was returned, the property she months. for While Shanti went nine overseas overseas, was transferred for $700,000.It was Shanti aproperty to her bought 20May init on from 2025.She lived then until 2027,when the and 12-month buffer 25:Apportionment Example adjustment (7): amountExcluded insubsection rented it out 2037.Her until income is follows: calculated as 31December her and it main from was home 13March 2030until inthe She lived 2037 for property $1.8million. 28June 2035.Everly then transferred It for $1million. was 31December on Everly to aproperty the property her 13March bought on 2030.She sold use of change following 24:Apportionment Example Under DB 23C(1), Everly's deduction for the cost of revenue account property under section DB 23will be: DB Under 23C(1),Everly's for the DB cost revenue of undersection deduction account property below). determine the (see net that amount to income from of the tax sale is subject Therefore the to of $578,954.75is acquisition Everly's deducted to Aportion cost gross be needs income from the sale. (6): Under subsection the net amount of income subject to tax (see below). (see tothe net tax amount income subject of Shanti's Shanti's of gross to is acquisition income determine from $546,834.63.Aportion the deducted sale to cost be needs CB 6A(6): Gross per income from the sale Excluded adjustment = amount Excluded $1 million −$$678,358.47 =$321,641.53 $1 million −$1,221,045.25=$578,954.75 $1.8 million $1 million −$453,165.37=$546,834.63 $1 million 3,096 1,403 2,851 1,934 2,851 1,934 × $1 million =$678,358.47 ×$1million =$1,221,045.25 ×$1.8million × $1 million =$453,165.37 ×$1million Adjustment days Total days × cost × Tax Information Bulletin

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NEW LEGISLATION short-stay to are accommodation the residential subject rental ring-fencing rules. deduction The ensures amendment also "residential of above to that the definition to residential land" discussed provide used properties Residential rental deduction ring-fencing (paragraph the (b)of "residential of definition land") predominantly situation the and breakfast owner's as may used main home. inabed be not the property because necessary treated rents who ahomeowner as spare the same rooms to flatmates –that neither is, to are the bright-line subject test. This is that properties areto the the type owner's and breakfast bright-line main ensure home for bed they are test. The carve-out ashort-term on long-term (that rents basis who tenants) has is, out aproperty –that are and aperson basis both subject is, This and breakfast. ensures abed such that as the a treatment on rents who out aproperty aperson is between the same that it isunless an isthe facility accommodation owner's also main and they home rent out rooms for short-stay accommodation the that of abach or sharing platforms, economy digital is part on rentedout sometimes it) as use not out when the owner does This is intended to ensure the bright-line test to that applies short-stay is (including aproperty rented properties accommodation and supplying accommodation the of dwellingbusiness is the not the main of home owner. "residential of to amended land withThe include predominantly definition adwelling been land"has it on it if is for a used Bright-line changes (paragraph the (b)of "residential of definition land") Key features the of bright-line scope of test and residential This intended. not rental ring-fencing was rules. deduction the premises of for the sharing exclusion potentially business economy and therefore part was platforms to as able qualify out be to provide short-stay residential used out, to via accommodation predominantly property qualification thisno carve digital there was predominately Because premises. out for business "residential land used of as previous definition land" had acarve The bright-line test and residential YA rental ring-fencing insection applyto rules "residential deduction 1.The defined land" as Background the EL of Act. rental ring-fencing insubpart rules deduction to the is bright-line subject home, test. The amendment ensures also short-stay to the is accommodation residential subject to provide short-stayused accommodation, where the is accommodation provided inadwelling that is the not owner's main premisesThe "residential of to exclusion" "business amended from ensure the definition been land"has that residential property (Section YA 1ofthe Income Tax Act 2007) Treatment short-stay of accommodation follows: the as formula for the allow not provision mathematical single However, one of does formula. subparts to mathematically it is possible simplify The Tax Income 2007operatesagross on and the Act basis structure income charging of provisions and deduction indifferent Combined sections of impact 6Aand 23C CB DB Department Revenue Inland Alternatively, the 22: and the using mathematically original from formula information above from Example simplified Everly therefore would at her pay marginal tax rate $257,313.22. on 23C)is 23(and DB $321,641.53.Her is net DB income from therefore: the sale revenue under section account property 22(Everly),Continuing for the CB 6Ais Everly's cost with $578,954.75and her of deduction Example income undersection CB of 23C DB 6Aand effect Combined 24continued: Example (disposal price − $578,954.75 −$321,641.53=$257,313.22 ($1,800,000 −$1,000,000)× cost ofthe × property) = $800,000× = $257,313.22 2,851 −1,934 2,851 917 2,851 total − days Total days adjustment days Tax Information Bulletin

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NEW LEGISLATION time. circumvent the the of application regular pattern restrictions and entities different by buying land using and selling each people The original regular pattern restrictions quite applied narrowly This to to taxpayers the allowed activities person. a single of Group acting people of together analysis Detailed determining of whetherconsidered have for agroup the purposes persons aregular of pattern. The amendments apply to land acquired after the date enactment. of However, land acquired the date before application will be Application date • • • The amendments: Key features advantage the of exclusions incircumstances when this intended. not was that so transaction there to take system "pattern". no the integrity was the of undermined actions tax by people Those allowing each by or varying entities or out separate transactions, different by using around This done to people the carry be could rules. There were concerns that the original regular pattern restrictions habitually who taxpayers allowed buy land to and sell structure any on their the landas whether gain, residence it. premises they taxed they owned while not business or used or be and should The restrictions aregular has who that pattern assume aperson buying of land primarily and selling acquires that landfor sale • • • purposes: However, the exclusions apply when following not there do aregular for such pattern been has buying of land used and selling their the landas residence it. they owned used while land dealer the if taxable but be will not to an amount tax, land is by from aland dealer derived selling usually subject For example, taxable. be will not rules, the of under one land sales to tax subject an be amount that exclusions otherwise these of applies, one would If residence premises. amain home, business as or CB exclusions contain various for land used insubpart rules The land sales Background intention or apply when acquired the land was with disposal. of apurpose thatThe the regular amendments clarify also pattern restrictions inthe residential premises and exclusions business will only what to is that done the by or varying so landineach transaction out there separate transactions, to is carry "pattern". no amendments ensure that structure cannot taxpayers around the regular pattern restrictions entities or different by using people premises exclusionbusiness to apply to regular patterns together. buying acting of land by agroup and selling persons of The The amendments the expand regular pattern restrictions inthe main exclusion, home the residential exclusion and the 16and CB (Sections 19ofthe CB 16A, CB Income Tax Act 2007) selling Habitual buyingand "dwelling" of inthe Tax Income definition Act. bright-line test from excluded the the or residential they are This specifically rental ring-fencing is rules. because deduction motelsHotels, and other similarcommercial are accommodation "residential not land"and are therefore to the subject not Hotels, motels and other commercial accommodation Department Revenue Inland acquired with a purpose or intention or acquired with disposal. of apurpose that the regularclarify pattern restrictions inthe residential premises and exclusions business apply only when the land was is held, and pattern the on regularity the of buying of land, focusing transactions rather and selling than what it the on is land while done theexpand regular pattern restrictions inthe residential premises they and exclusions business apply to so aregular of buying activities and selling together, undertaking group persons of rather than the activities person asingle of theexpand regular pattern restrictions inthe residential main home, premises they apply to and exclusion business so a CB 19. premisesThe exclusion business insection provisions). the of The other residential for land sales some CB 16(which applies exclusion insection for the CB bright-line 16A(which applies The main exclusion home insection CB 6A). test insection Tax Information Bulletin

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NEW LEGISLATION of theof non-natural This inthe group included will result person. persons. of being inanon-natural also person group, the activities anon-natural of the natural involvement will have person, significant person in, control or of, the activities theFor legislation the a that of avoidance confirms doubt, of anatural if part inthe as or group alone to is person able direct, residential exclusions is that all live the together natural inthe house. people regular of pattern for the restrictions What purposes thatas inthe is Act. term important inthe main and home is defined It is intended that the test "group captures persons" of persons" relationships ordinarily not "associated would be where people • • when: together For the main and residential home treated buying activities will be and selling a"group exclusions, undertaking persons" of as Main homeand residential exclusions activitiesselling together. The amendments the all of expand regular pattern restrictions buying and they applyto undertaking so agroup persons of Department Revenue Inland important factor is that factor all the natural their as theimportant all homes. occupy of properties persons Chris and Stephan that occupy not did the of because residential property. For the the and purpose main exclusions, home Stephan addition, theirIn Turner's or trusts. when considering included whether be will not there property is aregular pattern Turner by Chris owned the all occupy of and not properties did he inthe because "group included persons" of be will not by the CTrust). (owned property Turner his home. as by himself then which occupies he buys another property Chris have and Stephan 26above) another Turner. (from friend, example liveswith He Chris and Stephan intheir third inthe pattern included not 28–Property Example the main exclusion apply tohome, home inthe will not pattern. the any or fourth sales subsequent aregular established the has amain pattern group as persons of buying of landthat and selling used Because was persons". of controlor considered trusts andBug Mrs Mr will be a"group and the over two the the trusts of properties, that two owned and their they However, influence have as all the home, properties is and Bug Mrs significant Mr occupied applies. because the their main exclusion each as the main home of so properties home andBug Mrs Mr used CB 6A)applies. test (insection yearsthe of within date were the all of five properties the sold title transferred, was theBecause bright-line it, of the on face control or influence over the trusts. BugMrs (the Bug Mrs Trust). and Bug Mrs Mr are trustees their of trusts and respective are considered to have significant (the Bug Mr Trust). by atrust owned by established was The property fourth by Bug. Mrs owned The was third property by atrust owned by Mr Bug established was property The second byBug. Mr owned was their The property main first home. (at regular four reasonably properties intervals) that as and sold and Bug they Mrs Mr bought used period, a10-year Over exclusion home 27:Main Example inthe pattern. sales subsequent regular aresidence, as the pattern residential buying of land used and selling exclusion apply to will not the any or fourth a established the has group persons of StephanChris, considered trusts Because will be a"group and the two persons". of control or and their they influence have as home, properties over significant the the trusts of properties, that two owned the their residential so as However, theall home of properties exclusion Chris applies. and Stephan all the occupied because CB 6).Chris and Stephan (under section to occupied tax subject will be the of properties from the the sales profits it, of face StephanChris, and their trusts acquired respective with the properties an intention them. of disposing of Therefore, the on ChrisWhile they and Stephan the own properties, them occupy together their as shared home. Stephan are trustees their of trusts and respective are considered control or to influence have over significant the trusts. by Chris (the CTrust), acquired was by atrust by Stephan and the established property fourth (the STrust). Chris and acquired was by Stephan, acquired property was acquired byThe the Chris. was third second by atrust established property them up, and Theproperty then them. first four selling of years. They end over upbuying four aperiod properties and selling doing Chris to and from Stephan houses, They buying make money since decide old friends College. some have best been 26:Residential exclusion Example significant involvementsignificant in, control or of, that non-natural person. has all occupy the by who is anon-natural the of properties at one naturalwhere owned least person, aproperty people all inthe the group natural together the all occupy of properties their people as residence, and Tax Information Bulletin

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NEW LEGISLATION similar activities (for example, building, renovating, it is etc) landwhile of owned. each on piece have done building, been similar activities (for example, likeness or with the on rather the premises, similarity of afocus acquisitionbusiness transactions, than whether on and disposal with the main exclusion. home This ensures they apply to any regular a residence as pattern or buying of land used and selling The amendments the expand regular pattern restrictions inthe residential premises and exclusions business to align them inthe main exclusion. home used to from arise appear the not This more then general problem does sold. wording builtand occupied was where ahouse section and the third renovated was abare inand sold, lived was the it second was while inand sold, lived bought, was property the first the outpremises different restriction and they For carried apply where example, not did activities it. they the on hold landwhile pattern had restrictions apattern buying aperson of landthat apply if not and did selling aresidence they as occupy business or apattern the on buying ahome land and then of transactions (for example, land, building This selling). meant that the regular provisionsin those haveinterpreted been narrowly very to applyonly when there the likeness or is asimilarity between inthe residential the of language used exclusion premises and the exclusion, business theBecause regular pattern restrictions their acquiring residentialof of as main and disposing home. landused contrast,In the regular pattern restriction inaregular engaged has pattern for the when main exclusion the home applies person acquiring of, for asubstantial and disposing erecting or of, by the business. and disposing person premises used premises exclusionbusiness the regular pattern inaregular restriction engaged pattern when previously aperson of applied acquiring of, mainly and disposing aresidence For erecting or as the of, occupied and by disposing the dwellinghouses person. For the residential exclusion the regular pattern inaregular restriction engaged pattern when previously aperson of applied Regular pattern buying of and selling amendment their of to transactions. simplydue the scale will ensure below) further that intentionor (discussed by this large disadvantaged groups disposal taxpayer of be will not The the of inclusion requirement that the regular pattern restrictions landis operate will acquired not unless with apurpose • • treatedFor premises the buying exclusion, activities business will be and selling agroup together undertaking persons of as where: avoid apattern This established. ensures being that the current restriction intended. operates as structuredpremises be exclusion cannot around out different by, to subsidiaries transactions inorder using carry to for example, with the other regular pattern restrictions. ensures It also that the regular pattern restriction currently inthe contained business toThe amend the proposal regular pattern restriction premises inthe exclusion business aims to ensure that there is consistency exclusion premises Business Department Revenue Inland premises continue exclusion can to apply. in determining whether there is aregular pattern premises whether buying and, so, of business if and selling the business considered Therefore, a"group persons". of buying the activities and combined selling the of group taken into will be account and control Co Big shareholders) influence (and its the will be significant over subsidiaries has the all of subsidiaries, because However, premises premises the business exclusion business as applies. have used the properties been s CB 6). Because store is (under the established, land is intention or to acquired are and tax the profits with subject disposal of apurpose To the extent that Co's Big purchase subsidiaries the land with the intention investors it to selling of after property the and establish each store. running the of store. adifferent company the Co to for Big the landback purpose uses purchase Co subsidiary Big will lease theown investors landand intends to after property that the sold store the landwill be is with established, an agreement that CoBig prefers to stores its purchase land and build itself. However, inmany situations want not to Co Big continue does to CoBig through widgets sells retail stores around the country. order In to ensure that it appropriate has stores land, prime on exclusion 29:Businesspremises Example activities inthe group. all those of involvement significant has in,control premises, or whether abusiness landas occupy they not or also of,a person, the and on, carried the of inthe nature irrespective groupall asubstantial persons on premises occupy mainly business, to any of carry business Tax Information Bulletin

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NEW LEGISLATION into account the received. private This intended. not benefit was the of acquisition of costs part and improvements to have denied sale, take on should to been landthat tax of subject use was to previously the 23was private subject DB limitation. That addition,In section meant that technically, where there private was on). adivisiontime if development is the or landis carried held (for example, landthat under the bright-line is (for example, taxed timeframe particular test), circumstances certain if or eventuate duringthe within a for land that This sold if mayit is taxed. the may known whether taxed the case of landwill be be be not the disposal expenditure atbetween acquiring on the improving or time the the This expenditure land and income. is because, is incurred, However,permission. situations insome there rules to the involving land sale land subject may the required be not connection for the cost revenue of adeduction 23,which allows account DB to property, previously the was generalSection subject DA at is 1).Whether the(section judged time satisfied the expenditure the been general has permission is incurred. This deriving of expenditure income is before the deducted. known general as be for the permission on can purpose carried expenditure expenditure between or and between abusiness and income, there connection sufficient to has be mostIn cases, Background privately held. used it was was while the if or property sale, on to tax the were costs subject incurred be thatwould the property that known not when even to it the if was amended cost clarify revenue of is been deductible 23has account DB property Section (Section 23) DB Cost revenue of property account of their transactions. intention will ensure disposal of that by this large disadvantaged groups amendment taxpayer be will not to simplydue the scale The the of inclusion requirement that the regular pattern restrictions landis or operate will acquired not unless with apurpose better regularly who targeted buy aspeculative land on basis. and sell at people exclusions intention applyonly or when acquired the This land was with ensures disposal. of apurpose that the restrictions are thatTherefore, the amendments regular clarify pattern the proposed restrictions inthe residential premises and business premises sale. on and are business taxed not are entitled other Such or people to income-earning scheme. in abusiness rely the on exclusions to ensure their genuine homes land within of ten all sales on years acquisition, of to tax subject whether they are, the not prima or landis facie, used is because involving adealer, land (such inabusiness as with are who aperson associated divider, or for people developer This builder). or that particular, and In small grows. are premisesthat the businesses business as reasons, upgrading for family occur this risk arises the regular patternExpanding restrictions risk to rise gives that an increased they catch could residential ordinary transactions Purpose orintention Department Revenue Inland restriction not apply. does for the retail stores used the properties persons", of were acquired not with an intention the regular so pattern resale, of Retail Co's rely can subsidiaries premises the on exclusion. business WhileRetail Co may subsidiaries and its a"group form stores CB 10).However, are within are the if 10years (under section tainted properties and potentially to sold tax subject with Retail Co are subsidiaries) alanddevelopment company, (and its associated for theBecause used the all of properties centres. city development of ordinary and othersubsidiaries stores It that is are often stores closed. the case within are 10years acquisition of sold to due the establishing and running of the stores. stores time,new Over for the are purpose solely byproperties various purchased and large Retail sells of Co'sdevelops stores Each retail outlets. by is aseparate subsidiary, owned which purchases the Retail Co thingies through sells retail stores around the country. The shareholders Retail of Co acompany own also that intention 30:No Example Tax Information Bulletin

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NEW LEGISLATION have previously required an amendment to the LTA. The content the of LTTS is currently largely by the LTA. prescribed any Making changes to the information required the on form gathers It also obligations. statistics compliance policy. with inhousing tax for use for assessing information used collects From and purchasers 2015, sellers land haverequired of been 1October to complete an LTTS at the time transfer. of The LTTS Background transfers. This change makes it to easier the adjust LTTS, to make for example changes that reduce would compliance for costs property by regulationsset underthe made LTA. TransferThe Land 2017(the LTA) Act to amended the allow content been has Transfer the of Land Tax Statement (LTTS) to be (Sections 77,79,83,227and Schedule 1ofthe Transfer Land Act 2017) Content Transfer the of Land Tax Statement with 2015,inline The the amendment introduction from the 1October of applies bright-line test. Application date is stilldepreciation where use (ab). on appropriate. afocus rules, paragraph innew This is reflected the EE of Tax Income subpart of retained for theThe purposes been (a)has original wording 2007and the paragraph of Act is the structure on applies rather physical than how it abuilding, is of used. the This place". ensures that for determining the focus whether the bright-line test residential or rental ring-fencing loss rules including any to with appurtenances enjoyed or belonging residence of aplace as abode, whether or it not is or used abode, or that the of term so the amended itParagraph (a)of refers definition "dwelling" been has to "any aresidence configured as place Key features to the bright-line subject be consistent test be not intent. and rental which would ring-fencing loss rules, with the policy aresidence as residential excluded actual on the use focus that properties are predominantly This vacant. means not they would including any to with appurtenances enjoyed or the belonging There residence place". of a place abode, or were concerns that predominantly "any as as used place the of term toPrior the (a)of the definition "dwelling" defined amendment, paragraph was and whether depreciation building rules, and separate depreciation commercial of fit-out are available. to the is bright-line subject whether aproperty test, residential and the residential tax landwithholding rental ring-fencing loss The other of term terms inthe "dwelling" definition "residential is such as used land" and "residential to building" determine Background intent. residential consistent occupied as rules properties, residentialvacant to tax are with the properties same the subject policy such. as The whether astructureincludes amendment it not is or used ensures residence of aplace configured as abode, or that the of term YAThe definition "dwelling" insection the 1of Tax Income that to adwelling amended clarify been 2007has Act (Section YA 1ofthe Income Tax Act 2007) dwelling of Definition The amendment the from commencement 1April 2008,being applies date the of Tax Income 2007. Act Application date the general permission and overrides the private limitation. for the cost revenue of adeduction The 23,which allows account DB amendment that property, clarifies supplements section Key features provisions provisions. may the of landsales have under some inadvertently land taxed of inrespect created uncertainty some gains" or approach. under the However, "profits the Act, that it seems the splitting into outincome and of deductions separate to ensuredeductible that only the are net That proceeds aloss). income (or is how the provisions the before operated rewrite of clearlyIt was intended that the cost acquiring of fully and improving be land that would under any rules is the of land sale taxed Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION • • the sharing 85and 86are informationThe of to disclosure amended insections 82A. support under new rules enabling information direct processes sharing LTTS of information. commence once the and Statistics existing LINZ revised to Understanding incorporate of Memorandum been between NZhas by the Government Statistician the of Statistics 1975.It for is the Act purposes intended that this information sharing will the 82Aof LTA section New provides that must share LINZ the the on information LTTS collected with Statistics requested NZif analysis Detailed The LTA is to amended enable the sharing direct LTTS of information from to LINZ Statistics NZ. Key features provisions inthe Tax Administration 1994. Act RevenueInland currently on-shares the the on information LTTS collected with Statistics NZunder the information sharing the on information LTTS collected with To Revenue. Inland facilitate Statistics NZ'srole inpreparing the quarterly releases, toPrior this amendment, inaccordance with the legislative provisions out inthe set LTA, to only able share was LINZ the from to LINZ preparing moved Statistics releases these NZinMay 2018. transfers. The role of involvedinproperty and companies information the on citizenship, people of residency status, tax or visa The the on information LTTS collected to prepare is transfers. used The include quarterly releases property on releases Background This amendment information facilitates direct sharing LTTS of and Statistics LINZ information between NZ. (Sections 85-86ofthe Transfer 82A, Land Act 2017) sharing LTTS of Direct information the contentwhich prescribe for the LTTS come into force. A transitional provides rule for the current requirements the 79of LTA insection to continue to apply until regulations the first The amendments apply from the date enactment. of Application date regulations are made. Transitional the 1of LTA provisions Schedule 15of inclause that the current specify LTTS requirements apply until the new information. information future and allowing identifying of including adefinition regulations to any information deem further identifying as is to this of continue section the currentpurpose regarding rules disclosure information of inaggregate form. This by is achieved 83updatetheAmendments references to section information of The under this to which may released section. the types be toand prior the amendments coming into force– the content out inthe set LTA. 79(1)(a).This meanssection any underregulations information underthe prescribed made LTA, –until or regulations are made 77is to amended information" refer inaccordance inSection "tax to of The with information definition specified requirements for the LTTS. areference 227inserts to to section "statement" to make it clear that information regulations to made prescribe be can accompany, any instrument, record, notice, certificate, application, any the or of LTA. other thing for the purposes Aclarification that may General the Governor make regulations information that in, prescribing and documents contained to must be 79requires that section Amended statement 227(1)and (3)provides the information. tax must contain Section the prescribed Analysis Detailed LTTS more updated and easily enable to streamlining transfer be property information of requirements. The amendments the allow content the of LTTS by regulations set to be underthe made LTA. This will enable the content the of Key features Department Revenue Inland disclosure the on information of LTTS. collected of 86is to amended the include Statistician for theSection purposes authorised persons as an or authorised employee to Statistics 82A. NZunder section limit disclosures not 85is to amended across-reference include that does Section 82Ato this clarify section to section new Tax Information Bulletin

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NEW LEGISLATION be met and which if not met will mean the transaction does not proceed. not met met and which not if will mean the does be transaction whether there not or are the of astandard purchaser) conditions condition that finance for the (for example, benefit remain to enteredand acquisition property of into after or on 1July 2021.An agreement is entered into once it is the on parties, binding address this rules The lack consistency purchase of price allocation information, and of applying to agreements for the disposal valuations. often that with theirto lower the than assets consistent effect income aggregate was the they reported if same had applied lawunder prior there different were where market many the and the vendor purchaser ascribed cases values inmixed supplies agreement. there Also, is explicit no consistency aresult, requirement As arrangements. financial or for depreciable property communicated contain tonot amechanism to the be for the purchaser, allocation vendor's is stated not the if inan allocation revenue land held on account,livestock, and timber. 10(1)reinforces DP Section this for timber. rule However, do rules these Trading the EB 24(3)of Act). to include for (section treats EB 24is broadly defined, sold it section as of stock for the purposes requires apurchaser trading of stock inamixed supply to treat the trading acquired stock the as vendor as value for the same but market market is value arange rather for the assets, values various than must Current reflect figure. Allocations asingle law allocation". This is and the to referred purchaser's for liability deductions. determine basis allocation, the to tax a"purchase vendor's price as however, purposes, are For the tax parties usually required the differentmay the to price between allocate not make assets. an The and purchaser vendor will agree atotal price for the but may transaction, or accountcapital (non-taxable/non-deductible). and landheld on and fitout, commercial of will normally depreciable buildings include asale property For example, supplies". are to often more treatment. assets subject than are business tax of one referred sometimes sales Sales These to "mixed as Background purposes. for tax assets of total purchase price to the classes various existing with different treatments provisions assets tax the business of of to requiring allocation asale parties the to same adopt Taxation Expenditure, and Remedial Matters) (Annual for Rates 2020–21,Feasibility refer. Act The reinforce rules and extend the GC20and GC21of Tax Income insections rules The purchase new price allocation by the inserted 2007(the Act), Act allocation Purchase price Department Revenue Inland base than the amountbase returned by Shark indetermining depreciation its recapture income. depreciation giving Corroboree ahigher tax over assets taxpayers the same This the mis-match two results inatax between However, that avaluation Corroboree and obtains the applies of building valuation to return: determine tax the inits values return tax its When the follows: purchase it price as Shark allocates files and the fitout. that land, building allocate but they not $150million of do purchase price between the and the fitoutof comprise Waiata land,building sold being Centre.assets Shark and Corroboree agree apurchase on price the Waiatawishes buildings, prime Centre, to its of one sell to Limited Corroboree another Properties commercial lessor. The Shark Attack Commercial Limited (Shark) inthe Auckland is acommercial owner CBD. with buildings of anumber property It 31 Example Total Fitout Building Land Item Total Fitout Building Land Item $150m $20m $50m $80m Amount $150m $10m $40m $100m Amount Tax Information Bulletin

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NEW LEGISLATION Figure 2illustrates rules. the the of application purchase price allocation • • • General market value requirement and exceptions • No unilateral meeting allocation timeframes • • • Unilateral allocations meeting timeframes • Agreed allocations • Key features Department Revenue Inland – the item is no less than its tax book value andgreater no value the item book than original than cost. is its tax less no its to$10,000, the total amount the allocated item and any identical items than is to less and the $1million, amount allocated However, the Commissioner original challenge to cost its if than cannot an is item an allocation less depreciable property of The Commissioner dispute can relative that on an allocation she considers is based market not values. third exception below). (see bulletpoint applies depreciable property higher than tounilateral applies market make to assets of the aclass allocation or the vendor low-value allocated value value, a on the minimum on value relative except based book market when must be the tax Allocations the of values assets, – an of allocation): is notification not containing an allocation areturn of aunilateral (filing Where notifies allocation have and neither the an agreed parties allocation, not party the vendor. after to the the change and an Commissioner, allocation vendor inownership) to notify which then the binds purchaser and within three an allocation months, the purchaser three has notify not months the (thatIf does vendor until is, six months Commissioner, which then the binds and the vendor purchaser. The three has vendor months to the after an allocation purchaser and the the change to notify inownership the of property the than: if is total consideration less notified for to the property purchased be need not does allocation the or Commissioner. the of by one made parties, determined by anotification will be the allocation However, aunilateral return and record agree not an do allocation tax the theIf it before inadocument first parties for the is transaction filed, over-ridesallocation any unilateral that prior below). allocation may (see have made been that intheir follow they must returns. both allocation for the year inwhich is the occurs transaction filed, This agreed return and record tax the it property before inadocument first purchased of to agree the an theIf allocation classes parties Purchase property": "purchased are of price at allocations made to the the classes of level following be

b) a) vi) v) iv) iii) ii) i) to the purchaser. the purchaser is entitled not until to the an allocation Commissioner any for the property purchased notifies deductions the Commissioner may determine the allocation, chattels. is residential the if $7.5 million, property only purchased residential land(which includes together buildings) with its or $1 million, B(the purchaser). for person deductions A(the or vendor) income for person to give rise not assessable does for which the disposal property purchased and arrangements, financial that arebuildings depreciableproperty depreciable property, other than buildings arighttimber or to take timber othertrading than stock, aright timber or to take timber Tax Information Bulletin

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NEW LEGISLATION The applyto rules agreements entered and acquisition for the disposal property of into after or on 1July 2021. Application date Department Revenue Inland Figure 2: Application of the purchase price allocation rules allocation the of price purchase Figure 2:Application Tax Information Bulletin

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NEW LEGISLATION section GC20(2)(a). section returns markettheir This income tax by is values. achieved that the of on think even theynot basis if it do reflects allocation, GC20requires thanis have who less inwriting market to apurchase parties agreed section price allocation file New value. contract and then argued that they are entitled adifferent to return, use figure intheir tax the that on basis the figure agreed that agreement returns. their tax when filing However, and purchase purchasers have inasale sometimes, an agreed allocation will follow Generally, assets and purchase agreement to the price asale of to parties transaction agree who specific an allocation purchase of price agreement allocation Effect analysis Detailed Department Revenue Inland value under the transaction of $1 million or more, or the apply. $1million under the of exception not value transaction does Condition (b)is acaveat to condition there (a).If with an aggregate is allocated alarge assets identical of low-value number Condition the (a)of exception the minimis item ceiling de asingle of sets at $10,000. assets. depreciable value This exception is compliance to alow primarily to cost taking vendors approach included give certainty to to low- allocating c) b) a) challenge to if: an item an allocation depreciable property of GC20(3)is an exceptionSection to the Commissioner's to challenge ability The Commissioner an allocation. agreed cannot they agree their allocation. 20(2)(b). Relative market determined either be should values at the time enter the parties into their agreement or, later, if when and acquired of for adifferentCommissioner GC disposed treat This can as amount. by section is achieved property the of class the theIf relative Commissioner considers that reflect not market the amount agreed does property, the of of value class the these assets. and market material. be could value Therefore, the Commissioner will retain the right of to challenge inrespect an allocation value each isof individual desk low, book the tax aggregate theis of value set high, and any between aggregate discrepancy were The value. desks entered item one book as –their the on depreciation$2 million vendor's tax register. Whilethe value toof an on aggregate the allocation desks which is withagreed based the to purchaser depreciableproperty an allocation has Matinee Limited is acommercial (Matinee) selling desks. Idyll Property Matinee with building 600identical office 33 Example price allocation: but states aprice$10million, of that asks DCL this price is contingent Happy agreeing to the Double purchase on following fit-out (iv)), and (class building consists (vi)), Happy). building The land (class (iii)). of (class sale Limited (Double Properties enters Consultants Limited (DCL) intoDizrythmia negotiations Happy to commercial to building Double its sell office 32 Example DCL and Double Happy must file their returns respective Happy must file and Double the the of income on of allocation. agreed basis DCL assets. of bundle it price considers an for the acceptable to whole $10million be agrees tobut because nevertheless the allocation Happy is convinced thatDouble for fit-out the building the that cost avaluation is –and has base low – view too to support Total Fitout Building Land Item the amount allocated to the item is no less than its tax book value andgreater no value tothe amount the allocated item book than original than cost. is its tax less no its tothe total amount the allocated item and to any identical items than is less and $1million, the original cost the of item for the than is vendor less $10,000,and $10m value) book $1.5m (tax value) book $4.5m (tax $4m (valuation) Amount Tax Information Bulletin

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NEW LEGISLATION the scope for tax manipulation transactions is inthese low. for tax the scope A higher threshold the that on basis for residential transactions is justified residential are so property non-depreciable, buildings rentals, apartment such multi-dwelling or blocks. as buildings The residential parties. transactions for that both are base likely the high-end tax is of are caught outside tothe sales be property owner-occupier by one ahouse of to sales another,been since all rules, by the which are purchase price allocation affected not are some likely these, Of to have shows there total –0.03%of sales. over $7.5million the were period at above or only 115sales the threshold. $7.5million for 2018–2021 data below Residential will be sales residentialThe of sales majority vast property the of building. that part form not do Chattels residential and includes inthe Act "Residential buildings. land"is are defined any items with the residential sold building warranty obligations). warranty the purchase price both and"Consideration" the any by of the value purchaser liabilities vendor assumed (such encompasses as b) a) where the than: is notified total to consideration less be need fornot the property purchased thresholds apply. which the not unilateral do out below rules two GC21(2)sets allocation Aunilateral does Section allocation minimis De where they are incases to unable agree allocation one. asingle amechanism the of to on basis give to parties file is rules these of return tax The the before first purpose for the the year is of transaction filed. property of to theallocation classes GC21provides ahierarchy section New unilateral that of rules apply where allocation the and purchaser agree vendor not an do Purchase price required: allocation noagreement for the purchaser's but ahigher gain deductions. cost base capital original cost give the an untaxed vendor would above and an allocation give the aloss, vendor would value and symmetrical. However,positive, book tax below an allocation original The cost. rationale for this range within either is that it an will be of allocation revenue the immediate neutral effect or and higher no value than book lower no than must tax be The allocation theCondition unchallengeable range of values. (c)sets Department Revenue Inland make an allocation. to for need him, and will he not non-taxable will be his the main sale as home, the occupying property been HermitIf has apply. not do EE 45(10)requires rules allocation to market Hermit McDermitt Section allocate to value the chattels. and chattels, is the land,house sold theconsideration purchase price being than is and less the $7.5million only property iv)) and the (class chattels (vi)), house land (class the (iii)).Because purchase price (class They allocate between, not do and Hermitproperty accepts this. which is overthe $7.2million for travel of $1.5million have the borders RV opened for the inan offer property and puts the of rent she can out for to aproperty wealthy to looking the tourists sell property. Allen been has once Sandy decided Hermit has area in aprime and is inNelson located such high-end One property of rental ownsHermit McDermitt anumber properties. 35 Example by the $60,000. increased be course will of to The assets amount the allocated business applies. at $60,000(inaddition to payment). GC21 the $950,000cash The consideration and section the minimis, is de now above that are so Titus varied the facts agrees toSuppose also take obligations over to certain customers, value which the parties market of their on assessments value. returns, respective own their intheir allocations own tax adopt based to they are any goodwill, subject applyto or Therefore, not consistency not the software rules. EB 24does they are to able the total price than is less and section $1million, but because and goodwill, the software between purchase price allocation (vi)). Titus (class (iii))and goodwill (class which Amy Amy offers They agree not a do accepts. $950,000for the business, Amy –"Twelfth business is her small selling software –to software Titus. include Dimension Software" assets The business 34 Example chattels. is residential inthe disposal the if residential$7.5 million, only land (which includes together property buildings) with its or $1 million, Tax Information Bulletin

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NEW LEGISLATION purchase price. purchase reduced proportionately must be until they property the collectively equal taxable of the of values classes book –theplace tax inthe inthe transaction first by property virtue having of reduced step, by the first been there of or non-taxable no being eliminated entirely to by reducing Where the that allocation class. to the amount that allocated is class already zero –whether is higherTherefore, than property the the excess, excess be can where to the non-taxable amount the of allocated class b) a) applied: thethe The total excess purchase price. above excess the of amount is by required the previous subsection allocated to be GC21(4)provides amechanism where inadistressed to with Section deal sale the is vendor the making agenuine case loss. be exceeds the the This relative total purchase plus price. could property property market non-taxable the of of value taxable class of all the of value classes where book the aggregate tax floor value to able comply book withThe be the will not vendor tax the vendor, which the Commissioner may wish not to challenge. by property the to protects purchaser minimum value taxable/deductible from allocation an low unreasonably book The tax income year inwhich the occurs." change inownership the property of purchased for their position A'stax property, inthe of class incalculating person property for purchased use, would or Auses that person "the total amount (13)as: the "Tax relative insubsection the of value class. is value" market defined book and the value tax book three months the of change the greater inownership must the be of property. to The property of amount each class of allocated (and is thus required to the Commissioner make the may vendor and within the an purchaser allocation), notify an of allocation different treatments GC21(3)provides that, the if uses vendor income tax property of moreSection or the of classes for two Vendor allocation Department Revenue Inland Commissioner may it than is only dispute less she if to believes market $7million of fitoutand machinery the allocation value. their Poor binds Boy, returnsThe allocation file companies required and both The as it, the of by on the basis rules. new to and to Poorallocation Boy the Commissioner Revenue: Inland of Three after value. settlement, weeks it therefore it is required book allocation, the following to notifies at tax least allocate However, Frenzy the of value fit-out is is Because making $7million. aunilateral and machinery book the aggregate tax valuation, Frenzy to wants make the allocation: following withHaving Poor an its agreed allocation on Boy, not Frenzy Based right under the rules. new allocation the has first completecompanies the for $50million. deal to with able agree Frenzy, an allocation being Despite not is Poor committed Boy to purchasing the and the factory, two much higher the of than landvalue. assessment Poor Boy's to original closer cost its is Frenzy $10million. of the avaluation worth machinery for the underlying obtained land that has is but that $7million of value the appreciated land has significantly. but claims much Poor invalue, Boy the moved not land has reach agreement but Frenzy an on allocation, book is than adamant are less tax the $4million fitoutand machinery worth negotiation, (iii)).During class Frenzy fit-out, (both and machinery to try and Poor (iv)), Boy factory (class vi)), building (class Frenzy Fabrics Limited (Frenzy) to Pastels Poor Boy factories its of consists is one Limited The selling land (Poor of Boy). sale 36 Example Total Fitout &machinery Building Land Item Total Fitout &machinery Building Land Item second, to reduce, pro rata, any amounts allocated to property. any of to the allocated other amounts reduce, pro classes second, rata, land) non-taxable or goodwill, (for example, property to reduce anyfirst, to non-taxable amount the of allocated class $50m value) book $7m (tax value) book $12m (tax to$31m (valuation additional fitoutand machinery) allocation less Amount $50m market of assessment $3m (own value) value) book $12m (tax $35m (valuation) Amount Tax Information Bulletin

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NEW LEGISLATION respective tax returns, tax they – if respective or have returns already parties. both or for one filed assessment –inan amended the requiredThe to the and the vendor Commissioner both purchaser, allocation will notify either their for them infiling to use c) b) a) property: purchased of to adjustment subject by the will be Commissioner.allocations The Commissioner may to to require the allocate, classes aparty at any an theyWhere allocation will still stage, notifies have returns. neither to their party make tax infiling Such allocations inaccordance to to her or allocation own must then instead it, with parties parties adopt. both market which both notify values, after at an the allocation six the the purchaserIf months, or it will Commissioner's vendor be notifies discretion whether to bind to thepasses Commissioner. atimely on –that is basis notified within allocation no is, If six months settlement of to –the power determine the allocation timelyNo notification where liquidated upor the wound the has after time (for example, vendor their the settlement). purchaser allocation notifies they this do as it matter long will not so means apurchaser of that allocation, that inthe case the may vendor longer no exist at each other the following requirementsParties must 14Ato notify the 14Gof Tax sections of Administration 1994.This Act There are other no constraints the on purchaser's allocation. the relativeamount must reflect market to property. of the proportional the other of value relevant classes property of class the within Commissioner six and months the an of allocation vendor the of change inownership the of property. An allocated within the an allocation three months, the purchaser GC21(5)provides notify may not that notify the if does Section vendor exempt, they are to able make not one. tax or all the on property), the the may if is vendor vendor (taxable adealer make not For example, an allocation. cases, some In Purchaser allocation Department Revenue Inland Commissioner relative may the of on made basis not it challenge was satisfied this if market allocation, values. returns their tax respective inaccordance and they file it, the of on parties basis The with both binds The the rules. allocation own allocation, based on their assessment of market of their on to assessment the owners values, TnT of based allocation, own and to the Commissioner: to Charlieallocation and the Commissioner. Three and Charlie their –having months –notifies received pass, allocation no After settlement, the owners TnT of apurchase price their venture on next business focusing to notify start and neglect $8 million. but Charlie agree not an to do allocation, wants The go with ahead parties for the and buys transaction the business finance substantially They is claim value. worth than the goodwill less TnT's book their tax allocated to be assessment. that recoverCharlie believes the and that economy will soon the clients will pay quickly the and wants receivables and infull TnT's downturn of economic and some and had to clients off enter have laid been into debtrepayment special plans. there recently and that has isvalue discounted inthe significantly goodwill, because the an receivables be should been (iii).TnT (class (vi)), and software (class receivables arrangements (v)),goodwill (financial class claims mostthe of business's Time and Tide Financing Limited (TnT) concern are agoing as to business Charlie. finance assets The is its business's selling 37 Example Total Other intangibles Goodwill Receivables Item of purchased property. purchased of the relative thatamounts reflect market the of value relevant property, to purchased of the proportional class other classes by the property, purchaser purchased the of allocated to or amounts the classes property, purchased by of the to or vendor the the allocated amounts classes Amount $8m $1m $2m $5m Tax Information Bulletin

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NEW LEGISLATION operate correctly; where the relative market value of a class of property is lower than its tax book value, the tax book value is value used. book operate where correctly; the tax value, the relative book is lower than market tax its property of aclass of value aunilateral to on allocation vendor floor value book determined under adifferent the it allows tax provision Second, the of Act. the on argumentitem property of that class or is value and one another determined rules underthe is purchase price allocation it from First, prevents attempting parties different two to market main use purposes. two for an values This serves override is determined rules. under the purchase price allocation property to is rules by overridden the the purchase extent price allocation property purchased to to which the amount that allocated GC21(12)provides that anySection such existing provision that the of Act expressly requires market of the use for value is market its property value. with EE other 45(10)provides is that items, sold to the when amount theSection depreciable property allocated depreciable relate timber. of to solely disposals 10contains consistent DP rules to Section EB 24that the the allocation trading vendor's purchaser stock. with must use section their the market the trading Also, respective inaway stock and the that between other values. assets reflects apportioned must be EB proceeds 24provides that the sale together of whenSection trading stock is with disposed other assets, business inamixed supply. existingSeveral sold provisions to with property deal inthe allocated Act amounts Relationship with other provisions ofthe Act GC21(11). GC20(3)is exception replicated insection The insection depreciable property value low low value for Exception depreciable property for more thanclaiming deductions of return. year inasingle one intheclaimed return atimely to on that by or the after is Commissioner. basis notified is an allocation filed This will result inthe return, intheir claim nexttax deductions can have and not them deferred. Any that deductions to are able be deferred will be to ensureThe possible purchaser as they therefore to should their the allocation Commissioner soon and the as notify vendor • • areturnfile atimely income on of after basis the earlier the of following: the purchaser is entitled not to any inrelation deductions until income year to for the which they first the property purchased To GC21(8)to incentivise when (10) provide they have that sections an allocation right, the purchaser the allocation to notify deductionsNo purchaser for until allocation GC21(11)). protected by the exception section to depreciableproperty low-value allocation (see market inaccordance made it is GC21(3)(b)and is unless an higher allocation than with value, section market it or is an value, to challenge The the Commissioner allocation. retains the right to that dispute the of by one parties is an allocation not adjustment to to or anotice contestwith proposed take of any right no by filing for aparty the other allocation proceedings aunilateral vendor, (3)to effect, (6).In under subsections purchaser, is the on Commissioner or parties, binding allocation is treated and acquired of GC21(7)provides that for property the purchased amount of disposed aclass allocated Subsection as amountsAllocated enforced Department Revenue Inland to claim the denied deductions in its next tax return, nexttax inits to with for that claim along deductions the the deductions denied year. 2023–24 year. trigger penalties may to an obligation apply. pay assessments also and UOMI, shortfall These able will be IHNS for to depreciation denying IHNS assessment issues an amended adeduction the of out premises altogether and fit for the MPDA income inthe increasing its 2023–24year by the additional valuation. depreciation by IHNS's She also implied recovery She determines is that She therefore theby the more allocation parties. IHNS's reasonable. to assessment issues an amended earlyIn 2026,when return reviewing the the 2023–24tax Commissioner notified realises for IHNS, been that has allocation no agreater allocates IHNS while out, amount. tovalue fit its returnstax for the 2023–24income year recognising the with transaction, book MPDA different tax allocations. allocates Time and neither on moves the or to Commissioner. MPDA the an allocation other party notifies IHNS nor file parties Both agree not an$28m but on allocation. do (vi)). MPDA class (both agree and and goodwill IHNS apurchase on price of (iii)),customer out (class (iv)), fit (class database Limited inthe (IHNS) 2023–24income year. are Security INever premisesto the building sold IHope being The assets Missing Person Limited (MPDA) Agency Detective private successful business to its sell investigation avery decided has firm 38 Example The Commissioner's notification of her allocation toThe her the Commissioner's of allocation purchaser. notification The to their of purchaser's the allocation Commissioner, notification and Tax Information Bulletin

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NEW LEGISLATION lesser amount. lesser mixed supply, this if amount is greater than the cost the of the depreciation on item the to claim person's is the based associate, Whilethe the GC21if cost GC20or is acquisition to determined a associate. by the sections was person from the associate the of cost and the the depreciation on to cost lesser the to The person claim person's the is based insuch claimed acase. be the EE 40(7),which amount limits depreciation of GC20and with GC21operate inconjunction section thatsections can (purchaser) (vendor), When from an amixed associate supply involves by an aperson acquisition depreciable property of valuation method used by the for the vendor income year inwhich the takesvaluation place. transaction used method is value the the of value stock hand on at the book calculated time under the the as of the transaction For tax trading stock, their income year inwhich the change occurs. inownership the of property property, for in the of class position incalculating their property tax for purchased use, amount that would or the uses vendor GC20(3)(c)(ii),21(3)(b)and GC21(11)(c)(ii)."Tax in sections is value" means value" used the total The book book term "tax are that deductions the pre-allocation deductions are deferred. effect, In occurs. notification which allocation to an the income year before allocated income year in be GC21(9)and (10),would that, sections ignoring property purchased GC21(9)and (10).It means the for insections purchaser's deductions The is used also term deduction" "pre-allocation ii) i) means thenotification" earliest the of following: "Allocation GC21(9)and (10),which defer apurchaser's deductions. insections isThe used notification" term "allocation for three GC21(13)provides provisions. definitions inthe terms purchase price allocation Section used Definitions Department Revenue Inland Assume that: Assume First variation as Brass will add the "missing" $120,000 to its cost of timber (section DP 10(5)),giving it DP acost the $300,000. of will "missing" add $120,000to cost Brass its timber (section of as with relative market However, values). 10(4))and Bold DP PFP cost entitled timber (section $180,000as of will only be to deduct to the Commissioner'sto (subject challenge ability inaccordance not it as purposes for tax respected price will be the sale case, and that and PFP they have Brass parties, to areas that the agreed the $180,000 allocation associated timber.Assume Bold this In variationSecond cost for Brass's the This trees. as will reduce to Bold the land to allocation be $1,680,000. will also This GC 21(3),it must treat the PFP purposes. If selling trees as makes under section for $300,000for tax itself an allocation • • PFP and the buyer, Ltd Brass have of: as aprice agreed and an allocation Bold rates G. provided for inPart such expenditure depreciated to $150,000,and it been has down the was $85,000at using the end the of the year before sale, the Gof Tax 20Part Income inschedule theon land within categories described 2007.The various Act original amount of $20,000.PFP of value with incurredalong has depreciableequipment (iii))with expenditure (class acost $73,000and abook of Parrot Fashion Pines Ltd trees which comprises (PFP) forests, (timber, its of is one selling (vi)), land (class (ii)and freehold class 39 Example Total Trees Land Property Depreciable Item PFP and Bold as Brass have Brass an agreed allocation. not as PFP and Bold to the cost timber, of and since then). prices have significantly PFP(log declined incurred not has any other expenditure added had which to has be $300,000for the and paid trees Brass the PFP as forest to bought purchase Bold by the 2years way before sale an of asset the time when the Commissioner's notification of her allocation under subsection (6)is providedtothe the time purchaser. undersubsection when the her Commissioner's of allocation notification the Commissioner, and the time when is the their of provided to purchaser's by allocation notification the Commissioner inthe prescribed form Amount $2,000,000 $180,000 $1,800,000 $20,000 Tax Information Bulletin

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NEW LEGISLATION nominee without for any contractualnominee the special need provision. GC21,that the will bind the If purchaser makes vendor the or allocation allocation. a unilateral under section allocation aprovision include the and should purchase agreement vendor inthe sale to ensure that to any is that bound nominee agreed with the If inthe agreesnamed the vendor an contract. allocation purchaser, and the agreement for nomination, allows also the of purchaser, anominee transactions the acquirer will be some In the property of purchased rather than the purchaser Nominees Practical variations • • B(the purchaser) for person vi) v) iv) iii) ii) i) • • • • • and line contain the information: "Purchase following inthe subject Price Allocation" theinclude phrase via or aletter. via MyIR, online made to be the should Notification Commissioner an of allocation This should notification Notifications vendor by orpurchaser other EB 24and sections. several section of This for the purposes trading of is stock the used broad definition vii) vi) v) iv) iii) ii) i) trading stock: rules, in the purchase price allocation YA insection the (b)of trading stock GC20and GC21.This definition 1is toSubsection amended means sections include that pro-rata. for the part-yearthe period, property inthe the the the year of before using for relevant the transaction, transaction, part-yearproperty spreading period for method price adjustment to equal formula) EW31(base the expenditure income or section have the would vendor for the purchased is value the consideration that book give an amount expenditure income would or the of arrangements, tax For financial under the transaction, a less pro of the rata portion depreciation for the vendor in the year of the transaction. written been to is has value down the at amount the the end the property of year before For book depreciable property, the tax Department Revenue Inland If desired, supporting documents such as the sale and purchase agreement the such sale as provided to documents and the notification the other supporting desired, If party. A statement that inaccordance GC21 the have allocated amounts with been section A(the deductions or vendor) income for person to give rise not assessable does for which the disposal property purchased and arrangements, financial that arebuildings depreciableproperty depreciable property, other than buildings arighttimber or to take timber othertrading than stock, aright timberor to take timber zero sold: not allocating to any sold, property of class property of toThe each the classes of allocated following amounts The total consideration (including the any of value liabilities assumed) transferredThe was date which the on (that property settlement/change is, inownership) The date agreement of to the transaction the of and details purchaser vendor and contact IRD/GST numbers The names, apply. arrangement afinancial include not to which the arrangementdoes arrangement financial financial the or rules old rules it anything of wereincludes for which expenditure taken trading is stock possession if incurred be and which would land) CB 6Ato produceincome underany CB would 15(which relate sections of disposal landwhose includes to income from aright timberor includes to take timber livestockincludes manufacture of anything disposal or includes acquired for the purposes manufactured or anythingincludes produced Tax Information Bulletin

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NEW LEGISLATION unclaimed money and make money unclaimed it for owners easier reunited to be with their money. money. The reforms make the administration of by lowering compliance for more costs holders money unclaimed efficient of the Revenue's administration transformationInland ongoing to modernise unclaimed of programme provided an opportunity dominated administration. andprocedures postage required paper of an of era inwhich the by were the use UCM Act reflective reviewed substantiallyThe regime been money had not unclaimed enactment since its in1908.Accordingly, the administrative provider) the until to money will hold who Revenue, the Inland service or owner bank claims it. example, from (for the It holder is then under the unclaimed UCM Act. passed inan it account will become left for agiven period, been theof account provided written or any made not has withdrawals instructions Once the deposits, has or money to the bank. That untouched account years. the inabank left owner owner is, by for several its is been which has money common example A owner from for agiven its period. disconnected somehow or refersUnclaimed detached money to become which has money Background an such "app"). with institution as using or their online software accounts ways innew (for example, specific to money unclaimed the Commissioner The Revenue. Inland of reforms that recognise also customers are increasingly interacting and transferring the reporting of process regime the money withThe unclaimed the amendments simplifying aim of modernise 23 March 2021and received the 30March on Royal assent 2021.This amends 1971("UCM Act"). Act the Act Unclaimed Money The Taxation on Expenditure (Annualandpassed Remedial for Rates 2020–21,Feasibility Matters) was 2021("ARFERMAct") Act money Unclaimed Where to are atransaction parties exempt or dealers both apply. not entities, do rules the purchase price allocation inany applying the event. allocation be will not since the exempt or dealer party significant, be not to able determine Whetherwill be the allocation. the formal mechanism for this is agreement aunilateral or should allocation more or different treatments two they use tax for the matter property, purchased because then apractical as that other party to to is able make the is not the If transaction required other exempt or anA dealer allocation. party party to make an allocation is an or exempt adealer entity. the if party case transactions the purchaser or vendor may some In treat the entire amount the of consideration way. inthe same This the will be andDealers tax-exempt parties inthat allocated way,been with dealt under existing will be their allocation law. apply to way that they inthe applyto same as non-contingent allocation the If non-contingent payments. have amounts not inthat way, is specified or agreed the If GC20and GC21should allocation toout payments goodwill. sections may allocated be earn For example, payments to those of assets. categories of particular allocation the "inprinciple" unilateral specify, allocation, make or agree an aunilateral the allocation before However, parties allocation. a of may the parties inthe or agree, case When an agreement provides for contingent the payments known amount payments will often made, those of to be not be Purchase price adjustments an on evenmade footing. to ensure an allocation, that the inan may Or auction vendor are all bids allocation. specify conditionalbeing aspecified on Parties may navigate commercial these inatender, realities For example, ways. of inanumber purchasers may express as bids the on returns. vendor's apotential impact could since the purchase allocation price allocation, have specified by whether Theagree bidders apurchase outcome price influenced particular allocation. the of be could initial process bidding auctions such and tenders, competitive as purchasersIn may processes bid often have to to without submit bids the opportunity Auctions and tenders allocation. they ensure to should with authorised by agree the an mortgagor thean allocation been that mortgagee, has the mortgagee is likely the nor but theNeither if mortgagor the on purchaser issue engaged allocation, to to of wants the mortgagee agree be their longer no meet can who repayment an of owner (mortgagor) recovering the obligations. by selling property funds where the may is other or rules vendor sale, The abank lender (mortgagee) purchase price apply to allocation amortgagee sales Mortgagee Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION holder. for repayment. Amountswhich are income inthe hands which are retained the will be of by money fund aholder unclaimed not money. unclaimed to be cease However, any claim that affect not this the owner the may of does money have against the holder the of them donating (such holder, as them to for the another benefit to applied purpose charity). Money will another or use, the Commissioner money. unclaimed to as amounts paying have the these Commissioner Holders achoice putting between or alternative to holders transfer provision fund to which allows less underthe $100or use of inplace amounts previous UCM Act, However, the of UCM Act. are for the money less purposes $100or unclaimed Amounts of not retains the UCM Act the thresholdMonetary (section the 4of Act) UCM where (or wishes the to holder period transfer the earlier). money to for the (inmoney) the required units the Commissioner redeemed once deeming it remained has possession inthe holder's money. Therefore, managers it for fund will remain to although Revenue Inland accept transfer will not inPIEs, possible units unclaimed are of within inPIEs included the not noted,units definition As to transfer Acts. under both money unclaimed to or under the UCM Act the Crown the 149of Trusts under the section new 2019.There Act is merit the inallowing flexibility RevenueInland is transferring aware to money unclaimed between the that managers Commissioner PIE fund some choose the 5(3)of UCM Act. Finance 1989is by excluded Act section intendednot to applyto other stores inPortfolio Investment units such value of as Entities covered (PIE). Money by the Public refersThis to section that money is more than $100.This is intended to refer to inthe The money traditional is UCM Act sense. The unclaimed of definition (section money the 4of Act) UCM theThese amendments administration support ofunclaimed money. The Amendment amends Act the Tax Administration 1971,and the 1994,the KiwiSaver Act Unclaimed Act 2006. Money Act analysis Detailed 1Marchon 2021. The amendments effect apply from which the took with date the the 178of Royal ARFERMAct, of exception assent, section of Application date • • • • • • The reforms to the include the following: UCM Act Key features Department Revenue Inland 6

period has ended. has period to Natisha contact to deeming pay the before and the to five-year decides money efforts funds unclaimed Revenue Inland as However,investment. starts. that At reasonable B&Edecides it made period has deeming this the money unclaimed point that aclient contact they if after convert they cannot the can investment four years, towhich theyfor Natisha's do cash, Three years later that B&Edecides Natisha's investment money. is unclaimed effectively terms B&Es and conditions provide received not years B&Ehas anythe two last reply from Natisha letters and some have returned been to undeliverable. B&Eas volatility.high year Natisha Each she if is happy B&Eto of with is by see an employee contacted her investment mandate. Over B&E Limited is manager aPIE fund Natisha which administers PIE funds. several is an investor inthe Ultra which has risky fund 40 Example Tax –Treatment trust held on - amounts less $100or of amounts unclaimed of Pub BR Tax 17/01 Income rulings- Revenue Inland public See –Treatment Pub and BR less 17/02Income $100or of amounts unclaimed of Transitional provisions to will require who assist holders time to further updatetheir systems to align with the reforms. A quarterly to regime reporting (which holders will transfer allow to money Revenue unclaimed Inland aquarterly on basis). The repeal the of requirement to for aholder keep and maintain aregister money. unclaimed of to, holders Allowing inlimited circumstances, transfer to money the Commissioner it before is unclaimed. banking). online account (for example, activity the forms account of Expanding interaction to which will unclaimed prevent forms new include of from becoming money years for all funds. five of 6and 25years of with period asingle periods by replacing unclaimed is the the money Reducing deemed before amount previous time deeming of which must pass 6 Tax Information Bulletin

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NEW LEGISLATION determining account interaction, the nature as institutions. account of interaction between may vary interactingbeen with another their of accounts at that institution. to judgement are apply their best Holders when expected to and other the determine ability The holders banks gives broad for themselves wording this of whether section customers have the UCM Act. 4(3)of amended under section rather than other tomore transferred purpose some than applied $100being to the Commissioner. This approach is preserved to This avoid designed which were amounts was but collectively less. $100or individually less $100or was money unclaimed 4(1),any toUnder owner owed were amounts the the same former to section combined determine whether the the of value joint account held with another or institution the product same investment). an account cash-PIE holder's (for example, the owner while remainsunclaimed with Account an owner's include engaged interaction will also their activity with funds. a instructions "another to about matter". the holder This is intended to avoid at institution money the same from becoming 4(3)(a)(i)and (ii)which refer inthe wordingThis to section of the is owner requesting reflected information providing or The reforms applyacustomer's account account one on activity to all accounts the customer with institution. holds the same Institutional approach account activity to (section the 4(3)(a)of Act) UCM withdrawal forms of account of from providing making or activity adeposit, 1970s definition instructions inwriting. interaction through internet where acustomer (for example, banking their views account This balance online). broadens the now refer to owners "requesting information" "providing or instructions" to the holder. customer for example, This includes, To forms 4(3)(a)(i)and (ii) account of modern interaction recognise section which will unclaimed, prevent from becoming money Account activity (section the 4(3)(a)of Act) UCM "Transfer(see to below). money unclaimed" of the Commissioner it before becomes to paid the Commissioner now be can immediatelyamounts where there reuniting of is little prospect them with their owner which from is arises money discovered holders duringaroutineA commonissue for some remediation financial These process. will commence from the date the of owner's interaction last with the money. another or money matter, The period unclaimed. deeming deemed the will be money so, do not owner If does years. within five To an owner must request information avoid period, the engaging deeming provide or instructions the to about the holder years will applyto money. of five all amounts of standard period deeming other In the words, years. five of into period deeming uniform The one periods reforms deeming consolidate the two prior date the of owner's interaction last with the holder, funds. of the on type depending Previously, either was unclaimed 25years 6or from the deemed time required of the was which was money length before to pass Length time of until is money unclaimed (section the 4of Act) UCM Department Revenue Inland in either unclaimed. account from becoming The institutional approach to account means activity that interaction with Sabena's account her on-call will prevent the funds accesses frequently for her everyday purchases. withdraw not the account $1,000untouched an on-call any with and does holds for ten She which money also she MBB years. She is account Bank(MBB). keen with $1,000inasavings to has Bags the Money save money, toSabena leave she decides so 42 Example income for the year and adonation credit for the donation. taxable amount as whatever do Crimson can less) $100or it wishes (being to money with although unclaimed theyof return will need it, the the meet not definition to the does money donate As them to acharity for former that greyhound homes dogs. racing finds claimants these are years and then the for never five to going Crimson decides money decides holds claim the and so funds to the claimants contact trying through channels, multiple Crimson received has reply no from any them. of totheunable owners There locate after made. the claim been has are 24claimants and all the claims are under$100.Despite premiums the few years last pay Over Crimson received low has outs). (with many very claims from clients but have been Crimson Permanent Limited (Crimson) is Assurance alife insurance company that low provides at life insurance very for pets 41 Example Tax Information Bulletin

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40

NEW LEGISLATION end aterm. of However, the before money unclaimed to becoming 4(3)(a)(ii)prevents avoid breaking mid-term, adeposit adeposit section money. unclaimed with interaction, no deemed the will be money passed years has and five starts period Once the deeming commencenot until term the (that rollover) second the first of renewing is, term arrangement. Where isperiod. the the deposit only investment which the customer with has an institution, will period deeming the five-year To the administrative ease burden institutions on 4(3)(a)(ii)provides an exception section to the and deeming depositors, usual instructions to the bank. such asituation, conventionally would the years from standard period the date apply five deeming the customer provided last There may situations be inwhich aterm is the deposit only investment which acustomer with has institution. afinancial In to which cover contains an adeposit option for repayment but is treated reinvested as where the option is exercised. not maturity. 4refers 4(6)(b) is "renewing-term intended to The as section amended these insection The arrangements." definition The reforms that recognise it automatically is to common for term be deposits reinvested similar terms on and conditions upon Treatment renewing of term deposits (section the 4(6)(b)of Act) UCM duringaroutine identified amounts remediation for example, backdated owe, or who process holders holiday pay. this holders Allowing optionis intended to the chances increase reunited an of owner being with their money. This may assist There is requirement no the Commissioner contact that transferring before first aholder such to money Revenue. Inland the owner. 5Band have unsuccessful inlocating been under section Commissioner where they have efforts reasonable made To to unclaimed the to yet pay not become which has to money holders choose 4(3)(b)allows section assist holders, to owed amounts former clients where they have that identified the owner contacted. is to unable be circumstances, some however,In Revenue Inland appreciates that there is by requiring to little gained holders retain to be underthe previous regime. specified periods holding Historically to there for to holders pay the money of unclaimed the six25-year ability no or Commissioner was the before expiry Transfer the to money of Commissioner unclaimed it becomes (section before the 4(3)(b)of Act) UCM Department Revenue Inland unclaimed money before the five-year deeming period has expired. has period deeming the before five-year money unclaimed To the chances increase reuniting of Mr. Bach with his to money, pay the $105to chooses the RBB Commissioner as years from when takes the the that view error RBB arose, first there is init little retaining sense the any funds longer. Mr. to Whilethe owed Mr. refundfees of located. efforts, be five Bach cannot best money unclaimed its Bach will become to Mr. contact is seeks process Once complete, its RBB Bach to for the return error. the and apologise funds However, despite location in the Northern Territory. However,$105 inaccount fees. realises error, its RBB before Mr. his accounts with to and moves Bach closes aremote RBB remediation afinancial that andReally identifies conducts process Bank (RBB) Big itovercharged has their client (Mr. Bach) 43 Example Tax Information Bulletin

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NEW LEGISLATION a phone number or email or number address which isa phone considered longer no current. known or to be is required not aholder which they know to contact of will prove For example, attempt unproductive. to an owner using contact However, require not and does them this holders to additional is compliance pursue avenues intended upon costs not to impose require to holders exercise judgement. reasonable previous are legislation. Holders required to pursue the This avenues which they most productive. consider will contact of will be information efficiently. they hold This is away a move from the by formalistic the owners for contacting process prescribed is intended to their to to encourageThe resources aholder make on holders efforts use obligation and the reasonable the owner the may of money already have met owing to attempts been past to the owner contact having unsuccessful. been "Payment and transfer money.") unclaimed of However, the requirement holders, to locate for some to make efforts" "reasonable requires that have holders met this requirement below, within month one and (see 20days the of end their of period reporting The reforms to an money. UCM owner Act 8(1)of unclaimed of require locate to Section aholder make efforts" "reasonable (sectionReasonable 5Bofthe Act) UCM efforts Obligations holders of underthe UCM Act. aholder toto be elect • • institution or body The firm, money: reforms which holds aperson, allow Holder (section the 5(2)of Act) UCM Department Revenue Inland the fourth term. In this example, the money will become unclaimed once six unclaimed years have since roll-over. thethe term. first fourth the elapsed will become money this In example, until four. unclaimed thedeemed end period of This removes for the to bank the transfer need the before end of adeposit but be the will not stops money years, at interact five not period with The deeming MBB. money and does unclaimed money When the rolls money four the over of renewing into period term completely arrangement, has Josh forgotten the about three, which representsperiod years three period. and four the of deeming Without any represents period. Period the directions of deeming from the two rolls Josh, and years two money one over into However,begins. have not any check his does not over Josh linked balances accounts this with and does MBB time. investment Once the period term rolls deeming the money unclaimed deposit over period. afree years, for another as two of period the The regime. views engage first the not money UCM Act unclaimed years does two of period first Josh's not have to repeat its efforts to contact Baz once the five-year deeming period has elapsed. has period deeming once the five-year to Baz havenot contact to repeat efforts its FFB FFB's are known will avenues attempts using toAs reasonable, prior to Baz the period the of conclusion contact deeming is returned longer no resides at that Baz to as address. sender to aletter send FFB decides undeliverable. to but as the back" his letter recorded last address, "bounce but they physical both interact not with the does account this emails for three During Baz time,FFB two to years. sends his on updatehim account account to account holders provide asingle an account with holds who FFB tried to the has update. bank. updateBaz Fantastic Filing Bank Ltd (FFB) many has customers renewing often, hold who so FFB term reaches Every arrangements. out to 45 Example follows: option for repayment, as the timeline looks reinvestedas where that optionis exercised. not This is his only investment exercise not with does the Provided Josh MBB. term with invests an deposit $1,500inatwo-year optionfor repayment, He Bank (MBB). Bags but which isMoney treated isJosh acustomer Bank(CCB) his to chances Cash Conservative of try at but decides he investing account with inaone-off 44 Example Period four Period three Period two Period one Investment period if it excluded by section 4(5), it meets the requirements 4(5),it meets 4(7) itif by excluded section section of and the 4(7)of 4(2)or UCM Act, undersection which is money unclaimed not Two years Two years Two years Two years Period investment of Six years Six Four years Two years N/A Total time of unclaimed length Tax Information Bulletin

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NEW LEGISLATION an ongoing basis. an ongoing may consecutive quarters Holders on two or apply to of either the a"one-off" Commissioner as period alonger reporting to seek three of consecutive months calendar aperiod ending 2 as the on day last March, of September,in section June, December. or available to aholder. out the periods reporting 8(5)sets toquarterly. are report Section Holders expected Aquarter is defined period Reporting period. and transfer period it duringareporting tounclaimed Revenue Inland within month one and 20days the of end the of reporting The reforms institute and transfer areporting This, insummary, regime. to holders all combine the which became allows money Payment and transfer ofunclaimed money (section 8ofthe Act) UCM holders with appropriate electronic for schedules submitting information. maintain internal records which align with the information requirements Revenue Inland 5B. will supply collection section of is longer no requiredA holder to maintain apublicly available register money. unclaimed of are Holders instead encouraged to Maintaining aregister (section 6and 7(register sections) ofthe Act UCM repealed) to To Revenue. Inland the to template, send register will need holders online. inmyIR and submit their aholder as schedule RevenueInland with will provide holders an electronic template to facilitate the transfer relevant of information from the holder money. This the owner. will assist the Commissioner inverifying provide should theholders Commissioner with any readily available information relating which they hold to the owner the or However, this information requirements any is intended money. collection not added unclaimed of to holders on impose Rather, to guide the from Revenue. Inland transfer Adetailed number). may obtained money unclaimed of be to with notethe any the schedule owner the associated (such and details IRD particulars owner's as date name, contact birth, of credit investments cards, the spacewithin charges. bank use from or The sources arange of including also bonds, could bank information which submits abank to arising Revenue the as Inland For using relevant categorisemoney example, could schedule • • • • transfer Information provide money"). should unclaimed to of which holders the Commissioner (insummary): includes information to the Commissioner within below, 1month and (see 20days "Payment the of end their of period reporting and control relating requires the 8(1)of UCM Act to to the holders provide owner the and of the Section this money amount. requires toThis money unclaimed provide of the holders section Commissioner with any or information intheir possession Information collection and transfer (section 5B(2)ofthe Act) UCM but this unclaimed, is required. not become may, The ends. holder customer period the before deeming at discretion, notice its to afinal send the customer once the funds make customer attempts multiple inproviding to the service, would, good contact most holders expect RevenueInland would options availablecontact to ineach the case. holder To the optimise customer may holders experience, wish inaccordance to their applied develop guidelines to own with be the simply requires the to informationThe to holders use obligation available make to efforts them reasonable ineach situation. Department Revenue Inland AIL would attempt would AIL to the customer contact the using other avenues which it available has to contact of it. Ideally, 5B. required by section the efforts standardThe reasonable of Commissioner consider not satisfy actions AIL's would the owner by cell email, or they to are phone although reason it no believe has current. not However, the letter inthis is case, returned the customer as attempt not longer no resides at that does to AIL contact address. formatted this letter time. saves to the address owner's because physical acell an email number,account phone address, owner: Standard at practice is AIL address. and to aphysical apre- send money. unclaimed account just become $625has of internal AIL's system three has avenues recorded contact for of the Another Institution notices AIL of that An employee with Ltd one rules. is the (AIL) money upto unclaimed not speed 46 Example any identifying data (for example, the owner's IRD number). the owner's IRD (for example, data any identifying why to the the owner, moneybelongs and the identity the of and whereabouts owner known) (if how the to money came the holder Tax Information Bulletin

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NEW LEGISLATION money ("stock") which had not yet qualified as unclaimed money underthe periods. money previous unclaimed deeming as ("stock")money which yet had not qualified 7 ofunclaimed money.category either of the on six 25years or depending the regime periods prior had longer deeming The issue "stock" of because arises overnight period. money once the reforms qualifying implement the five-year The reforms contain transitional also provisions to with deal the large rendered which amount will be money of unclaimed Stock consecutive quarterstwo (that six 8(5)(b). approved months) by the is, Commissioner been which has under section This means required that for an alternative will be toquarterly applied of has holders the report holder unless period reporting requirements reporting Normal period. reporting will then second applyto holders' these 24-month period. over are who money the unclaimed preceding Holders granted deemed extension the all amounts on reporting full will be 2021 30March after Table or on unclaimed that money for becomes timetable 4:Reporting relevant and transfer reporting dates are follows: as to the Commissioner for Where an extension receives the of period. aholder reporting the available extension, maximum the Where requires aholder more time to computer update its systems to comply to with apply the will need reforms,the holder However, will commencethe Act. 1April on 2021(refer period reporting 3above). the to first table for most holders, 8(5)(c)of requirementsreporting inthe available section to new they applicants apply for the unless extended period reporting the unclaimed day that money to of the Amendment the becomes Holders new subject receives Act will be Royal assent which theon Amendment receives and inthe days Act Royal which follow. assent, the day period) deeming refers (that the unclaimed five-year satisfies is, to "flow" which becomes money For present purposes, Flow and "stock" money. unclaimed of Tonecessary. by the reforms, it is the to that assist helpful inexplaining money affected distinguish will the be "flow" between transitional to period, Due provisions the to deeming change the five-year new intimelines are periods from deeming the old Transitional periods Table transfer and periods reporting 3:The Act's UCM Department Revenue Inland

cannot be located, it must transfer located, any be cannot relevant information to the and the Commissioner deposits by 20May. the owners inearly seeking March. start March, of can the If at owners RBB unclaimed the beginning the became money as will haveRBB month one and 20days from However, the tothe end owners. the of locate quarter to make efforts reasonable –31March. for the unclaimed quarter as 1January reported the on unclaimed 1st March. of will be deemed These noted thatReally has will be money of Bank (RBB) Big three deposits 47 Example 30 March 2021 assent receives Act Amendment –31December 1 October 1 July –30September 1 April –30June –31March 1 January period Reporting regime required the money to have been left for a period of 25years. regime of required for the aperiod to money haveleft been Conversely,required 6years. of the to owner arenewing money of by for aperiod its have unclaimed the prior term been inthe case deposit, the regime prior term fixed of deposits, the In and case renewing term term fixed deposits as deposits. categories were two described These 30 March 2021 the new definition under UCM becomes Date money 7 Once the reforms take effect, the five-year deeming period will apply"instantly" of period to deeming the the pool five-year Once the reforms take effect, 30 June 2021 period end date period First reporting Transfer by information and money of 20 February 20 November 20 August 20 May 20 August 2021 return by file and UCM Date to transfer Tax Information Bulletin 31 March 2023 reporting period reporting extension first of Maximum

Vol 6July 33No 2021 20 May 2023 and file return by file and transfer UCM toExtension 44

NEW LEGISLATION lack of eligible claimants. lack eligible of remains with likely the Revenue, Inland less it is returned to be to owner. its to This due incomplete is information typically a or in1908.However, the ago regime'smake as beginning long as aclaim which had accrued for money the longer the money Previously there time no to limit an was on owner's claim held ability by the money Commissioner. This meant an owner could Amounts 25years aged orolder delisting by the Commissioner. The Crown the owner this of becomes money. when they money the unclaimed meet to requirements be cease amounts these for by each their In claimed case, owners. be Amounts that within categories are fall these removed from the list by the money Commissioner unclaimed of and may not • • • The reforms make three received money categories of held by or the are Commissioner These which: unclaimable. amounts Amounts no longer claimable under the reforms (sections 11(6)–(8)ofthe Act) UCM will therefore The period deeming accounts commence with accessed. not inconnection any the of linked accounts. accounts and any accounts which they of are atrustee. Accessing accounts inthis way will constitute interaction with all the personal both and view into to is where able capacity. log his "portal" might her or banking be online aperson An example However, there situations will be interaction with inwhich aperson's an institution may establish interaction inmore than one trustee capacity, as another intheir of or personal trust. capacity with an account atrust of which they of are taken interaction atrustee as be with cannot an account intheir which they hold Therefore, inapplying the institutional approach interaction that to account mindful aperson's interaction, be should holders a trustee as or another of trust. person, which corporate is alegal abody as their capacity capacity, personal other the These include person's capacities which is other separate capacities. from thein acapacity person's atrustee of atrust inthe of acting capacity that the acts principle aperson 11Bwhich affirms The reforms section anew insert trustees of Capacity years after which iswithin two the day the period the reforms receive Royal assent. This "stock" of means withtransfer notedabove. that along the must transfer category years, holders it over two such money to inmanaging assist the holders transfer to this of holders money, 2021)allows unclaimed the 210(7)of ARFERM Act (section Therefore, above. have which we within easily the described fit "stock" not categories of and "flow" does money of This category transferred yet not but been has unclaimed to Revenue. become Inland which has money will hold holders 2021.However, RevenueInland until 31October the reforms as come into force mid-way through this calendar, reporting some 1June 2020and the day to prior between enactment unclaimed have transferred usually not deemed would Money been to Table dates the regime under 5:Due former had theIf remained UCM Act unchanged, the required like have steps this: in2021would looked aholder of For the 2021year, holders. upon calendar areporting The this previous regime from ran imposed 1June 2020to 31May 2021. Unclaimed transferred money tobe yet under the previous regime Act. the 8(5)(c)of than for under section any 30March of applied irrespective 2023.This extension applies deadline period in reporting received the transferred 30March on Royal assent 2021,the must be "stock" money unclaimed of to the Commissioner later no after the reforms the 2021.As the Amendment 210(5)of ARFERMAct receives This Act insection Royal is assent. expressed transferred into "stock" of which falls must be Money the category to the years Commissioner which is within two the period Department Revenue Inland UCM accrues 31/05/2021 01/06/2020– are less. $100or have no identifying information, or for 25years more or money have unclaimed been past year intopast their registers. arising money unclaimed inthe of particulars enter Holders 01/06/2021 money by post. owners unclaimed of Holders write to 30/06/2021 30/09/2021 the Commissioner. unclaimed money to list send of Holders Tax Information Bulletin 31/10/2021 to the Commissioner. remaining unclaimed money transferHolders any

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NEW LEGISLATION Revenue. This basis. Revenue. optionis available to avoluntary on taxpayers held by the money unclaimed Commissioner that of to some apply all amount or to to the owes taxpayer Inland aliability 173VintoThe the reforms the TAA. section new insert with ataxpayer claim allows avalid to This an amount of section Allowing use ofunclaimed liability atax (section money tooffset 173Vofthe TAA) KiwiSaver unclaimed of contributions. for the purposes applies the day to last the of be month deemed to will be which the employment income informationCommissioner's possession the to contribution member. associate possible with aspecific been To the this date process, the is money inthe simplify contributions This create could inthe were to Commissioner's be possession. deemed administrative issues where it not has Previously, under the KiwiSaver 2006,different Act dates applyto could determine and employer KiwiSaver when employee Consolidation ofdeeming under period KiwiSaver Act 2006(section 83(3)(ab) ofthe KiwiSaver Act 2006) period. deeming This to the amendment 83of rules. KiwiSaver theand money is unclaimed 2006with subject aligns Act the section five-year new funds these of accordance for the with purpose aholder to information. due the as UCM Act insufficient Revenue Inland acts the 83(1)(a)of KiwiSaver 2006deals with Act KiwiSaverSection contributions that the Commissioner is to unable administer in Alignment ofthe KiwiSaver Act 2006with the reforms (section 83(1)(a)ofthe KiwiSaver Act 2006) the of application UCM Act. matters of to to as by to the the taxpayers inrespect certainty Commissioner's UCM Act offer rulings affected binding The TAA to This regime. amended within the include UCM Revenue Act Inland the rulings to allows been binding has make ofbindingExtension rulings regime (section 91C(1)(db) ofthe TAA) repealed. been and has necessary is the 12of longer UCM no Act provision insection secrecy the bespoke toDue an Revenue Inland the Act, as inclusion Christchurch). RevenueInland the money, unclaimed (for example, where of located the location was and broad physical money This and claim informationto funds. find the will include name the of owner and the the sent who amount, name the of holder This the will allow Commissioner to publish searchable information Revenue's Inland on website and make it for owners easier data. money unclaimed which the will of allow publication provisions the of TAA 18.The amendment exclusion from insection creates the provisions confidentiality aspecific the of TAA administrative an Revenue Inland Act, matters will the become UCM Act As covered will be by the general confidentiality Disclosure permitted clause (schedule A, 13Cofthe 7,part TAA) system to reunited assist invalidating owners of This being the claims. likelihood increase with should their money. the 1of TAA. inSchedule included ThisActs the Revenue Inland will allow to existing information use inits which it tax holds The reforms amend the Tax Administration 1994(TAA) Act to 1971within the bring Act the Unclaimed Revenue Money Inland the Act UCM asDefining an Inland Revenue Act (schedule 1ofthe Tax Administration Act 1994) Amendments other to Acts Inland Revenue if they choose. areAlthough holders required not to to pay less the $100or of amounts Commissioner, they may transfer such to amounts Amounts $100orless for the Commissioner owners the or to fund impossible establish an entitlement to amounts. these which have money unclaimed Amounts of with information no them associated are referred It amounts". is to "un-associated as Un-associated amounts time for owners to sufficient allowing with claim also their their while money. owners, resources RevenueInland which have to public money the unclaimed on of chance focus reunited amounts the best being of The reforms introduce to an owner's claim from ability the money atime 25years Commissioner. of upon bar Atime allows bar Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION reorganisations, including recapitalisations, while preventing while reorganisations, including recapitalisations, trading. loss toanother The continuity remove designed New Zealand test business). business to business been an impediment sensible has trading (that loss company acquiring is, be acompany could with inorder historic inrelation to payable reduce losses tax to for acquiring acompany is on,the agenuine motivation commercial carried is for acquiring the so If not business the one. after on continuity that by is test assuming achangeA business carried abusiness if works inownership the motivation natural development. As a whole, the testnatural awhole, is intended outputs As acompany the to on to its and inputs not employs development. a focus allow out changes earlier) which the are are of change just used aconsequence inownership. carves of losses if The less (or proposal thereownership unless is amajor change in the nature having years within activities, five business regard its of used, to the assets achange following in with continuityThe test business the losses presumption forward starts that acompany carry can change. major after fundamentally forward continues the achange business as without inownership long losses as acompanyallows to carry provides IB an alternative to Subpart arises when continuity it is by rule introducing loss used. continuity test. This abusiness future continuity"offset income (the by requiring rules) "loss at a49percent least continuity ownership of from when aloss the to IAof Tax Income forward alaterSubpart may carried income year to be losses out the for when rules tax 2007 sets Act Key features COVID-19 of recovering and to innovate from impacts have the recapitalise businesses economic inorder looked to survive. they breach could so, indoing the 49percent threshold.grow While this because, is particularly an issue for start-ups, some to toThis innovate capital guard designed was obtaining and created trading against but also loss to an impediment businesses income inafutureto offset year. Previously, continuity required New Zealand's rules loss 49percent continuity ownership. of the IA5of Tax Income The continuity insubpart rules loss forward losses 2007 determine tax Act whether acompany carry can Background • • • • • activities the of business company. objective: The test the policy by is measures accompanied to support there if forward is abreach inownership there continuity as acompany of long as is major no change inthe nature the of testeconomy. to the current asecondary continuity The as test business ownership continuity acts test carry permitting loss continuity test to the Tax Income continuity the to rules loss help stimulate 2007 to Act loosen growth and innovation inthe The Taxation Expenditure, and Remedial Matters) (Annual for Rates 2020–21,Feasibility 2021introduced Act abusiness GB 3BAB,(Sections GB 3BAC GB 3BA, and ofthe IB subpart Income Tax Act 2007) test Business continuity Department Revenue Inland from forfeited. 2006to 2009being rounds capital over thefurther four years that following $6million, resulted ina60%change shareholding losses, of and all tax 2008,the intoIn company expanded the US market and received an initial investment capital by US$10 of followed million, inception. This 60%change ownership of resulted inthe approximately of forfeit that since had accrued losses tax of $4million shareholding. and align theirretain employees interests those and rewards with other of those shareholders. The founder retained a40% share an of employee inorder STL's plan 20% of scheme for part the shares company as to for employees were aside set The investment by STL development to to further advance used fund to was the commercialisation At stage. time, the same for a40%interest$2 million inthe company. TodayStarting in2003and operates Limited inthe (STL) industry. electronics founded was 2006,aventure In invested fund 48 Example Maintaining the currentMaintaining approach to grouping. loss continuity test. business toA rule stop pre-emptive changes the before made change to the of being inownership the to business defeat the purpose into the company by or reducing expenditure the of company. Anti-injection to rules prevent by diverting income that the schemes purchaser permit acompany of would uplosses to use from dormant the of companies rules. Exclusion provision the of setting test out the objective (toA purpose promote growth and innovation preventing while trading). loss Tax Information Bulletin

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NEW LEGISLATION Income TaxIncome 2007. Act There continuity companies. mining test is business IS atailored the already 2of insection available to companies these continued it is post-acquisition. being suggest not would The test to with applies all companies the exception mineral of the 49percent ownership there continuity as threshold, long as is major no change inthe company's activities that business acompany if 3contains forward IB breaches the core continuity losses test. This business Section relied test to on be carry can Core test at the margin wherecases it is continuity unclear how the test business applies. statement purpose will that have It in value is the forward. proposed expected continuity atest carry test, it is for itself loss not statement the to purpose isOverall, provide designed context the interpretation to support the of and application business on. Preventing to system. pay tax trading continuity the of is are tax needed loss rules loss the reason part This income that to is the used. done offset acquirer have be not otherwise that would is otherwise the would purchase losses of tradingLoss is where there for the inwhich is acompany basis transaction little is economic no or acquired. purpose principal Its trading. makes continuity the by 1also introducing rules loss IB clear thatImportantly, this loosening section test is to not encourage loss • • • • • • in order to to: remove impediments after forward achange continuity the of test. This business inownership is carry out the to loss purpose permit 1sets IB Section even where there losses abreach tax been inownership has continuity. forward carry can the Tax Income continuity 2007.The test Act business the is current intended to that continuity loosen so rules loss ataxpayer activities) continuity of business of balances: loss companies' forward continuityThe (Carrying test IB business is subpart new statement Purpose analysis Detailed arising from the 2013–14income year onwards.losses continuityThe test business to applies breaches ownership of continuity inthe occurring 2020–21and later income years and to Application date • • • • • To the test and ensure support it is manipulated not to trading the measures enable loss following haveimplemented: been acquired from trading being purposes. companies for loss type finance failed time immediately the before breaching change inownership until up. This the time is the feature used loss to is prevent designed the Tax Income apply. will not rule 2007the five-year Act will run Instead, from companies the for these the continuity period 31(3)of DB comprising 50percent undersection claimed losses more or debtdeductions forward bad acompanyIf is carrying acquisitioncontinued post and that there amajor change. been has indication that activities the are business fundamental agood being not be could change base inthe Asignificant asset income. requires The to test referencebusiness pivot. specifically are these as akey resource to to assets which acompany generate uses Department Revenue Inland companies adapting their businesses inorder adapting to theircompanies growresilient. businesses be or reorganisationscorporate (including changes inshareholding with and immediate no capital), sourcing new of accessing sources share new of companies capital changes ownership inthe indirect companies or of direct corporate reorganisations innovation growth and economic within thatlosses group, however, available made within group. anew and have purchased losses its acompany be cannot the currentMaintaining group acorporate of acquired may Companies part approach as to continue grouping. loss to offset continuity test. business toA rule stop pre-emptive changes the before made change to the of being inownership the to business defeat the purpose into the company by or reducing expenditure the of company. Anti-injection to rules prevent by diverting income that the schemes purchaser permit acompany of would uplosses to use from the companies) rules. "zombie" have activities of where business reduced companies inits to of the nothing almost or nothingExclusion (dormant scale or provision the of setting test preventing raising out the while objective (thatA purpose capital trading). permit loss is, Tax Information Bulletin

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NEW LEGISLATION replacement of specific assets with similar assets would not be part of the assessment of whether of the of assessment there amajor change. part been be has not would with similar assets assets replacement specific of that to the normal clarify is used accepted require that similar assets" asset categories or of replacement. "same some The phrase It is assets. goodwill) (for example, is and intangible intended to tangible take meaning and includes an"Assets" ordinary • • • • • • elementsOverall, to evaluate include: basis. business to have withoutexpected happened ashareholding change. The test granularly is abusiness-by- on intended not applied to be is that something business anew the of be starting reasonably as could this continuityThe long test business as permits also and the the businesses. new old a company both income of is to permitted to this do maintaining offset their while losses another.and starts growth. its of Absent achange It part inownership is as normal for acompany to establish businesses new activities" is "business intended to the with of deal phrase The the use situation where acompany discontinues business one supermarketsoutlet and cafes. but may to direct sell local also items through but may retail specialty own that its buy may also insome the products Likewise, for it sale, bakery its resells. sell may abakery predominantly For by methods example, which products or they own bake out. are its and the processes carried activities" is "business intended toThe out to by the consider phrase business generate the carried actions particular income income. to generateused assessable the to taxpayer consider directs the extent are (4)specifically to similar assets or which the same Subsection income. assessable to evaluateactivities need the would the taxpayer extent activities to are business which the to same undertaken generate by on the company determining 3(c)).In carried (sIB whether change aparticular is amajor change inthe nature the of business A company there continuity the will meet as test business long as is major no change inthe nature activities the of business Similar business: no major change Department Revenue Inland considered as a factor when evaluatingconsidered afactor there if as amajor change. been has intent isThe that policy such be not areplacement should with versions new essentially of assets assets the of same better inthe and office. theybetter look product newer and shinier. albeit way, but inamore ones the assets efficient old as old functions the do same a producing The assets however, Dream ICan of the company are replaced the assets, In has case the its all essentially of as assets the those same income have changed duringthe inderiving continuity the period. company's assessable used to which the assets whether 3(4)requires the IB extent there to amajor change, ataxpayer assessing of assess section been has For the purposes Kelvin is concerned that continuity the of test. business the replacement amajor change will be for the purposes the of assets significantly. computeredge but increased the has The quality equipment. equipment essentially product, the produces same afterShortly the share the Dream to additional ICan funds completely uses subscription, with cutting- new replace assets its efficiently. After Kelvin much discussion agrees to an investment a55%ownership which will give Ben stake inthe company. company, however, to wants he take acontrolling interest question to to due as Kelvin's some to run ability the company years and Kelvin, the owner, investor. for anew looks an to interest has Ben invest and decides inthe industry inthe film Largely to due the initial company, cost of setting of upaCGI for anumber position effects inaloss Dream ICan been has equipment to state technology. the of The art computer equipment represents the of company. around the 95%of assets from investor anew injection to take to the business the to It next level. ageing is computer updateits indesperate need However, projects. successful of years had of now and anumber has operating for anumber it really been has acash needs Dream ICan If CGI Limited Dream) (ICan is astart-up company for It television that and movies. CGI produces effects 49 Example the assets used. the assets and supplied, services or products of the type the markets to supplied other suppliers or of inputs use activities business of the scale the business processes Tax Information Bulletin

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NEW LEGISLATION It will also not apply if the company ceases to carry on business activities during the continuity period (subsection (2)(b)). activities (subsection duringthe business on continuity period the apply if to not It company will also carry ceases continuity the the of test arising application business (2)(a)limits from to the 2013–14income year onwards. losses Subsection where companies take advantage of new technology that becomes available they if that or switchwhere take becomes advantage store companies from technology new aphysical of to online. covers changes to made carve-out keep technology. withThe pace This second developing contemplates situations, for example, company. the of the (without costs moving –refer costs efficiency 3BAC) GB increase to artificially made to decrease otherwise or section This activities. the of business contemplates covers changes to the changes made efficiency The carve-out increase that first are ensure thatthe carve-outs continuity the test business the has intended input focus. majorof changes referred to is be and only need to there if is amajor change. combination In with the core major change test, are that acomprehensive not activities ischanging related assets not or business The carve-outs list to the losses. availability of inspite forward a major of change are where intended carry there to loss permit carve-outs is agenuine commercial for reason fromTo what considered might be a"major change". These carve-outs of anumber 3(5)includes IB section this, recognise development. Tax forward. is to continued continuity carry the test business to abarrier losses allow should normalbusiness be not should resources its inawayposition that returns. maximises Where there trading is motivation loss no and the business fundamental that have could the absent change to happened able acompany inownership. but being This about behaviour tax is about not continued.is However, being not aconsequence natural of will be changes to activities development some and business assets The test that around is to designed the changes fact generate to used the inputs income indicates that the business fundamental from major changeCarve-outs operations the of entire company). The test is intended not weight to to give special any factor. particular the change is "major". Generally, is this the (inother change how significant is words, aquestion inthe context scale of the of by the company employed to generate assets) of the activities unchanged (including business use income to establish whether considered must be against change amajor change. Any will be assets) every of changeNot activities (including inbusiness use Department Revenue Inland suppliers to get chicken and replacement feed chickens, and there it is supplying. product of is change no inthe type it still to the market supplies same the same it uses processes, (supermarkets allbut business and not consumers eggs), of weighting there other amajor change factors been inthe not has nature changed has some FFF activities. Eggs the of business have changed, the of when assets portion asignificant while pre-breach because, its forward losses carry can FFF Eggs supply, can price. FFF its but Eggs it to is able double reduces eggs of the number 60,000 chickens are given to rescue centres. This leaves This the 30,000chickens free-range. dramatically the support land can upand a fence aroosting set barn erectedThe around are sheds battery the is torn and intheir land. seeded, down grass place is breached. continuity Ownership animal on welfare investorA new first. is focused brought is inwho become keen the business to see market. to This to the change free-range egg needs chase requires and decides cost. an at overhaul asignificant farm its of realises that FFF it alower price. Eggs and offer years inarow supermarkets several their of as buy eggs less losses sustaining Consumers prove itself more to finds interested be FFF Eggs inanimal welfare tray than per insavingafew dollars eggs. of falls. Consumers and the more the demand of have source eggs for to battery conscious their of started become food 45,000 chickens each, the occupying land. containing large with chickens. large two sheds, the 20years this last Over scale from farmed become battery has operation have to always supplyto The supermarkets come eggs for 20years. eggs producing been has (FFF Eggs) Flip and Flop Fly Eggs 50 Example Tax Information Bulletin

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NEW LEGISLATION The fourth and final category of carve-out covers changes in product or service type. Overall, this carve-out permits: this Overall, carve-out type. covers service or changes inproduct carve-out of category The and final fourth including acompany entering coversThe inscale, adifferent third increases services. or carve-out market products for its made using mainly the same assets or processes, or there is some other close connection between those already those produced. being there or between connection other is close some processes, or mainly assets using made the same to relate needs way. service or to already they insome are product of those produced being Any This type new because might be • • Department Revenue Inland forward losses. the of company reallybusiness not has to utilise carry changed. to its GCG able rely carve-out will be the on technology however, the of business, such part abig GCG again changes those made to has the keep underlying upwith technology the and receivers. microchip new GCG Again, had amajor has change to due the the of company change being inthe assets the to microchip acentral completely GCG's to change enable the assets point faster of identification to cats. again produce theIn next year GCG that discovers an antenna an utilises even as the newer technology tail cat's the to signal broadcast from (5)(b). out insubsection the to carve able use keep it will be upwith advances intechnology amajor change 3(5)(b)allows IB which is to made keepSection upto date to with GCG technology. As changed assets has its have remained the to balancethere similaron to losses. amajor change rely it will use need been so has acarve-out on GCG have had amajor completely has change assets activities during the its year changed, as business and although its brought after forward the breach. losses the of tax some thatIn to use year GCG looks the place who chips into are request. on and microchips to search and can clients' them then vets, cats the on sold database tattoo equipmentreplacing with The old equipment. manufacturing and its microchip scanners the electronic new scanners by GCG read into with be which can patented the anew cats which GCG scanner manufactured. has This involved GCG has the designed In microchip which anew year involves after inserting the breach technology anew GCG developing on works continuity. to offers He investthat inGCG has. his 52%of Alex sells company Maowang and Maowang which breaches shareholder to agreat from the is make money previouslyAlex has ideas lover acat who exhibited and sees some opportunity his 12cats ideas. However, to apartner help needs with he the over new the funding few years, last incurring the losses company as been has to wants investigateMaowang which are the invasive other cats and make less means technology. of identifying of better use anon-purebred awarded been aprize. has cat suspects where someone read which the makes of invasive fur only by be shaving and the can it limited some barcode to from competitions off appeals success however,GCG with some breeders, cat enjoyed has like not do breeders it this is as identification of method some The and maintains the company tattoos cats the both pedigree. cat's database. His like company a avirtual of Go-Cat-Go certificate which use breeders Limited (GCG) the service identification cat supplies database of cat pedigree. the of breeder and cat the tree This family the is of cat. ina barcode particular then is read and located the code by ascanner the the the of of to cat tail that identify aunique at barcode the His base is uses method tattooed exhibiting of cats. world purebred inthe This competitive to from amethod imposter identify breeds. is cats important Chan developed Maowang has 51 Example clothing). aclothing manufacturer commercial arange of (for starting example, connection from cleaning cloths theclose offcuts using there as long as is arise, a to opportunities add it but as also type toa company able retain to existing be its product/service arestaurant and operator (for switching example, connection school), to acooking supplying another or producing that and start aclose has service or product of a company to and drop pivot atype Tax Information Bulletin

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NEW LEGISLATION carve-out is intended to apply.carve-out to skew land is asset enough abig the This way the isat because whether rely it carve-out. can the on change inproduct/service 3(7)provides IB that land(excludingSection fixtures from excluded consideration to be when land) would acompany is looking Inland Revenue Department Revenue Inland the continued business, not where a business sees an opportunity in a new technology-based industry. technology-based inanew an opportunity where not sees the abusiness continued business, this is only applyeither will intended not to because coverfor technology situations within where is different used technology the replacement The There carve-out between and the aclear original connection to product. product be needs losses. those the earlier it enterprise, to permit not make the do rules anything that an ownership it following wants change and still access to from and make retain cease Even can original product the its though HFC losses any assets. the of use same not and it does to for it cryptocurrency. mine is The the related before not change product business the of inownership HFC to any aspect and eventuallya major change. dropping In the flour the and acquired protein computers assets powder, all its off sold HFC When compared to the time immediately the before breach there inownership until been used has the time been has the loss miningcryptocurrency craze –anew that the small group shareholders of have latched as onto the big next thing The market the for protein powder shrinks simply to and HFC sell an sees opportunity up into assets its and get existing is its using (5)(d).HFC ss resources offering. to product its expand and the protein the to situation produceflour powder under decided This pass HFC if should Likewise, situation pass. should inthat have connection theyproduct centre aclose with something protein. quality high around the to of IP fortify the use and the and the new old surrounding technique IP The the the that special same protein developed uses HFC period. powder is related closely the or product thatsimilar assets to provided immediately aproduct was the of continuity the before start that if produced involves the or company products of the to using same HFC change 3(5)(d)allows IB the types Section losses. its forward to 3(5)will apply to IB HFC carry allow under section Limited to wants know acarve-out if This results to achange of inenough breach inactivities and assets the major change test. Always my on Foodstuffs Mind producingHFC starts the protein powder and stops producing the flour that protein protein their adding of method have would powders. insport application Three discovers years inHFC business. Always Limited acquires my on and continues Foodstuffs Mind flour HFC 100%of its over the few years. last losses made has HFC rising Despite its makers business years. for several to bread artisan flour. this and suppling producing flour been has This HFC for which bread is creates superior making. flour protein technique levels high quality of arevolutionary for adding into FlourCo. developed For has the Limited Heart (HFC) 52 Example Tax Information Bulletin

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NEW LEGISLATION 8 The core component loss inorder test met for the for duration atax must be continuity the of period business Measurement core for period test Department Revenue Inland concern at the end the of continuity period. This attractive makes trading a less of years loss simplyto and less losses. a company for access five agenuine its as business is unduly not constrainedbusiness innovation. from making It major changes is this costly impede indefinitely as would to run is intendedLimiting continuity to the period business reduce compliance and administrative ensuring also while that costs a relied pre-breach to on year losses. be use can year rules part continuity the test using business forward way the loss part continuity through its part an income year and is to unable carry the of Tax Income IP provisions year loss Part insection 2007will continue Act to apply. acompany If breaches ownership have to consider continuity the test business there as to are apply. which components it would existing no loss tax the company all If pre-ownership within already years, willlonger no are the breach five used. used losses of losses theon validity therefore only bearing no ever and has considers components whether existing loss forward acompany continue can tax to carry to by forward acompany afuture it longer no exists carried to used year. be been has component loss When atax The test time of that is length amaximum the major period changeThe test five-year will have considered to be for most companies. change gradual amount can to amajoris change used, to over be time. remainscomparison the time immediately the before ownership change against component the time loss an amount the of tax the breaching change inownership upuntil the the income year following change end the of of the fifth inownership. point As requires continuity the period there business For most companies, major no change to be from the time immediately before continuity period". "business 4defines IB Section forward. acompany balance of carried toloss be

after the change inownership that to prior the were 2025–26year. used not forward carried any will forfeit ANR only have The losses $500,000combined. shearing is of avalue shed longer no used. assets equipment and continued farm the much the to storage of same to use sheds use did ANR keepHowever, it. remaining these to getuse to the The shed. milking fencing and raceway cost $200,000to complete. $400,000is spent acquiring aherd cows. of and theinstalled fencing replaced to to be centred create smaller around paddocks racesystem anew that the cows would conversion required The dairy automated a$1.5million other include conclusion, to but can he assets. shed milking be anymore. David consider mainly is he the cannot assets using when not land value apply as the comingnot to same this However, would type. the for product carve-out inthis to the case carve-out David within looks selling again acooperative. producer amajor change theexperienced of switch to inthe adairy farm nature avenison from being because business its of at activities the at business thelook time acquired he and compare ANR them it to is as presently. the business has ANR theIn 2025–26year, is the farming future. that the sells David David the He sheep and converts farm. must decides dairy the shearing shed). (including haveadded been assets new of $250,000worth while are still used, assets non-land being of worth up, $1million leaves He thevenison. the fences, troughs, and the irrigation All The system equipment. storage farm still sheds intact. house for the did he as wool of inthe production mainly assets the same uses he the include landinhis cannot assessment, he although ThisHowever, is because, product. of for change inthe type David (5)(d)carve-out to is able applythe subsection sheep. of situated the aflock on $150,000on landat spends acost also $100,000.He of suppliers have have changed. totally. changed but His not somewhat assets shearing had to shed also an old has ANR do-up changed has from the meat customer tohave switched wool, changed, type has out been for and sheep, some the product At amajor change, experienced this has the ANR the the and buys wool. of deer producing last deer sheep to point start David the spends rest the the herd of 2023–24year farming replacing but not deer of any. the off In 2024–25year sends he system, water deer. of 300head plus equipment, storage troughs, for and farm several sheds David takes stock his of an acquisition. irrigation new are The the land, the assets fencing uparound set paddocks, large flat to ANR sells 2023,Nikki In David breaching ownership continuity. from the three last years. losses lately forward falling is and ANR carrying Was inthe Wairarapa. Venison farm Limited adeer ownsNikki (ANR), and the operates All INeeded Rain prices have been 53 Example tax loss component from component an earlier loss year.tax any includes forward unused carried for component the IA5provides year and any loss that additional for the amounts atax year). Section Tax the IA2(7)of Tax Income year (anet in section loss for the tax loss is component defined inatax loss an amount 2007as included Act Tax Information Bulletin

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NEW LEGISLATION carried forward being attributed being then forward continuity to the 31(3)deductions testcarried are business DB until applies used. the losses the If results formula in50percent years. inthose claimed more or and from the the31(3)deductions of loss DB deductions from subtracted the total be should CG debts Any a result 31(3)bad 3as DB under section theof income of derived recovery years. taken loss amount This inthose is 31(3)deductions totalled. compared DB to total to deduction be the amount section of balance immediately forward the before breach carry inownership continuity loss from thein its starting 2013–14income year the calculation requiresthe items short, In that in years acompany inthe all records deductions formula. that aloss is included apply. 4(3)defines 4(1)(a)would IB when IB calculating whether 4(2)contains IB the used Section to section formula be Section to able applyanti-avoidance Revenueand Inland activity. will be to rules any trading type loss acquired areuntil the losses restricted the within pre-breach haveused, that the for use business been generated losses them, By forward. continuity applying the test business carry companies that finance result deductions of can failed inthe large losses arrangements are financial dealing" and These that or unrecoverable. adebt as the writes "holding of types taxpayer off business is when arise are ataxpayer inthe concern. arising aresult debt deductions debtdeductions the as Bad bad primary of Losses restaurant into business what the company. finance was by income transferring into to free acquiror that inject for example, aprofitable be would company inorder upthe to losses, use activitiesand its are After continuity years the the test business continued five years to at period. aminimal for satisfy level five may acquired remain, be and, although the the arrangement company financial is assets the largely test because satisfy inactive, company finance continuity the test business Afailed may even companies whenfinance satisfy they easily not. too should an attractive company tradingThis be proposition. could Failed loss concerns condition type addresses finance that afailed are will remain forward utilised. continuitythe carried period business until the losses the 31(3)of Tax Income DB undersection claimed 4(1)(a)provides debts IB that for bad deductions 2007section Act significant consisting losses of forward carrying For companies apply to will not all companies. continuity period business The five-year Inland Revenue Department Revenue Inland 2025–26 income year, losses. unused the of forfeit $1million it would However, amajor but change has at the losses end the forward of instead if carried Steamroller its of $4million uses Blues continue to able access to the remaining be losses. and therefore satisfied be there restrictions are tax no Steamroller on The making Blues company changes will to business. its the major change Steamroller continuity requirements period business As the five-year is to Blues outside will longer no need changes to and replacing with erect to machinery buildings. some these heavy the assets company its all of by selling construction classroom to and wants make inschool an opportunity sees the In available. 2027–28income year Bartholomew At the end the of company's 2026–27income year still (31March) Steamroller losses the $600,000of has original Blues tax Steamroller had amajor not change has Blues continuity during the period. business morethe jobs appropriately. addition, In the acquisition the the of company. customer increases base It is clear that Steamroller purchases 100%of pricing on Bartholomew 1June 2021and on keeps Blues operating but focuses the business $5million. of losses company, aresult, tax Steamroller forward well. As jobs pricing carried has Blues been not has well inrecent very Talia, doing years as for domestic customers.that been It not has land works undertakes the owner the of Steamroller business. Contracting Blues inacquiring acomparable Limited (Steamrolleropportunity is Blues) acompany an ways for new to and sees his expand business successful looking Bartholomew, Up been the has owner All of Shook earthquakes from work well various years to around over of due the number increased last the very country.have doing been They Up) Repilers is Limited acompany Up (All Shook inrepiling House that houses. All Shook older and levelling specialises 54 Example Tax Information Bulletin

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NEW LEGISLATION single companysingle rather than separate entities. there if continuity amajor change, a it test. the atif Whenbusiness was acquired been as has assessing group looked must be pre-acquisition continuity forward underthe applying the of test business to company losses asingle carry for theas purposes 5treats IB requirements commonality which meet companies Section immediately and immediately before after acquisition with within the otheroffsetting group, inthat "new" companies offset the group. "new" pre-acquisition be cannot losses group anew form also with the acquiring company/group. to However, loss fail allow would the rules commonality because and The remain made acquired when was theowned loss when is group 100%commonly the offset). to owned loss will be intheCompanies original group that are acquired together the meet group would they were test (for example, 100%commonly changed. been it atif 66percent has least common ownership with the from when is companies the have incurred loss to not when it is offset, against other profits companies' losses its acompany which permit to offset the 3of Act, IC The insection rules commonality Application tocorporate groups Department Revenue Inland apply to them. to They the meet will requirements need continuity the of test business are until utilised. the losses will not rule but the five-year losses its is forward 67.2%((13,300,000÷19,800,000)×100),Waydeductions carry can Down inthe years that Way to the that, advises the ratio 31(3)deductions Lloyd because total DB of losses made has Down returns the 4andtax also IB for atWay section alook the has advice. Lloyd, company's Lloyd accountant, for some Down. asks by Way forward carried It to wants continuity losses Down. will understand how applyto the rules business new theAMF tax the of companythe remaining is promising. portfolio well, Way performing that been thinks not has Down with theAMF right management turned around be this can as business Way Limited (Way Mortgages Down toward company lending is which is amortgage looking expansion and Down) although over follows: four years as It incurred losses has these arrangements. owing under financial amounts 31(3)which relate DB relating under section losses It incurred to has arrangements. to debtdeductions some the bad Always my on is Finance Mind acompany Limited that infinancial (AMF) dealing or is holding of inthe business 55 Example 2016–17 Year 2016–17 Year 2017–18 2017–18 2019–20 2018–19 Total 2019–20 Total Income Deductions (other than 31(3)) DB Deductions 5,000,000 1,500,000 3,000,000 2,000,000 2,000,000 1,500,000 6,500,000 1,000,000 9,500,000 31(3)) (other than DB Deductions 1,500,000 3,000,000 600,000 2,000,000 7,100,000 DB 31(3) deductions/ (recoveries) 31(3)deductions/ DB 6,000,000 7,500,000 (200,000) 13,300,000 (recoveries) 31(3)deductions/ DB 6,000,000 7,500,000 600,000 (200,000) 13,900,000 Tax Information Bulletin Net taxable income/(loss) taxable Net 7,500,000 10,500,000 1,800,000 19,800,000 Net taxable income/(loss) taxable Net (2,500,000) (8,500,000) 300,000 (800,000) (11,500,000)

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NEW LEGISLATION Inland Revenue Department Revenue Inland (A+B "new group"(A+B "new losses). and post-acquisition Group B'slosses) Pre-acquisition (Group losses A'slosses, losses losses. of result sets is three possible acquisition, to continuity with the meet test business need no there unless breach is afurther ownership of continuity. The Group on However,Group B. impact B:No arising post any of Groups losses Aand group Bcould for the purposes group (that inthe basis companies red circle is, are treated they if were as company). asingle breach not continuity Group the test. continuity as The business group Adoes test long business to as applies Group a Aon Group Group Ais A:As acquired the agroup the income of as continue it to can OpCo2 and offset to FinCo1 use losses five-year time period again. time period five-year ownershipA subsequent continuity breach for OpCo2 years will within reset continuity the test five the business and start and post-acquisitionGroup Blosses available for grouping. losses to Pre-acquisition continuity theThe test, pre-acquisition business subject result is OpCo2 losses. of losses three sets post-acquisition requirements commonality within as Group long Bas losses continue met. to be to continuity the company test business subject asingle (red as circle). Consistent with current offset OpCo2 can settings, pre-acquisition with Group ownership OpCo2 of to commonality is B due from arose. losses the insufficient time the losses pre-acquisition on However,Group effect B:No Group and to their any Bcompanies offset. ability offset OpCo2 cannot test. The remaining Group of to members continuity Aare the test. business subject not Group A:When acquired, OpCo2 will have to continuity breached the business ownership subject continuity and will be Figure 3:Group Bacquires Group A Figure 4:Group Bacquires OpCo2 Tax Information Bulletin

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NEW LEGISLATION continuity test but changes to no regimes operate. how are these proposed Consequential amendments to have made the and amalgamation consolidation been to rules the incorporate business Inland Revenue Department Revenue Inland met for those losses. the requirements commonality income within within but FFG not the group new offset are with because formed MHG not any forward will pre-acquisition remain group its to might members have, losses available able carry to and those losses be should FFG facts these On income generating to the so. same do uses It assets also theactivities casino. –being it before did considered.must be When considered company asingle income generating the as the Group on same carries business after forward the change carried inownership activities group be the the can of business FFG of whole whether the losses When acquired MHG ownership FFG continuity breached. When was continuity applying the test business to determine afterdown the acquisition. is wound function finance subsidiary FFG's to companies, finance it keep is inefficient two companyfinance and, because a has MHG operating is Group groupFFG another acquired (MHG), companies. of Casino casino by Honey the Money aloss. forward the of is group.provides carrying the function finance The subsidiary finance subsidiaries these of One business. operate the casino awhole, which, company subsidiaries as of and anumber a holding ThisThe Fame Group Group and business. Fortune is is (FFG) upof Casino made agroup operating acasino companies of 54 Example breach Group Group Aand Bhave situation both (OpCo2 but earlierFigure acquired) had an ownership continuity 5:Same losses subject to continuity test, and business post-acquisition subject losses losses. to continuity Pre-acquisition test, pre-acquisition business The subject result is OpCo2 losses. of losses Group three B sets requirements continue met. to be circle). Consistent post-acquisition with current commonality within offset OpCo2 as can Group long Bas losses settings, company (red circle). continuity The test business continues to applyto company asingle Group (blue it if was Bas by Group to continuity OpCo2 B. the is test business used subject asingle the as group sit be outside and cannot losses pre-acquisition on OpCo2's pre-acquisition as effect no Group and to their Bcompanies offset Group above, ability B:As company inone group rather been than subsidiaries. of split across anumber within the of This one major permitted changes. mirrors the situation that have would existed had the activities the of The result may abreach be the if exit OpCo2 of is amajor change inthe nature fit not activities the of and business does agroup on continues by treating basis applied to be thein companies green circle they if were as company. asingle OpCo2 of (and thereforedisposal the of group's against the the part business) of test. continuity The ceasing test business Group Group the the Ais of A:As group relying the it must assess losses continuity forward the on test business to carry Tax Information Bulletin

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NEW LEGISLATION long as there as long remains activity. business of level asufficient industriesconsider matter not activity to low trigger It the does rule. that acompany run by is receivers being liquidators or as operational there that is not the of cessation no business will trigger does the dormant the company Likewise, proposal rule. trading totemporarily due the suspend Government income infrastructure as earning order long but as remains ready to be inactivity. reduction may or apply to not The atemporary dormant Acompany have company may does rule seasonal to be dormant after the becomes change inownership). any on activities (ineffect business carry where to acompany losses of ceases forward any carry Similarly, disallow further 3(2)(b)would IB losses. section stock tax of company is completely with but deal it that should dormant, companies are and really longer no viable only have intheir value activities the require of not company any and before whether of have The revival does assessment rule a ceased the of business. the if change inownership losses at of occurs any forward time after the the carry disallow business 3(3)(a)would IB Section rule company Dormant continuity the remains of rules loss The key to purpose trading. prevent this activity. provisions of A number the core have introduced to test for been loss support upopportunities and ensure open not it does Anti-avoidance Department Revenue Inland The five years will not be restarted. years be will not The five amalgamated company. continuity The test business will continue to applyfor the remainder time period. the of five-year requirements transferred commonality be can these into are and, because thegroup, met for FinCo2 so do it can losses, to GroupIf continuity the Bis test business subject agroup on to and wants basis amalgamate inthat all companies there by ACo commonality. forward is upto acquisition of insufficient the forfeited carried because point Any will be losses A Co Group ACo is Bamalgamates OpCo3 by and acquired Group B. then continuity the test business continue would to agroup circle). applyon (blue basis with consolidation ACo. Group If relying losses Bwas forward continuity test abusiness on to consolidation before carry in Group the Bwhich meet requirements commonality have there if income that no had haveoffset could been been Group that to B:Pre-consolidation the arose before the acquisition losses extent used ACo of only be the can companies the change inownership. Any post-acquisition will sit with the group. consolidated losses the of group. consolidated continuitypart The test business continues to applyto the activities years after ACo of for five requirements upto net income it its if were the amount to ACo are used not have could offset only met be not can used achange inownership.been Consistent with the where current pre-consolidation commonality losses rules, consolidation A Co: ACo entity. is the loss joining to continuity the Pre-acquisition test business subject there ACo of as will be has losses Figure 6: A Co is acquired by Group B. Group B forms a consolidated group which includes ACo includes group which Figure aconsolidated 6:ACo Group is Bforms by acquired Group B. Tax Information Bulletin

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NEW LEGISLATION taxpayers aretaxpayers to able avoid the intended the of application test, then avenues arise. could trading schemes for loss a company to prior that atransaction are intended to continuity defeat the test business the or dormant company If rule. anti-avoidance 3BA GB to rule is aspecific preventSection arrangements that the purchaser are of and seller between made Change in business activities prior toacquisition Department Revenue Inland to restart a business before the before to change abusiness restart inownership. applyto 3BA GB would this situationSection to prevent the dormant circumvented company being rule by an arrangement magazine. with the fashion months Six later,magazines. the agreed, remaining as 90percent shares of inALLC were transferred to Judy continued who on requested as by Judy the for six restarted and magazines months. produced ALLC to was produce thebusiness began They approached the other shareholders inALLC to offering purchase the remaining 90percent the of shares ALLC's if After threeJudy, years, losses. ashareholder with a10percent magazine. stake inALLC, fashion ahigh to had an idea start the operations were when the editor chief mothballed quit and the popular. content less became ALLC substantial sustained A Little Conversation Less However, Limited (ALLC) apublishing magazine. company was that political put out apopular Change adormant to company the ownership change without breaching the core continuity test. business out after carried that changed so Spinout be of could being the conditional business made shares was the on assets MBBC of to years prior the ownershiptwo continuity breach, and Spinout entered MBBC into averbal arrangement where of the sale applyto inthe 3BA GB would this situation pre-acquisitionSection its because forward to prevent losses from carrying MBBC and to acquire shares of machines the before sale toffee takes place. equipmentownership is cheese to going breach continuity speciality of the test business to dispose and for arranges MBBC retrained. probably be can Spinout knows but after the that staff for MBBC toffee, the of replacing change the in assets currently MBBC The useful assets are has to and very that not are sell losses. MBBC of looking the company significant has hears the shareholders toffee, the pulled company rather Spinout Limited good (Spinout), thanit. amanufacturer fix very of is known to MBBC aterrible The producehas reputation forward. cheese and the shareholderscarry to have sell decided to losses tax managed with manufacturer significant is cheese Limited apoorly of (MBBC) Cheese Milkcow Boogie Blues Change in assets 58 Example Coinstime the of had change ceased. by on Golden inownership activities the carried business intent isThe for the policy dormant company at as the to rule apply inthis losses situation of forward to the allow not carry There other no happening. stored activity is leased. otherwise be could and all thatmachines are is is thethat defunct left idea refurbished and the maybe they warehouse be where could they are After shareholder amonth,warehouse Coins that the to is Jim, the sole sells leasing. business his Golden Rob. The friend and leaves them The centres to shopping out. slowly empty for them ask removed to and they be are all taken to back a the machines anymore to not Coins stock unreliable service known or as decides and stingy with Golden their prizes. and the quality The claws machines are constantly poor players The of the break. machines number as dwindles become it operates. period over the two-year Coins losses incurs significant Golden Buying and installing the an expensive exercise, machines was and stock proves the it also expensive machines. to service sites where they any are and replenish to money installed collect stuffed the novelty animals. supplyof Coins Ltd centres. shopping Golden operates claw machines It inthirty game installs regularly the machines and staff visit the 57 Example Tax Information Bulletin

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NEW LEGISLATION allowed, would circumvent would allowed, the grouping rules. demonstrate arrangements ownershipof The length which, at examples non-arm's if arose. following the time some the losses apurchasing and newly acquired between company despite there offset permitting by aloss effectively commonality no being The are anti-injection rules intended to prevent arrangements that to companies allow get would around the grouping rules expenditure loss. or penalties). The company loss is then shortfall any treated (plus associated havingincome it offset as incurred the amount of 3BAC for GB expenditure to the inthe deduction company applies disallow profit section loss or resulting to pay the on intax company.the loss cost of shifting, penalties). the In This to case pay results that on shortfall intax any income (plus associated income of schedular income to 3BABto GB the applies be deem amount injected of section income injection, of theIn case that now undertake division would who task. advisorsbut the acquirerrather tax than, as company atax has say, aloss that afirm For uses example, consultants. using are company where otherloss to or by using made group to the efficiencies acquired now provide employees services company employment are contracts The apply where, will not rules shiftedto for example, agroup and there member is arecharge to the • • • The the will all conditions apply if of anti-injection rules following are met: to companies more broadly. will onlyrules applywhere The apply will not rules acompany is relying losses. continuity forward the on test business to carry into thefunds or transfer abusiness that outthe costs of of business are small regarded to amajor not change. enough These be 3BAB GB and 3BAC GB anti-avoidanceSections are which aim to rules specific deter trading by preventing loss of the injection Anti-injection rules Department Revenue Inland is agenuine commercial Blue. licences Midnight's of for the to reason assignment some of Moody There activities. business own licensing its on and is music relationship no that that finding suggest fish would there between avoidance entered –Midnight tax of theactivity, arrangement purpose with to the injected the sole reduce income was tax continuity theof test business and but for the arrangement have would Midnight the derived income from the licencing inreliance forward carrying it component was inthatremaining loss year. Blue had atax losses Moody This because applied However, with to any 3BAB GB applies anti-injection prevent rule offset the income from being section the injected reach not the and threshold does major Blue's business of change. Moody isMidnight entered of small part into avery This whereby Blue. licences Midnight's of becomes are to some Moody assigned Blue and Moody 2020,an arrangement November In between Midnight. of the on business paid and reduce overall tax losses Blue Co inorder income to its to of Moody take to advantage some the of assign available an opportunity sees also Midnight relying continuity losses the on test. its business forward tois able carry for and ensures is the properly business managed. There it Blueand so is major no change Moody of inthe activities assets or equipment the manufacturing on it August standard isIn finding Blue and known carries acquires fish 2020,Midnight Moody any available income it to derives. offset losses with business tax no It is aprofitable events. years to due over the mismanagement. five last in losses for It's use Ltd Music Midnight buys (Midnight) and licences songs significant It sustained has equipment manufacturer for boats. Blue)is afailing finding fish Ltd of Blue Boat (Moody Moody 59 Example The sole or main purpose of the of arrangement avoidance. is main or tax purpose The sole to have derive incur. incurred, or likelihood or derived might or have expected been have would incurred, inall expenditure or of derived would that, person but for loss the or arrangement, an associated for an amount the of arrangement adeduction isThe income or is allowed effect that the company derives assessable toThe an company arrangement. is party Tax Information Bulletin

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NEW LEGISLATION New Zealand recovers from the effects of COVID-19. of New Zealand recovers from the effects The amendment to is reduce designed the pressure financial for the bill individuals 2019–20income on year while with atax salary, and wages investment toreported Revenue Inland by the for example, payers, income). income withheld (income thatautomatically individuals at with had tax source has and is reportable calculated for qualifying COVID-19, this amendment that the threshold temporarily write-off are increases assessments from $50to $200for income tax the to of Government's bythe response the pressures automatic financial part New Zealanders on As caused calculation rules. the 22Jof TaxSection under Administration payable the 1994allows Revenue tax Inland of to amounts Act certain write off Background threshold. off Amendments to have made the for automatically rules been to the temporarily write- calculated increase individual income tax Section B, clause 84-Schedule 8,part 1ofthe Tax Administration Act 1994 threshold Temporary write-off tax income to individual the automatically increase calculated dividends. for supplementary credits areThese research incentive attributable controlled and development tax and credits, tax foreign credits, company income tax which are credits losses. of to intended forward relating tax to rules certain of mirror forward the for the rules carry to the carry torules ensure that, where appropriate, reference continuity amendments include test. These business is to made the proposed Other consequential the of Tax amendments Income to have made sections been 2007which reference Act continuity the loss amendments Consequential • • component: loss revive 3(3)(b)and cannot (c)are IB ataxpayer atax to incorporated confirm Sections Previously losses forfeited Department Revenue Inland imposed. to pay have taken once tax the and has away, deductions been It Up Rip is reassessed penalties aredeductions. also shortfall Patch of access the losses It Up. 3BAC GB to applies treat Patch It Up having as incurred the expenditure that gave to rise the incurredUp It Up. by being Rip Tax entered Di arrangements these inorder because to avoidance the main was purpose related and resulted which is that arm'slength between not haveincurred parties indeductions would by Patch been It there an arrangement This been has accountant is 3BAC because GB notes deductions. that to these applies disallow section for interest It Up theRip to deductions wants use payments However, and paint acquisition to reduce tax. own its It Up's Rip Patch It Up returning to and therefore profit losses. its using for interest Deductions another It payments Up. bank. inRip now arise The arrangements combination results two in these of It Up for arranges Rip to Di Patch of behalf paypayments. on back the loan It Up, this but funds repayment with from aloan Patch It Up longer no incurs this addition, In Patch cost. It with Up that aloan abank has is resulting for interest indeductions It for the Up, inRip paint arises It Adeduction to Up for Rip to Di secureall companies. the logical paintIt for both seems to costs It Up. Rip by moving some there the the to of value losses unlock is an opportunity breaches ownership continuity relies but Di continuity Patch the thinks on test business Di forward. to It carry Up's losses the In successful. 2020year, very been and has the secures ownership Di interests inPatch It Up This for abargain price. owns It painting and Up operatesDi Rip and decorating Ltd for Decorators it domestic clients Up).It (Rip Up does Rip also for abuyer. looking starts from the 2016–2019.Patch owner the of business, losses failure of the and Barbara, on It edge Upsignificant found itself has neatly. or efficiently work not do managed, and staff – it is poorly The client list to shrink slowly and begins Patch It Up suffers Patch It Up Paint Ltd (Patch painting recent In It and decorating for domestic Up) clients. does years it run has into difficulty 60 Example that was subject tothat achange subject inownership the was before 2020–21income year. tothat achange by amajor subject change, previously inownership has or followed been Tax Information Bulletin

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NEW LEGISLATION donor for the use in a farming, agricultural or fishing business that is affected by a self-assessed adverse event. adverse agricultural that by aself-assessed business fishing is or affected inafarming, for the use donor Apermanent earthquakes. provisionCanterbury relief allows with when trading the stock is associated not donated to aperson 2010–2011anIn 18-month introduced exclusion was to provide relief for trading stock donations to inresponse the made they if donatefor livestock tax for meat sentto to afoodbank. be may liable to afarmer or ahospital, be products its it of if donates some for tax may liable ahand sanitiser business be example, However, disincentivestock for private asignificant as purposes. to act the the of can donate application rules For trading stock. were income rules The deemed introduced to counter avoidance, including situations tax their traders trading where use sole stock purchase inthe adjustment). on or opening marketthe obtained deemed and the value deduction (that margin the profit difference is, for the adeemed on donatedThis are between goods, taxed effectively means businesses when it is transferred income. the The deem market the rules on making agift. of donated of value trading stock assessable to be trading of than stock for less market disposes or 2applywhen value GC1and aperson FC insections income rules Deemed stock the year. opening following as income at stockclosing as the is end deductible included the of year and then becomes Trading in the yearpurchase, of itIf is sold stock not is in the expense. generallyincome year ita business is as purchased deductible Background apply. fora later which the sections new period authorises the making an of Order section A new inCouncil to applyor to declare for extend which the sections new the period The circumstances. amendment income incertain by an amount deemed requires of offset to trading stock be deductions with the transferor. associated not authorities, other or persons 17 March 2020and 16March the if to rules recipients 2022(inclusive) are these are organisations, public subject not donee aCOVID-19 that trading of stock As so between made amendment disposals stock. relief been has measure, atemporary amount that disincentive than is less the asignificant market as to act The the of can donate value. application rules trading Rules inthe Tax Income the on market forconsideration no of tax an or trading of value stock disposed 2007impose Act thanless market trading of value) stock during COVID-19. thatThe relief legislation new have are provides for or businesses tax made, contemplating donations for supplies (or making, (Sections FZ9,GZ4,5,CZ38and YA1 ofthe Income Tax Act 2007; section 225ABA ofthe Tax Administration Act 1994) COVID-19 relief stock donations trading of for tax threshold to for the 2020–21and later $50applies income years. The amendment to the threshold increase to for the 2019–20income year $200applies only. The amendment to return the Application date • • the 1of Tax clause B, 8,part Schedule Administration 1994is to: amended Act Key features measure, the threshold is to reduced back $50for the 2020–21and later income years. from 3June 2020.Thisand applied amendment replaces that Order. atemporary as this only seen threshold As was increase toAn increase $200to by Order made the amount write-off was inCouncil for automatically assessments calculated income tax Department Revenue Inland and later income years. that assessment may the written amount by atax the of be Commissionerdecrease off from $200to $50for the 2020–21 and income year; that assessment may the written amountincrease by atax the of be Commissioner off from $50to $200for the 2019–20 Tax Information Bulletin

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NEW LEGISLATION year it is disposed of and section DB 49 if the disposal is from opening trading is stock. from opening the 49if disposal DB and section of year it is disposed DA is the 1if available The under section stock is inthe deduction purchased for adeduction. qualify trading stock will typically the of disposing 2,the GC1and FC person When are trading in sections stock income rules disposals from excluded the deemed Section the CZ38of Income Tax Act 2007 disposal. authorities, for consideration no public or an or amount that than is less the market the of value trading stock at the time of organisations which are GC1will continue donee not to persons, applywhereSection to of trading associated stock is disposed this of measure and nature. are disposals directed at not significant amendments are the aCOVID-19 temporary reliefto because CB 15.This used narrower trading of stock been has definition CB 6A produce income underany would sections of aright timber or disposal include to not take landwhose timber or does YA GZ4and GZ5,trading stock the has meaning given sections of insection (b).However,For 1paragraph the purposes it trading stock any). (if income amount CZ38.The is deemed reduced toamount take undersection into account consideration received for the either being EB 3at the thestock, cost end the of the or previous under section value income year, income by adeemed is offset normally take for the would for the the trading trading stock business The isdeduction available not to deduction the business. by way anet gift), of (for example, that purpose authority organisation forbusiness to no of public or is aperson adonee not It the ensures of trading for disposing stock. when therewhich applies that purpose is trading if stock business no is disposed with that (that organisation). business However, authority donee is or apublic not rule, this provision offset anew includes associated not trading of stock GZ5provides to an exception GC1where aperson disposes abusiness Section from section to COVID-19. are publicly transparent, it is appropriate so to remove disincentives to donate aresponse to organisations, particularly as these exception that to recognises are authorities regulation organisations public subject and donee exist and benefit, for the public organisation. The with This organisation exception that is even authority the donee if associated or public applies business. trading of stock GZ4provides to an authority exception donee GC1where or apublic disposes abusiness Section from section 17 March 2020and ends 16March on 2022. on that provide GC1for the exceptions starts GZ4and GZ5both period Sections insection income rule from the deemed Sections GZ4and the GZ5of Income Tax Act 2007 analysis Detailed The amendment to the Tax Administration from the 1994applies date Act enactment. of The amendments to the Tax Income 2007apply from 17March Act 2020. Application dates • • • • • The changes following to have made the Tax Income been 2007and to Act the Tax Administration 1994. Act Key features Department Revenue Inland which the apply. new sections Council inthe to Tax Income for extend which the sections new the period to 2007apply or Act declare for alater period 225ABA into section the new TaxInserting Administration authorises 1994.That the Act making an of Order section in treated the on to making and agift acquisition of be property adisposal at as market value. FZ9,which provides an exception 2(1)that FC section new requires from theInserting insection rule the transfer of CB 6Ato produceincome under any CB would 15. sections of disposal take landwhose timber or YA to trading of exclude stockAmending the aright of timberor insection sections new the to definition 1for the purposes circumstances, they havethese the income amount. deduction taken by for the adeemed trading stock is offset In (other organisation) for makingbusiness than the and authority there disposal. and donee a public purpose is business no with that associated not trading of stock to where aperson disposes CZ38,which applies abusiness section new Inserting with that associated not to business. stock by abusiness persons trading of GC1for disposals GZ5provides an exclusion from section GC1.Section organisationsand donee from section trading of GZ4provides stock an exclusion to authorities for disposals public GZ4and GZ5.Section sections new Inserting Tax Information Bulletin

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NEW LEGISLATION be spread evenlybe This over to the six income years. following spread ability is optional. To avoid this outcome, the legislative changes from enable the the proceeds cull transferred to be from the the year of cull and to immediately written to down the homebred the income. cost to offset replacement be livestock after the cull. The replacement purposes, for tax stock at purchase is price and cannot, its valued received from the cull and the cost the of stock purchase who is This farmers issue income. for those creates acash-flow cost scheme) cost acost-basedThe (that have method who issue for farmers national arises used is, standard cost (NSC) and the self-assessed by damaged the Christchurchbuildings and the Hurunui-Kaikōura earthquakes aprecedent. as They by cited Mycoplasma treatment cattle the bovis. impacted special and beef givendairy to depreciation income on recovery Federated Farmers requested an amendment to ensure implications from culling and replacing there income no tax be would government to decision eradicate Mycoplasma inNew Zealand. bovis and income through sector their aprimary herds following culled taxable being unexpected have farmers significant Some Background spreadto over be six income years. livestock Mycoplasma affected bovis income arising from the qualifying culling amendments certain of These enable the taxable 81,YA 80, EZ 4B,(Sections EZ CZ37,EH1,5,13,35,36,61,EZ 1ofthe Income Tax Act 2007) issue tax Bovis Mycoplasma the 4of Civilemergency Emergency Defence Management insection 2002. Act inNew Zealand. The event the must meet requirements people of the (a)and (b)of definition adversely paragraphs of affects that satisfied if thereThe period Minister application is anew an emergency event may that recommend significantly specifying by COVID-19.continue adversely significantly to affected be The Minister Revenue of may inNew Zealand are that only likely recommend satisfied if extending people to the period Tax to 2007applyor apply. Act declare for alater which the sections new period 225ABA authorises the making an of OrderSection inCouncil inthe to Income for extend which the sections new the period Section 225ABA the of Tax Administration Act 1994 trading inthe producing stock. of process and consumable used aids to business inadealing be used that livestock well FZ9,trading not stock as EB 2as means is property trading stock section of undersection For the purposes authority. The exception to applies 17March transfers on that 2020and ends 16March on inthe starts made 2022. period with the transferorassociated or, with they if are the transferor, associated the transferee organisation apublic is or adonee providedthe transferee trading of stock, FZ9provides an exception 2(1)inrespect FC is not Section from the insection rule adjustment by acorresponding accompanied FC. tomust be subpart To gifts. of GC1inthe case any and adjustment section GC1 FC haveThere to subpart effect, section overlap is between some transferor at the market value. 2(1)requires FC the transfer revenueSection being account trading of stock, property, treated to by the be adisposal as Section the FZ9of Income Tax Act 2007 above. GZ5and is explained is insection contained CZ38.The income offset for the formula deemed amount undersection income the of trading disposing by stock adeemed may required the the deduction person be to offset GZ5applies, section If income amount. by adeemed the required of the trading disposing deduction stock be will not to the offset person GZ4applies, section If Department Revenue Inland 9 to value their breeding stock on hand for tax purposes. This is because the the difference total proceeds This between is because to purposes. their value stock breeding hand on for tax Tax Information Bulletin

Vol 6July 33No 2021 64

NEW LEGISLATION

9 • • out the preconditions: following EZ4B(1)sets section New Precondition the for spread 4B(1)) (section EZ cost stock of hand on appropriately is valued and that sold. their of ahead the being cost purchases is of deducted not valuation multiple when using options and the restrictions ensure rules valuation These switching on options. that between the The livestock ECthe valuation of Tax Income are rules insubpart contained 2007,including the requirements Act that apply Relevant current legislation The amends Act the Tax Income 2007. Act analysis Detailed The amendments apply for the 2017–18and later income years. Application date Given that valuation of acouple incombination, alivestock methods owner might use • • • • spreadThe only if: be income can Key features Department Revenue Inland In such cases, the tax effects of the deposit will be reversed. will be the of deposit effects the tax suchIn cases, EqualisationIncome to Scheme mitigate retrospectively the of can additional income, the impact switch to the income spread. Livestock owners have who into previously the deposits Equalisation Income made the or Adverse Events now repealed Scheme circumstances to mitigate the income implications the of cull. for this spreading provision. qualify not do The underNSC, Equalisation Income valued is business Scheme available inthose The income arising from the culling underanother stock of valued valuation stock from or afattening method, culled stock to compensation further cover the additional cost purchasing of equivalent cases, replacementin some stock. government for the the difference normal market between for the value stock and the payments from the slaughterhouse, and from the payments comprise proceeds cull from the would slaughterhouse, top-up fromThe compensation the qualifying limited to with just the owners farmland livestock. of including sharemilkers, livestock, the of are affected Owners covered, that to the spread ability is, income from the cull is be not business. stock immature breeding includes spread. For be this can method purpose, female stock intended for future inthe breeding at However, cost. valued be only the from income derived the culling the under NSC the or of stock cost breeding valued price

price method" under section EC 25. Its details are details EC 25.Its out inTax set under section price method" Information Bulletin, Volume 4,No.7, March 1993,Appendix A. rather costs cost their involves using scheme farm farmers own than It standard isThe aCommissioner costs. self-assessed approved "cost that animal animal's of that average at purchase or cost its production, the if of costs reflects stockthe age and type is respective purchased. The the values NSC animals scheme the if at, animal is homebred, astandard cost (determined by the Commissioner Revenue) Inland of for directions. (Normally the whole herd is destroyed but in some isolated cases only a portion needs to be destroyed). to be needs only aportion herd (Normally the whole directions. is destroyed cases isolated but in some New Zealand to organisms 1993that examine Act and enable give Biosecurity the 122of either 121or Biosecurity sections in the using powers Mycoplasma the of In cull bovis, year, destroyed, to cattle be because need the all of or person's some by that significant stage). less be should astandard of make herd. proportion upahigh The 2028–29income year cut-off that is inthe Mycoplasma expectation bovis the spread is provided to have who those aresult additional sizeable income as the of cull given that female stock breeding the cull year. the before 2028–29income to year. The be need cull year would (The mixed-age on cows is focus to ensure that under either valued to the NSC or cowsbe cost need and those at pricebreeding method the end the of income year before mixed-age cows hand on the at of their cull of the year to that business, start for have, part needs as they use A person entercannot the herd more on scheme terms by Mycoplasma advantageous bovis. than affected not those The replacement relevant, as the NSC or cost This price method. stock continues using, is to valued to ensure be that farmers cull year. The stock is substantially replaced through purchasing equivalent stock breeding by the end the of the income year following combination with any stock. other breeding of class isthe that cost The price method. expectation the stock breeding that in mainly is comprises cows, mixed-aged culled operation, with breeding the stock breeding under NSC that or valued abeef or is being culled isThe adairy business New Zealand requiring stock. acull Mycoplasma of Security affected bovis to Biosecurity subject been has The business Tax Information Bulletin 10 not all of the all of stock not breeding might

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NEW LEGISLATION 10 at livestock of the that "number" of the number of EZ4B(8)(b)which caps cull hand on at through class the beginning section thereIf over for is inlivestock aclass the numbers an cull increase year, additional stock those are from excluded the spread compensation. plus proceeds to just the sales simplifies When all the stock are the NSC or on cost are stock price method, numbers constant and all stock is then culled, the formula the the of stock cull and the might year and the reduce start the NSC cull or on the cost date. number between price method The takes formula into that account more alivestock using the owner than might possibility be valuation one to method value • • • • • • • EC 2for the to equivalent stock. of able claim number undersection be otherwise over the six the income years following cull year. EZ4B(3)spreads that the the deduction livestock Section owner would spread EZ4B(5)to evenlyThere be to the EZ4B(2)enables income calculated the undersection spread. are parts Section two The spread (sections 4B(2),(3)and (13)) (5)to EZ • Department Revenue Inland This formula works on a livestock class basis, where: alivestock basis, This on class works formula EZ4B(5)is: For the income the spread insection formula component, arising from the culling the of relevant livestock is spread.

For example, an owner might use the an herd owner might use with inconjunction For scheme example, NSC (the alternative valuation option). is livestock stock of the that of number thatOpening had hand class on the at of cull the the year. start person (ii) (i) Valuation is livestock stock of the that of number breeding that: class method is livestock of the that of number livestock, of , for thatCulled aclass stock class the of are destroyed part cattle. (b) (a) 1993and that receives Act the by the person endthe the of the Biosecurity income year following cull year for: Compensation thatclass the of are destroyed part cattle. the of is livestock derives from that the of the amount livestock, disposal of income the of , for aclass person proceeds Sale (b) (a) is that the number livestock, of , for aclass of: isNumber the lesser (d) (c) (b) (a) livestock: of cattle types and dairy ∑ is cattle the summation each of the of beef the the of calculated for amounts using each formula the classes of following the of cullthe year. start mixed-age undertheof cows national valued standard cost the or scheme cost that price method hadhand on at the person to have hand) on at theexpects percent end the of the income year following cull five year is the of number at seventy least mixed-age underthe cows national valued standard cost the or scheme cost hand that on price method has (or the person is thatexpectation the livestock culled are replaced Specifically, the requirement with stock. purchased is that of the number replaced to by the the stock be of end culled need the of the income year following cull year. portion A significant The the person valued under NSC or the under NSC or cost valued inthe price method the income year before cullthe year. person reaching maturity; and for, of, used and intended capable were be to be stock breeding stock or upon that breeding expected the person it replaces. the cost the of replacement greater being class cattle the of same than the total amount received inrelation to the stock the the and difference stock's market between proceeds; and the value sale (ii) (i) livestock of the that of number that: class valuation method breeding stock +culled stock −opening stock EZ4B(12): the calculatedthe insection using formula number bulls. breeding and mixed-age cows; rising 2year heifers rising 1year heifers ∑(number ×(sale proceeds +compensation) ÷culled stock) the person valued under NSC or the under NSC or cost valued inthe price method the income year before cullthe year. person reaching maturity, and for, of, used and intended capable were be to be stock breeding stock or upon that breeding expected the person , for a class of livestock, is is the entitled amount 162Aof livestock, of which compensation the of , for aclass person to under section Tax Information Bulletin 11 Their combined effect is that Their the effect net combined income

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NEW LEGISLATION 11 to distinguish isoverride to necessary when Revenue Inland repay needs any arising additional from excess the spread, deposits EZ80(8) and EZ81(8)stipulate EH 8and EH 42.ThisSections EZ80and EZ81respectively sections that override section CZ 37(2). with EZ80(6)(b)and EZ81(6)(b) inconjunction section have section withdrawn arisen was when the –see deposit EZ80and EZ81treatSections this to income excluded (and therefore negate refund as any income that taxable) not as would (respectively, EH 8and EH 42)that sections require Revenue Inland to that refund amounts the deposit. exceed maximum Any This such is excess is refundable. deposit separate from any earlier that excess deposit arose under the standard provisions Reversal ofincome from withdrawal ofdeposit theinclude spread inthe event adverse deposit. meaning of maximum EH 61to to the to made extentfor the change section deposit, is been Acomparable has then thedeposit maximum exceeded. and, therefore, inthe calculation the deposit included of maximum automatically to leads areversal the of earlier deductions Specifically, aretrospective ensures amendment deposit) main EH 35(meaning of maximum that to section the spread is Reversal ofdeduction the for deposit to inrelation the income that deposits of to is spread. now to other means It be income are also that effects reversed. not the tax inrelation made deposits of effects This reversals the of tax concept inthe legislation new is to builtupon the achieve necessary inayear this exceed refunded. the to maximum, excess deposits be If netexceed needs income. results inequivalent However, deposit income. AEIES or and awithdrawal inany the aMIES of year cannot deposit, one deposits for the livestock owner, results inadeduction Under normal circumstances, AEIES into or adeposit the MIES for the amount of stock. replacement of purchase withdrawn to be will have after ayear the to needed the deposits better fund inmany as at mitigating cases the income effects isand the by the made their election date return filing of income for of the 2020–21income year. The spread is likely to be retrospectivelyof the of relevant are reversed switching deposits six-year income spread effects to providedthe the tax proposed consequences created by the cull. the that The farmers option legislation such made Mycoplasma-bovis gives deposits affected the or Adverse Event now repealed Equalisation to Equalisation Income mitigate (MIES) Scheme (AEIES), Scheme the tax into will by now have farmers Income the deposits Main made Mycoplasma bovis-affected in2017,some culls began As 81) 80, EZ 4B,(Sections EZ CZ37,EH1,5,13,35,36,61,EZ the income spread Enabling switching from the Main Income Equalisation Account Events orAdverse Income Equalisation Account to percent the of equivalent pre-cull This levels. is to ensure that there material been has replacement the stock. of culled the cull year, mixed-age of the cows hand on number that were the of underone five cost than is valued schemes less seventy EZ 4B(16)is treated if, made but under section being at not the as is endThe the of irrevocable, income election year following knowing from taken has helpful acompliance who perspective. upthis be option will also so taxpayer for each affected involvedis The significant by Mycoplasma amount income and of tax bovis. affected farmers The additional compliance from costs this requirement notification small given be the anticipated would small of number year, the if cull year is the 2020–21income earlier, year or and by the their date return filing of for the cull year inany other case. EZ4B(14)requires by the made the return to date taxpayer's an election be Section filing of income for of the 2020–21income electronically. done This be Revenue Inland can inwriting. upthe to taking spreadingThose notify optionneed Notification (sections (16)) 4B(14) to EZ the of remaining their of trigger proportion which would an allocation spread. the of business theirthrough proportion cease effectively company would apartnership, or the died has owner who partner or company, the death ashareholder of automatically not would the of remaining trigger an alook allocation of spread. the In case trader, the of death once granted, probate asole of business but with the been In has case cease a effectively would the person to the year. allocated cessation amount to spread of be unallocated income and deduction EZ4B(4)requires the relevant inwhich they any section the on use business livestock, carrying cease aperson Should Person ceasing business 4B(4)) (section EZ spread the of calculations income and dedu

Section EC 2 provides a deduction at the beginning of the of cull at year for the stock of the value hand on EC beginning at 2provides adeduction the end the of preceding income year.Section Tax Information Bulletin

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NEW LEGISLATION the Commissioner of Inland Revenue amend their relevant past assessments, under section 113 of the 113of Taxthe Commissioner undersection Revenue Inland of amend their relevant assessments, past Administration Act Since the spread from the applies 2017–18income year, take who upthe taxpayers spread year, for a past now request can that Already income returns tax filed them for the provisions. new Consequential changes EH 1,EH 5,EH 13,EH 36,YA to have made sections been 1and the former EZ80(now EZ82)to update Consequential changes EH 6and EH 40to this). achieve sections is EZ80(7)and EZ81(7)which respectively calculated to modify excess the deposits sections date is the (see made election and EH 40(interest event inadverse equalisation account), Interest deposits on will income. still and stand be any on EH 6(interestAny inmain undersections income equalisation interest account) deposits on the on payable deposits, or paid Treatment ofinterest income. excluded EZ80and EZ81.Thistreated means under sections that refunded refunds being change those income as to from being being accounting year that have already underother been refunded provisions EH 13and EH EH 15but 8),are not (sections instead provide to ordering with determine (starting for that rules the deposits) which, earliest and how much, refunded the of deposits Therefore, there if EZ80(5)and EZ81(5) are remaining to sections insufficient amounts refund fully the deposit excess deposit, amount will likely have through already refunded astandard been withdrawal request, to pay for replacement livestock. are forRefunds the made accounting to come from the first deposits an excess year inwhich the excess many In arose. cases Revenue for Inland to calculate anythe spread remaining necessary repaid. that amounts to amount will be be deposit need after the to spread the election use Practicably, is practicable returns made. as the revised income tax pay soon it out outlining as To the extent that already the not withdrawn, EZ80(2)and EZ81(2)require has excess deposit been sections Revenue Inland to retrospectivelymade and may involve that amounts have underother already refunded provisions. been the end the of accounting year. They were therefore to for an election spread the considered income which is impracticable to be from any other situation. excess EH 8and deposit EH 42envisage the Sections automatic after soon refund an of excess deposit Department Revenue Inland accounting made. was year for which the deposit years after ends five expired the has (whichever end is the of earlier). period The period deposit maximum deposit maximum Interest withdrawn is the on payable remaining the it been or has $50,000upuntil either is the refunded, deposit because EH 6,interestUnder section is $150,000. Interest the on payable full is the on payable $100,000 upto the date the of election. that claimed amount). be deposit can deduction to Revenue EZ80Inland refund now $100,000(which needs iswithdrawn, treated undersection and no income, excluded as year. This for that the of amount reduces none $150,000deposited to their been deposit year has $50,000.As maximum to take upthe decides the income of spread legislation, new With the optionfor the person the 2018–19accounting passage $50,000 inrelation to other income. they make. could This $100,000for the comprises additional net income arising from the cull their of herd inthat year, plus $150,000into accountA livestock their owner intheir deposits MIES 2018–19accounting year, that the deposit maximum 62 Example withdrawn earlier this meet not did standard timing for any test interest. to qualify Interest the on haveinthe for $20,000is more funds scheme still those than been as payable year. one The $100,000 EZ80. section are now treated EZ80.The remaining refunds section undernew already as $20,000not withdrawn under isrefunded also for 2018–19have withdrawals EH 8).Those already withdrawndeposits undersection been the (ignoring $80,000refunded for that claimed amount). $100,000of be deposit $120,000 (which istreated can also and deduction no income, excluded as year. to This Revenue Inland refund now afurther needs amount reduces to their deposit $0,inwhich case maximum to take upthe decides the income of spread legislation, new With the optionfor the person the 2018–19accounting passage EH 8(and isthey income). excluded make could undersection at that refunded $120,000,$80,000was stage was $200,000into accountA livestock their owner intheir deposits MIES 2018–19accounting year. that the deposit maximum As 61 Example Tax Information Bulletin

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NEW LEGISLATION Table spread 7:Deduction animals. Presumed that when the alternative valuation option(AVO) the herd is animals inuse, scheme are the replacement or breeding Table spread 6:Income in relation for the due to 2018–19income year, the tax to match spread. the proposed Previously, upto the enactment the of instalment legislation, allowing Revenue Inland had arrangements been entered to be into calculated. howover this and on details the been six has years, the include the and year should of cull, spread the to amounts by emailing made be 1994. Arequest [email protected], be can Department Revenue Inland Breeding bulls MA cows MA R2 heifers R1 heifers Breeding bulls MA cows MA (AVO inuse) R2 heifers cows R1 heifers Opening numbers for cull year for numbers Opening class Total for 100 20 A 0 0 in cost in Valued of E or G Eor of smaller on Spread based 100 B 5 Total spread income A −B scheme inherdHeld 80 H 0 4 0 15 C 0

breeding for Held 100 20 D Last year NSC per class per NSC year Last D −C in NSC Breeding 100 $925 $845 E 5 M Tax Information Bulletin Cull numbers culled Number 19 80 $77,380 F Spread H×M E +F−A NSC Valued in

80 G 4 $74,000 $3,380

N

Vol 6July 33No 2021 Income spread Income E or G E or smalleron of Spread based 80 H 4 per class per Cull proceeds $15,200 $95,000 I 69 per class per Compo $55,000

$7,600 NEW LEGISLATION

J I +J income Gross cull $150,000 $22,800 Total spread income K

K ÷F head per Cull income $1,875 $1,200 L

H ×L spread toIncome $154,800 $150,000 $4,800

Inland Revenue Department Tax Information Bulletin Vol 33 No 6 July 2021 Research and development Amendment to definition of eligible R&D expenditure (Section LY 5 of the Income Tax Act 2007) This amendment modifies section LY 5 of the Income Tax Act 2007, which contains the rules regarding what expenditure is eligible for the R&D tax credit, to clarify that expenditure must be closely connected with conducting an R&D activity to be eligible for the R&D tax credit.

Background Section LY 5(1), as previously written, defined R&D expenditure as being eligible to the extent to which it was: • incurred on an eligible R&D activity in the relevant income year • described in schedule 21B, part A (which lists the categories of expenditure that are eligible for R&D tax credits), and • not described in schedule 21B, part B (which lists the categories of expenditure that are ineligible for R&D tax credits).

These tests did not specify how closely the expenditure had to be connected to an R&D activity to be eligible. To ensure that expenditure claimed has sufficient nexus with the eligible R&D NEW LEGISLATION being conducted, the amendment clarifies that expenditure is only eligible if it is directly related to, required for, and integral to the R&D taking place.

Application date This amendment applies from the beginning of the R&D tax credit regime, which is the 2019–20 income year. The amendment is a simple clarification that expenditure must be directly connected with R&D to be eligible and is not intended as a change in policy, or to change the way the law currently operates. It should therefore not affect R&D tax credit claims already filed and should provide future claimants with more explicit legislative direction regarding what expenditure may be eligible for the credit.

Key features The amendment adds new tests to the definition of eligible R&D expenditure for the R&D tax incentive, as prescribed in section LY 5 of the Income Tax Act 2007, to clarify that only expenditure directly connected with an eligible R&D activity is eligible. The amendment does this by adding in the following requirements, so that expenditure is only eligible if it is: • directly related to conducting an R&D activity • required for conducting an R&D activity, and • integral to conducting an R&D activity. The existing requirement that expenditure must be listed in schedule 21B, part A and not in schedule 21B, part B also applies. All section references are to the Income Tax Act 2007 unless otherwise stated.

Detailed analysis The amendment to section LY 5(1)(a) inserts a requirement that expenditure must be directly related to, required for, and integral to an eligible R&D activity to be eligible for the credit. These are in addition to the existing requirements in the section that expenditure must be listed in schedule 21B, part A and not described by schedule 21B, part B. Directly relates to (new section LY 5(1)(a)(i)) The "directly relates to" requirement clarifies that expenditure must have a direct connection to an R&D activity to be eligible. A person must make a reasonable assessment of whether their expenditure has a sufficiently close connection to R&D to be eligible. If a person's expenditure relates to an R&D activity, but also relates to another purpose, the person must apportion the expenditure accordingly. 70 Businesses not obligated tominimise expenditure inthe amendment. included been however,credit; test may an "only main or completely purpose" exclude the rent. Therefore, not has the "only main or purpose" intent percent. percent is The five that the policy five is of total the complex twenty of rent twenty for the eligible portion be The alarger of R&D R&Dinalab, which that forms facilities. part non-R&D complex includes does also abusiness For example, eligible. to an R&Dactivity be expenditure supporting of incurred only mainly or be for the purpose intent requirement by requiring this the as policy that testthe included, go "only beyond main or would purpose" been not has LY tests are expenditure activity inthe eligible amended insection included the all of supporting Not definition particular, 5.In "Only ormain purpose" test not included intent.legislation matches the policy expenditure for between the and an R&Dactivity expenditure connection there This aclose eligible. to ensures must be be the R&Dexpenditure eligible of tests that for the R&Dactivity definition clarifies the of supporting for the Replicating credit. part intent for R&DexpenditureThe policy is eligible likewise with to that R&Dactivity connected an closely eligible be it must be are to necessitate designed definition connection. this R&Dactivity close supporting to acore connected closely and the inorder tests activity eligible, required to very is activities that be must be by the supporting uncertainty, via a systematic technological or intentscientific inorder The method, things). policy to or knowledge producenew is thatactivity an activity contributes for acore (acore R&Dactivity is to that R&Dactivity one and is necessary resolves LY requirements two These insection R&Dactivity are taken supporting of R&D from the definition 2(3)(a).Asupporting Similarities with supporting activity limb completed or without the expenditure. performed be not could The "integral to" requirement that clarifies expenditure That essential to eligible. the to must be an activity R&Dactivity is, be The "required for" requirement that clarifies an R&Dactivity. expenditure to support is only to eligible the it is degree necessary Required and for integral section (new to LY 5(1)(a)(ii) and (iii)) expenditure that relates closely eligible. to be should an R&Dactivity for theRequiringeligible expenditure credit. to directly intent, relate which is that the policy to only clarifies an R&D activity This requirement is intended to ensure that expenditure that is remote too from to the R&Dactivity which it relates is not Department Revenue Inland even if these benefits were not provided. Expenditure on these benefits is therefore were benefits provided. Expenditure not eligible. these on not benefits even these if they are integral facilities, not may these to performed still R&Dcould the place; R&Dstaff use R&Dtaking be While some are optional and are into remuneration benefits factored not These an employee's and on-site childcare facilities. package. subscriptions discounted such as gym benefits, receive at employee of the anumber staff facility addition toIn their salaries, R&D. to claimed the extent be cannot staff thatHR their relate duties not do to this R&Dstaff, as expenditure is required not for However, duties HR for LiamCo's operations nationwide. at perform the of the also The the staff Auckland HR salaries facility for and integral to without R&D(it relates it). performed to R&Dand the of be not R&Dcould the performance their inasmuch as duties the staff of relate HR thebut salaries also to the this R&Dstaff, as expenditure is considered required it is for theas eligible required credit, for and integral to This LiamCo's of the place. the R&Dstaff, R&Dtaking includes salaries To the extent that their duties relate to R&D, eligible expenditure at LiamCo's staff is of Auckland the on salaries facility to the integral and required for R&D be must 64:Expenditure Example R&D. performing have costs with these connection direct no R&Dstaff, because time supporting some spends even though HR eligible, be they directly relate R&D. eligible R&D), because to However, performing the cleaning area the of work costs HR not would expenditure eligible company be would where they relate for eligible to cleaning the used R&Darea (while the of facility LiamCo contract an ongoing has with acleaning company to Auckland clean its facility. LiamCo's payments to the cleaning percent for LiamCo's for HR operations across is New Zealand. used percent inAuckland, is to devoted where R&D, the facility LiamCo of facility the fifty operates amixed-use other while fifty relate the for credit directly must 63:Expenditure to eligible R&Dto be Example Tax Information Bulletin

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NEW LEGISLATION is only to eligible the extent to which this expenditure relates an R&Dactivity. to performing stipulates inthis the of clauses schedule Each that expenditure A. part inthat 21B, to category inschedule ineach the of clauses incurred from LY an on R&Dactivity) 5(1)(a).However, the test still it is to explicitly applies R&Dexpenditure referred because The amendment removes the "to the extent" test (which ensures that expenditure is only to eligible the extent to which it is "To the extent" test still applies by the amendment new affected andis not continues also to before. applyas LY credit (section it B, is for the eligible not R&Dtax part 21B, inschedule expenditureIf 5(1)(b)).This requirement is described B Schedule 21B, part before. LY credit (section for the R&Dtax 5(1)(a)).This requirement by the amendment new is affected and not continues to applyas which provides alist expenditure of A, To that part 21B, may eligible inschedule be expenditure eligible, described be must be A Schedule 21B, part Existing requirements in section LY 5(1)(a)and (b)still apply another might have business option. acheaper chosen simply because is chosen disqualified has not Similarly, may their go research about businesses indifferent Expenditure ways. that is required for an approach that abusiness and integral to is the R&Dactivity eligible. the inR&D, expenditure with anotherand equipment while used alower may standard. cases satisfied required both In be for approach to R&D. its for the may materials possible quality cheapest For instance, business adopt one want the highest possible the "required new tests, R&Dactivity for" with and "integral to" theAs supporting expenditure to obligate not abusiness tests do Department Revenue Inland the credit. It does not matter not the It does credit. that Co Loud have could taken approach acheaper the to issue. solve Co's Loud Both expenditure reducing the on of the drill and Equally noise Co's Loud expenditure are for eligible earmuffs on the on working drill. Equally equipment, the Co employees problem Loud more for its all addresses of cheaply by buying earmuffs noise-cancelling At time, Equally Rather than similar equipment. the R&Don same Co altering Loud is performing the the of design into equipment. drilling its theCo of technologies noise-reducing design incorporates (and future to employees' so, protect its damaging to at customers') avolume noise human hearing, health and safety, Loud inconstructing equipment R&Dto drilling new eligible for use develop CoLoud tunnels. is performing Their equipment emits expenditure to minimise obligated 65:Businessnot Example Tax Information Bulletin

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NEW LEGISLATION drilling for,drilling petroleum, minerals, geothermal YA or natural energy, insection gas, the 1of Act) miners defined "minerals" of (as To ensure the exclusion covers industries the range of existing the as for, same exclusion prospecting on activity for, exploring or treatment depreciableproperty). tangible of Thethe exclusion exceptions Act). new includes that costs for labour contribute to core to (parallel the R&Dand for prototypes It this YA achieves Act"). by excluding insection expenditure by a"petroleum 1of loss or miner" defined "mineral or miner" (as language which alignsusing with regimes the that petroleum tax and already mining exist inthe Tax Income 2007("the Act The amendment expenditure anew inthe adds petroleum and industries, mineral exclusion mining used that excludes assets Key features eligible. from being excludes the assets cost these Bthat of 21Bpart specifically amendment to clause a new schedule adds To are ensure inthe inappropriately industry not mining that used the for upfront the the eligible assets credit, of costs intent. to contrary thecredit, policy Bthat 21Bpart relatein schedule for the to thus depreciable property. claim can upfront the Ataxpayer assets full cost these of arethe industry therefore mining considered not depreciableand are thus covered not by the existing expenditure exclusions treatments tax DT these in As are out insubparts (respectively) andset DU the technically used of not depreciation, Act. assets intended.the as However, exclusions, inthe petroleum and industries mineral mining used have treatments, their assets tax own are and their therefore assets by caught purposes, the depreciationMost industries for tax use when rules amortising their assets expenditure of depreciable property. on types various expenditure) (which lists the ineligible expenditure Bof categories of of Act number 21Bpart that exclusions inschedule target The intent is that is This generally credit. not through the is for the eligible upfront achieved assets R&Dtax a cost capital of Background credit regime and aligns theof tax it with the existing treatment inother industries. used depreciable assets of This amendment inthe the petroleum treatment clarifies and industries mineral mining used for the purposes assets capital of Aand B,(Schedule and 21,parts schedule Bofthe 21B, part Income Tax Act 2007) inrelationExclusions to miners Department Revenue Inland law inaway that it to allows claim cafeteria the the of costs staff maintaining or the grounds at Christchurch its facility. GeneriCo for R&Dactivities, might interpret solely used the they the of afacility are of as costs Likewise, R&D activities. part of the performance to support considered R&D, necessary be as could costs GeneriCo's is all staff main performing business For instance, GeneriCo might interpret the law inaway that as it to allows for the credit; claim cost staff the its full of eligible). be R&Dshould relates for performing to and is necessary reasonably thatcosts with intent connected R&D, are to only contrary (which loosely is the that policy only expenditure that closely to the connected activity.must be Without providedby the this clarification amendment, this GeneriCo allow could to claim The legislation previously required that expenditure but to gave an on activity direction no as the how closely expenditure be Variation Under the facts: of previous expenditure rules to still R&D–could of costs. even the inthe these take at of performance place absence the facility claim on-site the cafeteria its of costs grounds or maintenance at costs the facility. are costs These required not integral for or Christchurch, to the extent that relate the expenses However, R&Dactivities. to eligible of the performance GeneriCo cannot in facility to R&D-performing operate its GeneriCo claim rent, can utilities, insurance, necessary and other expenses to an R&Dactivity. directly not do costs relate these are payroll who of are staff paying on.This R&Dstaff, cleaning the and so offices is because payroll to the staff extent that to they R&Dstaff, the cleaning staff are or are extent who paying staff supporting HR that they However, claim GeneriCo expenditure cannot to connection R&D. with direct aless For claim instance, the it cannot cost of to the extent that they are paying R&Dstaff. that to R&Dstaff, they the cleaning staff are extent supporting that for R&D, they are and payroll used cleaning facilities staff duties are required R&D. for and integral to For performing instance, GeneriCo claim to the can the cost staff extent HR of R&D, eligible to for costs other well as the as staff extent performing GeneriCo claim the can employees of costs that their income year. return supplementary R&D. its for the is 2020–21 GeneriCo It activity performing files is main business acompany whose R&Dexpenditure the under new requirements 66:Eligible Example Tax Information Bulletin

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NEW LEGISLATION The policy intent exception the of The prototype policy is to created expenditure allow items on depreciableproperty loss or tangible of exception Prototype even they if contribute eligible, to costs be labour certain to depreciable property. the cost tangible of This amendment changes The change ways. the first amends exclusion exception. intwo the prototype allows The second that this meets test depreciable property is Expenditure credit. still tangible on for the eligible tax prototypes. such as activities, This exception prototype is intended to capture expenditure required to produceitems incore created R&D used by and solely exception exists for expenditure that an R&Dactivity. contributes inperforming solely intended to for use the cost property of 3excludes expenditure clause B, that part 21B, loss or contributesSchedule to depreciable property. the cost An tangible of Background R&D activities (regardless is eligible whether of to aprototype). be the property expenditure allowing intended, is also expenditure as inrelation working while prototypes loss on or loss or core on to labour Anfor the other amendment credit, than to 3ensures expenditure prototypes. clause developing on the loss or exception for 3renders clause B, expenditure part 21B, that loss or Schedule contributes ineligible to depreciable property the cost tangible of Bofthe(Schedule 21B, part Income Tax Act 2007) exclusion property depreciable Amendment to tangible and geothermal inthe Act) energy "miners". to be deems miners defined "minerals" of 3Balso (as clause energy, coal.Geothermal as which is covered also covered. by the present be not To exclusion, would intent, the achieve policy "listed of minerals cover intended not industrial covereddefinition some to minerals" be does by inthe the Act exclusion, such expenditure") exploration "mining refer only to "listed industrial rather minerals," than The minerals inthe broader sense. However, the term expenditure," "mineral prospecting miner" "mining and the with terms it (for example, inthe Act associated Aand B. Theactivity). amendments accordingly 21parts schedule repeal5of clause for,excludes "prospecting for, exploring for, drilling or petroleum, minerals, geothermal or natural energy" an eligible as gas, that Aand B(which The covers terminology regimes include mining inthe the Act 21parts intent schedule 5of clause of the industries mining into fully with line the treatment inother industries. expenditure of property depreciabletangible on exclusionproperty analysis exceptions how, for these adetailed of This the work). treatment brings expenditure in of assets on that costs for labour contribute inR&D(refer to core to only used Amendment R&Dand for prototypes totangible depreciable intent its isAs similar to and function existing depreciable property, 3Bcontains exclusions clause similar exceptions tangible on industries. inthese stillcredit while acredit allowing for R&Dperformed aminer.as This intent, inthe industries mining from is which is the with inline to tax used the exclude policy the cost assets of requirements intheir by the business capacity therefore could it is as performed not long potentially for theso claimed credit, be aminer. as in their capacity that involvedinmining by abusiness Any the meet other R&Dactivities legislative performed The and the petroleum expenditure-related and mineral miner definitions, terms that ataxpayer them, on depend only affect apetroleum of minerdefinitions mineral or miner thus excludes all expenditure that within expenditure-related falls these terms. the alternative treatment Anchoring to activities. the mining tax clause the by created miners when undertaking and used assets of terms, development expenditure"related "mining such as and "petroleum defined development expenditure," which provide for theon terms "petroleum miner" and "mineral miner," terms These inthe are Act. linked to expenditure- of anumber defined as DT inpetroleum and have mineral regimes mining regimes centre (subparts These inthe and DU). used Act their tax own Assets YA insection amineral miner geothermal of energy be the 1of would and "minerals" Act). defined (inthe broader sense 3Bexcludes expenditure Clause credit. incurredfor the loss by or apetroleum R&Dtax miner, mineral miner, who aperson or which lists expenditure excluded categories of the Bof Act, 21Bpart to 3B, The clause schedule amendment clause, anew adds analysis Detailed most taxpayers). which is credit the scheme, 2019–20income yearThe (1April the of 2019for R&D tax amendment from the applies beginning Application date repealalso the Tax Information Bulletin

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NEW LEGISLATION expenditure regardless claimed whether of be it can relates to or to contracted employees labour. toregardless whether the tests, of extent the above it meets to which it relates core on costs to R&Dactivity. labour Labour credit, for theThe eligible to tax amendment expenditure be allows also an on item depreciableproperty loss or tangible of New exception costs labour for oncore R&Dactivity all three met. eligible, to tests mustFor be expenditure be an on item depreciable property loss or tangible of • • intended R&D, future issole and that inperforming use the creation the of item involves acore R&Dactivity: addition to In the requirementa prototype. that inR&D, tests is require an item only these used property of that the property's The amendment tests into further adds that the clause ensure exception the prototype is better targeted towards the concept of exception theClarifying prototype analysis Detailed most taxpayers). which is credit the scheme, 2019–20income yearThe (1April the of 2019for R&Dtax amendment from the applies beginning Application date that cost carve-in"). contribute ("labour depreciable property to tangible expenditure/loss inrelation it allows labour on Second, to core for the despite eligible R&Dto credit, the exclusion be for costs through inR&D). that R&Dand is is only used (property developed it is aprototype unless on ineligible to be property This ensures that the provision operates consistently intent, which is with for expenditure depreciable the policy tangible on • • exception"), requirements ("prototype further by adding prototype that: the of exception the scope for expenditure itFirst, clarifies that contributes a as intended to for use the cost property of the 3of Tax Income clause B, part 21B, (schedule 2007). depreciable property Act This amendment changes makes to two the existing exclusion expenditure on that loss or contributes to the cost tangible of Key features is minimised. depreciable assets tangible involving significant R&D projects The amendment by costs. more still allows electricity genuine while as eligible ensuring risk to R&Dcosts be posed any fiscal whether directly costs relate that to easier recognises labour identify be it should such to costs, R&Dcompared with non-labour This is consistent with the existing incommercial for costs R&Dundertaken environments for labour inclusion production and incidental to the creation alarger of item depreciable property. tangible of extent that contractors or acore the are employees R&Dactivity. performing Usually this separate means activity an identifiable even where credit, to the for the is the intended tax aprototype, item not as item depreciableproperty property of tangible of This means that claim expenditure that can contracted on abusiness or labour contributes employees on to the cost an of to regardless whether the tests, credit, of extent the above the it meets tax to which it relates core to R&Dactivity. performing The amendment labour-related allows also for eligible to expenditure be an on item depreciableproperty loss or tangible of cost carve-in Labour creating must involve acore the property R&Dactivity. R&Dinthe future, R&D, inperforming and that intended for thatmust use only inperforming be the property used only be The amendment the legislation with inline brings the intent inadditionto the by requiring, requirement that must the property have agreater included expenditure range of than intended. was inR&Dthroughout solely theirthrough lifetime However, R&Dand used eligible. to be previously as the worded, exception may Department Revenue Inland resolving a scientific or technological uncertainty via asystematic uncertainty technological or method). ascientific resolving acore (that R&Dactivity incurred theexpenditure performing creation on is, be must also the loss of or item involves meansCreation that, the for expenditure eligible, acore to involves an R&Dactivity on item be loss or property of for any other used purpose. and never be R&Dactivities, inperforming used ever be R&Dmeans intent that that aperson's must be will the only is item inperforming intended future use property of Sole creating must involve acore the property R&Dactivity. R&Dinthe future, inperforming and intended for must use only be the property Tax Information Bulletin

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NEW LEGISLATION is excluded from the R&D tax credit. is from excluded the R&Dtax the Bof Tax Income The makes other of Act part 21B, anumber amendments to schedule what expenditure 2007clarifying Act Bofthe(Schedule 21B, part Income Tax Act 2007) expenditure excluded of to amendments Other the schedule relate the tests required meets acore the item (unless exception). to R&Dactivity by the property performing prototype of is to ineligible the extent for an item depreciable property labour on Expenditure tangible to of loss or which the not do costs Department Revenue Inland materials or equipment. or materials anyclaim nor the activity), the cost of of costs the of the workers is bridge building asupporting the (as bridge building isbridge expenditure eligible relate costs these credit (as for the tax to acore However, activity). Claire's Construction cannot involved increatingThe cost uncertainty the of scientists the and engineers to working technological or the resolve scientific workers are to who contracted. the or build bridge, variously employed engineers are who by directly Claire's scientistsuniversity's employed alongside work Construction. The company hires also Claire's to to university help the resolve Construction expertise provide uncertainty. scientific alocal The contracts commercial once it is transport complete. uncertainty. the R&Dis Claire's successful, Assuming technological or Construction intends for that used the be bridge sturdier The it requires construction R&Das eligible bridges. involves their bridge of some the scientific first resolution of Claire's Construction is experimenting with construction new materials that the allow construction would lighter of yet costs 67:Tangible exclusion labour and Example property depreciable Tax Information Bulletin

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NEW LEGISLATION non-R&D purposes later. purposes non-R&D is reason that The second to land generally and therefore invalue recoup increases the sold cost. be can what The is that cost first to the reasons. of land relates apportion it isfor two difficult to for R&D, used given the be land could 10excludes expenditureClause to purchase land.It is appropriate not credit to for land acquired inR&D give an R&Dtax for use Changing "purchase" "acquire" to (clause 10) EE 8. under section anabsent election intent by aligning the the treatment policy thatsatisfies have depreciable would and property been depreciableproperty of intent. expenditure, eligible The as to amendmentscost contrary ensure their the of policy property the legislation better potentiallycould the to exclusions taxpayers allow and claim bypass for the upfront the upfront full cost depreciable property of acquisition upon or, depreciableproperty) be this otherwise of it would inlimited election, circumstances, This achange inuse. treated (where, that to inthe ataxpayer EE be 8allows elect absence an item property non-depreciable as property of Section treatmentin R&D),similar to the tax assets. these of for the Instead, credit. it is intended (to eligible over that time the extent be are depreciation assets these used on the assets loss the Tax Income intent is 2007.The that Act policy expenditure generally the ineligible on upfront cost be large of assets capital EE 8of acquiring on that under section an loss itemor havedepreciable inthe an of election absence would property been of expenditure that that exclusions applyto contributes these also expenditure clarify to property) the cost depreciable tangible of Amendments to 2(which excludes expenditure clause to 3(which excludes certain and clause acquire depreciable property) Treatment where items of property election of made under section EE 8(clauses 2and 3) credit for anythe making tax of costs depreciableproperty, giving the exclusion unintended overreach. "make"include inrelation to depreciableproperty. were Under taxpayers the thus previous prevented wording, from claiming However, to B. thegenerally other 21Bpart subject exclusions eligible, inschedule the Tax Income "acquire" to 2007defines Act through any assets meansthese other than making them. intended It was that expenditure be making on depreciable property the involve original intent R&Dcan the creation toAs asset, 2was exclude clause expenditure of acapital of acquiring on (to eligible over time the treatment inR&D),similar to extent be are theassets tax used the assets assets. these of for generally theInstead, ineligible credit. upfront cost be it is large of assets intended capital that depreciation these on loss apply to not expenditureexclusion does to intent loss make or depreciableproperty. is The that policy expenditure the on An amendment to 2,which excludes expenditure clause to loss acquire or items that depreciable property, of clarifies this thatClarifying expenditure make eligible to be can depreciable the for credit property (clause 2) analysis Detailed most taxpayers). which is credit the scheme, 2019–20income yearThe (1April the of 2019for R&Dtax amendments apply from the beginning Application date • • • • • • • • are: These B. part 21B, schedule The makes additions changes Act or several to the expenditure categories of creditout in set for the ineligible R&Dtax Key features Department Revenue Inland not directly supported by other forms government directly of for thenot claimed to credit. supported funding be Changing byrelated the or exclusion expenditure on supported to loss or agovernment 21)to grant (clause amounts allow which excludes expenditure 20C, clause incurred new Inserting loss inremediating or land. which excludes 20B, expenditure clause new Inserting incurred loss indecommissioning. or which excludes 13B, governance expenditure corporate clause new Inserting incurred activities. loss inperforming or expenditure coveralso in-house incurred entitlement. indetermining aperson's Changing the exclusion professional on incurred entitlement fees indetermining aperson's 13)to credit to (clause the tax Changing the word "purchase" inthe existing exclusion expenditure on to 10)to purchase land(clause "acquire". todepreciable inthe an the of election treat EE 8of absence Tax Income under section non-depreciable it as 2007. Act have 3)to which would (clause exclude been expenditureto property property on the loss cost or depreciabletangible of Amending the exclusions expenditure on to expenditure 2)and on (clause acquire that depreciableproperty contributes making include depreciableproperty. not the of exclusion, does property, for the purposes Amending the exclusion expenditure on that to 2)to "acquiring" (clause acquire clarify depreciable depreciableproperty Tax Information Bulletin

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NEW LEGISLATION and is incidental to activity. the decommissioning remediation for the providing eligible still the could credit, separate other is it activity, meets criteria, be an identifiable eligibility thatNote again the exclusion only relates to expenditure remediating of the on act land itself. Expenditure R&D relating on to credit. uncertainty. this The clarifies by explicitly technological or clause new excluding expenditure remediating on landfrom the This expenditure, largely itself, inand of should already from excluded the it credit is be as unlikely to relate to scientific resolving anyincludes monitoring maintenance or activities that relate to restoring/remedying asite. remedying asite area or land ("site"), of activities where the on site aperson's have resulted inchanges to the site. This also 20Cexcludes expenditure clause New remediating on land. This exclusion is intended to cover the restoring of costs or Exclusion expenditure of onremediating land clause (new 20C) activity, and is incidental to activity. the decommissioning is potentiallydecommissioning for theproviding eligible the credit, separate other is it meets criteria, an identifiable eligibility Note that the exclusion only relates to expenditure itself. Expenditure R&Drelating on decommissioning of the on act to credit. uncertainty. The technological or intent this of that exclusion is to expenditure clarify is for the eligible not decommissioning on This expenditure, largely itself, inand of should already from excluded the it credit is be as unlikely to relate to scientific resolving Note that lists are the above exhaustive. not • • • The exclusion is intended (including land) such to as: applyto assets • • • • (including land): the to following assets This 20Bexcludes expenditure clause exclusionNew is intended decommissioning. to on cover expenditure involvedindoing Exclusion decommissioning of expenditure clause (new 20B) whetherof R&Dtakes place. directly they not do relate are amounts These because excluded tocosts. R&D. They are that costs have incurred to regardless be undercurrentineligible legislation, but that to the and clarity exclusion new provides firms claim certainty they these cannot governance corporate already should costs 13Bexcludes These expenditure clause activities. be New performing on loss or Exclusion expenditure of oncorporate governance activities clause (new 13B) credit. for theeligible R&Dtax but the amendment uncertainty), to 13provides explicit legislative clause technological guidance that are costs these not directly they not undercurrent do relateineligible legislation because to relate R&D(they not do to or scientific resolving expenditure determining on entitlements, thecurrently well fees as as targeted by the be should exclusion. amounts These creditto by replacing the tax the words "professional with fees" "expenditure This is intended loss." or to exclude in-house The amendment 13to clause of cover broadens all expenditure the scope incurred entitlement loss indetermining or aperson's to an accounting to prepare R&Dclaim. firm aperson's This exclusion to covers activity, paid determine fees aperson, the of eligibility amount or expenditure, of paid amounts such as 13excludes professionalClause incurred entitlement, fees indetermining aperson's lackentitlement, or of credit. to an R&Dtax Excluding in-house costs ondetermining credit tax entitlement (clause 13) it. to obtain regardless the of used method Thisit. is consistent intent with the of original the exclusion, policy which is intended to exclude expenditure land obtaining on This that amendment 10so it clause of excludes expenditure broadens the scope to acquire land,rather than merely to purchase Department Revenue Inland any improvements alterations or to land. plant and machinery, and structures an asset. decommissioning otherwise inR&D),and to adifferent converted it conduct is for use (unless being that used activity so converting be it can an asset preventing access to an asset an asset of, disposing abandoning or removing, dismantling, demolishing, Tax Information Bulletin

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NEW LEGISLATION directly supported by agovernmentdirectly grant claimed. supported to be other removes It criteria. also related the words otherwise "or to" from the exclusion, for other allowing that amounts are not for the claimed to credit amounts Grant provided they inthe contract), the be these meet Project allowing specified (as project The cover the that not amendment over estimated amounts and 21so above it clause narrows of does cost the the of scope income year. credit regime is from for the eligible the not approval, R&D tax 2020–21 without aperson general CAM or because important, their of only (or covermore R&D).This part time declined general is to approval be seek approval application their should CAM to ensure and methodologies their R&Dclaimsprocesses addition, are In an earlier have date due correct. means businesses (during theoccurring relevant to income year). This have for businesses reduces to the retrospectively need amend their This when inplace their earlier R&Dis date due actually ensures have and methodologies the R&Dprocesses correct businesses date, due only submitted.above date. due new This require not amendmentunder the proposed completed by approval the does that be process the CAM income year, their 2021 30September on year-end due approval be 31March would application 2022, and their be would CAM for upto three for astandard obtained approvals income years). So, balance date be can (31March) claimant inthe 2021–22 approvalsthe date due to for six applyingfor CAM months relates the before end income year to the of first which aCAM (CAM approvalUnder the applications previous were legislation, CAM after due the end the of income year. The amendment changes activities and expenditure. approval, instead to abusiness for determine approval it R&D uses applies the its the of of criteria eligibility and methodologies to more spend than out general R&Dinagiven of $2mon opt expect year can approval approval. and into Under CAM CAM Under which general approval, Businesses must apply for approval R&Dactivities. core abusiness each of its of and supporting From the 2020–21income year, either approval. must obtain general (CAM) approval businesses criteria or and methodologies Background six months income year. the before end aperson's of approvalThis the to date due amendment forward for (CAM) submitting brings for criteria an application and methodologies (Section 68CC ofthe Tax Administration Act 1994) date due change application Criteria methodologies and the therefore grant and was previously 21as written. clause B, considered for the ineligible part RDTI 21B, under schedule is the on considered project withbusiness incurred to inconnection expenditure be that through already has subsidised been required This the to required means complete that beyond 60%co-funding. the project any additional expenditure by the However, co-funding). 60% as that the any terms must spend the additional business agreement funding the of funding specify receive can estimated for upto funding aproject's 40%of businesses cost Grant, Under (and are aProject required to contribute This by neither expenditure the to thus supported Grant thecontrary nor was the credit, intent the of credit. from excluded the was credit. co-funding, the specified by Grant the and beyond but isby grant, aProject directly not funded However, previously as written, broadly, very the exclusion that applied expenditure so (for example) that relates to R&Dfunded intent to their credit increase is expenditureThe the to of tax businesses broader incentivise policy R&D. on and support provision.dipping expenditure by any other maintaining mechanism the unsupported for the while claimed anti-double- funding to credit, be expenditure relating to R&Dactivity. the same the of exclusion to An amendment the more allow scope clarifies inthe Act introduced by preventing from to claiming sources multiple government of avoid for "double-dipping" businesses funding 21excludes expenditureClause that loss or is related to agrant by the made authority. Crown alocal or This is abroad exclusion Amending the exclusion expenditure of related agovernment to grant (clause 21) Department Revenue Inland expenditure supported by a Project Grant. expenditure by aProject supported it relates additionalof expenditure to 21because is clause B, considered for the ineligible part RDTI 21B, underschedule CompanyAfter Adiscovers the The that starting project, to $700k an additional the spend it $700kon will need project. by the top grant. $300kon of aminimum the of and spend $200kfunded project $200k (which is 500k). The 40%of company is required agreement Grant funding Project by its to complete the R&D agreed Companythat is Xwill cost A'sapplication approved, Project $500k. and it receives from Innovation Callaghan funding of At Grant. the for aProject time Xand the applies application, of companyCompany R&Dproject estimates Aundertakes 68:Current practice Example Tax Information Bulletin

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NEW LEGISLATION sufficient time to for thesufficient date. plan due new with (particularly those taxpayers early balance dates) intending approval for the to 2020–21income year have applyfor CAM The amendment prospectively from the applies 2021–22income year (from 1April 2021for most claimants). This ensures that approval inatimely manner to due their balance date brought being forward. that have who taxpayers atransitional to year due achange tax intheir balance date are rendered not to unable applyfor CAM where had achange has the applicant intheir balance date relates. income year for to the first This which the CAM ensures The amendment contains also adiscretion for the Commissioner to accept and approve applications after the date, due new request to their increase claim within return their ayear of income tax 108(1E)). date due (section (NOPA). to fails make credit Atime prevents claim bar the if the person the R&Dtax Commissioner from increasing aperson's the 113E of Tax(section Administration adjustment 1994),whether 113request Act through a notice or proposed of asection arequest credit credit claim claim to their they once only for each file make can increase R&Dtax R&Dtax A person Background return income tax since ataxpayer's date due for the relevant passed year has year. favour. Previously, atime that bar the prevents legislation the imposed Commissioner from considering requests more if than a This amendment provides the Commissioner with more time 113requests to claims to increase consider inataxpayer's section (Section 108(1E)ofthe Tax Administration Act 1994) R&Dclaims toMore time to increase requests consider wherechoosing changed has the the applicant end date their of income to year due achange intheir balance date. However, the amendment provides the also Commissioner with discretion to accept at an application alater time her of considered be for thenot relevant income year. Applications for most (30September taxpayers). submitted applies after income year tothe that first which the CAM date will Administration that submitted the 1994,so before day or last on applications Act must the be of 6th month the before end of 68CC(3) approvalThe the the of date applications Tax due insection amendment forward for applying for CAM brings Key features The amendment from the applies 2021–22income year (1April 2021for most taxpayers). Application date Department Revenue Inland 2021–22 income year. approval intime. The inthe covered not company claim the CAM cannot by projects credit its projects for these the two The date due for applying for general approval is still 7August apply for general 2022.Widgets-R-Us cannot approval for are to covered.takes approve six not weeks projects (it is 2022),and approved two 8September on 7August on due 2022.The 28July. on be application the company its would CAM application submits 2022, its above, As relates. Widgets-R-Us's balance date income year to theof first As which for the the CAM 2021–22income year is 30June approvalUnder the applications previous were legislation, the before or CAM 7th on due day the of month 2nd after the end Variation Under the facts: of previous legislation the before date. for general due applies approval projects for both the 7th day the of month 2nd after the end income year. the of first this For Widgets-R-Us, is 7August 2022.The company The date due for applying for general approval for the 2021–22income year is unchanged; applications are before or on due approval. coverednot The by core the CAM team Widgets-R-Us advises to apply for general approval projects. for both are projects team with These is the satisfied company's not systems expenditure eligible projects. its of for identifying intwo approval; however, are inthe CAM included Widgets-R-Us's 2022.Most of R&Dprojects completed 1February on the core to 2021.The and is takes process six application weeks 21December on application The CAM company its submits Widgets-R-Us's balance date 2021. As for the 2021–22income is year is 31December application on due 30June 2022,its approvalThe date is due six months for applying for CAM relates. the before end income year to the of first which the CAM approval for the 2021–22,2022–23,and 2023–24income years (ratherCAM than general seeking approval for each project). to apply for income year. it elects R&Dprojects, of variety awide balance date Widgets-R-Us Its undertakes is As 30June. alargeWidgets-R-Us, company with amajor R&Darm, is incentive considering applying for the R&Dtax inthe 2021–22 approval the under new rules CAM for 69:Applying Example Tax Information Bulletin

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NEW LEGISLATION recipient who wants to use a tax refund they arerecipient to atax owed balance. to pay their wants who loan down use SBCS recipient toowed loan an SBCS to balance at their SBCS the recipient's outstanding the for aloan process request. This simplifies amount inrelation payable The amendment under the to made Revenue SBCS. Inland to allows aloan transfer refund atax the 3of Tax insection "tax" of The definition 10Bto Part of an Administration include 1994is for the amended Act purpose Section the 3of Tax Administration Act 1994 The amends Act the Tax Administration 1994. Act analysis Detailed The amendments apply from the date received the Act Royal assent. Application date torefund owed recipient an SBCS to balance at their SBCS the recipient's outstanding request. The provides for an Act amendment the 3of Tax to section Administration 1994to Revenue Act Inland allow to transfer atax Key features had to make amanual repayment to repay their under the SBCS. loan another This amount due. meant to refunds that made had to the the account, at borrower's be bank borrower tax which point the 10Bof Part Tax of purpose to Administration or 1994,where to Act type made transfers another be tax can excess of tax for the "tax" of inthe definition included not underthe was SBCS aloan Thispaying their balance. down SBCS is because Previously, refund, they were atax to unable owed request aborrower if was that Revenue Inland transfer this amount toward organisation. or by thetime-equivalent business employed employees COVID-19. of impacts Borrowers are to upto of able access $100,000,with aloan full- of the the on amount number depending to aresponse for the applications 12May on 2020as economic opened (SBCS) Scheme (Loan) The Small Cashflow Business Background balance at their loan request.outstanding transferred be can (SBCS) by Revenue Inland Scheme to (Loan) theirrecipient under the Small aloan of Cashflow Business An inthe amendment Tax is "tax" of to made the definition Administration 1994to Act ensure to refunds that owed a tax (Section 3ofthe Tax Administration Act 1994) Scheme (Loan) Cashflow the under Small Business to amount an borrowed refunds to transfer tax Ability most taxpayers). which is credit the scheme, 2019–20income yearThe (1April the of 2019for R&D tax amendment from the applies beginning Application date is initiated within this the Commissioner consider timeframe, can the request. 113request within return theirclaim ayear asection of made upwards has income tax the if date. due person Provided arequest the 108(1E)of TaxSection Administration credit 1994is to amended Act the allow R&Dtax Commissioner to aperson's adjust Key features timeenough to consider requests consistent intent. with the policy (KiwiSaver, Student Loans and Remedial Matters) 2020 inasimilar way. Act The amendment ensures the Commissioner has 113requests consistent towhich applies section with the that rules apply for NOPAs, which were by the amended Taxation requiring the initiated request be within the ayear of return relevant income tax taxpayer's date. due This makes the time bar An amendment removes inthe Act the requirement that within still that while the processed fully request timeframe, be that the Commissioner timeframe, may have not time enough to consider fully requests. simply that must initiate the person the disputes within process that By timeframe. requiring within the request processed to be processed previously the drafted, creditAs legislation 113request claim initiated required to to an R&Dtax be increase asection and Department Revenue Inland within the ayear of return relevant income tax taxpayer's date. due intent, This which is is to contrary the policy Tax Information Bulletin

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NEW LEGISLATION potential around improved reporting data inthe credits future. The recommended amendments are to future-proof designed the calculation and enable the Commissioner to any incorporate The prescriptive is formula changed to an outline what of the to Commissioner consider needs when calculating the adjustment. managers. inthe2020–21 year by or fund future supplied information more be as detailed can the of attributed of investor inthe credits calculation inthe for thepreventing benefit both tax types to the some include ability The overly year-end HM36B(2)and (3)was This prescriptive. insubsections risked adjustment calculation described formula PIE schedular income year-end adjustment calculation analysis Detailed The amendments apply retrospectively from 1April 2020,when the year-end new adjustments into came PIE effect. tax Application date • • • • • • The key changes are follows: as Key features All references are to the Tax Income stated. otherwise 2007unless Act and processes. currentThese the year-end amendments clarify adjustment and better process integrate it into existing legislation income tax refund. tax reduce or payable the person's tax reduce would the or person's payable, either refunded, be year.income during the tax and would position end year Any tax to of the is resulting payable person's added tax refund or due year. PIE income for the tax aperson's on paid been This year-end any square-up addresses over- PIE on underpayment or tax of their of PIE on behalf on income investors) during the paid year (by PIEs amount with tax that of the have amount should tax of year. from the individualsincome refunded 2020/21tax of to be This through is achieved ayear-end square-up the comparing The Taxation (KiwiSaver, Student and Remedial Matters) Loans, 2020introduced PIE Act on changes to tax for overpaid allow Background and future the proof and calculations. to simplify rules, Amendments to investment have made the way been inwhich the portfolio entity (PIE) year-end the to clarify works process 4and YA 3,LS 6,LS (Sections 53,HM36B, 7,DB HM52,56,LA BC 1(residual income ofthe tax) Income Tax Act 2007) year-end income toChanges the PIE schedular adjustment rules Revenuegive Inland authority to make atransfer without the recipient's permission. directly refund to transferredrecipient be for atax may This to balance. choose their not SBCS amendment outstanding does Instead balance. recipientSBCS aloan of receiving it to using arefund before make amanual repayment their of the loan, the of amendment is refundThe against to their purpose reduce atax recipients compliance want who for costs loan to offset Department Revenue Inland – The PIE schedular tax adjustment will form part of an adjustment of investor's for provisional purposes. will part The tax form residual PIE income tax schedular tax the removallimits PIE of income from income. excluded adjustment the of only. tax calculation the of PIE schedular Multi-rate income for the purposes This PIE income is taxable – thatClarification the year-end adjustment: tax PIE schedular adjustment.have to pay tax additional arefund or from tax aPIE schedular investor rate the prescribed incorrect have who (PIR) haveOnly who taxpayers or used changed their PIR during the year will adjustment. tax schedular attributable credits to anatural tax investor and loss are person PIE when calculating losses included the individual's PIE to takeneeds into account when calculating the adjustment. The year-end inlegislation is replaced adjustment with an outline calculation described what formula of the Commissioner

does not apply to a natural person who derives PIE income as beneficiary income from atrust that applyto not is aPIE. anatural not derives beneficiary who PIE income as does person applies only toapplies natural investors are person who resident inNew Zealand, and Tax Information Bulletin

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NEW LEGISLATION be the same as their residual income tax liability on which provisional on is calculated. their liability as residual tax the income same tax be liability. This amendment Revenue's and Inland for systems taxpayers reduces complexity for the inthat year will liability the tax which forms the for any basis provisional residual of income tax, tax adjustment part as isThe tax now included PIE schedular timing the of calculation process. rate the all of or This PIE to income. some change eliminates the to charging payable investors small of tax of amounts to due the the investor, where they have changed their PIR during the year, azero where or the PIR correct applied or applied aPIE not has investorfrom their rate PIE prescribed an incorrect income using (PIR). This when occur PIR could an incorrect is providedby adjustment is tax onlyA PIE required schedular where anatural investor deducted resident person had inNew Zealand tax has Department Revenue Inland they are PIR an on incorrect to enable them to this correct and reduce the exposure to provisional liabilities. tax However, investors that notifying Revenue Inland will be reduced, as it is Eddie will be likely of the such example as that cases year even though the rest at his of source. income is taxed mean thatwill also aprovisional Eddie will be for that taxpayer year. to liable pay provisional inthe will be He following tax At the adjustment end the of Revenue year Inland $5,300which will he have calculates as tax his to PIE schedular pay but it the PIE. notify not PIRincorrect but does he Eddie that is Revenue he Inland notified an has on the on 28%PIR. and Pioneer gives aPIR be 10.5%even of should thoughhe (Pioneer). Eddiefiguresthat great it will be timing advantage to delay his on investment paying much PIE as tax possible as The of Lost an Limited, employee Cat Cattery isEddie, an investor administered inaPIE fund by Pioneer Phunds Limited 72 Example based. which his $32,000on for the 2024–25provisionalhis will be 2023–24income year will residual be income tax tax Revenue his2023–24 income $26,000.Inland year of adds PIE adjustment for the year and liability $6,000to of his income tax adjustment) is andis he self-employed aprovisionalNoel inthe tax PIE with (before schedular taxpayer residual income tax at alower rate taxed thanfunds his PIR correct 28%. of his PIR at2023–24 income yeargave he timing 10.5%thinking Spoons advantage that from get having would he agood his is an investorNoel inthe his inaKiwiSaver fund administered fund opened Funds When Noel Limited by Spoons (Spoons). 71 Example that using PIR incorrect duringthe deducted year this was charged amountPIR will be to and tax him. Tim will have to Tim an incorrect pay additional As $2,100to for the of tax year his upto bring used PIE the tax PIR. correct informationfollowing and Tim's PIR: correct At adjustment the the end the PIE of for Revenue tax Tim's year Inland performs PIE income from the B&EPIE the using The Tim's of B&EPIE redeems some liability. and pays the units PIE tax the calculation information: using following atax B&E PIE undertakes out thatworks to his 28%but fails he PIR change for the be year should his PIR with At the B&EPIE. the end the of year the Tim is an investor however, Tim inthe B&EPIE. the a17.5%PIR, year on started return his after tax filing for the year he prior 70 Example Tax to pay paid PIE tax Less: Tax that on @28% PIE income Tax to pay Tax that on @17.5% PIE income $2,100 $3,500 $5,600 $20,000 $3,500 $3,500 $20,000 Amount Amount Tax Information Bulletin

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NEW LEGISLATION The first filing due date due undertheThe filing change first is 15May 2021. This amendment retrospectively applies from the 2020−21income year to align with the date application the of PIE new rules. Application date multi-rate and enable the year-end PIEs square-up. are scheme income information requiredsavings detailed for their to investors file to 15May, to align with that other of date due The the by which multi-rate filing amendment forward that brings PIEs are retirement or asuperannuation fund Key features information result is which standardised can not indelays PIE uptaxpayers tax. insquaring any. resulting if refund bill, or position, end-of-year overall inone tax income tax However, currently the PIE of date due for filing the year-end The outcomesquare-up happens alongside the of square-up to is the for income applied process tax. person's provideExisting rules for ayear-end income from on multi-rate square-up This the of for natural tax PIEs PIE tax persons. Background retirement or superannuation fund are scheme income information required savings detailed for their to investors. file The the date amendment forward to brings investment 15May by which multi-rate portfolio entities that (PIEs) are a 25J,(Sections 25Kand 25E, 61ofthe Tax Administration Act 1994) PIEs theChanging locked-in dates for due student and support. child credits, loans, complications and for any Workingthe adjustment added income might non-excluded have as offsets for Families for loss tax except adjustment. This for the tax calculation the avoids of consequences PIE that any schedular unintended treating flow-on The income excluded status is reinstated for multi-rate PIE income attributed to anatural is who resident person inNew Zealand income. attributed PIE taxable PIE inataxpayer's KiwiSaver) (such income from as included alocked-in was year-endnew adjustment this into income excluded status process removed existing processes, was entirely, income tax meaning To assessment. through anatural income tax of to meaning this the flow not income did person's person, better the incorporate adjustment introduced, to being income fromPrior rules tax amulti-rate the PIE new schedular largely PIE was income excluded Limiting the removal ofthe excluded income status multi-rate for PIE income atrust of that is aPIE. not abeneficiary derives income as New Zealand, and that the year-end new is who adjustment an investor applyto not do aperson rules inamulti-rate PIE and thatThe the amendments year-end new clarify adjustment to only applies natural investors are person who resident in year-end adjustment were rules tax PIE intended not schedular to make changes to rules. these applyto rules non-resident investorsSpecific inamulti-rate PIE and to trustees atrust of investing inamulti-rate The new PIE. Clarification ofwhom the PIE schedular adjustment tax rules apply to where is the the not rate investor's used PIR. is entitled investor to their credit rate have using calculated the on prescribed receive loss also (PIR), atax can an adjustment The amendment will ensure that anatural investor, person is who resident inNew Zealand, that is attributed that aloss or has that adjustment. attributed and are resulting credits when calculating tax included the tax PIE losses schedular HM36Bonly referred adjustments calculated undersection to tax attributedPIE schedular This PIE income. amendment clarifies PIE losses and loss credits tax are incorporated when calculating PIE aperson's schedular adjustment tax Department Revenue Inland excluded income for the purposes of calculating of to her liability repay incomeexcluded for the purposes her student loan. toPIR pay for the additional she $346.50.Although has of this year tax it liability will be amount inher is income tax included an on incorrect At she was adjustment the end the of Revenue year Inland for tax Iris calculates and because aPIE schedular inKiwiSaverstarted amistake she made incalculating her PIR and gave aPIR 10.5%when 17.5%. of have on OSA she should been KiwiSaver of She is amember each Step held by also fortnight. her One and has fund AheadFunds When Limited (OSA). Iris an Limited illustrator. for GhostGirl Comics as Iris works astudent She has from her salary which is obligation deducted loan 73 Example Tax Information Bulletin

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NEW LEGISLATION The date application is 30March 2021,the date royal of assent. Application date breaching investor of the number minimum investor maximum or interest requirements. This means upto own trusts lines can A. 100percent 29,part aPIE of without to schedule the trusts PIELines haveadded been requirements for entities the 29of Tax Income listed inschedule 2007. Act investorno more than hold can 20percent the of total investor these interests HM21overrides Section inthat class. HM14,an investorUnder (group class HM15, section investors) of and, under section inaPIE more 20or must include persons Key features customers area and communities therefore intheir and can local considered be widely held. inthe Tax Income trusts 1993.These areAct defined The electricity trusts of trusts." "lines invest 2007as for the Act benefit Energy consumer trusts were by vesting established orders by underthe 1992or the Electricity Energy Southland Act Companies authorities, and the New Zealand Superannuation Fund. local other include equivalent PIEs, to, widely held. Examples entitiescertain considered which invest large of the and or which are, be behalf general on communities, can or groups, public, ensure that are investor asingle PIEs dominate widely However, held, so cannot the aPIE. of actions an exception exists for Generally, an entity only upto own can 20percent aPIE of and there at 20investors restrictions least These must be inaPIE. Background requirements. to hundred one percent aPIE of without the PIE investor of breaching number minimum investor its maximum or interest The Tax Income commonly energy to known as trusts, consumer amended lines allow to up been trusts, own 2007has Act (Schedule 29ofthe Income Tax Act 2007) PIE investor interest exemption trusts lines for square-up. tax This avoids delays to the year-end automatic income tax calculation for alarge process individuals of under the PIE number new each year (previously 30June), to align with other, funds. non-locked-in income information the detailed for theirretirement to fund) investors file alocked-in by 15May (for example, scheme savings the 25Kof TaxSection to Administration amended require been 1994has Act multi-rate that PIEs are or asuperannuation fund the auto-calculationas for income process tax. payersfrom third employers), such the as year-end party PIE on income is an automated for tax process at time process the same (income that income, For individuals only who have Revenue Inland receives reportable regular typically information about, analysis Detailed Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION inserting new time limits on issuing time on new acredit limits inserting note. An to made amendment ensure been has that the amending time on an earlier limits GST return This are by is achieved effective. Background Time earlier inan period made issuing asupply aGST for for note limit credit date adjusted. application to that provides with are be taxpayers need practices not certainty and do these correct have credit issued and debit notes to errors correct they regarding made the GST treatment The retrospective their of supplies. to align with from it 1April is 25(1)(ab) 2012as applies existing expected commercial section New whereby practices suppliers Application date them made 25(1)(ab) has redundant. the section new as repealed Accordingly, haveincorrect. and 25(1)(abb) 25(1)(aab) been replaced, and sections been 25(1)(ab) has the former section redundant aresult as the of general new became provision to which applies any circumstance where the GST treatment was circumstances credit where inspecific notes issued 25allowed to the be GSTsection treatment provisions These incorrect. was previous the provisions GST consequential some legislation. in amendmentsSome to This have made simplify is been because to theapplied Commissioner to amend the original GST return. 25(2)is amount intended adjustment the of to same section be that the have providedif had supplier instead would been 25(1)(ab) to issue acredit debitWhere or note, the section new resulting uses asupplier GST adjustment providedfor under • • • • where GST an incorrect services or treatmentfor any goods supply of to the applied supply. was This scenarios such includes as: to inserted provide ageneral been 25(1)(ab) has provision that issued which clarifies section acredit debitNew or note be can Key features GST inasubsequent made return.be for issuing acredit situations note inthese used and therefore whether provide it for would the amount correct adjustment of to when the amount consideration of altered. the of supplywas However, clear not that it was this provision intended was to be issuingSuppliers acredit note insituations whereby GST 25(1)(b)which applies incorrectly was charged section generally used the 113of Tax RevenueInland under section Administration 1994to Act amend the GST return inwhich the supplyoccurred. compliance and administrative than costs alternatives for correcting the GST, the the such asking supplier as Commissioner of for many includingThis that is reasons, method it used is and provides abetter more practical audit trail. involves It fewer also for the amount correct ($100). common commercial to practice issue acredit note the of forvalue the original invoice full ($115),and then issue invoice anew the if invoice an for $100on exempt was zero-ratedFor or example, GST $15of supplyplus that incorrectly was charged, it is a supply) will often issue acredit note to this correct error. A GST-registered that supplier incorrectly charged GST charged or the wrong amount GST of azero-rated 15%on (such as Background the GST treatment to correct used asupply of be can notes that debit and credit Clarifying references Tax and Services are stated. to otherwise the 1985unless Goods Act return receives similar outcomes to that asupplier to applies the Commissioner to amend the original GST return. All section Two amendments to have made ensure been that that asupplier issues acredit note to aprevious correct mistake inaGST (Section 25ofthe and Tax Goods Services Act 1985) notes GST debit and credit Department Revenue Inland Standard-rated charged supplies at the 10%)instead wrong 12.5%or rate 15% of (for example, Standard-rated mistakenly supplies zero-rated or treated supplies. exempt, non-taxable as mistakenly supplies charged at non-taxable or 15%. Exempt Zero-rated mistakenly supplies charged at 15%. Tax Information Bulletin

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NEW LEGISLATION determine the place of consumption of these services. determine the consumption of services. place these of initiates who aproxy the as of person thein 2003,the to supply from location atelecommunications used was supplier introduced roaming services, for mobile Under the telecommunications of previous GST supplies services for cross-border rules Background to GST. either by anon-resident be zero-rated inNew Zealand would used Additionally, subject not or roaming services mobile inbound are New Zealand. outside with aNew Zealand registered by aperson they while device used mobile roaming services consumption mobile outbound of GST (at to the amended standard impose 1985(the "GST rate Act been has the 15%)on Act") of and Services The Goods (Sections 2(1),8(7),8(8B), 11AB and 51ofthe and Tax Goods Services Act 1985) services roaming mobile GST outbound on Expenditure, and Remedial Matters) introduced. was Bill the from 4June date 2020,which was applies the Taxation 25(1)(f) section New (Annual for Rates 2020–21,Feasibility Application date where oversight the simple requirements theor of (incases supplier (i)and (ii)are subparagraphs both met). of met). Alternatively, years from the seven date it be could settlement, of the if GST incorrect treatment to due was aclear mistake inaGST incorrectly landwas included supply of return where the requirements (incases (i)and (iii)are subparagraphs both of may inwhichlimits the have period expired. The four years from earliest the time usually be end the limit of would taxable compared may to to be determine time need the if two earliest these of 25(3)(f) insection three time described subparagraphs For land that inan asupply of earlier included GST was return havezero-rated the of and should then been two not, but was GST treatment at the time applied supply. of time The limit is seven-year measured from the date settlement of the of land transfer. zero-rating 11(1)(mb),but had an incorrect insection rule compulsory requirements for the business-to-business for qualifying time provides limit for aseven-year credit notes to issued errors correct 25(3)(f)(i) whereby land met asupply of Section the relation land. of to supplies certain retains an existing for issuing acredit note 25(3)(f)(i) in time limit (that 25(3)(f)), previouslySection was inthe former section Time limit issuing for credit relating notes azero-rated to supply land of for the earlier return. time are period The limits above measured from the end the of taxable oversight. simple or which to the due credit was theavailable note to when issued result the is correct, overpayment being aclear of mistake tax, of additional provides time the same limit for issuing acredit note. This 25(3)(f)(ii) means the totaleight of Section years is only that resulted from aclear mistake oversight. This simple or provides effectively an eight-year circumstances. time inthese bar the 45(4)of GST an extraUnder Act four years may section available to aGST adjust be return to an correct overpayment tax of theof GST Act. previous GST return. This time limit is consistent with the time for GST usual limits refunds referred (3) 45(1),(2)or to insection provides afour-year 25(3)(f)(iii) time limit for issuing acreditSection note that relates ina to included asupply which was Time limits credit for align notes with the corresponding time limits GST for refunds analysis Detailed to zero-ratefailed the land,even for zero-rating though that 11(1)(mb). supply qualified undersection relation land. This of to supplies time certain limit years is since the seven date settlement of where and applies the supplier retains an existing for issuing acredit note 25(3)(f)(i) in time limit (that 25(3)(f)), previouslySection was inthe former section credit note relates. the had supplier instead to the applied Commissioner to amend the original GST return the supply to which included which the Two and (ii)are consistent 25(3)(f)(iii) the of time insections with limits the time for GST limits apply if refunds which would three potential sets time for issuing limits acredit note inan for earlier asupply made 25(3)(f) period. section New Key features Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION 12 –which inthis device situationmobile is the they country are travelling in. the of determined SIM by card the code intheir be country would network their mobile usual This is because roaming services. consuming then SIM mobile card be device, not they intheir would mobile is alocal travelling and aperson uses If overseas roaming services. mobile and inbound by creating telecommunications outbound of for both rules the services new definition modified amendments have, ineffect, theof GST states Act that relating The sections to applyto not the do telecommunication rules remote services. services 8(5) section This is rules. because There roaming services the and the rules remote mobile is new overlap no between services device. mobile person's for the identity module the of determined subscriber by as the code country network the their of country mobile usual outside is who device mobile to aperson's supplied telecommunication services mobile as roaming services mobile 2(1)defines Section mobile of roamingDefinition services analysis Detailed The amendments will come into force 1April on 2022. Application date New Zealand and thereforeoutside to by GST anon-resident). subject supplied not (if to non-residents supplied are either services New Zealand. These zero-rated by aresident) supplied (if treated or made being as is outside network mobile usual is who inNew Zealand and whose by aperson used are roamingThese services mobile Inbound mobile roaming services GST at the standard rate 15%. of to are subject is services inNew Zealand. network These mobile usual whose by aperson used are roamingThese services mobile Outbound mobile roaming services within device. their (SIM card) mobile used identity module the of subscriber the code using country network, mobile usual they are the while their device of country outside mobile to aperson's supplied are telecommunicationThese services mobile mobile of roamingDefinition services roaming services. mobile and inbound roaming services and what constitutes toThe roaming the amendments services GST adefinition have for mobile Act added mobile outbound Key features the 2016,theIn International Organisation for Economic Co-operation finalised and Development VAT/GST Guidelines to GST generally not subject inNew Zealand. would be roaming services to GSTsubject at 15%.However, registration aspecial for non-resident rule telecommunication mobile suppliers meant inbound to GST. subject not or by non-residents travelling Conversely, used inNew Zealand may roaming be services mobile inbound by aNew Zealand resident either travelling used be zero-ratedEssentially, would roaming overseas services mobile outbound Department Revenue Inland The United Kingdom and the European Union already apply VAT consistent roaming services mobile on with Guidelines. these what of constitutes abroad definition The use Guidelines telecommunication of services. including supplies aremote service, that aproxy as where for determining the necessary, consumer's used the consumption. of residence of place place usual be can The The help Guidelines state Guidelines determine the consumption of and remote intangibles. place cross-border of services uncoordinated national of application VAT systems inrelation to international trade. internationally of aset "Guidelines"), standards agreed and recommended approaches to address the issues that from arise the

usual mobile network. So, Matthew is not using mobile roaming services. Matthew mobile is using So, not network. mobile usual the of SIM is the code New Zealand, country then New Zealand is considered Because the Matthew's of to country device. be Matthew is an Australian resident holiday on inNew Zealand, andpurchases aNew Zealand he SIM card inhis to mobile use SIM card 74:Local Example OECD (2017),InternationalOECD VAT/GST. Paris, https://doi.org/10.1787/9789264271401-en Publishing, OECD Guidelines, Tax Information Bulletin

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NEW LEGISLATION being made inNew Zealand. made being by anon-resident supplied to non-residents travelling roaming services mobile inNew Zealand areinbound longer no treated as have above consequently as this made The provision repealed. amendments described been unnecessary 51(1)(e)has Section Miscellaneous • • New Zealand. addition: In is outside network mobile usual and whose is who inNew Zealand received by aperson roaming services mobile as roaming services mobile inbound 2(1)defines Section Inbound roaming services • • is inNew Zealand. addition: network In mobile usual whose received by aperson roaming services mobile as roaming services mobile outbound 2(1)defines Section Outbound mobile roaming services customer daily weeklyfee. or for aflat is overseas offered by telecommunications suppliersthat enable their customers to continue the their while to plan regular use mobile This roaming includes deals when they network. are the their of country mobile telecommunication usual outside services to to receive enable aperson supplied mobile services includes also roaming services mobile of The definition Department Revenue Inland mobile roaming services. mobile aBritish which means has SIM that phone card inhis is he code, country mobile inNew Zealand while is he inbound using isGraeme aScottish resident to Graeme's phone make visiting his mobile calls. New Zealand. While inNew Zealand uses he services roaming mobile 77:Inbound Example roaming services. mobile is he outbound using overseas he's which means that SIM code, aNew Zealand country has while Benji's (withphone his texts and data. NZSIM card) for calls, is aNew ZealandBenji resident visiting his Amin friend inthe town Smithtown, of York. New While there his mobile uses he services roaming mobile 76:Outbound Example Kiwiphone's customers New Zealand. outside to while receive telecommunications mobile services it travelling day. enables as while $5per of plan for afee overseas roaming service is mobile an This outbound service Kiwiphone is aNew Zealand telecommunications that supplier customers its allows to continue their using regular mobile roaming to mobile enable 75:Services Example services supplied to non-residents by a non-resident as being made outside New Zealand, and therefore, to to outside non-residents made GST. supplied by anon-resident being subject not as services 8(7)is (b)to by shifting amended the to treat roaming existing paragraph (a)and adding mobile Section subsection inbound to anon-resident. supplied azero-rating 11AB(1)(c) adds roaming services section provision mobile New for inbound inNew Zealand. made being as roaming 8(8B)treats services mobile by non-residents outbound of supplies section New services. 11AB(2) prevents the zero-rating section New roaming provision (1)(b)from applyingto mobile inparagraph outbound Tax Information Bulletin

Vol 6July 33No 2021 89

NEW LEGISLATION lease, that was an operating lease under NZ IAS 17, with $100,000 per year of lease payments and a3.7237% 17,with lease year of under NZIAS $100,000per that an operating lease was lease, for afive-year example are shown inthe simplified Thisbut total following deductions unchanged be over can the lifethe of lease. changes 16also the timing accounting of NZ IFRS compared expenditure to the previous treatment for lessees operating leases; of liability, term, for and the alease representing lease asset the to obligation leased pay rentals. are required the right the being their to on 16,lessees to by recognising balancesheet, use an account asset NZ IFRS for all leases Under for accounting 16removes purposes. leases operating and finance the NZIFRS distinction between For lessees, 13 and the date 16for tax this of is referred election applying NZIFRS transition to the tax as date. to more their follow closely accounting this of treatment bulletin making For this the purpose choice is referred for tax. to as basis, Taxpayers are to alease-by-lease on now able choice, make alessee aone-off as 16for their leases NZIFRS follow who Key features are identical similar but not to leases the The have maintained. finance accounting existing definitions been definitions. tax The Tax Income 2007requires Act operating and of adifferent treatment definitions The tax tax leases. for operating and finance obligations. reporting have not do NZIFRS There are changes no treatment to are the Nor tax there any lessors. of changes treatment to the tax that for taxpayers leases of operating leases. their on balance sheet for assets leased for accounting and will lease reflect differentiate and finance operating leases between change significantly not the accounting 16does treatmentNZ IFRS for the lessor. leases of will continue The to lessor the distinction follows: as 17defined NZIAS lessees. 17,thereUnder NZIAS adifference was and inthe accounting lessors treatment for both leases operating and finance between have taxpayers so. done some to applythe standard 2019;although, this it before is possible after or on also Revenue and Inland starting is 1January aware that the accounting treatment previously 16for was 17.This years determined replaced under NZIAS standard by NZIFRS been has inexchange to use for payment the(known lessee) as over For entities the term obligations, reporting the of lease. with NZIFRS providing it an to asset holds) another person owns who otherwise (or the (known lessor) as involves person one A lease Background 2019. to after or on 16applies income years starting 1January 16).NZIFRS (NZIFRS Standard 16Leases International Accounting 17),with (NZIAS New Zealand Equivalent Standard 17Leases to International Financial Reporting changesThe result tax from the replacement the of New Zealand Equivalent previous accounting to standard for leases, their follow closely accounting treatment purposes. for tax The Tax Income to more 16to accounted choose changed for underNZIFRS to with leases taxpayers been allow has certain Act 10B, EW15I, 10,EJ YA(Sections EJ CC 51C, 14,DB 16,lease) 17,NZIFRS 1(NZIAS ofthe Income Tax Act 2007) TaxIncome 16 to NZIFRS treatment subject leases of Department Revenue Inland

Total 5 4 3 2 1 Year each individual lease, based on its specific terms and features, specific its the on following requirements 16. based by NZIFRS set each individual lease, Thisconsidering this consistently rate project. is inthis used bulletin. 16examples The actual inall interest NZIFRS rate is determined for This interest arepresentative as chosen rate rate were BBB+ been day has a particular on five-year when rate the officials it NZdollar was as

classified as an operating lease not it transfer if does substantially all the risks and rewards incidental toownership. A lease is classified as lease afinance it if transfers substantially all the risks and rewards incidental toownership. Alease is 500,000 100,000 100,000 100,000 100,000 100,000 NZIAS 17Expenses NZIAS 500,000 93,322 96,783 100,120 103,337 106,439 IFRS 16Expenses IFRS Tax Information Bulletin

Vol 6July 33No 2021 13 discount rate: 90

NEW LEGISLATION for each of their qualifying operating leases. for each their of qualifying 16for tax 10B(1)(d)to applyNZIFRS EJ 16for accounting choice make insection NZIFRS can applies aone-off who A taxpayer Optional election to able continue will be to their follow existing operating leases treatment. tax qualifying their all of or for some 16for tax to not applyNZIFRS choose who taxpayers areThe optional. changes NZ IFRS for lessees Lessees under operating tax taxpayers NZIFRS leases for changesNo treatment to havemade the tax been lessors. of underLessors operating tax taxpayers NZIFRS leases for for accounting. an operating lease as that is lease classified finance tax 16may to still updated applying NZIFRS refer have 16rather been EW15Ihas to alessor a than 17as NZIFRS NZIAS Section However,for lessees. EW15E. the yield to maturity by applying section will continue method leases available for to these be to applythe yield to removed 16has maturity the accounting NZIFRS leases method. operating and finance distinction between 17 underNZIAS an operating lease as that classified was lease finance had who atax EW15Ipreviously aperson allowed Section Finance leases and the yield maturity to method purposes. for tax and operating leases leases finance changesNo between to havemade the existing been boundary toupdated refer 16. to NZIFRS YA insection the lease 1of Tax finance Income of The definition 2007which previously Act referred been to17has NZIAS leases and the operating to finance of definition Updates tax leases analysis Detailed 16. NZ IFRS The amendments apply for balance dates 2019to commencing after or align on with 1January the date application of Application date lease. the of commencement after the for tax original 16applies transitional 10B(8)and (9)include when NZIFRS EJ adjustments leases for certain Section This to applies short-term, also 16for leases. tax. value low applying NZIFRS not for ataxpayer deductible been 10B(6)and (7)requires EJ to awash-up ensuresection over the match total term deductions the that of lease those have would lease, an IFRS to be it longer no qualifies ends because or itself the lease either ends, because lease When an IFRS will always 16treatment. mirror deduction the and NZIFRS the tax leases these and aterm initiallyless four of yearsless or and immediately after any extension. adjustments No are required for allowed or An exception 10B(2)are EJ to short-term, which have $100,000or this of insection an initial asset leases low-value right use of 16for tax. applyingNZIFRS not for ataxpayer deductible be it would 10B(3)to (5)requires EJ adjustments allows or toSection ensure this at asimilar time expenditure to for tax when is deductible thisof different expenditure significantly purposes. being incurred to for tax for accounting be when it would purposes 16spreads expenditure certain NZ IFRS and provisions related inway that to alease results inthe timing recognition of • • • 10B(1).The criteria EJ that: include insection lease criteria an IFRS to be that the meet property personal of are operating leases leases IFRS leases. for all IFRS purposes 16will applyfor tax NZ IFRS forloss accounting purposes. circumstances, when insome such arise an impairment as can adjustment from aprevious year is through reversed and profit expenditure, to CC 10Bare be but income calculated 14.Mostamounts under EJ expected under section income is assessable 51Cand DB under section 10B(1)(d).Expenditure is EJ deductible to undersection that 16for tax lease to applyNZIFRS elected only when the has 10Bwhich applies andIncome expenditure taxpayer EJ are arising calculated section under new from alease Department Revenue Inland the asset is not subleased to another person. is subleased not the asset and are associated, not and lessee the lessor for that 16for accounting 16for tax lease to chosen NZIFRS and has apply NZIFRS applies the person Tax Information Bulletin

Vol 6July 33No 2021 91

NEW LEGISLATION 14 short-term this of some include could leases value low or Examples 16 for accounting that NZIFRS may follows thatA lessee have are individual leases accounted not their for on balance sheet. Leases that donot accounting fully follow 16for NZIFRS • • circumstances: intwo for alease for tax required will be to make 16 A lessee atransitional year they 10B(8)and (9)inthe applyNZIFRS first EJ adjustment under section Leases that previously did not meet the ofan definition lease IFRS to reduce this of significantly the is situation likelihood rules expected from the proposed occurring. leases real property treatmenttax revert to would that the of standard below. treatment lease The exclusion of described as awash-up and include and the lease, an IFRS as to way qualify will term, cease through to part the lease alease another person is subleased anIf asset 10B(1)(c). EJ section meet will not such alease to as another person subleased To asset. of-use this resolve situation treatment the standard is when tax the asset retained for all operating leases been has treatment the accounting followed treatment, entitled be for the not to aright- of amortisation would deductions ataxpayer the If for accounting. tax is lease afinance a right-of-use receivable the of where lessor to lease the afinance sublease asset balance sheet changes from person's inthe first the asset person to asecond is subleased 16,when an asset Under NZIFRS Subleases treatmentthe tax revert to would that the of standard below. treatment lease described as including awash-up and lease, an IFRS as to qualify cease achange of At would inshareholding. this the lease point because for example associated, Two might enter and then rules parties subsequently become underthe unassociated into proposed an operating lease 10B(1)(b). EJ section meet will not such alease as party an associated compared to retaining inthe lessor. the asset To prevent treatment the this, standard tax from is retained for all operating leases timing result advantage would positions inatax party, their tax from combined an associated they leased for an asset for tax 16 to 16means apply NZIFRS thatThe choose could different underNZIFRS ataxpayer if treatment and lessees lessors between Associated parties to treatment the standard subject for other operating lease leases. be 16for tax to chosen even has when applyNZIFRS ataxpayer will continue out real real of to property, property the using existing carve aresult, all leases The also rules new As boundary. lease. afinance be cannot real of property alease so inthe Tax Income assets, lease lease property only to 2007applies personal Act The afinance of Tax Income the definition This is because operating 2007already leases. as Act real of treats property all leases Real property • • • However, must continue ataxpayer to their follow existing treatment operating leases: for the tax following lease. an IFRS 10B(1)as EJ insection are defined Such is leases year the the made. of election first from and existing the new to start its all of or applyit to leases some choose can 16for tax to applyNZIFRS choosing A taxpayer Leases within the ofthe scope proposed rules for other leases. 16for tax 16for accounting NZIFRS to when applied when apply NZIFRS or they they first first inayear subsequent 16for tax This to apply NZIFRS is first available election inany that choose income year so can ataxpayer inall future thisfollow for the method lease 16for accounting years where they NZIFRS purposes. follow is separate required. election No they makesmade. will have Once ataxpayer this to choice lease, continue for aparticular to return is underthe intheThe by rules calculating new income made tax election deductions for the income year the choice is Department Revenue Inland The accounting treatment for these specific leases is expected to be similarto toThe the be accounting existing treatment. is expected treatment tax leases specific for these accordance 16and any with accounting NZIFRS expenditure through account deductible. recognised the and loss profit will be

require tax adjustments as discussed elsewhere inthisrequire adjustments discussed Bulletin. as tax terminology, theNotwithstanding same the thresholds 16are for this lower than inNZIFRS the short-term, not which do leases low-value purposes. tax but not for accounting toin any purposes alease applied other been year where 16has inaprevious year NZIFRS or basis, 16for accounting 16for accounting itif is year they aretrospective the NZIFRS on applyNZIFRS and they first adopted where is subleased. thea lease asset party, and from an associated a lease real of property a lease 14 . The accounting treatment will in still be leases these of Tax Information Bulletin

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NEW LEGISLATION to amount the over same the term the of lease. replicateexactly the accounting spread adjustments these but of is to intended for taxpayers easier to calculate be and will total An spread equal either of the impairment and revaluation adjustment adjustment costs and direct the or make-good may not revaluation adjustment adjustment. costs and direct and make-good three 10B(3)includes adjustment EJ which are amounts The adjustment, insection formula the impairment add-back and Table that adjustments mayrequired be tax spreading the of and proposed 9:Results may required. be Therefore, with the adjustments exception to the tax the short-term, of accounting amount out inTable set leases, value low 9 The are rules new intended not to compared accelerate to significantly available under the deductions those existing tax rules. year. Net accounting expenditure this is treated amount apositive and net as accounting income is treated anegative amount. as accounting This amount. for the is income the through total amount lease account recognised the and loss profit for the IFRS with the 10B(3)starts EJ in section lease income for an IFRS expenditureThe for calculating formula the assessable deductible or Adjustments Department Revenue Inland certain direct or mobilisation costs) mobilisation or direct certain later than when the expenditure is incurred (for example, costs) impairment revaluation make or or good amounts, in advance when of the expenditure is incurred (for example, that are… If the inaccounting deductions spreading results following theirfollowing accounting treatment. in calculating the adjustment costs direct from making that than to benefit continue they adjustment would choose can cost Adirect adjustment is that the of lease. optional so that ataxpayer incurbeginning greater would compliance costs when they are at incurred, near deductible or the which is typically tax be would into value, the asset capitalised to be circumstance and are insome asset 16but, spread where over the underNZIFRS they term are the of required lease not are costs setting inadvance incurred. or upthe it Direct expenditure of leased being the obtaining of costs deductible being cost toare adjustment Amake-good prevent at incurred, near or the is end which is compulsory the of typically lease. when they and are deductible restoring asset 16but spread are over tax the under NZ IFRS the term leased the of lease relevant days of inthe number part-year by days the of total inthat number year. are costs the of costs Make-good over theproportions remaining into taking account term part-years the of lease, inthe remaining term by dividing the are 16.These (that nominal amounts discounted). not NZIFRS 24(c)of The is, are amounts in paragraph spread inequal 24(d)and the amount described costs direct inparagraph of by described the costs amount make-good of deduction tax The the adjustment decreases purposes. for tax 16but are term points) (or incurred underNZIFRS at point lease asingle that costs these of adjustment realigns are costs impact required the direct and tax spread to over be the Make-good thattherefore, haveavailable deductions had the would impairment revaluation been or tax) adjustment made. been not This towhere is deduction). approximate designed adjustment the the add-back tax increases the accounting (and relevant days of inthe number part-year deduction by days theof totalinthat number the tax year (and likewise decreases over the proportions equal remaining into taking account term part-years the of lease, inthe remaining term by dividing the by the amountadjustment the of add-back deduction spread the revaluation and tax in adjustment increases Impairment relate these 16as NZIFRS to 34of investmentparagraph which is it from excluded is the as real rules property property. 16.There NZIFRS 33and 35of isin paragraphs equivalent no adjustment movements value referred for fair to in expenditure revaluationor that incurred. adjustments adjustments reflect These not are do been has referred to impairment revaluation or impairment adjustments these as are through reversed This and loss). profit is necessary these if when they are deduction a lease recorded the through (and likewise tax amended or increases and loss profit by inimpairment the revaluation or total increase deduction adjustments the for tax adjustment decreases Add-back • • • adjustmentis made ...then atax do so. do perceived that of value adjustment required be will not to compliance inmaking costs the adjustment than the it is that incur optional, higher would so who ataxpayer to when the expenditure is incurred, and to are ensure deductions available inasimilar period tax to when the expendituresimilar period is incurred. to ensure are deductions that only available ina tax Tax Information Bulletin

Vol 6July 33No 2021 93

NEW LEGISLATION section EJ 10B(3). EJ section this will applyonly twice, when inthe an adjustment made in formula been deductible but has incurred not are deductible when costs and costs direct they are for make incurred. good adeduction To 10B(5)allows EJ Section ensure costs all direct Department Revenue Inland expect to have are: toexpect $125,000restoring deductions spend Its at the the end asset the of lease. 1AprilOn 2022ACo enters with payments into equipment $100,000at of the lease end afive-year each of year. They also costs 79:Make-good Example to are be: deductions expected 1AprilOn 2022ACo enters with payments into equipment $100,000at of the lease end afive-year each of year. Its 78:Impairment Example previously had been andpreviously records had been change a$200,000impairment charge deductions to: its so 31MarchOn 2024ACo that recognises achange makes to intheir model the them valuable equipment business less than it In addition,In ACo is entitled for 10B(5)(a). any to incurred EJ costs adeduction inrestoring under section the asset 2023 31 March Year ended 2023 31 March Year ended 2023 31 March Year ended 2024 2024 2024 2025 2025 2025 2026 2026 2026 2027 2027 2027 Total Total Total expenditure Accounting expenditure Accounting expenditure Accounting 500,000 500,000 625,000 106,439 106,439 131,139 303,337 103,337 128,182 100,120 125,114 121,933 118,633 33,453 30,116 96,783 26,655 93,322 adjustment Add-back adjustment Add-back adjustment Add-back 200,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 revaluation adjustment and Impairment revaluation adjustment and Impairment revaluation adjustment and Impairment 200,000 66,667 66,667 66,667 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Tax Information Bulletin costs adjustment costs direct and Make-good adjustment costs direct and Make-good costs adjustment costs direct and Make-good 125,000 25,000 25,000 25,000 25,000 25,000 0 0 0 0 0 0 0 0 0 0 0 0

Vol 6July 33No 2021 Tax deduction Tax deduction Tax deduction 500,000 500,000 500,000 106,439 106,439 106,139 103,337 103,337 103,182 100,120 100,120 100,114 96,783 96,783 96,933 93,322 93,322 93,633 94

NEW LEGISLATION from term. the change However, inlease differences over these term the will net full to the of lease zero. adjustments match will not the an on individual year basis tax either the In accounting years. case, final consequences arising there the before extends, amount made maturity the so adjustments of full will be may adjustments the of inthe lease be not below. term differences covered these the if Likewise, lease willmaturity be so by the calculation described wash-up the of lease The consequence this of term approach is the shortens before the if made amount lease the adjustments of full be will not minimised. to be expected 16 subsequently By changes. having not term the to change compliance change adjustments are costs inlease to the tax reflect 16at the time theby of NZIFRS initial term by NZIFRS term adjustment, recognised but this the if is lease updated not lease they term previously to term adjustments The referred do. were is lease recognised the expected not lease to proposed inthese but this change they when can an willeach take entity over lease upan option to time, for that example decides extend alease term for spread overto lease the proportions in equal remaining be 16requires term. income NZIFRS years the aspecific of lease The impairment and revaluation 10B(4)are required adjustment EJ both adjustment costs and direct and make-good insection Lease term adjustment inayear. Thisyears. means there may more than be impairment one and revaluation adjustment costs and direct make-good or remaining 10B(3)for each those of remaining EJ term income when income years the applying the of insection lease formula An impairment and revaluation into forward adjustment the adjustment costs and direct carried and amake-good must be adjustments Cumulative Department Revenue Inland make-good costs should be increased by $30,000 to $155,000. Its revised deductions are: by $30,000to revised deductions $155,000.Its increased be should costs make-good enters above however,A Co from example into the make-good lease; the same that 1April on 2024decides the estimated 80:Cumulative adjustments Example In addition,In ACo is entitled for 10B(5)(a). any to incurred EJ costs adeduction inrestoring undersection the asset 2023 31 March Year ended 2024 2025 2026 2027 Total expenditure Accounting 655,000 131,139 128,182 135,077 131,932 128,671 adjustment Add-back 125,000 25,000 25,000 25,000 25,000 25,000 revaluation adjustment and Impairment 30,000 10,000 10,000 10,000 Tax Information Bulletin costs adjustment costs direct and Make-good 155,000 25,000 25,000 35,000 35,000 35,000

Vol 6July 33No 2021 Tax deduction 500,000 106,139 103,182 100,077 96,932 93,671 95

NEW LEGISLATION 15 make We adjustments. that these leases the of majority expect required reduced being by not difference Compliance to within reversed will costs be income years. asmall of will be number the amount this of rules, acceleration relatively will be small to due their short-term, nature low-value meaningthe timing makingWhile not adjustments may mean expenditure accelerated will be compared under the to standard an equivalent lease income is treated anegative amount. as for theaccount income year. for the lease Net accounting expenditure is treated amount apositive and net as accounting income for or ashort-term, the will equal through total amountdeduction recognised the and loss profit lease value low adjustments 10B(2)these are aresult, the tax EJ required not As for short-term, made Under to section be leases. low-value Short-term, low-value leases Department Revenue Inland $100,000, even if the total of all right of use assets under the lease exceeds this amount. under the lease assets $100,000, even the if total all right of use of treated and this will meet will be than is requirement asset less aseparateasset right asset as use of each right as use of long as each lease) underasingle cars of afleet (for example assets multiple includes lease asingle If less. $100,000or of asset use of term, term aremaining or immediately lease is with after one an initial any lease Alow-value right extension, four of yearsless. or short-term both To must be Ashort-term and is low-value. with 10B(2)the one lease an initial EJ lease lease for section qualify category. for a positive amountfor apositive income for and anegative has amount. adeduction is allowed Alessee negative. or positive be 10B(3)can The EJ amount calculated by applying the insection formula

right of use assets will be $500,000. will be assets right use of even though the all total of value lease alow-value as will qualify over of for an $100,000the individual car lease asset use of aright include not does A Co enters the lease with $50,000.As for of 10cars value into each having asset alease aright use of leases 83:Low-value Example even though it will run for six years intotal. lease never had more than the three now ashort-term has lease four as years As remaining years remaining. the lease it will qualify At years. the further time the extendedto by extension agree two go that will ACo be and the is lessor the entered lease into A Co enters with into year an one initial has extended. to When alease term be the four lease of years which is expected not withextension an term lease 82:Short Example follows: calculated as estimated to by $20,000 to increase $145,000and they are now incurred inMarch 2029instead are 2027.ACo's of deductions payments remain Lease are costs to year years. at and make to $100,000per seven extend good year lease lessor the five enters However, above example costs intoA Co from make-good lease. the the first same 1April on 2025it agrees with the term lease 81:Extended Example In addition,In ACo is entitled for 10B(5)(a). any to incurred EJ costs adeduction inrestoring undersection the asset By number of leases but possibly not by value of right-of-use assets or lease payments. right-of-use by of value not lease or but possibly assets By leases of number 2023 31 March Year ended 2024 2025 2026 2027 2028 2029 Total expenditure Accounting 845,000 131,139 128,182 125,114 119,821 116,777 113,621 110,346 adjustment Add-back 125,000 25,000 25,000 25,000 25,000 25,000 revaluation adjustment and Impairment 15 entered into by lessees who apply IFRS 16 will fall within 16will entered fall this applyIFRS who into by lessees 20,000 5,000 5,000 5,000 5,000 Tax Information Bulletin costs adjustment costs direct and Make-good 145,000 25,000 25,000 25,000 30,000 30,000 5,000 5,000

Vol 6July 33No 2021 Tax deduction 700,000 106,139 103,182 100,114 108,621 105,346 89,821 86,777 96

NEW LEGISLATION 16 unreturned into incorporated the calculation that wash-up below. be income should is discussed manyIn instances an will mature existing lease expenditure Any the before end spreading this of undeducted or period. five-year proportionately allocated over the term remaining be which should into taking years. lease account part Thisyear and the years. four subsequent is incontrast to the adjustments costs impairment referred and make-good to above spread transition this over amounts either inequal be the In should tax income. negative amount case is treated assessable as The transitional adjustment amount Apositive negative may or is apositive amount. treated expenditure be deductible and a follows: as explained be 10B(9)and can EJ insection terms these of isEach defined 10B(8): at EJ transition the dateeach lease the tax of insection using formula The transitional underthe existing thatdeductions adjustment so for tax. rules the differencerecognised is calculated for be can A transitional adjustment 16accounting involves calculating the expenditure NZIFRS difference years and between tax inprior • • when the either: taxpayer Atransitionaladjustment adjustment necessary for tax. be could after underthe they standard to 16for have tax by requiring rules tax to already atransitional subject applying NZIFRS been 10B(8)and (9)ensure are transitions where EJ deductions available for any the the amount correct lessee tax leases of Section • • transition C5: approaches inparagraph possible out the accounting 16sets transition NZIFRS Cof Appendix for entities time. There 16for the first applying NZIFRS are two Transitional adjustment Department Revenue Inland

the 16for accounting years when the entity for tax. NZIFRS and not follows calculation retrospective of accounting expenditure for the transitional in to adjustment impact the include retained need earnings will also The accounting year of transition transition year transition happens the inasubsequent and tax but tax if may for alease the same be NZ IFRS 16. NZ IFRS more or for one years after accounting under they for alease started for the 16for tax lease to applyNZIFRS chooses 16retrospectively NZIFRS applied has inthe transition. year of retained earnings opening 16to the term the remainingApplying NZIFRS at the lease affect 16which will not date initial of NZIFRS of application or,positive more commonly, negative) to inthe the transition, year of retained entity's earnings opening or 16retrospectively accountApplying and loss NZIFRS profit which will result to inamovement period's each prior (either lease under NZ IFRS 16until transition the tax underNZIFRS date. lease incurred underthe deductions existing is the total tax for the rules years they deductions accounted forPrevious tax the 16until transition 10Bfor the years the they EJ tax accounted underNZIFRS date. for thesection lease adjustments is that the adjustments total tax haverequired would tax been the if entityRetrospective had applied until transition the retrospectively. tax lease date, recognised including amounts accounting expenditure isRetrospective the total accounting 16for the expenditure underNZIFRS recognised loss or retrospective tax adjustments – previous tax deductions tax –previous adjustments tax retrospective 16 , or Retrospective accounting expenditure – Retrospective Tax Information Bulletin

Vol 6July 33No 2021 97

NEW LEGISLATION Inland Revenue Department Revenue Inland the retrospective transition approach 1April accounting on 2019.Its entries are: for this lease 1AprilOn 2017ACo entered 16using with NZIFRS It adopted into $100,000annual payments. equipment lease aseven-year transition 84:Retrospective Example adjustment year. is $3,106 per follows: as deductions ACo calculates tax its amount $15,529. When of 16retained earnings thisthe is NZIFRS transitional spread income years the equally over tax five thereAs are adjustments no revaluation transitional for impairment, the costs direct or total tax adjustment is to equal 31 March Year ended 2018 31 March Year ended 2019 2020 2019 2018 Total 2024 2023 2022 2021 2020 Total 2024 2023 2022 2021 Grand total Grand transitional adjustment Tax pre deduction expenditure 17accounting NZ IAS 200,000 100,000 100,000 684,471 100,000 100,000 100,231 103,333 90,216 93,677 97,014 expenditure 16accounting IFRS adjustment Tax transitional 484,471 700,000 103,333 100,231 90,216 93,677 97,014 15,529 3,106 3,106 3,106 3,106 3,106 earnings adjustment earnings 16retained IFRS Total tax deduction Tax Information Bulletin 700,000 100,000 100,120 103,337 106,439 100,000 15,529 93,322 96,783 15,529

Vol 6July 33No 2021 98

NEW LEGISLATION Inland Revenue Department Revenue Inland deductions as follows: as deductions When this is transitional spread income years the equally over tax five adjustment year. is $3,772per BCo calculates tax its costs so the total tax transitional the total tax so costs adjustment is $18,862which is follows: calculated as 1April there 2020.Again, year beginning are inits adjustments no revaluation 16for tax for impairment, direct or NZ IFRS to 1April 2019and instead apply year beginning chooses inits for this lease 16for tax to not apply NZIFRS B Co chooses above. example the retrospective transition approach 1April accounting on 2019.Its entries are identical to the ACo retrospective transition 1AprilOn 2017BCo entered 16using with NZIFRS It adopted into $100,000annual payments. equipment lease aseven-year transition transition tax with delayed 85:Retrospective Example will be $700,000. will be deductions $3,772and total of tax BCo get deduction will also awash-up so below) into the calculation (described wash-up year transitional the fifth As is adjustment available the not before maturity this incorporated deduction will be the of lease 31 March Year ended 31 March Year ended 2018 Total 2020 2019 2018 2019 2020 Total 2024 2023 2022 2021 Tax deduction transitional adjustment Tax pre deduction 300,000 681,138 100,000 100,000 100,000 100,000 100,000 100,000 100,231 90,216 93,677 97,014 expenditure 16accounting IFRS adjustment Tax transitional 103,333 103,333 15,089 3,772 3,772 3,772 3,772 earnings adjustment earnings 16retained IFRS Total tax deduction Tax Information Bulletin 696,228 100,000 100,000 100,786 104,003 100,000 15,529 15,529 93,988 97,449

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NEW LEGISLATION Inland Revenue Department Revenue Inland which is follows: calculated as thereAgain, are transitional adjustments no revaluation the for impairment, total tax so costs direct adjustment or is $6,439 1April 2020. year beginning inits 16for tax toinstead applyNZIFRS chooses 1April 2019and year beginning However, inits for this above. lease 16for tax example to not apply NZIFRS DCo chooses without the using retrospective transition approach 1April accounting on 2019.Its expenditure is identical to the CCo 1AprilOn 2017DCo entered 16 with NZIFRS It adopted into $100,000annual payments. equipment lease aseven-year transition delayed 87:Non-retrospective Example transitional adjustment is follows: calculated as is deduction required. tax Its expenditure tax 1April on 2019.No starting lease and subsequent is though there lease calculated as earnings afive-year was without the using retrospective transition approach 1April on 2019.There is adjustment no to the 1April 2019retained 1AprilOn 2017CCo entered 16 with NZIFRS It adopted into $100,000annual payments. equipment lease aseven-year transition 86:Non-retrospective Example deductions as follows: as deductions When this is spread transitional equally over 5income years the tax adjustment year. is $1,288per DCo calculates tax its will be $700,000. will be deductions $1,288 and total of tax BCo get deduction will also awash-up so below) into the calculation (described wash-up transitional the fifth-year As is adjustment available the not before maturity this incorporated deduction will be the of lease 31 March Year ended 31 March Year ended Year 31 March ended 2018 2018 2019 Total 2020 2019 2018 2019 2020 Total 2024 2023 2022 2021 2020 Total 2024 2023 2022 2021 expenditure 17accounting NZ IAS transitional adjustment Tax pre deduction Tax deduction 200,000 693,561 100,000 100,000 100,000 100,000 100,000 100,120 103,337 93,322 96,783 $300,000 100,000 100,000 100,000 expenditure 16accounting IFRS adjustment Tax transitional Accounting expenditure 500,000 100,120 103,337 106,439 93,322 96,783 5,151 1,288 1,288 1,288 1,288 $306,439 106,439 100,000 100,000 Tax deduction Total tax deduction Tax Information Bulletin 700,000 698,713 100,000 100,000 100,120 103,337 106,439 100,000 100,000 101,408 104,625 100,000 93,322 96,783 94,610 98,071

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NEW LEGISLATION amount income for We and anegative has amount. to have will seek this corrected at available the opportunity. first Expenditure, and Remedial for apositive Matters)2020–21, Feasibility 2021,incorrectly adeduction has Act states the person a negative amount is treated expenditure. We deductible as note the legislation, enacted inthe as Taxation (Annual for Rates The adjustment wash-up income and may amount amount apositive Apositive anegative or is amount. treated be assessable as follows: as explained be 10B(7)and can EJ insection terms these of isEach defined 10B(6): EJ The adjustment wash-up the insection using formula is calculated for each lease to equal expenditure any be term undeducted unreturned or will typically income underthe transitional adjustment. that runs the for full alease wash-up for its adopted 16 was existed 10B(8)is exhausted. NZIFRS EJ before alease If in section that termruns full 16so for its years with accounted the transitional at five for least underNZIFRS adjustment spreading period when 16or term it runs accounted zero full to for its being be for under NZIFRS when alease expected This is wash-up typically • • • • when: lease an IFRS to be will cease The lease the arrangements financial rules. have available under the existing treatment. been tax This adjustment is conceptually price adjustment similar to under abase 10B(6)and (7)require EJ to awash-up ensure section it ends, match total deductions what because would 10B(1)or EJ section requirements lease to in the meet IFRS ceases the lease either because lease, to an IFRS alessee toWhen be ceases ataxpayer Wash-up Department Revenue Inland the lessee ceases to follow NZ IFRS 16for accounting. to NZIFRS follow ceases the lessee to or another person, subleased been has the asset have andthe lessor associated lessee become maturesthe lease isExpenditure the total expenditure incurred since entering 10B. until into EJ the date the wash-up lease section ignoring applied. not 10Bwas EJ section but excluding the adjustment. wash-up This lease may an IFRS to income inyears include when be ceases the lease is income the for total all income amount years including the income returned of year inwhich IFRS for the lease for tax applied. not was but excluding 10B the adjustment. wash-up EJ This lease may inyears when an section IFRS to deductions include be ceases deductions IFRS is the total amount deducted for tax for the lease for all income years including the year in which the lease for all income years including the year inwhich the for the lease lease is for tax the total amount deducted IFRS deductions – IFRS income –expenditure income –IFRS deductions IFRS Tax Information Bulletin

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NEW LEGISLATION Inland Revenue Department Revenue Inland years exceeded the expenditure 10B. years exceeded EJ it incurred section ignoring A Co additional has income inthe 31March year ended $9,895.This 2022of is inthe 2020-2022 the amount deductions its $309,895 −$0$300,000=$9,895 Expenditure = $300,000 income =$0 IFRS =$309,895 deductions IFRS A Co as: calculates wash-up its with the lessor to are:with terminate the deductions Its lessor early with payments the owing. further no lease 1AprilOn 2019ACo entered with 31March On $100,000annual 2022they payments. into equipment agree lease afive-year 89:Part-term example wash-up Example retrospective transition excluding approach the calculation 1Aprildeductions on are wash-up 2019. Its follows: calculated as 1AprilOn 2017ACo the entered 16using with NZIFRS It adopted $100,000annual payments. into equipment lease afive-year 88:Full-term wash-up Example remaining years transitional of adjustment that were matured. when yet claimed the to lease be available inthe 31MarchA Co year ended an $3,910.This additional 2022 of has deduction amount is to equal the two $496,090 −$0$500,000=−$3,910 Expenditure =$500,000 income =$0 IFRS =$496,090 deductions IFRS A Co as: calculates wash-up its 31 March Year ended Total 2022 2021 2020 Year 31 March ended 2020 2019 2018 2021 2022 Total deduction accounting 17 NZ IAS 200,000 100,000 100,000 Payments 300,000 100,000 100,000 100,000 deduction accounting 16 IFRS 290,225 100,120 96,783 93,322 Accounting expenditure and tax deduction Accounting expenditure tax and adjustment earnings retained 16 IFRS 9,775 9,775 309,895 100,120 103,337 106,439 adjustment transitional excluding Tax deduction 490,225 100,120 100,000 100,000 96,783 93,322 Tax Information Bulletin adjustment transitional Tax 5,865 1,955 1,955 1,955

Vol 6July 33No 2021 deduction Total tax 496,090 100,000 100,000 102,075 98,738 95,277 102

NEW LEGISLATION • • The amendments will applyfrom the earlier of: Application date their KiwiSaver accounts. TaxIncome 2007and KiwiSaver Act 2006will enable New Zealanders to Act directly repatriate from the their ATO savings lost to ATO to acomplying Australian transferred be it before can scheme to amendments aKiwiSaver to account. The the proposed Currently, New Zealanders wanting to repatriate their Australian lost transfer must first superannuation funds them from the Key Features schemes. KiwiSaver Thissuperannuation scheme. amendment will enable the transfer New Zealanders' of directly reclaimed money from the ATO to to the ATO. New Zealanders are currently to only able transfer from reclaimed the money ATO to acomplying Australian Under Australian law, held by Australian money transferred must be unclaimed that superannuation schemes becomes Background Tax (ATO) Office to KiwiSaver accounts. The amendments will enable the transfer direct previously of Australian unclaimed held by the superannuation funds Australian (Section YA ofthe 1(Definitions) Income Tax Act 2007and sections 93and 93Bofthe KiwiSaver Act 2006) money superannuation Australian of unclaimed Portability The applyfrom insertions the new 2020-21and later income years. Application dates their of level net income. donations authorities upto and Māori the Companies for monetary income. are for adeduction eligible their of level taxable status entitlesDonee credit 33⅓percent of to individual donors atax the of amount donated to organisations, upto these the inthe Tax Income gifts other benefit public 2007. Act within connection any organisation the on donations list adonee as recipients named of received, or charitable of must be to and want benefits donors receive charities tax purposes that their all of or for overseas funds New Zealand-based apply some Background • • • The charities following status have granted donee from been the 2020–21and later income years: (Schedule 32ofthe Income Tax Act 2007) status donee Overseas Department Revenue Inland the day that is year from one the amendment receiving Act Royal assent. inthe diplomatic notes exchangedthe day by Australia the of Governments specified and New Zealand, or TrustShimshal Kiwilink Foundation Active Hearts Tax Information Bulletin

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NEW LEGISLATION Income TaxIncome intent. that 2007,so the Act the legislation policy now satisfies year,profit This years. remedial the and loss profit inboth the amendment IZ8of even the if company amends losses has section income inthe against agroup taxable member's losses its intent and offset back isThe to for acompany policy able carry to be Measures) commentary. Bill intentThis inthe outcome to COVID-19 contrary expressed the was (Taxation policy Response Urgent and Other Regulatory offset. be could income inthe year against profit even which another the if losses groupprevious rules, had taxable member under the carry-back then the to loss the years, able the company use not and loss profit inboth was acompanyIf had losses • • acompany inagroup required was to: carry-back, for the eligible to loss Under be previous rules, common ownership. group corporate owned ("group") Anon-wholly is agroup that companies of have thancarry-back. at 66%,but less least 100%, this of remedialThe amendment purpose is to ensure groups corporate owned are the innon-wholly to loss companies able use Key features in order to refund. receive atax income inthe immediately preceding income year, taxable to back offset losses in the 2020–21income years 2019–20 or to carry the The IZ8of acompany Tax allow Income rules with rules. netSection losses carry-back loss 2007contains Act the temporary Background (Section IZ8ofthe Income Tax Act 2007) grouping remedialTemporary –loss carry-back loss Department Revenue Inland have taxable income inthe income year immediatelyhave year (the preceding the year"). taxable "profit loss have inthe anet 2020–21income year"), years and 2019–20or (the loss "loss Tax Information Bulletin

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NEW LEGISLATION years: the 2018–19/2019–20 and 2019–20/2020–21 profit/loss years. the 2018–19/2019–20and 2019–20/2020–21profit/loss years: income of pairs to applies two so scheme, This remedial carry-back amendment loss for the duration applies the of temporary Application date Department Revenue Inland * 2019–20 after carry-back. the using loss remaining income remaining in $0losses has Co Mippy in2018–19.Snowy still taxable $25,000of has carry-back, the loss rate). Co $50,000.Mippy income refund $7,000($25,000×28%,which of is of receives the After tax corporate atax using against Co's Mippy 2018–19taxable the losses to back remaining 2018–19,and offsets its Co carries losses $25,000of Snowy income. against remaining Co's Mippy its 2018–19taxable that losses $25,000of so back offset it can carry- loss the to temporary use It remaining. decides Coagainst Co's still Mippy Snowy net losses $25,000of income,* has Co's losses $75,000.After of Snowy Co offsetting Co net 2019–20,Mippy has In net losses has $50,000and income Snowy of $50,000. income of taxable against Co's Mippy income that losses $50,000of year, its to Co offset decides Snowy Co Mippy has so losses. $50,000 of Co Co areMippy Co and Co Snowy 2018–19,Mippy has In net has 80%commonly $100,000and income Snowy of owned. 90 Example

Amount refunded under loss carry-back under loss Amount refunded loss(after carry-back) income/(loss) 2019–20 taxable loss(after carry-back) income/(loss) 2018–19 taxable Temporary carry-back loss but loss before carry-back) offsets (after Taxable income/loss and loss carry-back) offsets (before Net income/loss year 2019–20 income but loss before carry-back) offsets (after Taxable income/(loss) and loss carry-back) offsets (before Net income/(loss) year 2018–19 income a requirement groups for that are not wholly owned. In this example the companies two chosen have losses within tooffset the group in the loss year using before This the loss is carry-back. not Mippy CoMippy $100,000 $25,000 $50,000 $50,000 $7,000 $0 $0 Snowy Co Snowy ($25,000) ($75,000) ($50,000) $0 $0 $0 $0 Tax Information Bulletin

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NEW LEGISLATION are required not to provide areturn income. of income for ayear, derive not assessable atrustIf regardless does whether of they in59BA(3), are they listed an type excluded as an annual return out inthe in59BA(2). set form trust of listed in59BA(3) only Being acategory exempts atrust income. as from providingincome where they derive assessable requirements (2).Specifically, trusts which are out listed insubsection set in59BA(3) are still required to complete areturn of the relationship 59BA(2) is to the amended clarify requirementSection between (1)and the additional disclosure insubsection return income for of that income year. An that income are amendment 59BA(1) clarifies required all trustees to section atrust of to derive provide who assessable a Domestic trust requirements filing analysis Detailed disproportionately costly trustees collection. of for some to provide against when weighed the purpose to to respond concerns trustees.This or of may provides where data impractical flexibility classes an ongoing certain be some provisionA new disclosure the gives requirements the Commissioner increased Revenue Inland to of the power vary for the of disclosure rules. inlight the of purpose necessary not The amendments provide recognising also more where trusts, categories additional excluded of of disclosures is the collection disclosure requirements. requirements the filing The including when the amendments for trusts, trustee clarify is required to comply with the increased Key features The exceptions applybroadly with rules to including estates, out some inthe trusts, set provisions. new as toas their provide of statements financial annual return. part as disclosures the include The requirement increased to provide settlements of details and distributions over made the well year as structures of the use and entities by trustees. compliance with ratetrusts the to 39%top new and to tax support assist the Commissioner and inunderstanding monitoring The Taxation Tax (Income disclosure requirements Rate increased and Other Amendments) 2020inserted Act for domestic Background from 59BA the which applies 2021-22 income year. section The amendments modify Application date for thetrusts trusts. of the requirements and Commissioner include ability to vary trusts types or for certain The amends Act the domestic trust disclosure requirements excluded requirements, categories of the several filing add to clarify (Section ofthe 59BA Tax Administration Act 1994) rules disclosure trust Domestic 2021. 1 October the 19of Taxation section The amendment modifies Tax (Income Rate and Other from Amendments) 2020which applies Act Application date 39% rate result would inover-withholding. rather than increasing to 39%to align with that the top interest marginal for rate. the of majority This tax reflects recipients a The amends Act the Taxation Tax (Income Rate and Other Amendments) 2020to Act RWT maintain the rate default at 33% at resident the default rate. withholding When apayer interest of received rate not income has an elected from the recipient the of interest, the payer must withholdtax (Section 19ofthe Taxation (Income Tax Rate and Other Amendments) Act 2020) RWT rate Default remedialsOther Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION companies as providedfor underthe 1992. as Energy Act companies Companies The term inYA trust" "lines is defined 1and refers to trusts that to them had allocated and continue shares to hold, inenergy therefore are from excluded the additional annual return requirements for trustees. 1992. They distribute They and often are have not do to numbers. widely their alarge held and beneficiaries of IRD number Consumer energy trusts were the following restructuring established under the Energy Act Companies sector the of electricity Consumer energy trusts where trustees meet the oflines definition trust in YA 1of the Income Tax Act 2007(59BA(3)(i)) better terms lending and that there is risk low inaccumulation their of use private of wealth rate. and avoidance the of 39%tax treatment Their exclusion vehicles. from for the these trust that disclosure recognises rules securitisation trusts are upto set obtain vehicleswhich exists neutrality to for 2007currently the maintainAct tax purpose special aregime includes for debtfunding inYA vehicles"are defined the purpose 1of Tax Income special Securitisation trusts "debtfunding or 2007.The Act Tax Income Securitisation trusts (59BA(3)(h)) which are underthe scheme. widely available and where to derive limited employees benefits individual employees which are tomeet ESS of intended qualify. There to reduce schemes types compliance for costs those for these are rules special inYA share are employee Exempt (ESS) defined schemes the 1of Tax Income 2007and have requirements Act several they must employeeExempt share scheme trusts (59BA(3)(g)) the existing awidely inYA of exclusion held superannuation fund uses definition the 1of Tax Income 2007. Act investors and therefore private of are trust the not type that disclosure is requirements. the the of main increased focus This criteria of certain must meet number KiwiSaver which including includes acertain Widely-held funds, superannuation funds, Widely held superannuation funds (59BA(3)(f)) recently registered are under the 2005 Act not. that theresolves discrepancy are underthe exists trusts charitable if 1957Act incorporated and trusts excluded, charitable more This that trusts charitable recognises are some registered and under the 1957Act incorporated and not under the 2005Act Charitable trusts registered under the Charities Act 2005(59BA(3)(c)) requirementsgenerally widely-held specific applyaround and/or the of funds. the use trusts These areexclusions. considered generally to inrelation risk be low of use of to rate the avoiding the trusts as are 39%tax The Taxation Expenditure, and Remedial Matters) (Annual for Rates 2020-21,Feasibility 2021introduces additional Act five • • • • requirements already to trusts: these applied disclosure requirements the that on basis they to were avoid the at 39%rate used risk low being existing of and/or information The Taxation Tax (Income trusts of from Rate and Other the Amendments) increased 2020exempted Act the types following disclosure requirements. the of increased 59BA trusts excluded trusts (3)is to of for the as amended purposes designateSection additional types trusts Excluded Department Revenue Inland income, they will requiredincome, still return. be to this atax report income to Revenue Inland and file any of details distributions settlements, new identifying statement and financial information. However, Power Helion as derive to comply Power withHelion disclosure need not requirements the increased 59BA(2), which includes does insection additional disclosure requirements 59BA(2). insection trust alines of underthe 1992 and They are established Energy the Act meet Companies definition from1990s. excluded the PowerHelion Trust is aconsumer energy the trust following restructure established which was inthe the of energy sector Power 91:Helion TrustExample trusts eligible to be a Māori authority. aMāori trusts to eligible be legislation) trusts have (these under the aboard 1957Act existing as trustscharitable incorporated requirements under other through for thecarried requirements) new trustsnon-active (there are existing provisions to inplace exempt requirements; trusts non-active from are filing these foreign trusts trusts are (these to already extensive subject disclosure requirements) Tax Information Bulletin

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NEW LEGISLATION The from New Zealand amendment Build incorporated. 23May Limited 2018,when 36applies was Housing to schedule Application date This status is achange not the to company as intax income is tax. alreadysubject treated being taxable. as subsidiary, that to New Zealand Build made Ora's Limited,An confirm is Housing amendment Kāinga been 36has to schedule Key features New Zealand Limited, isHousing already 36. listed inschedule Interpretative main subsidiary, Ora's 36.Kāinga listed be inschedule advice also should subsidiaries that indicated Ora's Kāinga astatutory as entity, exempt Ora, from be 36,Kāinga income tax. listed would the being In of inschedule absence income tax. Zealand and like to Corporation Housing of the the is functions Corporation, subject had that absorbed Ora Kāinga reflected the Tax Income 2007to This and Act Communities. replace Zealand –Homes with change Corporation Housing Kāinga simply The Taxation (KiwiSaver, Student and Remedial Matters) the Loans, list 2020updated Act state of 36of enterprises inschedule Background state enterprises inthe Tax Income that 2007,to to Act confirm it income tax. is subject of to the schedule added been has and Communities, –Homes Ora Kāinga of New Zealand Build Limited, asubsidiary Housing (Schedule 36,Part Aofthe Income Tax Act 2007) to tax income subject Build Limited New Zealand Housing Confirming The amendments apply retrospectively 2020. from 7December Application date • • Key features information collection provision. the information gathering provisions inthe Tax Administration 1994to relevant Act include cross-references to this new The amendments inthe Taxation Expenditure, and Remedial Matters) (Annual for Rates 2020–21,Feasibility 2021update Act development purposes. that information 2020to the Commissioner'sAct clarify to extended power collect to information required for policy the of 17GB TaxSection Administration introduced 1994was inthe Act Taxation Tax (Income Rate and Other Amendments) Background in 17B(with the against exception the person). that inproceedings is under17GB available information not for use obtained is 17GB intended intent. to operate Section similarly operateto with inline thethe policy Commissioner's sections existing power amendments to the Commissioner's information amendments These were gathering innature technical powers. and ensured that The Taxation Expenditure, and Remedial Matters) remedial (Annual for Rates 2020–⁠21,Feasibility 2021included Act 17H, 20,20B,(Sections 17E, 20D, 17B-17C, 20Fofthe Tax Administration Act 1994) to amendments Remedial the Commissioner's powers gathering information income information. toThis the allocated Commissioner requirements, is for other intended similar to filing employment such to as the be flexibility characteristics the of trust and therefore compliance undue costs. impose the of disclosure to unable requirements,reasonably some meet the and/or requirements particular given the are necessary not This is intended to ensure to account there for situations flexibility is sufficient where there trusts of which may are be types 59BA(5) the allows the Commissioner disclosure to requirements section 59BA(2). vary New out insection set Ability the for Commissioner requirements tovary trusts for Department Revenue Inland practitioners advice and tax confidentiality. 20Dand 20Fensure 20,20B, to for legal privilege is 17GB Sections subject that undersection information collected information requisition. Commissioner's is inrelation non-compliant powers order with acourt to aperson if an and seek to ability documents 17Eand 17Hrelate 17C, 17B, Sections to an information the as 17GB of operation gathering provision the and clarifies Tax Information Bulletin

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NEW LEGISLATION 1 April 2020. Application date knowledge. than market or which interest $25,000 on at the of asettlor paid the trust, rate regardless prescribed of been will become not has is interest paid the on amount at arate market or to equal the that interest prescribed is more owed rate). such, abeneficiary As themeet requirements the or (6)(which is is beneficiary less that $25,000or subsection of the to amount owed the beneficiary that by atrust is money theynot owed if asettlor that will do always clarifies 27(2)(bb) abeneficiary become HC section New Key features the of debt. had knowledge no amount by the the if asettlor trust beneficiary be but not to the way the trustee is the is using money required for atransfer to value of occur. any owed be could Therefore, abeneficiary as knowledge view, of point apparent from alegal abeneficiary's It become that has this amendment because, may ineffective be assistance and student implications innumeroushas social repayment such as areas, loan obligations. asettlor Being settlors. friendly amendment, ensuring current with that modest account beneficiaries because not do balances market or This ataxpayer- which the settlors. was on rate$25,000, or prescribed interest of become not do paid, been has A recent legislative to 27(6)aimed ensure amendment HC to with that section current beneficiaries account below balances trust by leaving inthe money trust interest-free. is out tomoney paid them but is retained intheir current account with they "transfer the trust. This to value" is the because 27(2)provides transfers who that HC aperson to value atrustSection when asettlor is asettlor. become can Abeneficiary Background the of asettlor trust. will become than $25,000by the trustee and interest this on market or paid amount at been the not rate, has prescribed then the beneficiary The Tax Income to amended ensure been 2007has Act that if, at the end an of income year, atrust of is more owed abeneficiary (Section 27 of the HC Income Tax Act 2007) Beneficiaries settlors as originally into theThe 10Cand 25MBapplyfrom came date 1April RE amendments 2020,being sections force. to those sections Application date inadvertent,NRWT was and custodians withholdRWT should applicable. NRWT or as (NRWT) when payingnon-resident transferring or tax withholding investment income to the end investor. The exclusion of that 10C(3)to custodial institutions' RE clarify to made amendment section A further been has obligations to withholdinclude entity, intent. with inline the original policy establishment inNew Zealand are to now able access the relaxations available to custodians which operate through alocal resident and non-residentbetween Custodians custodians. which operate their by way New Zealand business afixed of a"custodial distinguish of not institution" 10C(6)(b)and 25MB(7)(b)do The that RE definition so amended, sections been has Key features wereClarifications intent. required the to original policy ensure 10Cand 25MBreflect that RE sections entitlementsto are ensure policy calculated more obligations and social accurately that tax taxpayers' during the year. (KiwiSaver, Student Loans and Remedial Matters) 2020. The Act changes to returns aimed enable the pre-population tax of and the obligations and withholding reporting were and clarified Provisions introduced by the Taxation which modernised Custodial institutions the payer investment of aconduit between as act income and the ultimate owner that of income. Background Amendments to have made the investment been for custodial and rules withholding income institutions. reporting (Sections RE 10Cofthe Income Tax Act 2007and 25MBofthe Tax Administration Act 1994) institutions custodial for rules investment reporting and amendments: Remedial withholding income Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION beneficiary from amounts derived by a trustee during the periods to which a voluntary disclosure relates. by from atrustee derived to amounts which avoluntary duringthe periods beneficiary 30(4)(ab) and (4B)ensureThe 10and HC HC amendment intended the insections as law for adistribution works to a disclosure Voluntary • • The amendments apply for atrust migrated has which asettlor of to New Zealand and: Key features However,beneficiary. that such adistribution possible at it was to 45%. amendments, prior these taxed still could be for the exempt from be tax from an would amountdistribution by the derived trustee periods duringthese to abeneficiary thisIn circumstance, the intent the of retrospective they relate (as rules election to adistribution from atrust) is that a interestpenalties and use-of-money imposed. being retrospectively. This earlier amendment to to also the allow trustee was appropriate subject to position, "put right" their tax past retrospectively for upto to Prior four earlier this the years. law amendment; unclear whether on made was this be could election Recent amendments to the Tax Income that trustee worldwide on may to made income 2007clarified an election pay Act be tax An election under section 33 HC However,beneficiary. that such adistribution possible at it was to 45%. amendments, prior these taxed still could be for the exempt from be tax from an would amountdistribution by the derived trustee periods duringthese to abeneficiary thisIn circumstance, the intent they disclosure relate (as rules the of voluntary to adistribution from atrust) is that a disclosure relates. to which the voluntary periods or for the earlier period and paid (including penalties and interest) New Zealand income tax assessed disclosure process, been Under has the voluntary to appropriate subject position, interest penalties and use-of-money imposed. being disclosure is rules to the allow the of trustee voluntary to to "put right" Apurpose Revenue. Inland their tax past disclosed that positions have voluntarily tax incorrect past been on the tax disclosure Commissioner permit rules toThe assess voluntary disclosure Voluntary • • for positions amended tax for priorassessed years under either: with the trustee situation trustee world-wide income after period's atrustee of past to on being pay choosing New Zealand tax by the derived amounts trustee at date 45%.However, may after taxed expiry the be election this outcome consistent not was date), distributions time thisIf expiry is by (the acertain made not election election from from the trust to abeneficiary income is distributed to abeneficiary. making of date. this is The that election main benefit therea specified trustee is additional when no the layer tax-paid tax of aforeign of A settlor trust that migrates to trustee New Zealand may worldwide to on income pay from elect New Zealand tax Background • • trusteeworld-wide income ineither the circumstances: of following exempt The as income. amendments obligations the applyif for their trustee New Zealand tax satisfied has beneficiary The amendments atrust of apply for asettlor that migrated has to New Zealand and wish to distribute an amount to a (Sections 33(5)((b),(c),(d)(ii)) 30(4)(ab), (b),(4B),HC 10,HC HC to New Zealand migrating trust Settlor Department Revenue Inland wide trustee income for past years after the election expiry period has ended. has period trusteewide years after income for past expiry the election world- on to subsequentlyhas rules taken pay election tax steps disclosure the under either or rules voluntary the voluntary and period), expiry (the election period trustee within made not aprescribed world-wide on income was toan election pay tax 33. HC trustee world-wide on income undersection toan election pay tax or disclosure rules, the voluntary income. trustee trustee world-wide on income arising underaretrospective tax world-wide of on tofor an assessment election pay tax disclosure, or trustee world-wide on income arising underavoluntary tax of for an assessment Tax Information Bulletin

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NEW LEGISLATION section CE 6 be amended to amended extend treatment CE 6be nominee section to trustees exempt share of employee schemes. treatment the on tax a bearing atrustee of administering the the on scheme company's behalf. Therefore, that proposed it was exempt is schemes that This exempt have the not allow should exempt employer schemes to share grant tax benefits. scheme and schemes the trustee as share an of employee The only taxable scheme. difference purposes way between same for tax why, reason There inthis policy no was context, atrustee an treated of exempt share employee be not should scheme the CE 7(b)(i)). (section activitiesits related to share an "employee An scheme". "exempt share employee share is scheme" an "employee not scheme" to CE 6prior Under this the wording amendment, section atrustee of only treated was to the anominee extent as to which trustee the role the of company is itself. performing the trustee terms, between and company but there inlegal the arerights is passed substance no to the transactions because treated the if out the company share were triggered This activities. being scheme carrying where prevents tax shares and other the for the trustee company anominee, and is acts therefore As activities. scheme treated way the same the company be would are transferred or issued the under the trustee scheme, is treated the of company the nominee as to the extent share those of CE atrustee 6,if out activitiesUnder carries related section to share acompany's employee and shares scheme, related or rights Background (ASC). capital for calculating CE in"subscriptions" available 6is subscribed included the section of application that to consideration isamended CD the 43of clarify also Act received by acompanySection for the issue shares of aresult as of treated the be of companycan anominee providing as the scheme. CE the 6of Tax Income Section that is to 2007("the atrustee amended Act") Act clarify an of exempt share employee scheme (Sections CE 6and 43) CD treatment shareNominee exempt of trustee employee scheme for • • The amendments follows: apply as date(s) Application • • retrospective relates election to: subject treatedbeing acomplying trust as for distributions by from the derived amounts trustee to which the duringthe periods 33ensure 30(4),(4B)and HC The HC amendments to that section aretrospective for atrust result election can in that trust results inan additional when this layer trustee tax of income is distributed to beneficiaries. upto to on fourelection pay yearsearlier of trustee New Zealand tax worldwide However, income. unclear this if it was election It is clear that atrust migrated has which asettlor of to New Zealand within the previous four years may make aretrospective Voluntary election • • • The amendments apply to atrust migrated has which asettlor of to New Zealand for which all the apply. following Department Revenue Inland – for an election made under section HC 33,from 23March HC 2020. under section made for an election disclosure after or on, before made 23March 2020,and for avoluntary the trustee periods. for these obligation having their New Zealand income tax satisfied fully distribution and corpus; or gain, is capital from income, whichthe require ordering rules, distributions afirst-in-first-out on made to be after into taking basis, account whether the – disclosure relates to which to: theduring the voluntary periods subject The amendments result inthis trust treated being acomplying trust as for distributions by from the derived amounts trustee trustee world-wide that on income of to made pay disclosure trust. tax been has voluntary A subsequent trustee period. world-wide on income within to made expiry the pay election had tax been election No

the trustee periods. for these obligation having their New Zealand income tax satisfied fully after into taking account whether the and distribution corpus, or gain, is capital from income, 16,which require HC the the of application ordering distributions insection rules afirst-in-first-out on made to be basis, Tax Information Bulletin

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NEW LEGISLATION • • • contestedThis been has view by stakeholders from the private sector, have who argued that: Tax the of credits individual group companies. Information Bulletin Vol 1(February 16,No this explained 2004) policy. earlier legislation always required to aCIG exhaust group all its imputation it draw before could credits the on pre-consolidation toPrior this provisions corresponding 22 and its amendment, OP the that Commissioner's in was and practice view section Background • • first-out for: method This amendment pre-consolidation of aligns imputation imputation the by aconsolidated credits group use to (CIG) the first-in (Sections 22and 52,OP Tables OB O2and O19) credits imputation pre-consolidation of Use 30 March 2021. Application date To this resolve that ambiguity, areference CW58include proposed it was CE 6. to section interpretable was exempting not as the that section trustee income. explicitly not CW58did amendment, contemplate the Consequently, wording atrustee of section of nominee. the possibility exempt.However, the of be company also nominee should as theof company's shares capacity to inits prior acting this while by sharesSince own income acompany derived its of from disposing is by exempt, income atrustee derived from disposing the company, therefore and should treated be way the treated. inthat same the company be capacity would CE as 6,the the trustee of company acts anominee under section effectively company As wishes them to stock. treasury hold as shares transferring holding such trust as on shares reacquiring or for employees, to shares employees, where from employees the A company that share an employee offers may scheme nominate out activities atrustee related to carry to the share scheme, that loss. shareholders, or any asale produces gain not economic is transfercompany apartial the derives from disposal that is ownership of the exempt. This of company disposal to is because shares, own having its of acompany CW58,if acquired disposes Under them section without cancelling them, any income the Background stock"), any income the trustee is derives exempt. from the disposal shares of ("treasury CE the 6,disposes company for initself the company holds a nominee the under section offering scheme the CW58of Tax Income Section that 2007is to atrustee if amended share Act as clarify acting an of employee while scheme, (Section CW58ofthe Income Tax Act 2007) share shares company's own of trustee by employee scheme Disposal 30 March 2021. Application date ASC. for by acompany "subscriptions" for of the issue shares CE inthe of 6is definition included aresult as the section of of application that Consequently, to consideration amended clarify CD received 43(2)(b)be calculation that ASC. of section proposed it was including such to CE consideration 6.Not lead an treated incorrect would insubscriptions being under section anominee as consideration – included inthe for for the calculating formula issue ASC shares– which of is used received by atrustee that was company inexchange CD 43(2)(b) shares). of for the insection allocation unclear whether It "subscriptions" of was the definition CE 6drew to attentionThe amend section proposal to an existing issue relating received (the to amount by capital a of ASC Department Revenue Inland CIG, provided shareholder maintained. CIG, continuity been has from pre-consolidation of this to when imputation addressing the by reason a credits depart principle use there is policy no and basis, aFIFO on arethese used imputation an of amalgamated credits company the include pre-amalgamation amalgamating of credits and companies basis the general afirst-in on requires legislative for individual companies framework first-out used imputation to credits be (FIFO) by an individual company.imputation used credits pre-amalgamation by an amalgamated imputation are credits company used Tax Information Bulletin

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NEW LEGISLATION preserves tax positions taken under the former section 11(8D), prior to 11(8D),prior taken the positions remedial under the former enacted. section amendments tax being preserves However, there as may instances where be the relevant were supplies standard-rated rather than zero-rated, provision asavings 2017. originally into came force under the Taxation and Remedial Matters) Companies, (Annual Held for Rates 2016–17,Closely Act The remedial amendments applyretrospectively the from date 30June 2014,being that the relevant 11(8D) provisions section of Application date • • • taxpayer practices by: The remedial amendments the slightly of zero-rating the expand scope they land provisions, better of so align with current Key features represents an interest alease as abusiness, of inland. transferred the of sale part as mayland rules applywhen aregistered also transfers to another person registered alease is including when the lease person, The GST GST zero-rates The registered Act zero-rating landbetween of supplies businesses). (such certain as of persons Background references Taxsection and Services are stated. to otherwise the 1985unless Goods Act remedial amendmentsSeveral to have made the zero-rating been that rules apply to commercial of transfers land. All leases of (Section 11(8D)ofthe and Tax Goods Services Act 1985) zero-rating transfers of commercial of leases land Compulsory amendment for the 2008–09and later applies The proposed income years. Application date • • • Three requirements for the credit transfer satisfied must be made: to be balance transferred acredit 52),and inthe as OB group's adebit inthe ICA. as group (under section company's ICA This isgroup by anominated made to election company's company the ICA group's recording ICA. the amount the of credit the imputation consolidated groupUnder the rules, may amended to transfer elect the all of or credit balance from a some • • • The amendments apply when: Key features Department Revenue Inland when a lease is cancelled, prior to a new lease being arranged for the arranged purchaser abusiness. of being to is prior lease anew cancelled, when alease that 11(8D)(c),so surrenders, inaddition to this applyingto provision section of lease may theexpanding apply scope also zero-rated, that of arrangement supplyor be same also part should and azero-rated includes that sale supply relating that, abusiness if are any assets transferred business clarifying to aland lease, as instead leased of sold, the land been ensuring that zero-rating that to surrenders or the applies meet all assignments criteria would alease of for zero-rating had imputation debit to the group's ICA. The transferred amount that credits of be can from group to companies the group is limited to the amount the of (FIFO). Credits to the of reduce group the used debit and inthe all group order must be companies inwhich the arose credits imputation of until credits forward the end OA the of day whichcarrying the on 8). inthe debit (section arises group ICA The imputation consolidated group and the group company the must meet shareholder continuity requirements for the the group company's credit balance existed the before debit to the arose. group ICA and credits, a group company acredit imputation has balanceinits credit consisting account (ICA) pre-consolidation of imputation attach imputation to credits that dividend) imputationa consolidated agroup group an imputation company has debit (for example, is paying adividend and wishes to Tax Information Bulletin

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NEW LEGISLATION dividend. This does not change not dividend. This when change the dividend does is when but the it derived, does income is allocated. to receivesis the allocated income year inwhich the the person dividend the if dividend is adividend other than anon-cash CD the 1of This Tax Income to amendment section an additional adds subsection states the 2007.The income section Act new requirements. and better reduce compliance align costs, with other legal filing, simplify would basis such a cash on dividends derived to be Allowing basis. acash on income). Many submitters considered assessable that only be should inmoney dividends paid the taxpayer's Currently, reflects which best on (depending accrual or basis acash on are inmoney dividends paid assessable with inline not generalwas practice. that was when adebt intheir answer the comment, is feedback draft favour When sent out for public established. was the draft shares The answer derived?" draft that was for derived shareholders the dividend will be accounting an on accrual basis, for tax inaQuestionThis We've raised ordinary issue which "when on asked: is dividend was paid Asked income from acash Been Background dividend. a cash This is that amendment aminor to receives to income is the allocated income clarify year inwhich the person dividend it if is (Section 1ofthe CD Income Tax Act 2007) basis acash on are dividends that derived cash Clarifying surrendered by the cancelled was lessor or regardless whether of by the lease original the lessee old and purchaser to the of business enter for agreement. the lessor Accordingly, sale lease anew business this provision may apply to pay rent) failed the but there previous lessee is the of an arrangement because part (for example as the lease cancelled has to applies asimilar scenario it when also the lessor so expanded Under been 11(8D)(c)has the remedial amendment, section surrendered been has by the lessee. when lease the old the business, for the purchaser to inthe of context zero-rate 11(8D)(c)applies lease sale anew arranging of abusiness of Section the service Lease cancellations zero-rated.that arrangement supplyor be same also should that involve azero-rated that supply relating provisions, are underthese any assets transferred business to of land leases part as that, inthe contextRemedial 11(8D)(a),(ab), (b)and (c)to amendments sales, to havemade clarify business of sections been zero-rated be also should supplies. transfer alease of thatsimilar GST This outcomes. are mean any assets would overall transferred arrangement business the of same the as part as the equivalent transfer to economically atransfer acommercial of be could Because land, they produce of should land lease 11(1)(m). section consists"the partly or supply wholly land". Alternatively, of may zero-rated the of business the be concern agoing sale as under 11(1)(mb)referring This will zero-rateland rules to by section is achieved the land and the supply of both other assets. business When to aregistered another land and other which includes registered assets abusiness sells the zero-rating person person, of Zero-rating business assets that are also transferred the of same arrangement as part zero-rated. be 11(1)(mb)should section intent whichthe is original that policy agreement surrenders or all assignments alease for land that of the meet criteria in The remedial amendment deletes 11(8D)(a).This the reference achieves apply" insection not (b)does to "and paragraph zero-rated. be 11(8D)(b))would (the test insection involved making anon-regular payment that 25percent exceeded the of total agreement consideration underthe agreed lease theof guidance materials. the of 2017change that The that was unintended surrenders or effect only assignments leases of 11(8D)(a).The change referred unintended not was and was section This of to changed addition significantly the inany scope apply" at not (a). the end paragraph of the in2017,by (b)does inserting words amended "and 11(8D)(a)was paragraph Section requirements 11(1)(mb). section of 11(8D)(a)ensures zero-rating and surrenders assignments thatSection to are they if compulsory the lease meet subject Assignments orsurrenders acommercial of land lease analysis Detailed Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION include an additionalinclude criterion where adjustment no is required. GC18(4)determines when the replaced term greaterSection to aloan been of has adjusted.This be section than years can five amount consideration the of arm'slength for such loans. are which loans covered changes affect These not lender by are do the restricted associated. transfer only the rules, pricing provisions, that, related inthese all cross-border so is borrowing treated consistently, regardless whether of the borrower and There references these of are GC18(5),(7),(8)and (9).Each amended 12references been has insection persons" to "associated GC16(10)(a). existing section the on equivalent in reduction notches based two to or one amended of areduction include been GC16(10)(ab) has Section Key features • • • The three following amendments to have made the restricted been transfer rules. pricing (Sections GC16and GC18ofthe Income Tax Act 2007) remedials transfer pricing Restricted This amendment from the applies date the of enactment. Application date income". contractor is "assessable 24(1)(a)is to that RD amended confirms the test correct Section for an exemption for anon-resident from income tax Key features from payments to to is withholdtax contractors ultimately seek that not tax no if Revenue Inland does will clarify due. to demonstrate The to change that income tax". to unintended. "subject not "income" was This the was "income derived" change Arguably, The previous formulation the of test to required apayment income tax. even it if is subject will not be the contractor and therefore Typically, is it. on payable agreement tax no tax exempts the payment adouble from tax. this because will be more or one conditions 24(1)(a)the as contractor RD long are must show Under that met. section the payment is "income" not A contractor may applyto the Commissioner for an exemption from PAYE the 24of Tax Income RD under section 2007,as Act For that laws. income received reason, tax by contractors is ordinarily to PAYE. subject tolimited New Zealand, links there is arisk revenue of –the contractor loss may aware be not of, comply or with, New Zealand travels who someone to ashort-term New Zealand on to company. provide IT to services basis alocal However, to due their This amendment inNew Zealand, such as relates property or to non-resident supply services or contractors perform who Background that the income". amount from derived that payment is "assessable not that apayment, of they when must show anon-resident an exemptionClarifying inrespect contractor from income tax seeks (Section RD 24(1)ofthe Income Tax Act 2007) tax contractors' Non-resident The amendment from the applies 2020–21income year. Application date an on accrual and basis. not basis acash on are inmoney paid Dividends assessable Key features Department Revenue Inland of all third-party debt within all third-party theof group. to related method Introducing cross-border allow the asecond on average with borrowing terms term years based over five of cross-border related borrowing. Preventing an exotic feature to justify cross related border used from being that borrowing person is from not an associated debt. have for agroup is such debt with unsecured as allowed which third-party does long-term has athirdmember senior party notch whenProviding credit the two or rating one group the decrease same credit rating is calculated for agroup where no Tax Information Bulletin

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NEW LEGISLATION term greater the threshold term debt with only than years satisfy it third-party would it no aterm if has than years. five less five averagesix years for the same maturity. Under the original test, when related agroup cross-border asingle has with borrowing a they with have could instead loan above aterm loans asingle For the of example, of two components. five-year year and above inthisborrowing way, groups may prefer to have related cross-border asingle rather borrowing than splitting it into five- below withborrowing While the aterm operate rules appropriately 10years. of when agroup structures related cross-border its with funding aterm third have related 10years years its of ita term and 50%of also cross-border could its 50% of two party of with funding agroup if third had its 50%of For example, party longer no than funding. was the third-party term its of profile intendedwas to require agroup related to cross-border price its thethat on borrowing basis the term that of profile borrowing This debt. total of third-party The debt with calculates threshold third-party aterm aproportion years fraction as over five Tax of page 113 Information Bulletin Volume 3,April 2019. 31,No interest the were 24of rules page BEPS on related the These of cross-border explained and report limitation borrowing. special debtwithNew Zealand group third-party aterm thegroup or worldwide that significant has is to equal greater or than the term GC18prevents termsSection greater of related cross-border inpricing the included than years from unless being borrowing five Terms greater than years five related test, all cross-border third is borrowing treated party consistently. the of Twelve that, for the so purposes GC18(5),(7),(8)and (9)have updated been insection persons" instances "associated of • • person: unassociated related Thisborder created issues when borrowing. agroup two had that lending related cross-border was from borrowing an that from loans determine non-associates of whetherthe category exotic terms taken into be can account that inpricing cross- The consequence the of previous law is that related across-border that borrowing in lender is included is from not an associated GC6(3B)(a)(i)but theresection GC6(3B)(a)(ii)to are (iv). additional categories insection with the borrower. are persons covered by related cross-border of GC6(3B).Associated The definition is borrowing insection However, related lenders that across-border of by some made the loans are definition includes borrowing associated not commercial for the reason feature's existence. afeature If there debt. a are third debtthis being present also insignificant third is party supports present insignificant party related However, borrowing. there is an exception to this restriction that features so these taken into be can account they if GC18(3)provides alist borrower-friendly of Section features taken that into be cannot account when cross-border pricing Third test exotic for features party always GC16(10)(ab). This intended intention that insection achieved. included equivalent now been be has reductions would credit the notches rating credit group below the rating of two worldwide borrower or by one the member. of identified It was The equivalent provision for groups GC16(10)(a).That reduces with the debt is paragraph deemed such section third party debt with third parties. Remedial Matters) 2019to Act the allow group credit rating calculated by to agroup be with unsecured long-term no senior introduced GC16(10)(ab) was by the TaxationSection Tax (Annual for Rates 2018-19,Modernising Administration, and Group credit rating analysis Detailed Matters) introduced was 4June Bill 2020. on test for exotic featuresparty calculation the before Taxation Expenditure, and Remedials (Annual for Rates 2020-21,Feasibility restricted provision that for taxpayers transfer areturn the on Asavings original applies third have rules. pricing filed based amendmentsThese applyfor balance dates after or on starting 1July 2019to align with the original introduction the of Application date Department Revenue Inland determine appropriate exotic features. The features within controlling aloan the of control the borrower people were of within test included athird-party to The features that of determined fully or partially the appropriate loan features that of loan. same Tax Information Bulletin

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NEW LEGISLATION section FE non-resident no 2(1)(cd) have as would asettlement made section the on trust. New Zealand resident within and the settlor non-resident included new the on trust settled had longer not no be would non-resident arelative was the associated previously the of was from excluded the only because rules thin capitalisation Atrust repealed. that FE 2(4)(b)is been has redundantThis so insection approach new means the previous carve-out the 50%of trust.least only by they anon-resident if have settled and the been non-resident and any New Zealand resident have at settled associates Accordingly, this provision replaced. The now been trusts approach has new into these will bring the rules thin capitalisation compliant with the rules. thin capitalisation that including anumber may rules, have awarecapitalisation not been this of requirement and accordingly have not would been thisEven approach brought with many the carve-out, trusts with only New Zealand resident the of thin within settlors the scope New Zealand resident and that settlor non-resident relative themselves had not the on trust. settled this for trusts of where non-resident provision arelativebroad the was scope acarve-out only necessitated associated the of to drafted by all trusts aNew Zealandit include resident was settled that if with any resident associated non-resident. The was provisions intended was to cover residents and non-residents agroup that associated atrust. of at 50%of However, settled least trusts of wereA variety brought within the by changes rules thin capitalisation that from these 1April of 2015.One applied Trust scope analysis Detailed with the previous changes to this that formula have could the enabled percentage to go negative. Matters) 2021.The Act debtpercentage calculation amendment to after or on applies income years starting 1July 2018to align 30 March 2021which is the enactment date the of Taxation Expenditure (Annual and Remedial for Rates 2020-21,Feasibility trustsof covered The interest by the rules. thin to capitalisation after applies income formula years starting apportionment amendmentThe reduction from trust 1April 2015to applies scope align with the original amendment that the scope increased Application date GC16(3)(c)and (4)(b). section the well restricted as GC6(2)and (3B)as to interestmade the transfer two insection formulas in rules pricing apportionment that the debt percentagebut specifies is zero liabilities non-debt if are greater Consequential than changes group are assets. replaced. The FE formula 12(3),which is been has replacement the the same debtpercentage applies Section formula, section rather than the general formula. this as repealed situation FE been 6(3)(e)(iiib)has FE 31D. is now FE covered 6(3B) Section section by the insection formula FE 6(3B)for excess introduced debt entities insection been has formula with groupapportionment aworldwide given by The existing renamed FE now been interest 6(2)has the "general interest Anew formula". insection formula apportionment repealed. been it also redundant has so FE 2(4)(b) FE 2(1)(cd). changes These and have replaced repealed section made bysection new also FEbeen 2(1)(d)(i)has Section Key features • • • • The four amendments following to havemade consequential (or been to) the rules. thin capitalisation (Sections FE 2,FE 6,FE 12,and GC16ofthe Income Tax Act 2007) remedials Thin capitalisation • • having the threshold to term satisfy provided: This related across-border allows associates. to borrowing have aterm greater of than years taken into five account without GC18(4),forAn borrowers are their who or alternative insuring to not persons lending or section added approach been has Department Revenue Inland An updated crossAn reference updated FE 12(2). insection assets. An amendment to the debt percentage it operates correctly calculation so when liabilities non-debt are higher than total interestA new investors by agroup owned for unassociated together. taxpayers formula of acting apportionment what of trusts are inscope A reduction covered by the rules. thin capitalisation cross related border than is borrowing less debt. four times third party the term than is less the weighted and average the of term debt; all third of party Tax Information Bulletin

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NEW LEGISLATION that the is 60%threshold: above introduced that been has formula A new generates an amount income to of the extent interest is to paid related debt on parties it is to paid related (because lenders and the 60%debt threshold remain could disallowed is exceeded) been deductible. the (if rate disallowed interest of been that unrelated debtexceeded interest on related debt)or on party party that have should it is todifferent paid circumstances, unrelated these In interest times. (because lenders) have could that deductible be should the related debtand debtwith unrelated entered was party because parties into for example, atThis the will case, often be not the interest identical. rate related debtand unrelated debtwas both on party party related to agroup and unrelated applied when that it was controlled parties it assumed by anon-resident parties, body owning interest. whereby total deductible correctly While this there for the works case usual to debtowed is distinction no between FE 6(2).This debtthen essentially formula insection allowable multipliesthisformula" of calculates the proportion proportion theIf debtpercentage thin capitalisation threshold is breached income is by applying what derived is the now known "general as interest of limit deductibility by such paid groups to unrelated lenders. 17 • • • • • • • percentage the greaterthe groups limit thin for these been has capitalisation a60%debtpercentage of a including related debtor party Since the extension the to of rules thin groups capitalisation controlled from 1April 2015 by anon-resident body owning Interest apportionment formula to more or will continuethe the under one rules thin other rules. subject capitalisation to subsections be There are changes no to that the other atrust, other previously or FE was provisions person, 2(1)so brought within insection Department Revenue Inland The individual terms in this formula can be described as: The individual terms described inthis be can formula The individual terms in the formula can be described as: The individual terms described be inthe can formula rules. capitalisation related debtthatunderthe of for thin the eligible and concession bynot the on-lending proportion is deductible party This relatedinterest essentially formula multipliespre-thin deductible total party of debt capitalisation by the proportion

effect from income years beginning on or after or on 1July from 2018. income years beginning effect This percentage originally reduced to was 110%but was 100%by the Taxation Erosion (Neutralising 2018with andShifting) Profit Act Base (related interest –mismatch × +FRD2) – would not be excluded under existing section FE underexisting 18(3B). excluded be not section would term but is the debtpercentage adefined isnot also for percentage debtwith group debt counterpartiesworldwide that the percentage FE greater 6(3E)as group debt the 60%and of worldwide insection threshold amount is defined FE 6(3)(d). section term but is identical term is to adefined not percentage the in percentage group debt group debt New Zealand – is: factor comparison group debt respectively. mismatch rate foreign fixed-rate or shares equity instead arrangements. just financial of shares to from excluded the group that fixed worldwide applied FE be that under existing 18(3B)if would section section FRD2 counterparties from excluded the group that worldwide FE be under existing 18(3B). would section related interest is the equivalent totaldeduction of

The amount given by the formula: following total related interest after adjusting for mismatch, and the or FRD2 concession; on-lending the group1 if New Zealand worldwide or adebt percentage has zero, of is income derived to that equal the inthis is, case (New Zealand group debt percentage group –worldwide debt percentage) is the equivalent FRD of 17 of their of debt percentage The is excluding that principle related debt. not the should rules thin capitalisation party , total debt are concession and identical to their equivalent term (b)and (c) FE inexisting 6(3)(aba), section (New Zealand group debt percentage –threshold amount) in existing section FE inexisting 6(3)(ab) except it section is limited to fixed-rate foreign fixed-rate or equity total debt – concession total debt in existing section FE inexisting 6(3)(a)except it is section limited to debtwith ×group factor debt comparison Tax Information Bulletin

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NEW LEGISLATION 18 a reference the group worldwide FE 5(1)(a)and (ab) so requirements to section applycorrectly to groups. these by replacing updated the referenceupdate the FE been 12(2)has reference FE 12(2).Section FE 5(1)(a)with to insection section FE 31D. groups FE 5(1)(ab) for worldwide given 2018introduced byand Shifting) However, Profit section Act section it not did FE 5(1)(b).The Taxation insection described FE 75%as 5(1)(a)or Erosion (Neutralising insection Base than described 60%as the requirements FE 12(2)sets groupSection for aworldwide when the debtpercentage the of New Zealand group is more Updated cross reference Adjustments to terms required incross be related border when GC16can an entity risk is BEPS ahigh undersection pricing High risk BEPS in restricted transfer pricing above. The this of in the operation general term formula. and the inthe is formula interest explained section formula apportionment the FE 6(3B)includes group factor.The debtcomparison insection formula This is the equivalent the of group debtpercentage Thin capitalisation formula in section FE 6(3B) entire interest after expense adjusting for the other items already inthe general included formula. the If identical group to will adebt percentage be theformula has previous formula. zero of it will derive to income equal its where agroup FE 6(3)(c).For debtpercentage, the apositive has most common case, the outcomesection the of revised – threshold amount) ÷group debtpercentage". replaced This in by the been term has which "group is defined debtfactor" Previously the general the for terms interest FE formula 6(2)included "(group insection debtpercentage apportionment Thin capitalisation general formula correctly. through Consequential to ensure amendments azero of to sections of have made anumber debtpercentage been the effect flows consider, the the or rules restricted thin capitalisation transfer rules. pricing percentage zero. of Agroup with have debtwill no also adebtpercentage zero; of however, by, affected be have will not or to that to amended confirm agroup FE been 12(3)has with liabilities non-debt largerSection adebt than has group assets amendment. current risk the or under thin BEPS high capitalisation testapportionment inthe restricted transfer clear the not before was rules pricing percentage calculation went negative creating anegative of anegative debtpercentage debtpercentage. The interest on effect totalof liabilities this only when scenario occur agroup can this In is insolvent. scenario the denominator the of debt However, liabilities non-debt are liabilities for larger non-debt to As usually asubset be it than is possible group assets. are smaller than this group means that assets agroup's debtpercentage increased. has the In commonscenario where liabilities non-debt from liabilities non-debt group 2018toand Shifting) Profit assets. Act deduct The denominator by the amended Taxation FE inthe 12(3)was debtpercentage insection formula Erosion (Neutralising Base percentages debt Negative to This made have the inmore general been is below. detail also explained formula. introduced to been The has cover group factor the situation debt comparison negative of debt percentages.Equivalent changes 3. 2. 1. There are therefore outcomes the of three group factor: possible debtcomparison Department Revenue Inland however, it have will not any to the arrangements restricted subject transfer this so will have rules pricing effect. no risk BEPS a high it a debt percentage if has an entity to equal this meet zero. with also criterion; noted above, debtwould no As that so GC16(3)(c)and GC16(4)(b)have amended an debtpercentage entitycapitalisation is been is also more. 40%or Section the of One criteria GC16(3)(c)and GC16(4)(b)is thin when an its risk entity that BEPS high insection to cause be can

that inthis legislation. It Bulletin is used context. inthe same inthe the development of restrictedThe term inlegislation used risk but transfer was High BEPS is used not and the rules pricing guidance to FRD2 the that concession) FRD2 on-lending takes the total debtpercentage the 60%threshold above is income. the groupIf worldwide debt percentage than is less 60%an amount to equal related interest (after adjusting for mismatch, adjusting for mismatch, and the is FRD2 concession) on-lending income. the groupIf worldwide debt percentage is greater than, to, equal or 60%an amount to equal all related interest (after all related interest (after adjusting for mismatch, and the is FRD2 concession) on-lending income. have not theIf group adebtpercentage does (that liabilities non-debt are is, greater an amount to equal than total assets) Tax Information Bulletin

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NEW LEGISLATION eligible to be exempt under CW 55BB. This was contrary to the policy intent exempt to theeligible of This the to beneficiary. underCW55BB. behalf be on trustee contrary as the was pay policy can tax rate. Previously, tax at income upto this to the is $1,000paid beneficiary's aminor $1,000distribution taxed Beneficiary was and wages. investment salary income or withheld at been has source apply where on not such as tax it does the of –for child example, behalf on toposition pay tax measure preventing them from having areturn. to afile The exemption is intended not to applywhere there ina is someone children exemption with provides CW55BB upto school an on This income tax income. $2,340of isSection acompliance cost Background CW55BB. exemption insection tax for the income The Tax Income qualify not does to amended provide that been has beneficiary Act by income aminor derived (Section CW55BB ofthe Income Tax Act 2007) income exemption to beneficiary minor tax income the of minors' Application The amendment for the 2020-21and later applies income years. Application date TaxIncome return their tax 2007by filing Act that on basis. their toThis election spread the 3of amendment that fertiliser expenditure notify EJ can clarifies ataxpayer undersection Key features return their tax files that on basis. amendment when provides consideredThe the the taxpayer proposed notice 3(5)will be satisfied requirements EJ section of expendituredeductible inacquiring the fertiliser has lime or option to spread that expenditure over to one four income years. the 3of Tax Income EJ agriculture or Under section farming of the on business carries incurred who and has 2007 ataxpayer Act Background the 3(5)of Tax Income EJ under section 2007. Act This requirements the notification is amendment aminor wish who clarifying for taxpayers to spread their fertiliser expenditure 3(5)ofthe(Section Income EJ Tax Act 2007) costs Spreading fertiliser of after or on The 1July amendment 2018. for income years beginning applies Application date the item "accumulated accruals" is to equal the item "hybrid deductions". To that outcome to address under the the amended NRFAI risk specify an of undefined been 2C(6)(a)has RF calculation, section Key features relevant expenditure by the hybrid mismatch resulting rules, inazero denominator inthe NRFAI calculation deferral formula. fortheir all of outcome. This deductions aborrower if is occur calculation denied to formula would producean undefined determining whether to rise gives NRFAI. aloan However, aconsequence this of as for the change NRFAI it is possible deferral underthe is hybrid denied mismatchdeduction FH the of Tax Income insubpart rules 2007,is taken not Act into account in the 2C(4)of Tax Income RF calculation insection formula 2007.This Act amendment ensured that expenditure for which a The Taxation item the Erosion "hybrid (Neutralising 2018inserted deduction" inthe and Shifting) Profit Act NRFAI Base deferral for the non-resident of borrower and the imposition tax. withholding This rather ensures than an basis. on accrual basis, acash there imposed is be better should matching deductions tax between that so non-resident parties withholding associated and payments arrangement underafinancial deductions between between The non-resident arrangement financial income (NRFAI) address situations rules where there deferral of degree is asufficient Background (Section RF 2Cofthe Income Tax Act 2007) amendment consequential NRFAI formula calculation deferral Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION KiwiSaver. Amendments to have made the Tax been Administration to inresponse legislative 1994("Act") Act changes to the of operation (Sections 120B(bb), 157(10)ofthe 3(1),4A(3)(bc), Tax Administration Act 1994) KiwiSaver employer contributionsBringing into use-of-money-interest and regimes the penalties The amendment from 30March the date applied 2021,being enactment. of Application date amount PTC of is now redundant. that then. applied It is extremely retrospectively unlikely will be amounts these changed. Therefore, to the review need the entitlementperson's mistakes or fraud if are discovered years' returns. inpast the The amount payment be years would for those PTC insubmitting claimed returns finalising now or only be Revenue can Inland may years. amend a also for previous tax The government credit. paying PTC after stopped or on tax 1July 2018when born Start it the put inplace Best new for babies intervals. credit and PTC tax in-work of amounts Thereview in2008and each by review 30June. subsequent first was is at three-year MF7(4)required the MinisterSection inconsultation Revenue, of with to the review Minister Development, the for Social Background after or on 1July 2018. born available for babies The amendment removed has the requirement to review the rate credit parental of (PTC) PTC tax three as years, every is not (Section MF7(4)ofthe Income Tax Act 2007) review credit Removal the of three-yearly tax parental The amendment from the applies 2020–21income year. Application date an on estimate their withinbased of earned income ayear. to be is code tax to atailored pay is tax This auto calculated waylimited using other inthe whose is same as taxpayers calc. because that write-off entitled liability be is intent should to atax is code rules that these of The tax policy anyone atailored using that. reflect to code that income and have for forward and received tax reduces atailored applied carried their overall taxable losses have tax may ataxpayer For example, to written-off. code. have liability this tax This atailored tax where includes used the has taxpayer PAYE through of the and consequently underdeduction (forincome, example, liability have atax gross from these amounts) The end-of-year new auto that taxpayers calculation allow rules only receive New Zealand superannuation veteran's or pension Background process. is incurred liability through and the tax the code autosuperannuation veteran's or calculation tax atailored pensionsusing The written amendment that the to limit the of be amount clarifies $50for recipients can tax off of New Zealand of (Schedule 8,Part B1(a)ofthe Tax Administration Act 1994) limitation off write tax recipients veteran's pension or superannuation New Zealand and Remedial Matters) introduced was Bill into Parliament). the previous law inareturn 4June 2020(the before date the Taxation filed Expenditure, (Annual for Rates 2020–21,Feasibility The amendment relying from the position applies 2012-13income year. on atax took who provision for people Asavings applies Application date exemption). (the CW55BB income tax minors' exemption insection income tax for the qualify not atrust of is who does aminor provides CW55BB(2)(a)(iiib) that by income abeneficiary derived section New Key features Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION (Repeals and Amendments) Act 2013. The equivalent section is now section 141(5) of the 141(5)of KiwiSaver 2006. (Repeals is and Amendments) Act 2013.The now section Act equivalent section the 90of Financial MarketsThe for this 2014by section reason amendment 1December on repealed is 101Iwas that section thethe "141(5)of KiwiSaver KiwiSaver 2006". 2006"with Act Act section by replacing amended the been reference has 3(1)(a)(iii)(CD) the of Act insection "101I(5)of to "tax" of section The definition Minor cross-referencing error corrected employer KiwiSaver contributions and voluntary underthe UOMI compulsory regime. brings The repeals amendment 120B(bb) this to with exclusion. section the (above), This, coupled amendment "tax" of to the definition contributions. employer KiwiSaver compulsory unpaid excluded specifically 120B(bb) contains the but 7of section Part Act the UOMI rules, Bringing employer and compulsory voluntary KiwiSaver contributions within the use interest money of regime employer KiwiSaver contributions.voluntary contributions. The amendment "KiwiSaver adds 2006employer contributions" Act to thus extending the definition, it to include employer employer contributions,Previously, voluntary but not compulsory included this (h)of definition paragraph "income tax". of definition own its 157(10)includes Section overdue has who taxpayer income tax. The the recoveries allows the Commissioner 157of Act provision to make from insection any to deductions payable amounts a Bringing employer voluntary KiwiSaver contributions within the recoveries rules employer contributions". The amendment replaces the reference employer contributions" to "compulsory with the more generic "KiwiSaver 2006 Act employer KiwiSaver contributions.voluntary employer KiwiSaver contributions, compulsory mention it not includes did 4A(3)(bc) legislation. of Whilesection pieces extends the 4A(3)of Act the PAYESection under other prescribed to rules deductions arange of and withholding deduction contributions. The amendment to is ensure designed that the PAYE administration provisions employer KiwiSaver apply to the of Act voluntary Bringing employer voluntary KiwiSaver contributions within the PAYE deduction rules repealed. been has definition Additionally, employer inorder KiwiSaver to contributions, imply the the 3(1)(a)(viii) of not exclusion voluntary of paragraph employer KiwiSaver contributions. and voluntary (iii)(CC) that compulsory so both it includes employer contribution[s]" with"compulsory the more generic "KiwiSaver 2006employer contributions" Act 3(1)(a) insection The amended. amendment reference been has replaces the 3(1)of Act the specific insection to "tax" of The definition employer KiwiSaver contributionsThe amendment voluntary brings within the penalties the regime 9of inPart Act. Bringing KiwiSaver voluntary contributions within the penalties regime analysis Detailed The from 30March amendments applied 2021. Application date employer KiwiSaver contributionsvoluntary are brought within interest the money of regime. Voluntary employer KiwiSaver contributions are and brought within the compulsory penalties and recoveries Both regimes. Key features employer KiwiSaver contributions. existing The of amendments updateanumber also cross-references inthe Act. The amendments ensure and compulsory mechanisms that penalties and debtcollection applyto voluntary the same both employer contributions. to compulsory However, employer contributions mechanisms debtcollection which applied to voluntary penalties, were the same subject not providersscheme the before the employer to had amounts paid Revenue. Inland employer KiwiSaverFrom contributions and voluntary 1April 2020the to government to pay compulsory KiwiSaver began Background Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION time limit for challenging an assessment. disclosure item, for aparticular them which allow could to the reopen entire circumventing original assessment the four-month Previously, arguable that it was circumvent could taxpayers the time limit for by challenging making avoluntary an assessment Background disclosure. month time limit for by challenging making avoluntary an assessment The amendment to to position ensure restricts ataxpayer of challenge the circumvent ability atax cannot taxpayers the four- (Sections 89Dand 89DA ofthe Tax Administration Act 1994) position to atax challenge the ability Restricting The amendment from 1April 2020. applies Application date have morebut not not than an initial $5,000does provisional liability. tax The transitional provision more of provides who, had than inthe residual that previous income four tax years, $2,500 aperson Key features their is beneath residual the income tax threshold for paying provisionalyears because tax. required been An not to to has "initial who applies pay ataxpayer provisional provisional liability" inthe previous four tax tax initial again. provisional taxpayers that were so who taxpayers provisional liability", over threshold the old but tax were over not the threshold new become not do This amendment taxpayers. atransitional adds some 2007, which adversely could provision affect "initial of to the definition YA "initial achange of this, to insection made doing provisional theIn was liability" definition the 1of Tax Income tax Act changed to $5,000. (Taxation Urgent Assistance and Social 2020.To Measures) Act all references this, do to threshold the $2,500were old of The from provisional $2,500to threshold amendments inthe $5,000following increased contained COVID-19 tax Response Background threshold changed from was $2,500to $5,000. This is amendment aminor correcting an "initial error of when the provisional inthe liability" provisional made definition tax tax (Section YA 1ofthe Income Tax Act 2007) liability" provisional "initial of tax the definition Clarifying The amendment from 30March applies 2021. Application date thatassessment is inthe disputes process. This to consequential amendment include tax amendments alters resulting deferrable of the definition from an amended Key features tomade another company group. inthe same to Prior this amendment entities both challenge or the had to assessments. object acompany which alters may expenditureFor adeduction, example, the its offset of as have amount aloss of part disallowed taxpayer which not was provided for previously. is This settled. amendment provides for the situation an where associated an amendment affects to taxpayer one of the liability When a dispute has a taxpayer with they Revenue, Inland are only required owing until to the of the tax pay dispute a proportion Background toThe consequential amendment include tax" amendments alters from assessment. "deferrable of an amended the definition (Section 3ofthe Tax Administration Act 1994) tax" "deferrable of Amending the definition referredalso the 101I(5)of KiwiSaver 2006. to Act section these have similarly as the in157(10)of amended Act been "income tax" of and the 120B(bb) definition 4A(3)(a)(bc), Sections Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION A similar rule was contained in section 89DA. insection contained was A similar rule limit for issuing aNOPA. aNOPA, issued previously been they then could issue aNOPA for the entire return even they if are the four-month outside time This arguably disclosure meant and then that receives issues avoluntary when ataxpayer if they anotice have assessment of not the Tax Administration 1994. Act disclosure, which is identical to that inthe the voluntary position to 138B(1)of issues raised applies the Commissioner insection The amendment means that issues aNOPA ataxpayer if disclosure they are from limited avoluntary for to an assessment the Aligning the definitions between the Acts will reduce and misunderstanding the of confusion the law. Acts between Aligning the definitions terms aredefined different list for the payments. same of However, sections. payments intheir definition benefit contain the lists various of both Act Security and the Social Acts The tax Background 2018. Act Security administered inthe with aligned Acts inthe that Social by Revenue amain Inland been of has benefit The used definition (Sections 24B, 80KN, 80KK, 80KP, 80KU, 225Aofthe Tax Administration Act 1994) (Section 40ofthe Student Loan Scheme Act 2011) (Sections 349,350and Schedule 2ofthe Security Social Act 2018) Income Tax Act 2007) (Sections CF 1,CW33,LC 8,MB1,MC 6,MD8, MD11,14,MF2,MG 13,MA 3,MG 4,MZ2,RD 5,RD 11,YA 1ofthe (Section 11ofthe Accident Compensation Act 2001) benefit of the definition Aligning The amendment from the applies date enactment. of Application date the disclosure disclosure, four-month where is outside issued the inthe voluntary voluntary issues raised challenge time limit. This amendment where disclosure to position to restricts ataxpayer of challenge the makes the taxpayer ability atax avoluntary Key features 89D(1)stated: Section the 89Dof TaxSection Administration adjustment issue 1994outlines (NOPA). anotice can when Act proposed ataxpayer of Department Revenue Inland return. to able extend disclosureBy KWL been the has four-month making the voluntary challenge time original limit tax for its gain. arguing acapital it was that as unrelated some income is taxable not adjustment to anotice proposed 11March of the 2022.On Commissioner's KWL 4February on files assessment assessment $5,000 relating air travel to personal to Paris. The disclosure and Commissioner issues an amended accepts the voluntary return disclosure for the 2021KWL 2020tax makes avoluntary indicating it 6October hadOn overclaimed of expenses 24 August 2021. and receives 20April on 2021.KWL four to months has which an expires assessment challenge or on to the object assessment, return 2020tax its Kstew KWL files Winers wine. Limited (KWL) is cheap of acompany imported inthe that sale specialises 92 Example (b) (a) theIf Commissioner- extent towhich the assessment takes into account amounts arising under ofthe HB subpart Income Tax Act 2007. The taxpayer may, subject tosubsection (2),issue anotice ofproposed adjustment in respect ofthe assessment except tothe breach ofsection 89C,- Has not previously issued anotice ofproposed adjustment tothe taxpayer in respect ofthe assessment, whether ornot in Issues anotice ofassessment and toataxpayer; Tax Information Bulletin

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NEW LEGISLATION way as she is under sections 17, 17B, 17Gand 17H. 17,17B, way she is as under sections 17Iinthe same under section produced documents 17Isuch of that copies or take extracts she to,section is able for example, it 17C(1)made unclear whether under within the produced section Commissioner over documents powers had the same Unfortunately, contain not an 17C(1) did explicit reference The section areference of 17I. absence to section 17I to section require control. intheir to or position produce documents aperson theallows Commissioner to inquiries inrelation liability. conduct tax the Under to Commissioner this aperson's may section, However, there 17I under which the is Commissioner another may Section section require to producedocuments. aperson 17Gand 17H. 17,17B, undersections by aperson produced documents of copies or extracts provides the 17C(1).This Commissioner with section is to section the power Operating inconcertwith take sections these • • • circumstances. For information to example: powers obtain inspecific 17to 17Mprimarily withSections deal provide information These the Commissioner collection. with broad and wide-ranging referencesAll section are to the Tax Administration 1994. Act analysis Detailed and 17C. the like and therefore section of within included the not scope was the 17I(which allows Commissioner to information) inquiries to extracts conduct for contain taking Section obtain not rules did and the like. introduced to consolidate the provisions various relating to the of Commissioner the ability to from documents take extracts Tax forRates 2018-19,Modernising Administration, this of 17Cwas exercise, and Remedial part Matters) section 2019.As Act The information provisions various collection were inthe Act rewritten the of Taxation part as and consolidated (Annual Background The amendment makes also changes the minor with interaction to another. one the of better sections reflect 17I. section which to are the of the of Act inthe documents Commissioner'sprovided under other course produced sections inquiries under The amendment extends 17Cto take and the the copies like Commissioner's under section inrelation powers to documents Key features The amendments into came force from 30March 2021. Application date the 17Iof Act. Commissioner's inquiries undersection the of Tax sections various Administration extends also the of inthe 1994("Act") course produced to Act documents The amendment the Commissioner's to clarifies powers take and the copies like inrelation under produced to documents (Sections 17C(1),17(5)) documents of the to Commissioner's copies take power Clarifying The amendment from 30March the date applied 2021,being enactment. of Application date • • • amendments: 2018.The Act Security with inthe that Social Acts used inthe tax The amain of amendments benefit align the definition Key features Department Revenue Inland section 17H permits the Commissioner 17Hpermits to applyto thesection for District an order Court requiring the provision information. of the 17Gallows Commissioner information to obtain section from large multinational and groups; the 17Ballows Commissioner to requiresection information documents of the or production amendments. consequential make living it is allowance" as and redundant, remove "specified of the definition YA insection main of the benefit 1of Tax Income definition anew add 2007 Act Tax Information Bulletin

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NEW LEGISLATION for the payer inNew Zealand. that the hybrid nature inanother with deduction jurisdiction, corresponding an no of entity apayment may taxable to cause be groupa 100%commonly owned to that aforeign are owner. taxable dividends The inthe these is of formula inclusion to reflect The an SAI "exempt" calculation includes formula item, New Zealand of members which covers two exempt dividends between Payments madewithin aconsolidated group are included calculation be in to SAI residentbe inNew Zealand. To to amended remove FH 12(10)was address this the problem, requirement section that to eligible companies group SAI must the group awhole. as This deductions). result the could denied inover-taxation to offset resident used of company's been SAI have could otherwise another while non-residentcompany group (where inthe go could New Zealand unused, same is deductions the denied non- aconsequence this of inNew Zealand were As non-resident limitation, paying the companies anon-resident tax not. SAI of enactmentOn the of hybrid and branch mismatch New Zealand-resident were companies rules, to able group their but SAI, denied). be otherwise SAI available toits another group ahybrid has owned who branch wholly mismatch or member would for which adeduction outcomeeconomic is reached for the (that group group one if awhole is, as company make it more can has SAI than use, it can FH income (SAI) grouping 12(10)is to mechanism ensure insection intent that assessable the of The surplus policy the right found inTax be FH 12can Further section allowed. of details Information Bulletin Vol 3August 31No 2019from 80. page togiving rise the hybrid mismatch. This in a different arise income can income year from the year the hybrid mismatch amount is inthe other country taxed to be also expected be inNew Zealand and can derivingor the income which is has amounts taxable FH the 12of Tax Income Section for hybrid mismatch adeduction 2007allows Act to amounts the extent that paying the person Non-resident group group members' ability to surplus assessable income analysis Detailed after or on The 1July amendments 2018. apply for income years beginning Application date in over taxation. to ensure remedial that necessary changesSeveral being were the as hybrid and branch mismatch identified result not did rules Information Bulletin Vol 3April 2019. 31No found inTax be can recommendations of rules series these of in2015and 2017.Details by the released through OECD reports intoinserted the Tax Income 2007by the Act Taxation Erosion a (Neutralising 2018,following and Shifting) Profit Act Base advantages from the different ways that countries treat were rules These instruments financial and entities purposes. for tax FH the of Tax Income Subpart 2007contains Act the hybrid and branch mismatch to neutralise which seek tax rules, Background remedial changes to the hybrid and branch mismatch to rules ensure intended. they apply as The Taxation Expenditure, and Remedial Matters) (Annual for Rates 2020–21,Feasibility 2021contains of Act anumber (Sections FH 3,FH 7,FH 12,and GC8ofthe Income Tax Act 2007) remedials rules Hybrid • • • The amendment makes also changes the minor with interaction to another. one the of better sections reflect are: These Minor amendments This makes 17I. it clear that undersection produced the Commissioner documents of to copies is or able take extracts reference 17C(1). thisThe 17Iwithin issue aspecific amendment 17C(1)addressed by incorporating section to to section section Department Revenue Inland repealing the reference within section 17C(1) to section 17G, as documents are under thisrepealing produced documents the provided or not section. reference as 17G, 17C(1)to section within section 17H(6);and replacing the section reference 17Hwith the 17C(1)to more section specific, within section replacement the 17C(5); of term "provided" with insection "produced" Tax Information Bulletin

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NEW LEGISLATION • • FH 7 is intended to for apayment separateSection situations: deny intwo adeduction that the appropriate whether on the of depends application rules hybrid abranch or entity is involvedinthe transaction. this of The provision inTax intended scope is discussed Information Bulletin Vol 66-68)and provides 3April 2019(pages 31No the recipient jurisdiction. relevant to due the exemptions of income is application received the but (and is not non-recognition taxable income) not in of FH the 7of Tax Income Under section to may denied hybrid entities 2007,deductions be Act incircumstances where the Reverse hybrid rule clarification it onhow applies hybrid entities to and branches accordingly amended issues. GC8(2)(b) was to two address these Section apply. not GC8(1)should applyand section would GC8(2)outlined above section available may for the interest become rationale adeduction for income"). As payment the original instances, policy inthese the interest infuture FH cases, may 5,FH 8and FH 9(inthese sections deductible there still if assessable be "surplus is sufficient under the of is the permanently rule –not deferring focus on is as the denying case perspective, –adeduction, from apolicy relationIn to interest-bearing take not into did GC8(2)also account underthe disallowances hybrid section where, rules loans, to the payer).deductible This is an unintended outcome. interest adeemed on payable amount be (that payment, would with non-resident the is, payment tax withholding being not interest were substituted to be GC8(1),then the hybrid apply to could for undersection the rules deny deemed adeduction arising inrelationfor expenses to that This income. is an issue for interest-free amount of where arm'slength adeemed if loans, in New Zealand under the transfer incircumstances rules, pricing where the hybrid then could rules deny limit or deductions to a taxpayer have deem GC8(1)could income taxable account not GC8(2)(b)did meaning section for the hybrid rules, Section ispayee not. consideration will Generally, stand. where this is the and the the payer case to the of New Zealand tax amount full is subject contains an exception to this where arm's length applyand the rule, GC8(1)will not below the general insection rule GC8(2) Section amount todeems an arm'slength purposes. have received by the been for income payee and tax withholding Where inadequate consideration is received under atransfer the GC8(1)of Tax Income arrangement, pricing section 2007 Act Transfer pricing deemed arm's length amount –exception deductions to denied under the hybrid rules rate inany apply tonot territory, applicable or at country apayment full apayee's taxed including New Zealand. this is asituation not that does that captured so Therefore, be amended the by the should FH section 3was hybrid rules. section there hybridAs mismatch is deduction/no-inclusion no the income of inNew Zealand, payee ordinary apayment if as is taxed rate (generally where the is payee anon-resident with aNew Zealand branch). still could apply to where apayment denysection New Zealand adeduction taxes tax received by the at payee applicable the full the However, New Zealand recognises payment income. ordinary territory or outside a country as that identified it the was The hybrid instrument financial FH the 3of Tax Income insection rule for apayment deny not where adeduction 2007does Act Hybrid financial instrument rule application income fully to taxed in New Zealand legislation "deductionless". as To to solely exempt the FH income, item longer 12(4)(c)no applied that "exempt" section is reflect now referred to inthe groups. New Zealand wholly-owned CX60(that payments within made is, group) aNew Zealandsection consolidated way exempt the same as dividends within To to amended treat FH address 12(4)(c)was this the issue, SAI calculation insection formula income excluded under group. consolidated inthe New Zealand companies same aregarded between transaction as jurisdiction, inNew Zealand to first the group inthe consolidated parent jurisdictions: recipient on payment, and second two athird-party of in toSuch apayment captured despite income potentially tax not the was subject same inthe SAI calculation being formula, transparent inanother country, inthat income may recognised inrelation country be to the group consolidated transaction. for permitted the payer. will be income excluded inNew Zealand and deduction no will be However, the if is payee fiscally inrelationThis arise issue hybridity can same to payments within made group. aNew Zealand consolidated Such apayment Department Rev where the payment is not taxable because it is to made areverse hybrid inanotherwhere because country. the payment is taxable not abranch mismatch of where because the payment is taxable not Tax Information Bulletin

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NEW LEGISLATION return are fees taxes. not filing the 3of Tax insection "tax" of The definition Administration that is to foreign amended Act clarify trust registration and annual Key features and UOMI. are However, fees apply when paid. these not to fees attract for these or penalties never "taxes" intended it was that be fees these aresult, late interest As payment money of explicitly a"tax". penalties and use from excluded being (UOMI) automatically can Technically, they are 3(1),as to payable law the under section Commissioner are and are fees under atax these a"tax" not annual return its 59D). and for filing (section The registering foreign for both fees trust aforeign disclosure the impose 59Bof rules Tax trust (section Administration 1994) Act Background (Section 3ofthe Tax Administration Act 1994) fees Foreign registration trust filing and The amendment from the applies 2020-21income year. Application date changed inlegislation. to to change amended owner anew an allow of asset depreciation been EE 40has ratesSection where the depreciation rate has Key features deprecation rate where the changed rate by legislation this been as has is achange clearly intended by Parliament. to have able claim had would they retained been the item.person However, it is intended not to a of limit apurchaser's use EE 40is intended toSection ensure that the purchaser is to unable claim more depreciation for the item than the associated restrictedbeen to a0%depreciation rate, rather than rate the 2%. allowable 1.5%or of aresult, apurchaser acquired who As to anon-residential have by the the would associate. rate from an associate building used The depreciation is EE 40 restricted from an associate acquired rate has where by section depreciableproperty applies aperson from the 2011–12income year.applied areNon-residential depreciable at buildings arate 2%from 1.5%or of the 2020–21income year, to the 0%that opposed as Background rate changed has inlegislation. The Tax Income to to change amended owner anew an allow of asset depreciation been has Act rates where the depreciation (Section EE40ofthe Income Tax Act 2007) transferred to associate an property depreciable depreciation rates for on Restrictions All three issues were these of with dealt FH 7. by amendments to section • • • There were three issues with the section: met. are FH 7 it is to made areverse section (a),(b)(ii),(c),(d)and hybrid (e)(ii)of paragraphs if because A payment non-taxable will be abranch mismatch of FH 7are met. section (a),(b)(i),(c),(d)and (e)(i)of paragraphs if because A payment non-taxable will be Department Revenue Inland arrangement (regardless whether of that is control not or inthe same mentioned last person group the payer). as inthe payer'sthe is country control payee aperson group is who the (b),the not or payee; arrangement is astructured treated (a),the person deriving the as income underthe law met of if: be (b)(ii),it to should with paragraph Also respect the income of payee. income was to areverse be hybrid.will not However, the meant previous the that drafting of subparagraph it have the could if applied is control who inthe same person group the payer as and is the If the income not is payee. the the income of payment payee, toWith only (b)(ii),it the applyif should respect amount is treated a income underthe of law being the as of country payee (e)(i) are This intended. met. not was (a),(b)(ii),(c),(d)and (a),(b)(i),(c),(d)and (e)(ii)are paragraphs paragraphs if apply if could or met, the drafted, section As Tax Information Bulletin

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NEW LEGISLATION The amendment applies from Bonus Bonds' income year starting on 1April on 2021. income year starting The Bonds' amendment from Bonus applies Application date is the Bonds only approved unit trust Bonus this anyAs change other affect trusts. will not by 7(1),income atrustee derived income is HC existing trustee atrust of that income. section is beneficiary not Under income. 2(ab) excludes by income atrustee derived HC an of approved unit trust section beneficiary New from being Key features after the end the period of income year.certain inthe income year it is within or derived a it if marginal is to rates, paid abeneficiary at tax beneficiaries' and taxed income, The general treatment trust of distributions, to previously which also an approved applied unit trust, is that income is beneficiary year. up. the In wound year it winds up, it will have to distribute inthe including income derived same to income derived beneficiaries stop would accepting 26AugustOn that Bonds announced 2020it was investments new Bonus with the intention being of rate beneficiaries. for details its tax hold to needed itnot has so income, never distributed has Bonds distributions beneficiary Bonus tax-free as to beneficiaries. earnings, is the Bonds only trustee on approved unit trust. ItBonus pays income at tax 28%and then pays year after-tax prizes out prior of Background in the year it is distributed, Bonds. trustee at 28%.This the will Bonus be wind-upof income and taxed change will support The Tax Income that so amended all income distributed been 2007has Act by an approved unit trust, including income derived (Section 6(2)(ab) ofthe HC Income Tax Act 2007) Tax treatment trust distributions unit of approved an of wind-up on Transformation Programme. 2021toThe align amendment system with Revenue's from Inland of Business 1October planned applies changes part as Application date Customs establishing an of information-matching for the purposes programme. information as included the Commissioner been may has number provide to the Executive Chief of A borrower's passport Key features tonumber this information. Customs. The legislation Revenue Inland now to allows improve this of the match accuracy the by borrower's passport adding The legislation governing this match Revenue Inland to allows share with number the date borrower's name, and IRD birth of when they leave default enter or borrowers inserious and to New Zealand. identify overseas-based, or This informationNew Zealand overseas. Revenue or Inland to allows ensure that borrowers are correctly treated New Zealand as an information RevenueInland undertakes match whether with aborrower is Customs in verifying of for the purposes their Interest income. is student on payable overseas. for borrowers are loans who based isA student entitled is borrower who to New Zealand based loan an interest-free student repayments and on loan loan are based Background and New Zealand Customs information of matching. for the purposes student of number information borrowers as The loan that amendment Inland Revenue the may adds passport shared be between (Section 208ofthe Student Loan Scheme Act 2011) inthe customs search student information numbers loan passport Using The amendment 2017,when the from 21February foreign applies trust into disclosure came rules force. Application date Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION Application dates for each proposed amendment datesApplication are for each 10. proposed stated intable Application dates • • • • • • • anyThe 10correct amendments the of following: intable changes. subsequent and maintenance technical minor amendments items reflect The proposed arising the from rewrite both legislation income tax of Background Maintenance items The amendment from the applies date enactment. of Application date the 184A(5)of Tax insection "tax" of inthe is definition now included AdministrationThe levy problem gambling 1994. Act 184A(5). insection "tax" of within fall thenot definition to the credit 184Aof able direct Tax refunds through section Administration 1994.However, Act did levy the problem gambling Transformation, Business its of transition part platform as to Revenue's types Inland technology new tax As Revenue Inland is Background (Section 184(5)ofthe Tax Administration Act 1994) the 184(5)of Tax to section levy the gambling Adding problem 1994 Administration Act Department Revenue Inland inconsistent and definitions. terminology of use and amendments, rewrite substantive from arising amendments consequential grammar drafting consistency, terms lists including the the readers' defined aids –for example, cross-references compilation issues ambiguities Tax Information Bulletin

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NEW LEGISLATION Table 10:Maintenance amendments analysis Detailed Department Revenue Inland Income TaxIncome 2007 Act Enactment Tax 1994 Administration Act Student Loan Scheme Act 2011 Act Student Scheme Loan KiwiSaver Act 2006 KiwiSaver Act Section Section day" YA 1"early life regime application YA (e) 1"dividend" inparagraph YA 1"dispose" YA 1"claim" YA premises" 1"business account return"tax YA 1"annual branch equivalent 2(5) RE RC 5(8) 1(gc) RA 24 HC 20(1)(a) GB FE 22(3)(b) EY 11(8) EY 7(1) EY 5(2) 28(c) EX 21(6) EX EW 15I EL 3(b),(c) EL 2(5) EE 40(10) ED 3(3) 157(10) 139AB 139A 3 "tax" tax" 3 "deferrable superannuation scheme" superannuation scheme" 34 "Australian complying 4 "Kiwisaver status" Amendment Correction of terminology Correction of terminology Correction of cross-reference Correction of terminology Correction of terminology Correction to cross-reference terms listdefined Correction of terminology, correct Correction of terminology Correction to cross-reference terms listCorrect defined Correction of grammar Correction of grammar terms listdefined Correction of terminology, correct terms listdefined Correction of terminology, correct Correction of terminology terms listdefined Correction of terminology, correct terms listdefined Correction of terminology, correct Correction to cross-reference correction to cross-reference Correction of terminology and Correction of terminology Correction to cross-reference Correction of terminology terminology terminology Correction to cross-reference and Correction to cross-reference Correction to cross-reference Correction to cross-reference Correction of terminology Correction of terminology Correction of terminology Tax Information Bulletin

Vol 6July 33No 2021 Application date 1 July 2010 1 April 2008 27 March 2021 2012 2 November Assent 1 July 2012 1 April 2008 2012 2 November 1 July 2016 1 April 2009 1 April 2014 1 April 2008 2012 2 November 1 July 2010 1 July 2010 2012 2 November 2012 2 November 2019 1 January 1 April 2019 1 April 2019 1 April 2008 2012 2 November 1 April 2020 18 March 2019 Assent 1 April 2020 Assent 1 April 2012 Assent Assent 131

NEW LEGISLATION The Order 25June 2021. on inCouncil comes into effect Application date platform. technology new refunds have shifted to theis progressively been and associated occurring by issuing Orders types inCouncils the tax various as The administered intention Implementing credit. by direct this by Revenue refunded types Inland to is for all be refunds for tax platform (START). to moved Revenue's Inland technology new was implemented when the products administration tax these of machine gaming duty, duty, casino duty, crediting direct lottery for income tax, and totalisator was Compulsory duty Background Commissioner to provide an exemption hardship undue when crediting direct is cause or impracticable. would machine gaming operators and the Lotteries operators, Commissioncasino pay excess inerror. 184Astill the allows Section Order when 2021mandates TAB Levy) (Problem the Gambling credit direct refunds levy of the of problem gambling NZ, Tax making of refunds. fortaxpayer. the purpose "tax" of to is included the definition Administration levy Problem gambling The provisions credit 184Aand by 184Brequire direct to refunds paid to account abank insections be nominated tax by the the 184Aof Taxcredit under section Administration 1994. Act An Order that 24May on inCouncil 2021to made by direct was cover may refunded levy an amount problem of gambling be Order 2021 Taxation Administration Credit Refunds) (Direct Levey Problem of Gambling Department Revenue Inland Tax Information Bulletin

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NEW LEGISLATION Inland Revenue Department Tax Information Bulletin Vol 33 No 6 July 2021

BINDING RULINGS This section of the TIB contains binding rulings that the Commissioner of Inland Revenue has issued recently. The Commissioner can issue binding rulings in certain situations. Inland Revenue is bound to follow such a ruling if a taxpayer to whom the ruling applies calculates their tax liability based on it. For full details of how binding rulings work, see Binding rulings: How to get certainty on the tax position of your transaction (IR715). You can download this publication free from our website at www.ird.govt.nz

Product Ruling – BR Prd 21/03: Zap NZ Limited

This is a product ruling made under s 91F of the Tax Administration Act 1994.

Name of person who applied for the Ruling This Ruling has been applied for by Zap NZ Limited (ZNZL).

Taxation Laws All legislative references are to the Goods and Services Tax Act 1985 unless otherwise stated.

This Ruling applies in respect of ss 5(11E), 5(11EA), 5(11F) and 5(11G). RULINGS BINDING

The Arrangement to which this Ruling applies The Arrangement is the provision of the ZNZL digital gift card and loyalty scheme. Under the scheme, customers purchase Zap, which can be redeemed by Zap Holders for goods or services supplied by Participating Retailers. Further details of the Arrangement are set out in the paragraphs below. Background 1. ZNZL has created a digital gift card and loyalty scheme that is powered by blockchain technology. ZNZL has also developed the Zap App, which is downloadable from Apple iTunes or Google Play on mobile phones and other electronic devices. The Zap App allows customers to create a digital wallet in which the New Zealand dollar value of Zap is stored for its customers to use to purchase goods or services from Participating Retailers.

Details of Arrangement 2. Capitalised terms in this Ruling have the same meaning as in the Terms and Conditions of Zap and the Zap Participating Retailer Agreement (discussed in [7]). Parties to the Arrangement 3. The Arrangement involves: • the Applicant: ZNZL, being the owner of the ZNZL gift card and loyalty scheme and the Issuer of Zap; • Issuing Agents: Red Rat Clothing Limited (RRCL) and other retailers that ZNZL appoints to issue Zap; • Holders: people who hold Zap through the Zap App and are entitled to receive goods or services when they redeem Zap; • Participating Retailers: the stores in which Holders may redeem the Zap for goods or services; and • Customers: people who purchase Zap and who may not be the same people as the Holders if they allow another person to use or take possession of the Zap. 4. ZNZL is a New Zealand resident company, and all Participating Retailers are resident in New Zealand. 5. ZNZL, Issuing Agents and all Participating Retailers are "registered persons" (as defined in s 2(1)).

133 21. Zap Redeeming 20. card the own gift Holders 19. 18. 17. cards Purchase gift of 16. 15. 14. 13. cards gift Zap 7. Terms documented conditions and 6. Department Revenue Inland 12. 11. 10. 9. 8. or throughor aParticipating Retailer's point-of-sale system. code aQR by using redeemZap from Participating Holders Retailers. and services to purchase Zap goods use can Holders purposes. for all owner the of Zap the to rightfullegal is is be The deemed held intheir Zap Holder wallet. digital A Holder's The acustomer onto amount Zap of load their can wallet is digital unlimited. onto other their or electronic phone device. downloaded is received customer or credit is approved, RRCL transfers into the Zap the customer's wallet that digital they have RRCL approved allows EZPay customers to exchange their all of or undrawn EZPay some Once payment credit for Zap. customersRRCL eligible offers EZPay arevolving consumer called to assist credit them facility to their finance purchases. is the "Zap" equivalent One New Zealand dollar. one of A customer New Zealand dollars. using purchasesZap addition, In through or online made App.A customer the from Issuing RRCL Agent. Zap Purchases be as purchase Zap also can can from Participating Retailers. customersits services or to purchase goods customers AppThe allows Zap to is create stored by Zap of inwhich value the New Zealand dollar for wallet, use adigital operates through iTunes from App Apple Zap that the Zap is downloadable Play. and Google with traditional cards. forms gift of this creates prevents that the and fraud amore forgery card, the occur gift blockchain as technology of can secureform to According ensure are by spent blockchain twice. technology toZap underpinned the cards be the gift cannot applicant, areZap prepaid, cards gift digital that are by Issuing ZNZL. issued ZNZLor of Agents behalf on materially 2021: 2020provided to different Revenue Inland 29January on at as 5October to documents the updated The terms (which are documents and conditions are not scheme card out intwo the of gift set and loyalty ZNZLdigital residingan inNew Zealand individual legally and over the age 10years. of TermsZap and Conditions state must be An Approved Zap. Holder that acquire, use or can only an Approved hold Holder Participating the 2.7of Zap RetailerClause Agreement states: capacity. own Agents by the Issuer. 3.2states Clause that the Issuing Agent to issues customers Zap agent as for the Issuer, inits and not Participating the 3.1of Zap RetailerClause Agreement provides for the appointment Participating of Issuing Retailers as . https://zap.me TermsZap the and Conditions terms as are and conditions defined relating website the on Zap accessible to Zap Date from the Effective the on termseffect the of Participating Retailer Agreement Terms and the Zap and Conditions. with Participating toEach Retailer to services each undertakes or other accept for redemption Party against Zap goods Participating 1inthe Zap Retailer Agreement.Schedule Retailers to accede the Participating Retailer Agreement by executing and delivering an Accession Agreement inthe of form Participating Participating Retailers are that those agree to and inexchange services. accept from Holders Zap for goods enteredZNZL has into Participating aZap Retailer Agreement RRCL is with the Original RRCL. Participating Retailer. • • goods or services. goods provided by the Participating Retailer to services or the customer. for goods redemption Zap of for redeemZap not The Issuer does particular, the Issuer and each Participating Retailer the agree 5(11G)of and the GST that time applies supplyis of Act on section The Issuer and each In the of Participating GST Retailer Act. agree voucher that for gift the adigital purposes operates as each Zap ParticipatingZap Retailer Agreement. Terms and Conditions Zap; of Tax Information Bulletin

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BINDING RULINGS Group Leader –Tax Counsel Office DavisHoward This Ruling is the by on me 8th signed day April of 2021. 6August on 2020and endingThis 31March on beginning 2023. Ruling will apply for the period this which for Ruling year applies income or The period (c) (b) (a) The Taxation applyto Laws the Arrangement follows: as theHow Taxation to apply the Laws Arrangement 28. process Reconciliation 27. Loyalty 26. Expiry 25. 24. cash for to redeem right No 23. 22. to assign Right Department Revenue Inland account for GST output tax when Holders acquire goods and services by their redeeming Zap. account and for acquire services GST when Holders output goods tax Accordingly, for GST purposes. and Participating services Retailers are goods supply of required to charge GST Holders and Participating are Retailers redemption on supply to Zap of treated and services Under Holders s5(11G),any goods a as services. or are for when goods Zap redeemed and services, applyto not the goods supplyof 5(11F)does Section (iv) (iii) (ii) (i) any of Zap: inrespect supplyoccurs no Under s5(11E)and s(11EA), DateEffective (the Period). Grace TheRetailers. Participating Retailer is charged not any Date from the fees Effective until the date six months falling after the netted maypurchased off. be The also the Issuer Exchange to less Fee remits the of Participating value Zap the dollar Wherefor New Zealand dollars. an Issuing Agent isaParticipating also Retailer, Zap Bonus the may amounts offset. be Issuer, and Participating Retailers may exchange received from Zap customers and services consideration as for goods accordanceIn with the monthly reconciliation the Issuing Agent process, must remit Issuing Agent held as funds to the Retailers. Participating Retailer, another or Participating Retailer that This accepts Zap. is to Participating to encourage Zap loyalty with may redeemed that Zap be Bonus timeframe. within alater on ashort anduse may used not transaction if lapse the customer Zap receives Bonus which the retailer areZap from ZNZL. purchased has available for the customer to Participating Zap, to Retailers using the may offer customer When choose services or bonus acustomer purchases goods App. the on date published Zap will The be expiry toat prior 48hours effect. it least taking date ZNZLinwriting The the of Participating expiry Retailer must notify cards gift and inexchange services. Zap for goods Participating date,Each Retailer the at has discretion, right its to an expiry after set which it is longer no required to accept receive cannot anyHolder equivalent denominated value other or inNew Zealand dollars currency. replaced, or and the refunded be cannot Zap and services, stolen exchanged is not or lost, Zap for goods aHolder's If aParticipating Retailer any from or ZNZL, for other cash redeem their person. cannot Zap A Holder transactions arethese more secureand more traceable. By any operating through card just be. as App, to gift can card the paper-based or peer Zap peer sell or gift can Holders transfer or assign sell, and Participating to theirHolders Retailers gift, any Zap can Approved Holder. supplied by a Participating Retailer to a Holder under the loyalty scheme (that is, bonus Zap). by aParticipating (that scheme supplied Retailer bonus under the to loyalty is, aHolder byissued ZNZLto or aParticipating Retailer; byissued any Issuing Agent to aHolder; byissued ZNZLto aHolder;

Tax Information Bulletin

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BINDING RULINGS Inland Revenue Department Tax Information Bulletin Vol 33 No 6 July 2021

QUESTION WE'VE BEEN ASKED This section of the TIB sets out the answers to some day-to-day questions people have asked. They are published here as they may be of general interest to readers.

QB 21/04: When an employer is party to an employee share scheme, when does an employer's expenditure or loss under s DV 27(6) or income under s DV 27(9) arise?

Question Key provisions When an employer is party to an employee Income Tax Act 2007 – ss CE 2 and DV 27 share scheme (ESS), when does an employer's expenditure or loss under s DV 27(6) or Key terms income under s DV 27(9) arise? Employee benefit reporting obligation means the requirement to Answer provide employment income information under s RD 22(3) of the Income Tax Act 2007 and ss 23E to 23H of the Tax Administration Act When an employer is party to an ESS, 1994, as modified by s 23K of the Tax Administration Act 1994, in relation the employer's expenditure or loss under to a benefit received under an ESS. s DV 27(6) or income under s DV 27(9) will arise when the related "employee amount" Employee share scheme (ESS) has the meaning given in s CE 7. Broadly, from the formula in s DV 27(7) is recognised an ESS (subject to specified exceptions) is an arrangement with a for the ESS employee. purpose or effect of issuing or transferring shares in a company to a person (an ESS employee) who will be, is, or has been an employee The "employee amount" is the amount for the (or shareholderemployee) of that company or of another company ESS employee calculated on the share scheme in the same group, if that arrangement is connected to the person's taxing date in accordance with the formula in employment or service. It also includes the provision of shares to an s CE 2(1). Where the amount calculated is: associate of the ESS employee, if the arrangement is connected with the • negative, the ESS employee has a ESS employee's employment or service. deduction on the share scheme taxing ESS deferral date means the 20th day after the share scheme taxing date date (subject to any applicable general for the benefit. limitations, other than the employment Share scheme taxing date has the meaning given in s CE 7B. Broadly, this limitation); QUESTIONS BEEN ASKED WE'VE date is the earlier of the following dates (subject to specified exclusions): • positive and the employer has an • The first date when the shares are held by or for the benefit of an employee benefit reporting obligation in ESS employee (or associate) and, after which, under the provisions of respect of the ESS employee, then the ESS the ESS, there is: employee derives the amount on the ESS deferral date; and – no material risk that beneficial ownership may change or that a right or requirement in relation to the transfer or cancellation of • positive and the employer does not have the shares may operate; an employee benefit reporting obligation in respect of the ESS employee, then the – no benefit accruing to the ESS employee (or associate) in relation ESS employee derives the amount on the to a fall in value of the shares; and share scheme taxing date. – no material risk that there will be a change in the terms of the shares affecting the value of the shares. This QWBA does not consider arrangements that may be subject to the application of • The date when the shares or related rights of an ESS employee (or ss BG 1 (Tax Avoidance) or GB 49B (Employee associate) are cancelled or are transferred to a person who is not Share Schemes). associated with an ESS employee.

136 10. 9. 8. –sDV amounts Employer 27 5. 4. 3. –sCE 2 amounts Employee 2. 1. Explanation Department Revenue Inland 12. 11. 7. 6. The terms used in the formula are defined insDVThe inthe 27(8).Broadly, terms are formula defined used the terms have the meanings: following accordance with the insDV formula 27(7): provideseffectively that the an employer amount has expenditure of to equal the loss or amount positive calculated in Where to and is sDV the an contracting ESS or employing an 27(6) employer is company employee, party for an ESS that matchesbenefits the intiming income to and quantity, employees in[9]to [21]. explained as to the general (s DASubject permission 1)and general limitations (sDA is available to 2),adeduction employers for ESS insCE 2(2).Broadly,The inthe terms are formula defined used the terms have the meanings: following amount calculated the on share date the formula: using following taxing scheme sCE to of 1(1)(d)equal the positive for the CE 2(1)provides purposes receives that employee abenefit anSection ESS is the income of person. employment service or CE received 1(1)(d)provides share that underan with employee inconnection aperson's scheme abenefit Section whetherthe same remuneration shares. or is incash paid for labour remuneration. employee the be should employer and both the of employee That position to the is, the tax extent possible, the of regime new isThe to objective ensure compared treatment neutral with as other tax forms of benefits ESS of Taxation (Annual for Rates 2017-18,Employment and Investment and Remedial Matters) Income, 2018). Act into share came employee of force regime (ESSs) A new for the schemes taxation 2018(enacted by 29September the on a parent for issuing shares. payments for most to other trust an expenditure ESS reimbursements –for or example, deduction to an on ESS paid loss or The employer's expenditure under sDV loss or 27(6)is generated DV a by the 27(2)denies insDV formula 27(7).Section amount is the income of employer DV under ss 27(9)and CV20. theIf result the of insDV formula 27(7)is anegative amount then, instead expenditure of under sDV loss or 27(6), the • • insCEformula 2(1));that negative not amounts. is, the calculateds DV amounts using (positive date deferral 27(10)).The ESS undersCE 2(7)to only to (9)applies benefits DV the 27(4)supplements the general and overrides employment Section limitation permission (see employee. the ESS date than is less the consideration inrelation paid to the transfer), CE ss 2(3)and DV 27(4)provide that for it is adeduction the share the on value share theIf because insCE formula 2(1)results taxing inanegative scheme amount (for example, later). isthen treated employee the ESS deriving employment as income inrelation date deferral the on ESS (20days to the benefit amount (apositive the calculated using formula), the of benefit inrespect obligation reporting benefit an employee has While the insCE formula 2(1)is calculated the on share date, sCE 2(7)to taxing (9)provides scheme that the if employer • • • • employee amount –previous deductions. employee share –consideration value +consideration paid received –previous income. expenditure incurred loss inrelation or to amount 2018. 29September the before employee s is that the total to amount for deductions of the haveallowed Previous deduction employer an or associate been negative or positive amount. amount is calculated the underthe insCEEmployee amount formula 2(1).This employee a for the ESS be could relatedor 2018. 29September before rights isPrevious income the total amount income undersCE of inrelation 1(1)(d)that has employee the ESS to the shares transfer cancellation or the of shares related or under the rights ESS. Consideration received transfer the of shares related or under the rights ESS. Consideration paid rights. date, the if share date taxing scheme is taxing triggered scheme not by atransfer cancellation or the of shares related or Share is value the market the of value shares the on share associate related or or employee by an ESS owned rights is the amount of consideration paid or payable by an ESS employee or associate inrelation is associate or the amount employee consideration to of by an payable ESS or the paid is the amount of consideration paid or payable to an ESS employee or associate inrelation is the associate or amount consideration of to employee payable to or an paid ESS a Tax Information Bulletin

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QUESTIONS WE'VE BEEN ASKED 19. 18. 17. 16. 15. 14. 13. Timing Department Revenue Inland 20. to the calculation of the employer's available subscribed capital. These provisions These follows: capital. to apply as the calculation the of employer's available subscribed and insCD 43(6E)to CEss 2and DV (6K)for the arising related underan 27for income ESS, and deductions adjustments way an payment by equivalent an acquisitionsame as cash followed shares of inthe issuing company. This is shown in and context regime demonstrate the of ESS the new purpose This that inthe is because the is share taxed to be benefit insDV 27(7)is recognised. and used the of insDVapplication formula at time 27(7)arises the the same related amount" calculated under sCE "employee 2(1) considers that the employer's expenditure undersDV loss income or undersDV 27(6)or 27(9)resulting from the (1994) 16NZTC and context regime 11,175at and sD27,the the light of [444]).In ESS Commissioner the new of purpose Commerce Commission vFonterra Co-operative Group 36at Ltd [2007]NZSC [22]to [24]andCIR vAlcan New Zealand Ltd and contextPurpose are relevant for determining the aprovision meaning of (inlight the s5of of Interpretation 1999, Act under sDV the on 27(9)arises share date date. deferral the or taxing ESS scheme circumstancesThe to above as whether to lead uncertainty the employer's expenditure under sDV loss income or 27(6)or tax. 7Bto undersRD the withhold an chosen is for amount whom not employer has of aformer employee employee the ESS 22.An exception under sRD is for abenefit obligation where reporting An employer will usually have benefit an employee date deferral the 6(3)(a)of Tax Income ESS under sRD the 2007and s23K(1)of Tax Act Administration 1994. Act is treated the benefit the on paid amount apositive as calculated under sCE such 2(1)).In (being acase, theof benefit date) deferral inrespect obligation ESS under sCE reporting 2(7)to (9)where benefit the an employer employee has out in[5]to set is [7],the recognition deferred amount"As employee by the by 20days of the "employee ESS (to the share date undersCE 2(1). taxing scheme The main feature the of insDV formula 27(7)is amount" the that "employee the on is employee calculated for the ESS outlays. or costs s DV for most those of 27(2)generally adeduction denies shares actual of form make cost or outlay or some If payment is to incurred under the the ESS. by the employee employer, it may aparent may obligations theunder the of employer ESS be –for example, even not be company required to issue relate not does loss or to any actual outlay cost, receipt, but or is created by the insDV formula 27(7).The obligations given the nature applied be income is cannot derived the of expenditure arising loss undersDV or 27(6).The expenditure theor income undersDV 27(9)arising for the employer is unclear. for when expenditure principles Ordinary is incurred or timing under sDV inthis 27for the QWBA expenditure addressed The because under sDV uncertainty arises loss or 27(6) employer does not have not anyemployer does obligations existing for the expenditure under sDV to loss or 27(6)prior sDV 27creating it. date, the the of "incurred" amount not employer has calculated anything undersDV inrespect 27(7)at that time. The deferred inthatunder sDV be 27(7)must also manner. at calculated as the share be can taxing scheme While the benefit the relevantreport information. Where the recognition that the of amount applies, calculated deferral for the employer is This to employers allow time obligations. reporting period to and compile benefit when an employee employer has is deferred employee by by 20days theThe ESS (to date) recognition deferral the the of benefit ESS under sCE 2(7)to (9) • • • time. undersCD 43(6E)to capital (6K)at the same available subscribe inits an uplift has The employer (inthe case) usual linked to amount" being the under sDV "employee calculation the of 27(6)to deduction (8). toThe employers is deduction to match the intiming income to and quantity. employees This through occurs the The employer is treated incurring an equivalent as the cost recognises income. at time the the employee as same the on share date: CE ss 2(1)and CE taxing 7B. scheme performed being shares them way and hold any inthe same as other shareholder. This through occurs the calculation the of benefit is treated employee The ESS receiving to as they earn the need the when share they have everything benefit done Tax Information Bulletin

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QUESTIONS WE'VE BEEN ASKED CIR vAlcan New Zealand Ltd (1994)16NZTC 11,175 Commerce Commission vFonterra Co-operative Group 36 Ltd [2007]NZSC references Case 5 Section 1999 Interpretation Act Taxation 2018 Act Matters) Investment Remedial and and 2017-18,Employment for (AnnualRates Income, by s23K modified 23Eto as 23H, Sections Tax 1994 Administration Act 1,CD 43(6E)to BG (6K),CE 1(1)(d),CE 2,CE 7,CE CV20,DA 7B, Sections 1,DA 22 RD 7B, 2,DV 6(3)(a),RD 27,RD TaxIncome 2007 Act references Legislative References 21. Examples Department Revenue Inland The related DV 15July employer $500underss on income of arises 2023. 27(9)and CV20also CEss 2and DV 27(4). $500is of the calculated on and arises share date deduction The 15July of taxing 2023inaccordance employee's scheme with date, is $9,500.Thetaxing exercise for the by the shares price paid employee is still $10,000. 1,except inexample the as market the of value shares facts the same 15July on 2023,theThis uses share example scheme market decreasing value option: 2–Simple Example 2023. The related employer expenditure 15July under sDV on arises 2023. loss or 27(6)also is treated deriving employment as CE $5,000under ss income 1(1)(d)and of CE the 2on share date 15July of taxing scheme sCE to 2(7)to date deferral A Co apply, withholdan (9)and elected the amount not not tax), has ESS do of and the employee in continuous employment with ACo leaves for threethe employment exercising employee before years, the option and after having been because, (for example, obligations reporting for the benefit have not benefit employee theIf employer does 4August under sDV on arises loss or 27(6)also 2023. date CE deferral $5,000under ss income 1(1)(d)and of CE the 2on 4August ESS of 2023.The related employer expenditure is the treated employee obligations reporting for deriving the employment benefit, as benefit theIf employee employer has $5,000is of calculated inaccordance benefit The with employee's sCE 15July 2(1)on 2023. market the of value shares 15July on 2023is $15,000.The exercise for the by the shares price paid employee is $10,000. The share date is taxing scheme when the optionis exercised and shares are to issued 15July on the 2023.The employee exercisesThe employee their 15July option on 2023and is shares issued day. the on same incontinuous employment been with has the ACo employee from for when the issued. the three-year optionwas period the market(being ashare of value inACo 1April on 2020). The optionmay exercised be only after 31March 2023,provided for 10,000shares 1AprilOn 2020,ACo to issues inACo an optionto subscribe employee for an exercise its price$1 of market increasing value option: 1–Simple Example limitations apply. not (sDA do 2)to deductibility areThe ageneral of examples following nature the general and assume (sDA permission 1)is met and the general Tax Information Bulletin

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QUESTIONS WE'VE BEEN ASKED Inland Revenue Department Tax Information Bulletin Vol 33 No 6 July 2021

INTERPRETATION STATEMENT This section of the TIB contains interpretation statements issued by the Commissioner of Inland Revenue. These statements set out the Commissioner's view on how the law applies to a particular set of circumstances when it is either not possible or not appropriate to issue a binding public ruling. In most cases Inland Revenue will assess taxpayers in line with the following interpretation statements. However, our statutory duty is to make correct assessments, so we may not necessarily assess taxpayers on the basis of earlier advice if at the time of the assessment we consider that the earlier advice is not consistent with the law.

IS 21/03: GST – Registration of non-residents under section 54B

Introduction 1. Section 54B has been described as an "enhanced" registration system for non-residents. It allows non-resident businesses to recover GST input tax on goods and services acquired in New Zealand for the purpose of making supplies outside New Zealand. GST operates on what is known as the "destination principle" where goods and services are taxed in the country in which those services are consumed by end-users. GST should not generally be an economic burden on businesses that form part of a supply chain. 2. In 2011, a government discussion document about GST on cross-border supplies between businesses,1 recognised that the existing legislation worked well for domestic supplies between GST-registered persons, and where goods and services were exported and zero-rated, but that it did not work as effectively for non-resident businesses receiving services in New Zealand. This was because, although non-resident businesses were able to register for GST under s 51, their ability to claim input tax credits for GST incurred was limited. This limitation was because the legislation allows a deduction for input tax for goods or services to the extent that those goods or services are used for or available for use in making taxable supplies. Taxable supplies are supplies made in New Zealand. Therefore, non-resident businesses that made no supplies in New Zealand or that predominantly made supplies outside New Zealand were unable to get a full deduction for the GST that they had incurred in New Zealand. This resulted in such businesses bearing the New Zealand GST as an economic cost despite the services being acquired for making supplies to final consumers outside New Zealand. 3. Since s 54B was introduced in 2013, there have been several remedial amendments to it and related provisions. In addition, legislation was introduced affecting non-resident suppliers of cross-border remote services and low value goods imported into New Zealand. This means more non-residents are treated as making supplies in New Zealand and have an obligation to register under the standard registration provisions. Commentators say that eligibility for registration under s 54B has not always been well understood. 4. The requirements for a person to be eligible to register under s 54B are cumulative. This statement steps though each requirement and provides examples as to how it applies. INTERPRETATION STATEMENTS INTERPRETATION

1 GST: Business-to-Business Neutrality across Borders (government discussion document, Policy Advice Division, August 2011). 140 6. 5. –s54B Registration non-residents of Department Revenue Inland 7. The requirements seven for registration non-resident certain of suppliersare that: The requirements for registration non-resident certain of suppliers are out ins54B(1): set translates to questions nine that may to required registration meet be satisfied to be unders54B. the third, As and sixth fourth the requirements relevant and examples. discussion contain alternative requirements this requirements seven These are inFlowchart of registration summarised 1-Overview requirements ofs54Bwith reference to • • • • • • • (1) Requirements registration for 54B New Zealand (discussed from [90]). New Zealand (discussed is amember, not the person intending or amember, to become agroup of that companies of makes in supplies from [87]),and registered the if was supplier supplies to makingnot supplies an unregistered (discussed taxable that be would person is from the [84]);or person is making not intending inNew Zealand or (discussed the supplies person to make taxable from [76]);and inNew Zealand (discussed end-user received by an will be where services those services involve of not the performance does activity taxable the person's from [65]); received that or in relation by another are goods person delivered to to be to (discussed imported another person under s12(1) levied is likely the exceeds $500 or for tax person liable to input tax the be amount the of person's from [63]); (discussed require would activity them to registertaxable that on inNew Zealand they inNew Zealand if were activity carrying is registeredthe person inthe territory or inwhich for they aconsumption country are tax resident the or their of level registered to is liable be not from [34]); the person under s51(discussed from [8]); (discussed anon-resident must for be GST purposes the person (e) (d) (c) (b) (a) registered the 51(1)if the requirements: Commissioner following that meets is satisfied under section the person 51(3),the Commissioner mayDespite section to register liable be is who anon-resident become not and has aperson non-resident suppliers Requirements registration for certain for New Zealand. in intend agroup supplies of not amember that companies of to and makes does is become, taxable not, the person (ii) (i) intending or is to making, not make,—the person and exempt or supplies; taxable other received than inNew Zealand by will making be aperson of inthe course that the of services the performance inrelation services of to involve not which aperformance it is foreseeable reasonably does activity taxable the person's that are received that or delivers by another to and the person person another person; 12(1) in relation under goods section moreof to is than levied likely the the $500 importation or for person tax liable to be after the date period registration of is likely taxable for the input tax first inNew Zealand, the amount to the of person's be (ii) (i) the person— New Zealand is who aregistered not and person; were the supplyif registered person in 51,to aperson ataxable a supply inNew Zealand that undersection be would supply inNew Zealand; or a taxable inNew Zealand; and activity taxable territory or thatcountry render would them registered to out the liable be they 51(1)if were carrying under section ina activity activity, taxable of alevel and has ataxable on is activities, carrying applyto not that the person's does aconsumption has or tax have is not resident theif territory or inwhich aconsumption the country person does tax, is registered inthe territory or inwhich for they aconsumption country are or tax resident; Tax Information Bulletin

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INTERPRETATION STATEMENTS Inland Revenue Department Revenue Inland Flowchart 1 - Overview of registration of requirements s54B of 1-Overview Flowchart Tax Information Bulletin

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INTERPRETATION STATEMENTS 14. 13. Taxable activity Taxable other or activity activity 12. 11. 10. 9. 8. "non-resident" be must First requirement –person Department Revenue Inland 16. 15. requirements of a taxable activity are: activity requirements ataxable of for this ins6(3).The excluded A broad term key definition is given ins6(1)(a) with specifically activities certain being is relevant activity" also The and to third term the second requirements "taxable for registration out in[6]. unders54Bset that to activity "relate needs the of resident it is the definition, taxable For the to" permanent purposes or place. the fixed Therefore, the key considerations are what is meant by: whether that to is for them sufficient treated to be resident as for GST purposes. may have to apresence inNew Zealand related connection aplace or other or activities to and may unsure their taxable be to inNew Zealand that place permanent is or related afixed inNew Zealand from activity residentThe other to or exception be to the (a)deems aperson extent their on inpara that taxable carries the person residency tests. the(a) to of day (c).Paragraphs count (b)and (c)relate and the tests effect inthe income tax to bodies unincorporated resident of by providing definition for three the income tax exceptions "resident" of ins2modifies definition inparas "to ins2to the extent meanA non-resident aperson is that defined is resident not the inNew Zealand". person The analysis. that May Revenue, PUB00390,Inland 2021).The analysis(exposure draft following and is of consistent reproduces parts with aresident" of is is resident in"GSTCommissioner's consolidated when on view aperson –Definition for GST purposes –zero-rating related tax services of to land",Taxservices Information Bulletin Vol 2019):17.The 1(February 31,No The law relating and to determining is is out in"IS whether non-resident set 18/07:Goods for aperson GST purposes and may unaware be purposes the of difference definitions. inthe two However,purposes. the resident of GST is definition wider, non-residents may treated some be so aresident as for GST are test with and know familiar the whether for residency income tax people they are non-resident for income tax The requirement first for registration non-resident certain of non-resident. Most suppliers is that must be the person Information Bulletin 2020):69. Vol 6(July 32,No –GST treatment tax and services short-stay of "IScovered 20/04:Goods Tax accommodation", see inother publications, is considered activity not inthis further statement Thecircumstances concept ataxable of it is as the of case. particular It is all the on involves always examining carried is aquestion activity being fact. of Determining whether ataxable • • Notably, activities excluded of are: however, Examples activities. activities taxable s6(3)excludes certain from being • • • • • • • private recreational hobbies. or pursuits dwelling); and and the ina accommodation supplyof the making exempt services the of (such financial supply of as supplies supplies. that involves the making taxable of that continuously on is and regularly carried or by aperson; there an activity; must be "to the extent resident that", both and non-resident and whether be can for GST it means purposes. aperson "relating to that other or and activity activity"; permanent or place"; a "fixed other or activity activity"; a "taxable Tax Information Bulletin that activity. Non-residents

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INTERPRETATION STATEMENTS 29. 28. 27. other or activity activity "Relating" to that taxable 26. 25. 24. 23. 22. place Fixed permanent or 21. 20. 19. Both 18. 17. activity Other Department Revenue Inland appears to be consistent toappears be with that purpose. to is considered GST the inNew Zealand before (andplace subject person resident at the standard for GST rate) purposes permanent or inNew Zealand and afixed activity aperson's are between consumed. Requiring aconnection and services where inthe are jurisdiction the taxed goods and services to the goods of destination under which supplies effect principle, zero-ratedand whether be can underthe supplies zero-rating provisions. general, In provisions these are intended to give GST of under s8 the imposition supplies on both "resident" of which affects provision the of inthe definition Act, is part The context to require appear the of not provision does adeparture from "relating the meaningof ordinary to". The the relevant activity. permanent or and is place theUniversity Oxford, required fixed Press, connection of adegree 2011).This between suggests ConciseThe "relating" meaning of things: ordinary Oxford English between is aconnection Dictionary (12th Oxford ed, requiresParagraph (a)also to have permanent or the "relating" place other person or afixed activity activity. to the taxable Taxand Services is general Act terms. inits inthe Goods contrast, In the definition establishments. of types a "permanent establishment" to exclude or include specific "establishment" is arguably treaties astronger tax Also, often define term scope. may "place" wider inits than so be "place", Tax and Services equivalent The the meaning of permanent or word to underthe ordinary place" Goods "fixed Act. However, the Commissioner's is view that establishment" the "fixed and "permanent establishment" concepts are not and the concepts likely overlap with the permanent or concept place". a"fixed of phrases, these of the meanings law treaties. discusses tax Case "permanent inNew Zealand's double establishment" is used The Commissioner notes that inthe establishment" Tax asimilar concept Income "fixed is of used 2007,and the phrase Act to havethe person that that to permanently apermanent able on place use place basis. be or at their disposal the test. However, permanent Having or is merely necessary. place not ownership afixed the location of physical requires unchanging temporary. and not An element atransient permanence of is so to necessary, meet will not connection aplace the of and words "permanent" lastingThe indicate and meanings "fixed" that ordinary must be the location physical point. alinktoor geographical aparticular theIn context (a),it is "permanent". or para of the The that place "fixed" word location indicates "place" aphysical must be inthe Act. The term and permanent is place" defined "fixed not (a)toFor para apply, have permanent or inNew Zealand must also relating place" a"fixed activity. aperson to the taxable The word "other" thatsupplies. implies Parliament activities of intended covered variety to awide (a). be by para However, the Commissioner's is view that "other is limited activity" not to activities that involve the making exempt of under the Act. The reference to "other activities" result activities" can the expands that inresidency activities range of so only not "taxable isview meaning. that the same in"other bears "activity" activity" Bayly in":Newman vCIR (1994)16NZTC engaged become to or Similarly, undertake 11,229(HC). v inCIR Appeal theof Court chosen has It which aperson mayThe acts abroad refer of word has meaning. series "activity" or to conduct of "acourse inthe Act. areactivity" defined not The terms "resident" of "other" includes and "otherParagraph (a)inthe activities also "activity" scope. definition inits

conduct pursued by the pursued registeredconduct and whether profession tradeor inthesense. it not amounted or ordinary person to abusiness, Tax and Services the of context to course or undertaken, the the 6and 8[of combination ss 1985]it of Goods points Act tasks of is "activity" "the state the active; exertion energy, of being of usage, standard its In dictionary In (Oxford action" English Dictionary). Newman (1998) 18NZTC at 14,078: 14,073said, and Bayly and discuss the meaning of an "activity" in their discussion of a "taxable activity". The activity". Commissioner's a"taxable intheir the of an discuss meaning of "activity" discussion Tax Information Bulletin

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INTERPRETATION STATEMENTS 38. registration provisionGeneral –s51 37. 36. 35. 34. registered to s51 under be liable is not requirement –person Second 33. 32. 31. 30. "To the extent that" Department Revenue Inland Section 51(1)states: Section makes inNew Zealand activities, where exceeds $60,000:s51(1). supplies supplies the those total of annual value taxable all on carrying and, of registered inthe to activity course liable be becomes where ataxable on A person carries that person are supplies treated certain inNew Zealand: to made This New Zealand residents. being supplied as is because Recent legislative changes have non-resident registered to certain made suppliers liable be and services unders51for goods The are supply rules of place supplied. coveredis being ingreater in[40] to detail [57]and 2and 3. Flowchart Flowchart arethe supplies treated Where made. supply and who of are being supplies as treated the on type depends made being as Key considerations to as whether anon-resident to is liable register unders51are and where made the the of value supplies at This divisions. or inbranches [62]. activity is discussed ataxable on non-resident is who carrying Registration unders54Bis available not for non-residents are who registered to liable be apply to rules a under s51.Special registered words The to opening s54B(1)are: under s51(1)for GST purposes. requirementThe second for registration to liable non-resident be certain of suppliersis become whether has the person aresident"of May Revenue, PUB00390,Inland 2021). (exposure draft found in"GST be –Definition can is (including examples) residentFurther when on aperson for GST discussion purposes resident and non-resident. both be the of Act, "to the extent for the the of can, purposes phrase The use that" person that implies legal asingle residentnot inNew Zealand" [emphasis added]. Similarly, "non-resident" of the ins2states definition that non-resident to the "means extent is aperson that the person other or activity activity.to that taxable any or activity having other while activity permanent any or New Zealand inNew Zealand any relating place fixed taxable resident to is be inNew Zealand deemed "to the aperson extent on,in that" carries For GST the purposes, person • • • • (1) 51 to [61]. registered toWhere is liable be not aperson to unders51they may able register be [60] voluntarilyunder s51(3),see toliable register unders51and the non-resident to may able register be unders54B. the non-resident be not New Zealand. that treated In would supplier will outside be the case, supplies supplied as However, the if non-resident activity, to only supplier makes supplies registered these intheir taxable for use persons Tax, and Student 2016",Tax Loans) Act GST Services, Online on Information Bulletin 2016):12. Vol 6(July 28,No to supplyor of place the recipient the of supply. information, "Taxation For further see (Residential Withholding Land have either registered. necessarily not aconnection to do may liable to be a be services services) These other software and streaming, games online and video music Secondly, e-books, (such "remote as cross-border suppliers of services" 2019",TaxMatters) Act, Information Bulletin , Vol 2019):2. 8(September 31,No information, "TaxationFor further see (Annual for Rates 2019-2020,GST Registration, Supplier Offshore and Remedial changesThese relate that resides who inNew Zealand. anon-resident to to goods" supplies aperson "distantly taxable that are goods" treated registered. to inNew Zealand may imported liable be "low-value of Suppliers supplied be as the 51(1)if the requirements: Commissioner following that meets is [Emphasis satisfied added] the person section under 51(3),the Commissioner registered to may be Despite section liable register is who anon-resident become not has and aperson (a) registered— toliable be and is registered, activity not any on 1986,carries taxable becomes after or who, on 1October person to every thisSubject Act, registered to be activity taxable of incourse Persons supplies making referred that exceed will not to paragraph amount: inthe said the on day 12months of after that beginning inthe the day period last supplies satisfied the of the those period of value registered to liable be become not by virtue this where of does paragraph provided that the Commissioner aperson is theamount Governor-General as may, from time to time,by Order inCouncil declare): such $60,000 (or larger activities exceeded has immediately all taxable on preceding that month carrying of inthe course at the end any of month where inNew Zealand in that made the supplies total of value month and the 11months Tax Information Bulletin

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INTERPRETATION STATEMENTS 43. 42. 41. 40. Place supply of 39. Taxable activity Department Revenue Inland 44. The four circumstances in which the goods or services areThe four circumstances treated services inNew Zealand or are supplied inwhich when the as the: goods The general by non-residents: is rule supplies displaced by s8(3)for certain 8(2)states: New Zealand. Section outside by anon-resident inNew Zealandresident and supplies supplied are to supplied are to be deemed be deemed 8(2)provides ageneral for where rule areSection Under supplies by aNew Zealand the made made. general supplies rule, 3(afterFlowchart [60]). activity. To ataxable of follow 2(after Flowchart follow [53])and for services, determine the supplyfor goods, of place To to liable register furtherance "inNew Zealand" or inthe making course supplies be must be under s51(1),the person regarding is whether anon-resident. aperson activity.The requirement from [13]to first [16] This ataxable discussed on was s51(1)is of that is carrying the person • • • To it is to helpful consider: rules, understand these • • • •

(3) (2) … 8 whether the recipient of the supply is receiving the goods or services for the purpose of carrying on their taxable activity. their on taxable carrying of whether the recipient for the purpose the of supplyis receiving services or the goods and arewhere performed; the services where are at the the or goods time supply; of in New Zealand) (s8(3)(c)). resident are to physicallyperformed inNew Zealand (other aperson supplied "remote thanservices services services" (s 8(3)(b));and inNew Zealand are at the time performed in New Zealand by aperson the services are physically performed services (s8(3)(ab)); activity taxable person's that on the supplyis unless to carrying of aregistered are goods", "distantly for the purposes goods person taxable are inNew Zealand atgoods the time supply (s8(3)(a)); of (e) (d) (c) aconsequence of— as amount solely inthat period whereprovided that liable the shall Commissioner any that become not is such satisfied person that will that exceed value (b) (c) (b) (ab) (a) are treated inNew Zealand the if is supplier and services anon-resident supplied being and— (2),goods as Despite subsection New Zealand the if is supplier anon-resident. outside supplied to be deemed New Zealand, and shall be inNew Zealand the if is supplier resident supplied to be in deemed shall be and services goods this of Act, For the purposes supply on tax services and goods of Imposition that are 8(6)and 8A. treated inNew Zealand undersections supplied being as the supply, are who to non-residents persons but are physicallypresent inNew Zealand, telecommunications of services or by on that carried person; activity the replacement inany taxable used any of asset plant other or capital or by on that carried person; activity taxable any ending of, including apremature ending of, any or substantial of, and permanent any inthe reduction size scale or (a): inparagraph specified inNew Zealand inthat made to be month and the 11months immediately that following month will the exceed amount at the commencement any of month where there are grounds that reasonable for believing the the total of value supplies performed in New Zealand by a person who is who inNew Zealand are at the inNew Zealand by time aperson performed. the services performed resident are to that inNew Zealand, other aperson supplied remote thanthe are services services physically services or performed; is who inNew Zealand are at the inNew Zealand by time aperson the are services physicallyperformed the services or apply; not (4E)does to which subsection are goods distantlythe goods taxable or applies; are inNew Zealandthe at (ab) to goods the time which paragraph the of supplyand are goods distantly not taxable Tax Information Bulletin

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INTERPRETATION STATEMENTS 50. 49. 48. 47. inNew Zealand performed Services 46. 45. at time supply inNew Zealand of Goods Department Revenue Inland New Zealand are provided by the aseparate non-resident. supply to the services in to anon-resident performed , the non-resident the services is treated not inNew Zealand because making supplies as inNew Zealand by asubcontractor. are performed theNew Zealand, services as 3:Professional Example In services advice asub-contractor by performed 2:Services in New Zealand. Example In , the non-resident is treated in making supplies as inNew Zealand and are are consider therefore whether performed The examples following services treated supplied as the supply is required to determine where asupply is treated made. being as arrangements entered is who making what the exactly supplied, is supply and who into is receiving being and identifying inNew Zealand. UnderstandingNew Zealand. the This contractual where arise the can services asubcontractor performs non-residents wantingSome to register unders54B are aware not that treated they will be in making supplies as supplies. making of taxable for the purposes were acquired services or charge the if goods GST and the output resident the GST tax input tax, recipient as deduct would the is transaction GST neutral New Zealand treated is –the because non-resident outside be would supplier supplied as to activity) to their of aregistered taxable services or (for the purposes person goods of The supplies for allowing reason recipient treated agree apply and have not that inNew Zealand. the services supplied s8(4)does as the and supplier unless New Zealand treated under s8(4).Again, activity, will outside be supplied the as services taxable s 8(3)(b).However, providedthe recipient their of is aregistered for the is who purposes acquiring the services person treated inNew Zealand, they will inNew Zealand be by anon-resident are supplied supplies as performed theIf services requiredbe to register under s51,where that they are are goods of making inNew Zealand supplies at the time supply. of 1:SupplyExample in New Zealand demonstrates that anon-resident to mayable register be not and may under s54B, infact to treat inNew Zealand: made the supply as the and supplier recipient New Zealand unless provided for ins8(4),which treats outside agree made being the supply as activity.the recipient This taxable that of is is aregistered person's for is the who purposes acquiring the goods person are by anon-resident the supplied New Zealand. or However, contract is outside made if overridden this be can rule Where are inNew Zealand at goods the time supply they of are treated inNew Zealand, even though they supplied as supplies inNew Zealand tosupplies an unregistered person. registerMerino not could under s54Bto claim GST back charged it is to making it by (High CountryWool) because than less if exceeds $60,000,or $60,000it the voluntarily register.of could supplies in New Zealand at the time supply. of This means to that liable register Merino be could the under s51,if annual value are theAlthough goods the non-resident supplyby Merino to companies, two Natural is between made Baby Supplies delivered theNatural blankets will be to NZWool Baby Supplies, store. Babies intends to to supplythese aretailer inNew Zealand (NZWool Under Babies). the agreement Merino and between Merino to arranges have the cot blankets inNew Zealand by made High Country Wool Co. Natural Baby Supplies is who Natural registered not Baby Supplies, for GST inNew Zealand. Non-resident company Merino an agreement has to supply merino cot blankets to another non-resident company inNew Zealand 1:Supply Example (4) that apply to will not the this supply. subsection the are and supplier the New Zealand unless recipient treated outside the of and services supply agree supplied being goods as activity, the on registered the taxable to carrying of apply but for this aregistered person's subsection, for the purposes person (b)would (3)(a)or to which subsection and services, is who asupplier (3),if anon-resident goods supplies Despite subsection Tax Information Bulletin

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INTERPRETATION STATEMENTS 51. goods imported value low or goods" taxable "Distantly Department Revenue Inland 54. 53. 52. as goods that: goods as are These are ins4B, generally often goods". defined referred defined imported to value "low goods", as "Distantly taxable supply for goods supplied by anon-resident. supplied supply for goods Flowchart 2:Non-resident GST registration under s54B–Place ofsupply illustrates –goods how to determine the of place to is$60,000, that liable register person to under s51.Such eligible non-resident register be suppliers will not under s54B. thatTherefore, the exceed goods annual threshold supplies of where anon-resident goods distantly of supplier taxable • • The circumstances when they may make this choice are out ins8(4F).This set choice requires: thatresident apply, s8(4E)not treated choose can supplier inNew Zealand. be would supplied which means as the goods consumer. by the final borne inthe acost supplychain be GST to and should be not businesses should However, the non- s8(4E).This is activity: consistent the on registered taxable carrying of with person's that the principle for the purposes are are to treated aregistered supplied the goods goods inNew Zealand, unless distantly These supplied as person taxable • • • • Kong professional services firm could register could firm Kong unders54B. professional services inNew Zealand are aseparate supply to Kong performed The the Hong Hong supply to client. firm. The its services amultinational on assessment contract impact is aseparate global the its of supply by Kong the this Hong In firm case transaction. alarge-scale of resultwould inachange to the charged land the has law GST firm at the standard rate. This component minor is avery the transfer company tonominee documents enable the transferred Because land to be the if proceeds. transaction out diligence due carries inrelationNew Zealand firm to the requested, land and, as prepares transfer to a documents inrelation situated firm advice from to aNew Zealand professional aproperty seeks services inNew Zealand. The firm acquisition.make aglobal is The Kong transaction. to asked The the Hong on the provide firm meritsof global areport Kong inHong is to asked firm provide adviceA professional to services to anon-resident group looking companies of to advice anon-resident 3:Professional services Example to is$60,000 Sparky liable register unders51. Ltd exceeds the and received the of value supplies inNew Zealand through inNew Zealand. As Zappadee performed to is the Sparky providing non-resident register services cannot clothingSparky retailer which are under s54Bbecause standard rate. to wants Sparky know register it if can under s54Bto claim the back GST charged. Ltd charges GST inNew Zealand, Sparky Zappadee at are the performed the services amounting to $65,000.Because and services Ltd. Limited is The for goods contract with Zappadee Zappadee out by aNew Zealand firm, carried to be retail Anew out retail forout arranges the all inNew Zealand. its Sparky New Zealand outlet fit outlets. is opened to be A non-resident contractor an agreement has Inc) electrical (Sparky with anon-resident retail clothing company to fit by asub-contractor performed 2:Services Example New Zealand inthe 12months to made following non-registered will be persons. thatnon-resident more to supplier in expect than to reasonably made the persons 50%of supplies of value the more of no value supplyto than be $1,000;and are delivered to New Zealand. and are by anon-resident; supplied are New Zealand at the outside time supply; of individually have less; NZ$1,000or of avalue Tax Information Bulletin

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INTERPRETATION STATEMENTS 56. 55. to alocation connected –not "Remote services" Department Revenue Inland the amount 11A(1)(x)states: GST of incurred inmaking inNew Zealand. Section the supplies the supply is so, theIf zero-rated non-resident to may able claim does supplier back under s11A(1)(x),and the be person New Zealand. The to may supplier treat choose inNew Zealand (s8(4D))and made register the supply as unders51. that of activity,a registered registered for the the purposes supply is taxable treated person person's outside made as potentiallyNew Zealand under s8(3)(c),so to liable register under s 51.However, the if is remote supply of to services A non-resident to remote of supplier treated aNew Zealand resident be services will also in making supplies as services. and digital software, e-books, the include supplyof services These performance. the and the physical of recipient's place location exists physical between connection necessary no where, at the the of time aservice service, the of as performance A "remote is defined service" Flowchart 2: Non-resident GST 2:Non-resident registration s54B–Place –goods under Flowchart supply of Tax Information Bulletin

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INTERPRETATION STATEMENTS 59. 58. 57. Department Revenue Inland supply of services supplied by anon-resident. supplied services supply of Flowchart 3:Non-resident GST registration under s54B–Place ofsupply –services illustrates how to determine the of place registered to is liable be aperson If register under s51,they cannot unders54B. 2016",TaxLoans) Act Information Bulletin 2016): 12. Vol 6(July 28No under s51.For more information, "Taxation see (Residential Withholding Tax, and Student Land GST Services, Online on determine rules are when supplies Several received inNew Zealand and when non-resident suppliersare required to register … (1) 11A (x) charged that 8must be at is the chargeable rate services A supplyof under section 0%inthe situations: of with following tax Zero-rating services of has chosen under section 8(4D)to treat undersection chosen has inNew Zealand. made the supply as that are 8(3)(c)applies are to remotethe which section providedto services aregistered services and the supplier person Flowchart 3: Non-resident GST 3:Non-resident registration s54B–Place –services under Flowchart supply of Tax Information Bulletin

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INTERPRETATION STATEMENTS 68. tax Input 67. 65. s12(1)–54B(1)(b) under levied tax $500or exceeds requirementFourth tax –input 64. 63. –s54B(1)(a) Third is registered tax requirement aconsumption for –person 62. divisions or Branches 61. 60. Voluntary registration Department Revenue Inland 66. "Input tax" is defined ins3A: is defined "Input tax" To the of requirement part the meet first ins54B(1)(b),the non-resident must have incurred "input tax". after the date registration of inNew Zealand: The requirement fourth for registration period non-resident certain of suppliersunder s54Bis that, taxable for the first required be registered to at would level be which aNew Zealand business for GST. The requirement ins54B(1)(a)is to ensure the non-resident is with equivalent agenuine activity business of alevel to the thatsupplies render would them registered 54B(1)(a)provides: to liable be Section under the New Zealand Act. of level and making asufficient activity ataxable on registered carrying intheir be or for aconsumption country home tax The third requirement for registration non-resident certain of suppliersunder s54Bis that the non-resident must be non-resident may still registered apply to be unders54Bprovided they the meet requirements s54B(1). of the s54B, of division branch or is treatedunder s51.For (s54B(5)).This the purposes means aseparate person as that the division abranch or has inNew Zealand, who may makingA non-resident supplies register person, that division branch or in New Zealand. supplies available only are for to or inmaking taxable are the available extent for use used and services to which the goods incurred inNew Zealand. The for thisinput tax reason registered is are that, for aperson deductions unders51,input tax registeredsupplies inNew Zealand), then, they are persons unless registered they unders54B, are entitled not to recover However, for anon-resident is inNew Zealand who (and this making not supplies anon-resident includes only who to make overseas. used supplies and services goods to inNew Zealand. make However, supplies used those and services they claim goods not on could any on GST input tax threshold to require registration, voluntarily register. could This enable the non-resident would to claim GST input tax anon-resident inNew Zealand, where makings 51(3).For supplies example, the is the the of value below supplies may activity to is who register liable register not A person ataxable on voluntarily under under s51(1)but carries who Section 54B(1)(b) states: Section this requirement they the have recipient been not the of treated the supply or GST. paid has who because the person as While the registration provision non-residents straightforward, seeking seems some to able meet unders54Bhave been not • • (1) defined tax 3A Input another person or that or deliversanother to the person person another person. that under s12(1)inrelation levied are is goods of likely receivedthe to for tax person by liable the to importation be is likely input tax the more amount to the of than person's be $500; or (b) (ii) (i) (c) (b) (a) , inrelation tax Input to aregistered means – person, that are received that or delivers by another to the person person another person; 12(1) in relation under goods section moreof to is than levied likely the the $500 or importation for person tax liable to be after the date period registration of is likely taxable for the input tax first inNew Zealand, the amount to the of person's be in New Zealand; territory that activity render would them registered to out the liable be taxable they 51(1)if were carrying under section or inacountry activity activity, taxable of alevel and has ataxable on is activities, carrying applyto not the person's does that aconsumption has or tax have is not resident theif territory or inwhich aconsumption the country person does tax, registeredthe person—is inthe territory or inwhich for they aconsumption country are or tax resident; an amount determined under subsection (3) after applying subsection (2). (3)afteran amount applying subsection determined undersubsection entered goods under s12(1)on consumption for home levied under the Customstax 2018by the Act person: and Excise acquired by the person: services or goods asupply of 8(1)on charged undersection tax Tax Information Bulletin

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INTERPRETATION STATEMENTS 2 73. Tax s12(1) under levied 71. 70. 69. Department Revenue Inland 72.

conference and training charged fees fees to non-resident businesses. ChapterSee: 6–GST issues policy issues paper,, (Officials' and Strategy, Policy the 2020) on potential February Revenue, Inland zero-rating of tax to the meet $500threshold.tax Without this levied. alternativethe tax have not requirement, the would incurred input goods anon-resident of importer are receivedgoods bydelivered or to inNew Zealand, the is recipient another treated person the of goods having as paid under s12(1). The for this reason levied alternative requirement is that under s20(3LC), insituations where the imported were received by delivered or to inNew Zealand. There another person is threshold no requirement for the amount tax of The alternative that goods requirement imported under s12(1)on levied for s54B(1)(b)is that had tax has the person recipient the of supplyis the non-resident company. expenditure training onstaff and the contractual arrangements entered 4:Business into Example In to determine incurs incurred has who the input tax. determiningIn at whether to the look non-resident the has for s54B(1)(b),it required is necessary input of tax level (Wilson Ltd vCIR (1995)17NZTC &Horton 12,325(CA)). is the the on focus contractual the arrangement and supplier theFor GST recipient between purposes, the of supply "acquired" must be by the person. services or to the have goods supplyof For aperson "input tax", tax deductions on the services it acquired for the purpose of making taxable supplies making of taxable it acquired for the the on purpose services deductions tax aNew Zealand GST-registered as position are inthecompanies same placed to able claim that input business be would The they the on received non-resident supplies incurred inNew Zealand. The companies input tax non-resident Example 6:ContractualExample recipient ofthe supply. contractual is that position the non-resident to company register seeking shown in incurred not as has any input tax students. As Chefco incurred not has students. the As GST the meet requirements it cannot s54B(1)(b). of Chefco incurred not has the to GST providedby Gourmet the the contract as for supply is training asupply of services Chefco to wants know register it if can unders54Bto claim the back GST incurred the on invoices from Gourmet. that pre-paid the before studentsso will the be course arrive. achievement to successfully who the meet requirements. those agrees to the Gourmet invoices send directly to Chefco Under the arrangement, Chefco refers students prospective to will provide of enrol acertificate Gourmet with Gourmet. studentsthe best through to more advanced training inthe territory. home Once the chef skills. students basic on training Chefco have then 6-week course skills, can introductory refer the basic It enters Ltd, Chefs into for it toservices. Gourmet an provide arrangement an school, with aNew Zealand cooking A non-resident company (Chefco) is registered chef training of asupplier territory as home inits for consumption tax recipient the 6:Contractual of supply Example expenses. New Zealand business its on paid exceeds $500and PRWProvided the amount input of tax all the other meets requirements claim it s54B, the can of GST venue hire, and accommodation meals) and incurs theexample, GST. management team. with PRW the and pays conference all New Zealand associated costs makes all the (for bookings PRW is aUS company that tradeinNew Zealand. PRW doesn't aconference organises inNew Zealand for its expenditure 5:Businessincurs management on conference Example its 54B, register could expenses. New Zealand business its on paid and claim the back input tax exceeds $500and WatchtowerNew Zealand. Provided the amount input of tax all the other meets requirements of travelreimburses At the for incidentals trainees meals such the and costs. local as end the of training the leave trainees operate inNew Zealand. It and and accommodation incurs pays fees GST. thedoesn't course trainees' Watchtower also Watchtower controllers Limited three sends traineeair traffic to train simulators on inNew Zealand. Watchtower training expenditure 4:Businessincurs staff on Example Example 5:Business Example incurs expenditure onmanagement conference, the contractual Tax Information Bulletin 2 . However, the sometimes correct

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INTERPRETATION STATEMENTS 78. 77. 76. –s54B(1)(c) inNew Zealand received services of requirementFifth –performance 75. In 74. Department Revenue Inland 79. Under s54B(1)(c),there are three main considerations: 54B(1)(c) provides: Section s54B(1)(c). exempt supplies: iswho aregistered not or is or aregistered person but making is of inthe receiving taxable not course person the services that are services of likely involves aperformance received to inNew Zealand by activity be aperson non-resident's taxable whether consumer. they afinal are inNew Zealand as received by someone register cannot Aperson the under s54Bif requirementThe fifth and for registration are where on performed non-resident the certain of services suppliersfocuses supplies. making of taxable purposes a New Zealand GST-registered acquired that business claim for the the back can GST and services incurred the on goods were intended not delivered goods to be to anotherimported person. in s20(3LB). To establish that s20(3LC) to demonstrate need apply the not did non-resident would importer that the is theimporter receiver and is delivering not them the of goods to inNew Zealand. This another is person providedfor non-resident that they then delivered to aNew Zealand customer. the applyif 20(3LC) not non-resident does Section by the imported 20(3LC) non-residents recover introduced not could goods was value high so on Section GST input tax foreseeable that those services will be performed inNew Zealand. performed will be that services foreseeable those activities where involve providing it is services reasonably taxable to 54B(1)(c)applies non-residents whose Section • • • • • PrestigeIf registers 20(3)and 20(3LC) underss Swanky unders54B, to deduction Motors if: may able claim an input tax be Note: this is treated by Swanky paid Motors unders20(3LC). as the the on expenditure vehicle as levied delivering while claim the It the incurred vehicle. cannot employee tax by its Provided Prestige all the other meets requirements it s54B, register could of under s54Bto claim the back GST for costs the requirement s54B(1)(b). of the of vehicle and is therefore the s12(1)on under import to tax able meet levied $500,it been exceeding has input tax under s12(1).Although Prestige the on incurred not import has Prestige the tax vehicle and is levied to arranges import to recover the GST costs. these on vehicle to The Swanky GST Motors. amount incurred inrelation is $275.00.Prestige to expenses the employee's wants inNew Zealand relatingexpenses delivering and of accommodation incidental inthe costs course to the employee's its deliver the vehicle and it personally to Swankywill Motors import Prestige's of (by one Prestige employees). incurs New Zealand at the time supply, of New Zealand. Aterm the supplyis of place outside the of contract is that Prestige triggers thedeposit time supply. of At the the time vehicle is supply the New Zealand. of As outside vehicle is outside inNew Zealand. TheMotors, contract is entered into inAustralia is at paid that and adeposit time. The payment the of Prestige is anon-resident Classics company motor vehicle to that amotor vehicle dealership, aluxury sells Swanky to register importers non-resident goods Allowing to register importers non-resident goods 7:Allowing Example Example 7:AllowingExample non-resident toregister, importers goods anon-resident as company position inthe is same placed (c) Is the recipient supplies"? "other receiving than making the of inthe taxable services course received inNew Zealand? will be thatIs it foreseeable reasonably the services involve activity providing services? the non-resident's taxable Does under s 12(1) on the import of the of vehicle. theunder s12(1)on import Prestige's such as It appropriate has documents, GST registration supporting levied and evidence the of number tax activity,It is and aregistered taxable its of acquiring the vehicle for the person purposes supplies; and … supplies; exempt or other received than inNew Zealand by will making be aperson of inthe taxable course the of services performance inrelation services of to involve that not which aperformance it is foreseeable reasonably the does activity taxable the person's Tax Information Bulletin

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INTERPRETATION STATEMENTS 86. 85. 84. –s54B(1)(d) inNew Zealand supplies Sixth requirement taxable making –not 81. 80. Department Revenue Inland 83. 82. business 9:Non-resident inExample explained suppliesrecipients (as the of supplies remote services toNew Zealand GST-registered by the claimed GST-registered deductions by input tax is offset thatto-business supplies be the would GST collected requiring for not reason the non-resident toThe register policy under s51and return GST business- on output tax register under s51. inNew Zealand. there If supplied as is an agreement to treat inNew Zealand, the made non-resident as the supplies may are supplies treatedthese the and supplier recipient New Zealand under s8(4),unless outside agree made to as treat them to registerbut aperson will allow the they under s54Bif make only supplies are to registered This is because persons. are inNew Zealand. who Thissupplies treated persons will include making inNew Zealand unders8(3) such as supplies to 54B(1)(d)(i) applies prevent registrationSection under s54Bwhere is making intending or the person to make taxable 54B(1)(d)states: registered Section person. the if non-resident were taxable a that inNew Zealand supplies be or supplies would making taxable be s 54Bmust not Under the sixth requirement for registration the non-resident non-resident registration certain of suppliers, seeking under consumer. if: An supplies" end-consumer "other than receives making of inthe taxable services course The at third and the whether recipient consideration they the are of services an looks end as receiving the services the on to nature be needs focus the of contract entered into to determine is who supplying what to whom. the Once again, are received, where as which is forservices GST made the not to the same supplyis purposes. be deemed and thirdThe second considerations where on consideration are The the misunderstood. sometimes focuses second GST input tax. supply 8:Supply and receivedExample ofservices performed 6:Contractual in New Zealand Example on builds recipient ofthe preventnot registration the of non-resident under s54B. then this supplies, will are received making theIf of by taxable services aNew Zealand–registered for the purposes person • • Therefore, s54B(1)(c)is met. Chefco register not cannot under s54Bbecause supplies. making of taxable for the purposes services and received that inNew Zealand. The students is receiving aservice performed be training will not the at Gourmet, providedby received Chefco to inNew Zealand bybe the the of the students. Part service students is to provide the whereHowever, will that it is services foreseeable of involves the the services activity performance Chefco's taxable is activity providing like chef training and arranging for individuals, the studentsChefco's taxable sentto New Zealand. s 54Bto claim the back GST incurred the on invoice from Gourmet. The GST, includes fee inNew Zealand. Chefco to wants know register it if can performed will be under the services as completed successfully. for the agrees places to students, and invoices Gourmet hold Chefco inadvance each of course. The foreign students enrolled with will Chefco be will award who the achievement the if certificates training is territory. and restaurants home inits training similar arrangements its and has of schools with othercomponents cooking several to Chefco. supplied acontracted Chefco other provider outsources will be services of Gourmet in Culinary Arts. three-level skillsto its of acomponent training the Chef Training incorporate as basic to programme leading aDiploma theirNew Zealand registered agreement. to that Ltd Chefco vary Chefs like decide decides it Gourmet would business 6),non-resident company Chefco skills and (Example course basic theFollowing introductory completion the of first inNew Zealand received and performed services of 8:Supply Example (d) acquired for other purposes such as for private such as acquired consumption. for other purposes and are supplies, the recipient making of taxable is aregistered are for the not but purposes the services person the recipient is GST not registered, or and illustrates prevent how s54B(1)(c)can registration unders54Beven when the non-resident company incurs the ). (ii) (i) intending or is to making, not make,the — person New Zealand is who aregistered not and … person; were the supplyif registered person in 51,to aperson ataxable a supply inNew Zealand that undersection be would supply inNew Zealand; or a taxable Tax Information Bulletin

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INTERPRETATION STATEMENTS 87. were it if to supply unregistered an person ataxable thatSupply be would Department Revenue Inland 89. 88. and prevent the non-resident from registering under s54B: the on nature 54B(1)(d)(ii)focuses the of supplyandSection the GST status the of recipient. For this provision to apply Information Bulletin 2017):89at 91. Vol 5(June 29,No 1in"Taxationfrom Example and Remedial Matters) (Annual 2017",Tax held for Companies, Rates 2016–17,Closely Act company intending tomake taxable supplies in New Zealand demonstrates the s54B(1)(d)(ii).It of is application drawn register, make which would to it liable account 10:Non-resident for inNew Zealand. GST Example made supplies on in New Zealand. The only way for the non-resident to register and claim any it incurs GST is to input tax voluntarily unregistered even where to person, the the meet supplies an not of threshold level unregistered for registration does person to 54B(1)(d)(ii)applies prevent anon-residentSection from registering unders54Bwhere are the supplies to an supply to an unregistered supply. is treated person may ataxable asupplyinNew Zealand, so as be supply by anon-resident with is s54B(1)(d)(i),abusiness-to-business treatedAs New Zealand, but a asupply outside as • • would be charged be withwould GST. makes to remote of New Zealand supplies consumers Startup were Game services that, Video if aGST-registered person, Startup Startup is toGame the eligible Game of not exclusion register ins54B(1)(d)(ii):Video unders54Bbecause Startup wishes Game toVideo claim the back GST it incurs the on conference However, for Shane fees and Matt. Video Auckland. The conference GST price includes at 15%. Startup intends Game theVideo of animators to Shane to two and Matt, an animation send it employs, conference in GST under s8. are supplies charged its not with because supplies make not taxable non-registered Startup does Game Video person, to GST supplies New Zealand a consumers. other In its on as applyto words, the will not rules remote impose services to register not liable Therefore, register Startup become does not Game for GST Video if for GST does (or under s51(1)), havenot to aliability register for GST inNew Zealand underthe rules. remote services Therefore, years. next two even thoughthe company is supplying aremote to New Zealand consumers, it does service togame New Zealand-resident private the $60,000GST consumers above registration will be threshold for at the least the of that sales expect not Startup does Game customers, Video Startup alreadyGame afew New Zealand-based has inexcess to $60,000,and Video of are be release its the year of of for the expected game first While the sales worldwide Startup Co Game game. is companyVideo asmall video production that non-resident game first its video is developing inNew Zealand supplies company intending 10:Non-resident to make taxable Example Therefore, Accounts 4Uis prevented not from registering unders54Bby s54B(1)(d)(i). otherwise. chooses GST-registered customers, are the Accounts4U supplies New Zealand treated under s8(4D),unless outside supplied as treated be under s8(3)(c)can inNew Zealand. However, made as by Accounts4U the supplies are to made because which is the remote supplyof are products New Zealand. treated The services, software supply of outside made being as Accounts4U isAs anon-resident company, under the by the general non-resident (s8(2)),supplies supply rules of place Accounts4U to wants register unders54Bto claim the back GST incurred expenses. the on employees' inclusive GST. of inNew Zealand costs which will be and transport will incurThe accommodation, food staff in New Zealand. The marketing and demonstration will the take on place clients' premises over aweek. of the course to demonstrate staff its of Accounts4U to wants two send enhancement anew to customers to package its the software New Zealand. New Zealanda small of GST-registered number make not to supplies any but does unregistered businesses customers in Accounts4U Ltd is anon-resident It supplies company that for small accounting produces businesses. packages software to GST-registered New Zealand remote services supplies 9:Non-resident Example business the recipient an unregistered must be person. were the supply if registered; person a taxable that and be" "would services or goods of the supply must be Tax Information Bulletin

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INTERPRETATION STATEMENTS 99. deductions tax input Claiming 98. 97. Accounting basis 96. 95. 94. periods Returns taxable and 93. Application for registration 92. Administrative issues 91. 90. New Zealand that in requirement makesSeventh supplies agroup of companies of amember –not Department Revenue Inland if theyif were and received made inNew Zealand". "treating supplies as by the made all inmaking the person taxable supplies available for or for use are used services or goods to the extent 20(3L)provides input tax thatmay may to required the which be the deduct unders 20(3L).Section person an apportionment ThisFor may available. non-residents registered is be not deduction because input tax afull under s54B, separately registered division branch or the of person. this already accountingAs noted at may [96]inrelation basis periods, from by differ a the accounting to used taxable basis This only once payment made. requirement deduction for the been supply has input tax is providedfor ins19(1B): registeredA person the accounting payments of basis unders54Bmust use for GST. This claim an can means the person requirement the divisions branch or for the This person, to have is providedfor ins54B(6). consistent periods. taxable Where registered the person division abranch or under s54Bhas registered inNew Zealand unders51there is no inNew Zealand. supplies registered making taxable be since cannot under s54B, that person thatremote are services treated is available inNew Zealand unders8(3)(c): 15(6).This not to aperson supplied period as or is available for registered are goods only period supplies distantly of A three-month whose persons taxable taxable month Athree-month is available not for six-month non-residents or registering period. period unders54B. registeredA non-resident to applies be who request unders54Bcan return of the frequency aone-month, to two- be filing together with appropriate the requirements. documentation to support applications for registration for which the after non-residentperspective, the may wishes period forwarded to be register, required providedwith to the to be application ensure that the requirements for registration are From met. apractical registeredA non-resident to applies be who unders54Bmust complete 564.The an 564outlines IR IR the information six administrative discusses This issues inrelation section to registration: is treated registered being as unders51from that date: s54B(2). then anon-residentIf the person registered agroup supplies, of that companies of part makes taxable unders54Bbecomes with resident and non-resident must register members 54B(1)(e)states: under s51.Section in New Zealand intend or such of amember agroup. to Cross-border become grouping is for permitted GST, but agroup requirementThe final is agroup of amember that s54B(1)(e).The companies of non-resident be makes cannot supplies • • • • • • • (1B) (6) (e) supplies on cessation (from cessation on [110]). supplies cancellation registration of (from [106]);and refunds and timing (from [104]); (from [99]); deductions claiming input tax accounting (from [97]); basis (from [94]); returns periods and taxable the for registration application (from [93]); payable on a payments basis for the purpose of section 20. section of apayments for the on payable basis purpose the (1),if must account Commissioner registers for thetax 54B, person Despite subsection under section anon-resident person and accounting consistent themselves, periods bases. have, between for taxable practices relationIn apply to not require to and the the 56(6)does division registration branch or to the person section the of person, New Zealand. in intend agroup supplies of not amember that companies of to and makes does is become, taxable not, the person Tax Information Bulletin

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INTERPRETATION STATEMENTS 101. 100. Department Revenue Inland In 103. In 102. Expenditure, and Remedial Matters) Bill: Commentary onthe Bill Advice (Policy 2012. September Revenue, Inland Division of Taxation in demonstrate used 12was will apply to anon-resident. Example how apportionment (Livestock Valuation, Assets apportionment 11:No requiredExample and and exempt supplies. similarly makes taxable both This to means supplies total supplies. the non-resident is treated taxable of aNew Zealand resident as the who same inNew Zealand."exempt The entitled made if non-resident the supplies" on be proportion to would claim GST back based However, may available. be deduction is making what also be may the would adjusted if person the input be deduction inNew Zealand, input the tax full This supplies means that taxable by the made all if the non-resident supplies be would s 51. Sections 54B(2)and 51B(1)(d)state: s 51.Sections treated be registered 54B(2)and 51B(1)(d),itunder ss would being as under the general registration provision of to claimable. determine the input of tax level to made New Zealand registeredbe This recipients. s20F means providers that use cannot non-resident services financial New Zealand. However,outside unders20F, the of election for the purposes to need and s11A(1)(q) and (r),the supplies inNew Zealand are or supplies to making supplies registered inNew Zealand which are treated to persons able be made as nature claim. they GST can of The very input tax the of s 54B registration is that are who to making it not applies persons A question to as whether arises applys20Findetermining can the anon-resident percentage providing services financial as a deduction in its New Zealand return. inits adeduction as Therefore, they are BankCo claim the 25% of can services. GST financial and received incurred inNew Zealand because exempt provider they if be were the would and life Bank Co'sBoth mortgage insurance of business made components 25% health and contents insurance. New Zealand provider. 25%life insurance and mortgages, Bank Co's Australian 50%household comprises business into New Zealand. It registers for GST it receives inNew Zealand and fees incurs GST from a professional on services and insurance providerBank Co is that services afinancial is registered for GST inAustralia to expand and looking services to anon-resident –financial applies apportionment 12:How Example New Zealand, the GST arefund. available as incurred will be isWines in entitled supplies to Redstock makes Wines claim all the Assuming taxable no GST incurred adeduction. as aresult, Redstock As winemaking of activity and supplyingwine for sale. taxable its on carrying of incurred part as RedstockIf were Wines The expenditure aNew Zealand–resident company, is taxable. all be would supplies its students underacontract with aUniversity and incurs GST the on winemakers' travel and costs. accommodation stock to supermarket aleading inthe United winemakers Kingdom. It some sends to New Zealand to train viticulture wine the its balance of and exports wholesalers local It Australia. supplies operating inSouth Redstock is Wines awinery required apportionment 11:No Example , if BankCo 12,if registeredExample inNew Zealand then, unders54Band making subsequently supplies started (1) 51B … (2) … 54B … (d) … activity: ataxable of furtherance or inthe making course supplies persons the 9of 3and Part Tax 6,and of Parts of For the purposes Administration 1994,the are following Act treated registered as Persons treated registered as date which they on the join group, applicable. as registered the or being (1),and not supplies from thesubsection date underthis making taxable which they section on start they are treated supplies, that companies of is registered making as taxable by the Commissioner under the on date specified agroup of amember becomes or supplies, is who registered anon-residentIf making taxable person starts underthis section non-resident suppliers Requirements registration for certain for a non-resident person referreda non-resident 54B(2). person to insection Example 12: How apportionment 12:How applies Example toanon-resident –financial services, Tax Information Bulletin

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INTERPRETATION STATEMENTS 111. 110. cessation on Supplies 109. 107. 106. registrationCancellation of 105. 104. timing and Refunds Department Revenue Inland 108. Section 5(3B)(c) and (d)states: Section registered. inNew Zealand. performed that Secondly, be would an adjustment for services made must be present to inNew Zealand to at be ceases the only goods The is time to the first goods supply of person limit the deemed However, to inserted ensure s5(3B) was that registration of cessation on adjustments are anon-resident, two of made. registered. to that of inthe be immediately made made course ceases to and to activity be be deemed the before person activity. The to supply is Thisthe account taxable needs means for GST the their assets. on person output business tax of part forming and services any of made When s5(3)deems asupplyto goods be the registration ceases, aperson of Remedial Matters) 2013",Tax Act Information Bulletin reasons: for two being Vol 2013):33as 9(October 25,No in"Taxation cancellationThe of power given ins54C(2)is described (Livestock Valuation, Expenditure, and Assets For non-residents registered the under s54B, to Commissioner the has power cancel also the registration, the if person: that another or decision date the if Commissioner determines it appropriate. inwhich the Commissionerregistration: makes period from the day s52(5).Cancellation last the of taxable takes effect anywhere activity the inthe Commissioner world, cancel the can person's ataxable on is carrying not theIf person timeenough to make appropriate enquiries releasing before the refunds. 90days of is intentionallyThe period longer that for aregistered the standard to period give the Commissioner person claim: s46(1B). either the registered make the any of information refundnotify or further required person any of or investigation into the For non-residents registered the under s54B, Commissioner days 90working has from the day after the return to is filed, • • 54Cprovides: Section • • (3B) … 5 (2) (1) non-residents registration54C Cancellation of certain of to maintain registration. involvement with returns nil New Zealand of is limited the non-existent or filing demonstrates for periods, an intention consistent or Cancellation for non-filing late-filing is ameasure to encourage Where compliance. anon-resident's $60,000 threshold, the Commissioner de-register can them. provision means that anon-resident's if registration overseas the the or their drops of value below supplies lapses Cancellation for failure to comply with s54B(1)(a)is to ensure are to only eligible genuine register. businesses This areturn alate eitherhas return filed not filed or for three consecutive periods. the requirements longerno meets s54B(1)(a);or of (d) (c) … is aregistered who to anon-resident be when ceases a person this of Act, person,— For the purposes term of supply Meaning (b) (a) The Commissioner may, registration 52(5)and (5A),cancel the person's inaddition to providedunder section the if— powers section. to 52applies the cancellation by this registration of Section registered anon-resident modified of 54Bas person undersection immediately before the person ceases to be registered. to be immediately ceases the before person registered at to atime activity be ceases the the of inthe person are taxable course by the treated person performed as at the by time on the person carried activity the of taxable part inNew Zealand as performed that be any would services registered: totime be immediately ceases the before person registered to be at ceases the activity a time the person are the of treated inthe taxable course by the person supplied as that by on the are person carried present activity inNew Zealand at the of that taxable any the of are assets goods part areturn alate either has return. filed the filed not has or person periods, for 3consecutive taxable the the Commissioner requirements that longer no meets 54B(1)(a): is satisfied the person section of Tax Information Bulletin

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INTERPRETATION STATEMENTS 112. Examples Department Revenue Inland The following additional examples show how s 54B applies to scenarios. show how s54Bapplies moreThe additional detailed following examples • • • • • the of s54BrequirementsEach considered to be to needs determine whether register Kingland can this on basis: claim the back GST charged it receives supplies on inNew Zealand. this contract incurring more isAs asignificant than $500GST, Kingland to wants know register it if can under s54Bto are testing inNew Zealand at the(the and certifying) time fitting, supply. of and the (the services components) the goods provided,as Black charges Engineering and services GST the on goods customers inNew Zealand. completed the the to of machines machines are are None to Australia. Once the been has work supplied exported byowned Black Engineering. The each to the of engines are testing machines. the NZwarehouse shipped and adjusting, certifying component, and have aNew Zealand Company, This adjustments. involves a fitting make the necessary Black Engineering, electronic for them component to Australian meet to the machines send to Kingland standards. decides New Zealand Kingland acontract has tothe supply machines UK. to Wallaby Co The inAustralia. machines require an additional Kingland is company amanufacturing group inamanufacturing inthe United Kingdom. It is registered for VAT in s54Brequirements all 13:Satisfying Example Therefore, register Kingland can for GST under s54Band claim the back GST charged by Black Engineering. • • Therefore, Kingland from is registering precluded not under s54B(1)(c). activity. aresult inNew Zealand as Kingland's of taxable receives services of the person performance No products. customers and Its Australia. Europe, Canada in the are UK, manufacturers the incorporate who engines into their involves the activity It customers manufacture has supplies engines. and supply of -(s54B(1)(c)):Kingland's taxable Non-resident's taxable activity ofservices involvesaperformance received someone by other than making for taxable s54B(1)(b). satisfies $500so exceeding New Zealand and incurs input tax Input levied of$500ortax in tax under s12(1)-(s54B(1)(b)):Kingland is and services the recipient goods of Registered aconsumption for (s54B(1)(a)):Kingland tax is registered for VAT s54B(1)(a). satisfies inthe UKso register under s51(1). New Zealand. It is making outside not anymade inNew Zealand and therefore supplies have not to aliability does liableNot toregister Kingland under is it anon-resident, unders8(2)the makes s51(1):As supplies are treated as makenot Kingland aresident for GST purposes. permanent or Kingland. of Black It place and Engineering is is available afixed aplace to not not Kingland and will Non-resident: taxable supplies inNew Zealand. supplies taxable making taxable supplies the of member agroup no group of –(s54B(1)(e)):While Kingland is inthe makes part UK, ofagroup part Not ofcompanies, making taxable supplies in New Zealand, orintending ofagroup tobecomepart from registeringprecluded under s54B(1)(d). it intend make not does inNew Zealand, nor to. supplies (s 54B(1)(d)):Kingland Therefore, does Kingland is not making,Not orintending tomake asupply that taxable the in if NZ, would be was person registered under s51(1)- Kingland is a non-resident for income tax purposes. The warehouse inNew Zealand is the premises of Kingland is purposes. anon-resident for income tax Tax Information Bulletin

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INTERPRETATION STATEMENTS Bulletin "Taxation (Annual for Rates 2019-2020,GST Registration, Supplier Offshore and Remedial 2019",Tax Matters) Act, Information 2017):89.www.taxtechnical.ird.govt.nz/tib/volume-29---2017/download-tib-vol29-no5 5(June No "Taxation and Remedial Matters) (Annual 2017",Tax held for Companies, Rates 2016–17,Closely Act Information Bulletin Vol 29, www.ird.govt.nz/-/media/project/ir/home/documents/forms-and-guides/ir500---ir599/ir523/ir523-2014.pdf Non-Residents Claiming 2014). GST 523, February IR in New Zealand Revenue (Inland factsheet 2020):69.www.taxtechnical.ird.govt.nz/tib/volume-32---2020/tib-vol32-no6 (July –GST treatment tax and services short-stay of "IS 20/04:Goods Tax accommodation", Information Bulletin, Vol 6, 32,No www.taxtechnical.ird.govt.nz/tib/volume-31---2019/tib-vol31-no1 –zero-rating related tax services of to land"Tax and services "IS 18/07:Goods Information Bulletin Vol 2019):17. 1(February 31No www.taxtechnical.ird.govt.nz/tib/volume-05---1993-1994/tib-vol5-no12 "GST: resident", of The Tax definition Information Bulletin Vol 12(May 1994):4. 5,No www.taxtechnical.ird.govt.nz/tib/volume-01---1989-1990/tib-vol1-no9 "GST: the of term 'resident'", Scope Tax Information Bulletin Vol 9(March 1,No 1990):1. aresident" of May Revenue, PUB00390,Inland 2021) "GST (exposure draft –Definition taxpolicy.ird.govt.nz/sites/default/files/2011-dd-gst-businesstobusiness.pdf GST: Business-to-business neutrality across border Advice Policy (government Division, August document, discussion 2011). Concise Oxford English Dictionary (12thOxford ed, University Oxford, Press, 2011). referencesOther TaxIncome 2007,sYD2 Act 12(1), 15(6),19(1B),20(3L),(3LC) 54C and (3LB), 52(5),54B, 46(1B),51,51B, Tax and Services 2("non-resident", 1985– ss Goods Act 5(3)and (3B),6(1)and 4B, (3),8,11A(1)(x), "resident"), 3A("input tax"), references Legislative Wilson Ltd vCIR (1995)17NZTC &Horton 12,325(CA) Newman vCIR (1994)16NZTC 11,229(HC) (1998)18NZTCCIR vBayly 14,073(CA) references Case References Department Revenue Inland and does not have not toand does revert to registering under s51. Therefore, supplies. even TuiCo if for making taxable remain Kingland engine, can orders asecond registered unders54B prevented be not from the also under s54B(1)(d)(i).It registering supplyis would to aperson by s54B(1)(d)(ii)because preventedTherefore, be not supply inNew Zealand" and Kingland from would registering the supply is a"taxable not • • toliable register it unders51if makes inNew Zealand and is supplies required to register. the of one key requirements noted above, As is that Kingland to is liable register not under s51.Kingland become could whether supplyingan engine to TuiCo GST its registration will affect under s54B. Thethe the of engines value intheir supplyis $45,000.Kingland small to wants business. manufacturing boutique know Kingland is approached by aNew Zealand company TuiCo, is who registered for GST. TuiCo to wants trial of one using into supplying New Zealand of 14:Effect Example Vol 2019):2. www.taxtechnical.ird.govt.nz/tib/volume-31---2019/download-tib-vol31-no8 8(September 31,No supplied outside New Zealand. outside supplied the supplyto TuiCoby because s8(3)(a).But, is to aregistered treated under s8(4),the be supplycan person, as the engine) are (being inNZat the are the goods time supply so of treatedby Black Engineering, inNZ supplied as treated NZ(s8(2)).However,be outside making the supplies as engines are improved and certified being because Provided Kingland remains have permanent not or it place) will afixed (and does anon-resident for GST purposes Kingland to is liable register not unders51. The supply by Kingland to TuiCo to the is threshold liable register below for being under s51.This means that Tax Information Bulletin

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INTERPRETATION STATEMENTS 2016):12.www.taxtechnical.ird.govt.nz/tib/volume-28---2016/tib-vol28-no6 Vol 6(July 28,No "Taxation (Residential Withholding Tax, and Student Land 2016",Tax Loans) Act GST Services, Online on Information Bulletin 2012).taxpolicy.ird.govt.nz/sites/default/files/2012-commentary-lvaerm.pdf September Revenue, Inland Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill: Commentary onthe Bill Advice (Policy Division of 2013):33.www.taxtechnical.ird.govt.nz/tib/volume-25---2013/tib-vol25-no9 (October "Taxation (Livestock Valuation, Expenditure, and Remedial Matters) 2013",Tax Act Assets Information Bulletin Vol 9 25,No Department Revenue Inland Tax Information Bulletin

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INTERPRETATION STATEMENTS Inland Revenue Department Tax Information Bulletin Vol 33 No 6 July 2021

OPERATIONAL STATEMENT Operational statements set out the Commissioner of Inland Revenue’s view of the law in respect of the matter discussed and deal with practical issues arising out of the administration of the Inland Revenue Acts.

OS 21/01: Income tax treatment of accommodation provided to employees OPERATIONAL STATEMENT OPERATIONAL Background Some employers provide accommodation for their employees. They may provide the accommodation directly or fund the cost of it - by paying the cost on behalf of the employee, by reimbursing the employee for the cost incurred, or by paying the employee an accommodation allowance. Generally, where an employer incurs expenditure that gives rise to a private or domestic benefit to an employee in connection with their employment that expenditure is taxable to the employee. The provision of accommodation or the funding of the cost of accommodation is an example of this kind of expenditure. The general rule where an employer provides accommodation (whether directly or by funding it) is that the employer must withhold and pay the resulting PAYE on the value of what the employee receives. Despite this general rule, in specific circumstances accommodation related to an employee's role is exempt from tax. This Statement deals with the tax treatment of: • the provision of accommodation by the employer or the payment of an accommodation allowance to the employee; • reimbursement by the employer of accommodation expenditure incurred by an employee (also known as expenditure on account). The purpose of this Statement is to clarify when these circumstances apply and to assist in determining the amount of tax payable. The Statement is divided into two parts: Part 1 covers when employer-provided accommodation will be taxable, and Part 2 covers how to calculate the resulting tax liability. Examples are provided throughout the statement to illustrate the outcome in different scenarios. Employers often provide not only accommodation but also travel for their employees. These employers may find it useful to refer to the Commissioner's position on employer provided travel: Operational Statement OS 19/05: Employer-provided travel from home to a distant workplace – income tax (PAYE) and fringe benefit tax (Inland Revenue, 2019).

Summary of approach 1. In determining whether accommodation provided to an employee is taxable the following should be considered: Does what is being provided to the employee fall within the definition of "accommodation" in the Act? 2. Some types of accommodation are specifically excluded from the definition such as a room, berth or other lodging provided on a mobile workplace such as a ship, a truck or an oil rig or accommodation provided in a remote location outside New Zealand. If the accommodation is excluded, then it is not taxable. (See the discussion from [7] to [12]) The second question is: Even if the accommodation is not excluded, do any of the exemptions apply? 3. Even if what is provided is within the statutory definition of "accommodation", it may still be exempt from tax if it falls into one of the expressly provided for exemption categories: • out-of-town secondments and projects;1 • ongoing multiple workplaces;2 • meetings, conferences and training courses.3 See the discussion in [13] to [47].

1 Section CW 16B. 2 Section CW 16F. 3 Section CW 16D. 162 9. 8. 7. the under Act? "accommodation" to theIs what employee is supplied to the provided employee? accommodation 1:Is taxable Part 6. Definitions 5. this of statementApplication 4. Department Revenue Inland employer, for by the paid employer, (which is for by the then paid or employee by reimbursed the employer). directly accommodation providedby both the includes accommodation above discussed within As fall the definition. What is considered therefore, is, underthe accommodation Act quite all manner broad, living so of arrangements can Ordinarily, refers to lodging" or the "board provision meals the and somewhere of to employee's sleep. whether permanent temporary". thereof), or part (or living or premises ahouse of and the use lodging, or including "board CE 1(2)as insection Accommodation is defined thisIn Statement: to an employee. This statement the Commissioner's clarifies treatment existing the on tax position employer of providedaccommodation This this. inmore may from rules [48]onward. detail is addressed vary specific determined. to Generally, be needs the on market the the of value what is accommodation of but value based is supplied, the the of value provided accommodation that established theOnce it been providedis has accommodation taxable,

• • • • • • – employee performs employment duties, which could be aclient's which be could premises. employment duties, performs employee This means that to any premises from aworkplace is place be which the confined the of not also employer but can – – – – – is aworkplace that workplace A distant is daily within travelling not reasonable distance home. the of employee's – Workplace Hometown their as residence. meansHome adwelling uses the employee – Employer-provided means: accommodation Employer

an allowance paid to byan their allowance paid an employee employer to cover the cost accommodation. of accommodation an employer reimburses an employee for; or for; anaccommodation employer reimburses an employee pays an amount accommodation. for the employee's from which an employee's dutiesfrom are which an employee's allocated. but the organises employer pays anaccommodation employee for; provides accommodation for the employee; or at which an employee performs their employment or performs duties; at which an employee accommodation an employer organises and pays for; includes a person, who, in connection with the employment or service of an employee of the of employer: an of employee with who, inconnection the employment service or aperson, includes means a particular place or base: means or place aparticular means town the or city where is home located. the employee's Tax Information Bulletin

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OPERATIONAL STATEMENT 8 7 6 5 4 12. Department Revenue Inland 11. 10.

Section CE 1(4) and the Tax Income Section Accommodation) (Employment of Regulations Income—Meaning 2021. CE 1(2)(b)(iv). Section CE 1(2)(b)(iii). Section CE 1(2)(b)(iii). Section CE 1(2)(b)(i). Section Flowchart 1 assists indetermining 1assists Flowchart whether the that provided accommodation employer has is excluded: These types of accommodationThese types are: are accommodation of explicitly aresult and to as from excluded the are types tax. broad definition, subject not Some wages. from the employee's instead thebehalf tax deducting of payments arising paying toup" these from –inessence for the the the the on tax accommodation employee employee's and wage payment). Revenue Inland their is on payable (like aware behalf asalary totax "gross that employers choose some income to to them, withholdthe obliged their is providedto accommodation taxable employer is employees typically As • • • • • accommodation will be taxable to to each the employee the of value received. accommodation taxable willaccommodation be The the of received has Act. inthis from accommodation their employee example employer for theEach purposes Vanessa's behalf. to rentdecides an apartment and her the from of purchasers, employer one new agrees to pay the rent to that owner on By the time whether Vanessa she decides will take upthe offer, all the remaining have apartments Vanessa already sold. an allowance. accommodation as week insteadmoney -to the the of value apartment's new weekly rental. Her employer agrees and pays her that amount per Karen already if, an apartment has her of own. She instead asks moving she into have of could the of one apartments, into moves Barbara an apartment and livesthere for 12months. for 12months. the each employer them offers of the work, right to for their livethe intheir good employees apartment own rent-free to Three abonus are inthe apartments building justemployer completed has an As apartment still building. vacant. Karen and VanessaBarbara, all live inWellington and work and are an of apartment developer. employees Their 1 Example temporary accommodation providedto accommodation manage outbreaktemporary spread or COVID-19. of inAustralia;out" mines such as inand fly providedataccommodation to remote New Zealand where "fly is outside expected an employee locations performance of the duties; required to atperiodically sleep their workplace and the is accommodation provided only for the duration the of and caregivers workers provided for shift ambulance when staff they fire-fighters, such are as lodging or a room a station inAntarctica; aship, workplace such truck as amobile rig; provided on oil or other or room lodging a berth, 5 6 7 and and Tax Information Bulletin 8

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OPERATIONAL STATEMENT 9 11 10 13. any do the of Even exemptions apply? is what if is accommodation, provided Department Revenue Inland

Section CW16B. Section Section CW16D. Section CW16F.Section exempt from tax. These exemptions These into fall threeexempt broad from categories: tax. employer-provided of may types "accommodation", of Certain accommodation, which are inthe still definition included be • • • conferences from [43]). and overnight stays (discussed from [39]); (discussed workplaces multiple ongoing fromout-of-town [15]); (discussed and projects secondments Flowchart 1: Determining whether the employer has provided accommodation that is excluded accommodation whether the provided has employer 1:Determining Flowchart 10 11 9 Tax Information Bulletin

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OPERATIONAL STATEMENT 12 21. 20. 19. less or years two for be will that the secondment expectation Reasonable 18. 17. 16. travelling daily distance –residence reasonable and Definitions 15. CW16B) (section –out-of-town projects and accommodation secondments Employee 14. Department Revenue Inland

Section CW16B(2). Section correspondence with the third party for whom the employer is carrying out the project. out the project. correspondence with the for whom employer the is third carrying party and documents, captured planning minutes, board be such inother as also could documents The expectation This the 2. parties). other by is way illustrated way communicationsome of between (for example, inExample termsthe employee's employment of is whether or captured the inawritten expectation employment agreement in or that to Things secondment when last it started. may taken into be account interms include that forming of expectation is considered at expectation the time is the theReasonable secondment entered expected into each party -how long This 2below. the of is secondment. illustratedlength inExample the will accommodation generally for the exempt from be yearsless, tax or two travelling of for aperiod distance will be exists that toWhere secondment aworkplace that the expectation employee's areasonable is daily within not areasonable toapplicable the accommodation exemptions. daily travelling a'reasonable on distance'", Tax Information Bulletin Vol 2009):6.This 9(December guidance 21,No is also The Commissioner's what on daily travelling she position considers "reasonable to be in"Guidance distance" published was travelling that distance residence between and the location. work immediately with the before and the change reference distance inlocation test is assessed to that residence and the but the Commissioner inthe considers Act, that"Residence" is defined "residence" not refers to home the employee's daily travelling the reasonable outside distance. be For any the of exemptions to apply, must travel the employee from their residence to aworkplace and the workplace must residence, employer-provided if: exempt from will accommodation be tax that to at work When location needs work is anew daily within travelling not an employee reasonable distance their of entitled to inexchange for provided by accommodation the employer). arrangement than to trade-off what (that receive opts they the if are employee is, alower salary an explicit otherwise salary to noteIt that is exemptions important these of none will employer-provided- apply if is accommodation providedunder • • • arrangement will be taxable income to the employee. income to the employee. arrangement taxable will be as reimbursementas Plymouth for his inNew costs accommodation is taxable. not the payment that yearsless, or to him two Plymouth Liam receives inNew work for aperiod Liam's employer expects As and his employer reimburses fully for him this cost. Liam tosends Plymouth New for three months to audit alarge client. Liam pays for his stay inahotel Plymouth, inNew inAuckland. isLiam livesand He works an accountant The worked for his has who employer employer for 10years. 3 Example isdistant taxable. not location 12months) any (inthis employer-provided years less or case, is the secondment for two As at accommodation the documentation clearly to the secondment demonstrate be. expect the parties how long livingof inWellington. There but correspondence and other is agreement the formal no parties, secondment between Tahi to inWellington lives inAuckland ajob and is seconded for 12months. Tahi's employer agrees to her meet costs 2 Example Canterbury 2011earthquake,Canterbury this exception is limited now of application. however,the is move to earthquake Canterbury projects; on work recovery time of since the to due the passage the payment exempt for will upto be from [22]);or three inwhich case, three years (discussed years less; or enhancement involvement and the for employee's to asset be inthat demolition acapital is or of expected project which is of the creation, is limited move of durationthe to employee's aproject the on purpose work principal from [19]);or the payment exempt years (discussed for will upto be inwhich case two years less, or two of that forthere aperiod to secondment that will be the expectation employee's is location work areasonable 12 Tax Information Bulletin Accommodation providedunder such an

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OPERATIONAL STATEMENT 27. circumstances to change if apply cease can out-of-town projects for Exemption long-term and secondments 26. 25. 24. 23. 22. duration limited of to projects linked long-term Accommodation Department Revenue Inland 28. cease to be exempt to circumstances if be cease exempt change. to The if: be will accommodation cease Even the if employer-provided the requirements meets accommodation considered to be exempt,the can accommodation the requirements: following must satisfy The project to exist needs commences when the the on work employee project. expectation longer). The reasonable (which may itself be the of isThe the project not the length three-year time is the involvedinthe period employee project, existing infrastructure development and implementation. information or technology covered byProjects this exemption are limited not to the construction of industry, upgrades but may involve, for example, permanently to New Zealand. may recruited with from Employees be intention overseas no relocating. be that not would they so ever relocate basis, at near out" or aconstruction in, fly housed site, mightmight a"fly share be on employed might accommodation, or be particularly inthe takes construction intoThis practices, account industry. period business employees certain For example, at threeworking of adistant years less. or that workplace on for aperiod project employer-provided exists that exempt will where be be the expectation can accommodation employee areasonable When is required an employee to at work adistant workplace inrelation to limited of duration, along-term project taxable, but accommodation provided before that but providedbefore accommodation time will remaintaxable, exempt. This 5: is illustrated inExample From intime the that point the circumstances any change employer-provided outlined above, as will accommodation be • • • • • • payments to cover her after accommodation the initial four months are taxable. But rule. now thatunder the two-year Fatima inHamilton working to any for more be years, than is expected two Therefore, years. than two the payments to cover Fatima's four months first for accommodation those are exempt thatFor four months, Fatima the the inHamilton working first employer expected reasonably for more be not would arrival inHamilton. make the in Hamilton job permanent and to pay Fatima an allowance accommodation six for months the first after her After four months, Fatimaperiod. she to wants relocate decides permanently to Hamilton. Her employer agrees to Fatima for an employer inAuckland. works her 18-month Her employer sends to inHamilton work for an expected 5 Example Helio is exempt. Therefore, atworking the for three distant yearsless. location or work the the of value provided to accommodation to him be and he his Both employer expect involvingHelio is the aproject on working construction asset. acapital of years. half a and two Helio to for the the on first work project Helioand his Both employer expect only involved inthe preliminary work. including Helio. The entire the toon project, take around is years to expected seven project complete, however Heliois working employees its toand the house remoteness upan facility accommodation Helio's employer sets the of location, workers of the number out the by of aclient project, carried inaremote the of scale area Island. the Because of North management by his employer project to oversee Helio is the on seconded initial construction adam of stages project 4 Example longer. that that changes at(whichever applies) the they so is will distant be the expected reasonably employee workplacefor years three or years two of for amaximum that at the will only location new be the the expectation employee involvementthe comesto employee's an project end; or inthe or secondment location; near inor the work with new buying ahouse all the or the of associated costs the employee employer pays part YB1to YB16apply). sections in rules must involveThe for aclient work project that with party the is employer (the associated not associated exclusively incidental engaged activities); (bar work and must be The project on employee refurbishment; or an upgrade, areplacement whether the asset, anew an creation main of existingThe aim must be asset, project's acapital of asset, Tax Information Bulletin

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OPERATIONAL STATEMENT 13 38. 37. Relationship rule payments with the relocation 36. the time period Restarting 35. 34. exemption circumstances –extended Exceptional period 32. 31. out-of-town and projects long-term and employees New secondments 30. 29. reduces the subsequently timebut initially exceeds limit period Expected Department Revenue Inland 33. Section CW16C(6). Section household effects. effects. household expenses DeterminationFor 09/04–Eligible alist that see CW17B, Det relocation of expenses relocation are undersection eligible payments). the exemption accommodation for upto three months after relocation CW17B (tax-exempt their arrival, under section out-of-town is for the eligible not above anIf employee exemption, they and projects may for secondments still qualify exemption. of period further thatignored areason if is more than at that is incidental for the the to of cessation employment a service location allow or continuous of at work adistantperiod workplacemay result However, the of inarestart time period. the break will be abreak determining of whether ina For applies, the atime purpose limit for the projects exemption or for secondments is to unable employee leave the location. work continue can provided accommodation treated to be the exceptional as exempt long as for as circumstance means the natural emergency, disaster medical or with the result that must stay the The employee at employer- the location. work "Exceptional circumstances" to are that those confined are the control outside a such as the of employer and employee, continuesemployee to at work the distant inthe workplacefor exemption. longer than three-year or the period two exceptionalIn circumstances, employer-provided continue can accommodation treated to be exempt as even thoughthe exemption when: for the two-year for secondments only qualify employees New However, instances. inspecific apply to they can employees new for employer-provided above The exemptions generally accommodation described apply inrelation to existing employees. This thefollowing 6. change is inexpectation. illustrated inExample uptoprovided accommodation the changes date –there remains the expectation is retrospective no taxable exemption relevant), the employer-provided exempt from The the changes. becomes accommodation date employer- the expectation However, than less the relevant will be changes three or this and if the time total period years limit as expectation (two to tax. subject to is asecondment initiallyIf the it exceed will be relevant three-year or expected period, two conditions existing as employees. for the three-year to exemption limited of the duration same qualify aproject subject on for work employees New • • remains taxable. The the 12months, before provided for accommodation the change are first to inexpectation, Raj exempt from tax. duration yearssecondment than is (18months), now less two six months the final the of provided accommodation the of total the expectation As apermanent on basis. to run the office locally based the company found someone has to only stay needs inTauranga Raj employer decides year intoOne Raj's the secondment, for another six months as more taxable. to years than the be will accommodation be is two secondment expected inTaurangais that will be Raj employer provides with him Raj's inTauranga. accommodation for four years. the As livesinNapier.Raj His to him employer sends Tauranga The initial to upand expectation manage set office. anew 6 Example Australian accountancy firm is sent to work for an affiliated New Zealand firm inAuckland is forAustralian 18months). New Zealand firm sent to for an firm work affiliated accountancy that will return theexpectation employee to an for individual an working for the work original employer (for example, with the basis, to for another work employer employeratemporary for is on one working seconded an employee for amonth returning inDunedin before work to Auckland); or an individual is recruited (for example, to inAuckland work inAuckland location work starting but before is sent to isthe newly recruited employee but is to then at location work work temporarily aparticular sentto at work another (Inland Revenue, 2009). Relocation expenses include such things as the cost as such removal include of things of expenses and 2009). Relocation transport Revenue, (Inland 13 Tax Information Bulletin

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OPERATIONAL STATEMENT 41. 40. 17 16 15 14 47. 46. 45. 44. 43. conferences courses training and –meetings, accommodation Employee-provided 42. to office apply ahome not exemption does workplace Multiple 39. exemption workplace Multiple workplaces multiple Employer-provided –ongoing accommodation Department Revenue Inland

Section CW16D(4). Section CW16D. Section CW16F.Section CW16F. section See working atworking trip. the during the distant business location work circumstances, these In will continue the employee to have duties ongoing at they are their while work of place usual This 8. is illustrated inExample is applywhen ashort-term senton an employee The also can workplace rule multiple trip business to another location. Flowchart 2 summarises the above and assists indetermining and assists 2summarisesFlowchart the whether above is accommodation exempt: astopoverIf is required intravelling to at accommodation from or that the location, stopover is exempt. also workplace. that is the required aperiod employee includes to that stay inalocation is distant not regular from the employee's This continuous and of distant exemption work" situations. accommodation covers "period of local The both definition but may requireheld locally to stay employees and team overnight networking for such reasons building. as may courses be Some daily travelling the reasonable case. be not is this distance beyond home, from need the employee's the work-related usually because conference arise for would accommodation While the meeting, need training or course overnight stay, any employer-provided is accommodation without exempt time limit. an upper from tax to attendWhen needs an employee awork-related conference meeting, that training or course requires at an least a home office. is workplaces those of and one workplaces two has The applywhen not the workplace exemption multiple employee does travelling without time distance) limit. an upper is exempt from tax, thatprovided accommodation they receive inrelation daily to at working areasonable adistant outside workplace (one may requiredAn employee be to at work When more employer- this than basis. an occurs, workplace on ongoing one workplace rule. herof Therefore, visit. is exempt under the the multiple cost offices at working her of those while accommodation When is Carmen away visiting the from offices Auckland, more she has than workplace for the ongoing one duration and employer Carmen's and arranges pays for her upto at accommodation last anearby aweek, hotel. her of management part as Typically, duties. offices month these of New Zealand. visits Carmen Each one visits these isCarmen cities executive chief inAuckland. across inseveral alarge The of group group based offices has companies of 8 Example Christchurch is exempt Therefore, underthe workplace rule. multiple the Christchurch is accommodation taxable. not travelling distance An from payment accommodation her inDunedin. home to cover her hotel when costs staying in Lucia inChristchurch, more When has than she works location. work ongoing one daily reasonable she is beyond is for Her three home inDunedin. Dunedin days aweek. inChristchurch one inChristchurchLucia She works offices, manages inDunedin. and one two days and in aweek two 7 Example 17 15 Any providedto accommodation by their such an employee employer is taxable. 14 This 7. is illustrated inExample Tax Information Bulletin

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OPERATIONAL STATEMENT 50. 49. Value accommodation where employee provides the physically employer What are the rules? valuation general 48. to tax? 2:What subject isPart the the of value accommodation Department Revenue Inland non-associated parties, on an arm's length basis, for the rental basis, the of an on arm's length accommodation. parties, non-associated The Commissioner broadly considers that market rental refers value to the at amount arrived by that two be would value. Where the accommodation that an of employer value physically provides employee is accommodation the market rental the nextstep is to is accommodation If taxable, determine the (often value value). referred to the taxable as Flowchart 2: Determining whether the accommodation is exempt whether the accommodation 2:Determining Flowchart Tax Information Bulletin

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OPERATIONAL STATEMENT 20 19 18 55. Rent by the employee paid 54. amount toAdjustments the taxable 53. 52. expenditure Value payment or allowance accommodation of accommodation for 51. Department Revenue Inland

provided by the New Zealand Force, Defence covered but this be will not in any inthis detail Statement. provides for calculating CE rules 1Dalso the market Section where accommodation of value CE 1E. is accommodation physically Section CE 1C. Section treatment considered their must be on facts. own the of services non-accommodation areFor –where clarity itemised separately services the non-accommodation of costs from the cost provided,the accommodation of tax illustrated in Example 9. illustrated inExample reduced by the amount be any of should value rentThe that taxable pays the for that employee accommodation. This is amount is determined: mayOnce the factors market result determined, the several before made taxable inadjustments been has value being the of received. accommodation part as received additional from services these benefit provider,the providedby accommodation the service the Commissioner takes apragmatic approach treat and would the provided when the recipient Where are is billed. out from separated not the the cost additional cost services of these of always, but itemised not are separately The sometimes, from additional the costaccess. services accommodation these of undertheaccommodation Tax Income wireless internet may for example, include, additional 2007.These services Act providers) to accommodation offer their of that within clients inaddition to fall the not definition other do services stay accommodation and short hotels, (such managed as apartments, providers services accommodation of Some from [54]. discussed reimbursement to the the market employee), is value the This amount paid. amount by the may varied adjustments be Where an allowance expenditure accommodation accommodation or isby the paid employer (whether directly by or employer-provided accommodation -Boarding Schools 2018). Revenue, (Inland with Commissioner's reference schools: boarding of to Statement employees CS18/01:Determining "market rental value" of Statement CS16/02:Determining "market rental value" ofemployer-provided accommodation 2016),and Revenue, (Inland For guidance estimating on the likely market rental employer-provided of value Commissioner's accommodation, see • • • • • rent the that of value received. accommodation pays he to from the his taxable employer is deducted the of value that accommodation week the $200per as MichaelThe receives taxable week, is inthis $500per example pay the rent to that the that on basis value, Michael pays the $200difference to his employer. an apartment Michael that finds but the likes, he weeklyrent week. His$500 per employer agrees to week. is $700per his employer agrees to package, pay his inAuckland costs accommodation Michael's of upto salary of avalue part As 9 Example (see from [67]). (see to their byMinisters religious ministers to valuation applies supplied accommodation bodies rule religion: of Aspecific have would inNew Zealand. if the lived employee at the average is rental posting median capped or anof overseas where for inthe accommodation value vicinity employer-funded of value part as providedto accommodation employees The accommodation: taxable Overseas Shared An accommodation: share adjustment from more or [58].) employees when is two accommodation. (See allowed for only. accommodation by the the employee of from premises [56].) used portion (See the provides will be value the apro-rated accommodation), that. adjustment The taxable may to made reflect be (for the by for the work the of employer Where that premises employee is use: work used or Business aportion [55].) from subtracted the marketbe (See value. to value determine the taxable paysRent rent an If employee by the paid employee: the on provided,the accommodation amount rent of should paid New Zealand (see from [60]). New Zealand (see disproportionately compared high with the that accommodation of value might in working if occupy an employee resident that inNew Zealand, recognises the market be can rental locations inoverseas accommodation of value 20 19 This cap, which is of significance to employees who remain who This to employees which is cap, significance tax of Tax Information Bulletin 18

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OPERATIONAL STATEMENT 21 62. 61. 60. –exception to the overseas rules general working to employees provided Accommodation 59. 58. value taxable of –apportionment Shared accommodation 57. 56. Work accommodation of use Department Revenue Inland

provision of the accommodation. an towards of allowance for amount or value or paid for determining the the taxable used The be New Zealand equivalent also can value purposes is the rental accommodation. This the of value 12. purposes overseas is illustrated inExample marketmedian rent the of for equivalent tax circumstances, New Zealand those accommodation. In the used value What is is received only relevant overseas the if rental than is accommodation the less of value the overseas average or livingif inNew Zealand, and the average market median or rental at values near or that equivalent area. work likelylikely the would for the working equivalent employer at location, occupy the accommodation be the person overseas to establishing theIn an of equivalent value consider New Zealand where property, would it is the necessary employee overseas accommodation provided. aNew Zealand–equivalent-based of for the the value allows use market rather value than the market the of value actual An exception to This the general exception valuation is overseas. rules working for provided to accommodation employees size). This 11. is bedroom on illustrated inExample based adifferent on the employees (for example, basis between or, the employees equally between The amount apportioned agree, may the if apportioned employer and employees be market the rental employees. -the value between issue is apportionment only of one Generally, share more or employees when two providedby accommodation their employer, amount is still the the taxable projects). it for personal using emails occasionally member for afamily checking or personal an office using 10.Anyillustrated non-work-related (such minor as inExample ignored, otherwise it if or is will be temporary, sporadic use and private the the of accommodation. This business use is between is determinedThe by apportioning deduction related. work must be purpose primary and its predominantly purposes for work to the meet mainly" or "wholly used test, but it must at be purposes for least work solely used to be need not does related to employment the (with employee's the employer providing the the of That premises accommodation). portion To basis. mainly" or "wholly purposes for work used to the of be needs accommodation qualify, part aclearly identifiable is value accordingly reducedapro-rata the on taxable purposes, for work the of providedis accommodation used part If received by Tana week. $160per will be and by George will therefore week, $240per be the of value accommodation employer that –the a60:40basis taxable split on the the of value will accommodation be TanaThe As market week. is rental $400per the of value property they than room agree abigger with has George, their Tana rooms. the the of two bigger and chooses manages first to pick his bedroom them to live in. and TanaGeorge for astart-up work for inWellington. property Their employer rents two-bedroom week a$400per 11 Example from the rentdeducted with paid, the result week. is value $450per that the taxable area is one-tenth the the of workspace accommodation, $50is As the of total floor aworkspace. as mainlyor used –it is wholly area and sporadic sleeping is for guests it ignored is as temporary an the occasional of spaceas The use to sleep. guest for the abed as is used bed the sofa guests, when house Miha has occasion, On bed. asofa has but it also workspace, to a make as aworkspace It as dental is impressions. usually used inthe property bedroom upone set Miha has week. Her employer provides adental assistant. her with as that accommodation Miha works amarket has rental $500a of 10 Example 21 Tax Information Bulletin

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OPERATIONAL STATEMENT Inland Revenue Department Revenue Inland 66. 65. 64. 63. Services website,Services which provides market rental statistics: www.tenancy.govt.nz/rent-bond-and-bills/ There are sources arange of available to help determine average market median the or Tenancy rental For example, values. This the marketor 14. median is used. illustrated rental be New Zealand inExample of can for the value whole Either the used. average anywhere valuation inNew Zealand, be aNew Zealand wide can performed be New Zealand can to determine used the New Zealand equivalent role be in accommodation. the If can employee's locations multiple inmore inNew Zealand, an average than location the one of performed be role inNew Zealand the can If employee's 13. illustrated inExample the that accommodation likely be be would they rather would to acouple as occupy four. than of afamily as This is Equally, living alone. them aperson their joined but not as occupy children, their if spouse the equivalent accommodation likely what on be they accommodation would totheir determined New Zealand equivalent based will accommodation be their remains while family overseas secondment on behind, four of but goes ahousehold has an if employee For example, their and children) ages(adults location, and inthe their overseas living requirements.household New Zealand property, establishing theIn comparable arelevant inthe members is employee's family of the number factor New Zealand ($26,000 per year) is the taxable value of the of value accommodation. year) isNew Zealand ($26,000per the taxable aresult, the amount As thatfor inReykjavik. accommodation the equivalent cost would her accommodation in year for Anahera children.$26,000 per and her two This than is less the amount she receives from her employer anywhere approximately inNew Zealand. This be would performed Anahera's be role inNew Zealand can because To calculate the New Zealand the equivalent, average is used, cost awhole inNew Zealand accommodation as of toReykjavik, year. the $50,000per of value Anahera receives her of secondment, children, for accommodation her and part her two her will join who in As differences this requires work intime zones, inReykjavik. her permanently to be based Iceland. to inReykjavik, Anahera to Due secondment for the work then company's atwo-year office secures new from anywhere inNew Zealand. employer agrees that performed be Anahera's can position employer for agreed her to from move Wellington to Katikati to trial remotely. working trial, asuccessful Following her inAuckland and Wellington. for acompany based developer Four asoftware months as Anahera ago, works her 14 Example year. per –$25,000 accommodation amount is the the of value Jakarta the taxable the she accommodation is receiving inJakarta, The cost the of equivalent apartment inWellington cost would $35,000ayear. this is value As more than the of value the receives Jo accommodation is the equivalent asmall to of apartment central close Wellington. aresult, the market As the only occupant. Therefore, she of will be value as asmall apartment only needs inJakarta Jo herself, her children adult while will remain inTawa. and maintain the behind house that by children Jo's they will go afamily decide to Jo are as Jakarta at so their and settled university value independence, central inTawa house Wellington inNew Zealand working and if live inafive-bedroom with her children. adult Theduration rent her of secondment. her employer pays is equivalent to $25,000ayear. normally in work would Jo for three by her employer to years and is Jakarta providedwith isJo seconded an apartment incentral for the Jakarta 13 Example year. $24,000per of value accommodation have had inWellington, aresult an on the As she the not is of value equivalent taxed inBrussels. accommodation The market receives the of value Zoe accommodation is therefore the cost the of that accommodation she would Wellington where an average $24,000. annual rental be would value apartment with likely her incentral partner be living inNew Zealand working andif would to inatwo-bedroom be The rent herof secondment. the employer pays is equivalent to $50,000ayear. incentral work would Zoe Wellington by her employer to at site work is its seconded Zoe for inBrussels three years and is for the providedwith duration aflat 12 Example Tax Information Bulletin

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OPERATIONAL STATEMENT 23 22 67. to ministers religion of bodies by religious provided Accommodation Department Revenue Inland 72. 71. This 15. is illustrated inExample 70. 69. 68.

Section CE 1E(2). Section reimbursement)allowances or the general valuation apply. rules an accommodation valuation to only rule applies physically provided by accommodation the (for example, This church. specific all cases In The value of accommodation supplied toThe ministers supplied accommodation of value religion of CE 1E. is determined undersection the year. the of theIf year, is accommodation provided for only part the calculations the of are value with reference to that of part their of work. part isprovided accommodation calculated with reference receives who to employees) the (or as accommodation the employee However, ministers religion adjustment no of simplybecause share is allowed accommodation. The the of value employer- Where: formula: The amount income arising of to aminister from providedto accommodation them is the calculated using following whether this requirement. to visits happen satisfy might visit whether of irrespective their Therefore, any home, inpractice. visits happen ministers to record need not do there as underlying long met aminister's as duties is will be an expectation duties pastoral that church some members The requirement that the minister's aminister's performing of an church-provided integral as part is accommodation used • • • A "minister aperson: as inthe Act religion" of is defined intoThis incorporated from the was 1April practice legislation 2015. with effect administrative the church-supplied at of accommodation value aminister's 10%of had previously practice capped stipend. $6,000 (being 10% of her 10%of annual stipend) ×(1–0.15)+0=$5,100. $6,000 (being The her of value received accommodation is therefore: theof received accommodation is nil. aresult,minister the "excess calculating of As the rental" where value and for the location for she the is purposes based. The the of value providedto accommodation Anareia year. is $16,000per This is commensurate with her duties as area) 15percent is about the of the total of value property. to floor on with meet visiting an office as TheAnareia the parishioners. of (based value large room one bedroom uses year, herof stipend $60,000per of the church inRuatoria. provides her house with inathree-bedroom accommodation Anareia with region. is Along an ordained parish her Cape priest for parish the Church. Anglican inthe East She serves 15 Example calculation. their The duties. amount than excessin which the they of of less perform rental zero be for cannot the purpose that accommodation of is commensurate reasonably with aminister as the duties the of and for person the location excess rental is the the difference received market accommodation's between rental and the value market rental value ministerone religion them of lives inthe equally accommodation, the between adjustment is apportioned the the more of (1-0.1)=0.9.If value adjustment than be would mainly or wholly accommodation purposes, for work the if minister the 10%of For example, uses relevant the mainly of or wholly accommodation purposes. for work part the of the total of value accommodation. Tofraction the minister the to for apportionment, eligible use needs be adjustment is to the the of value that accommodation work-related adecimal is as apportioned expressed use, their of income year for the duties aminister performance as remuneration is the 10%of remuneration that the minister receives organisation or for from the the religious society remuneration ×(1–adjustment) +excess rental their duties. performing of an integral as part is accommodation used whose duties arewhose related mainly to study, the practice, advancement or and teaching, religious of beliefs; advancement religion; of designation, aminister as the of areligious of denomination that community the or purpose charitable meets regardless their of position, or title or an office holds otherwise or iswho appointed, ordained, commissioned, 23 Tax Information Bulletin 22

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OPERATIONAL STATEMENT provide further informationprovide the of further kilometre the on use rates. - deductions and OS 19/04A:Commissioner's Statements statement onusingOperational akilometre rate business for running ofamotor vehicle The Tier Two rate is for running only. costs the Tier Use Two any of travel rate portion for the business over 14,000kms inayear. rates of The for the table 2021income year: and reduced interestpandemic) and maintenance costs. inoverall vehicle largely costs adecrease demand to to due (Covid-19 inresponse costs lower reduced fuel rates global reflect The applyfor motor the rates vehicle 2020/2021income expenditure out year for below business set The claims. tier one More information is available the on Revenue Inland website (search keywords "claiming www.ird.govt.nz/ vehicle expenses"). estimate for reimbursement expenditure of aprivate of for the incurred purposes. use motor by employees vehicle for business calculate areasonable by employers expenditure as amotor They of used vehicle. may claims use be for the also business accordanceIn with 12(4)the sDE Commissioner is required to to and publish kilometre set used rates These be rates. can rates of The for the table 2020/2021income year for motor vehicle expenditure claims. Kilometre vehiclesfor the of 2021income year rates use for the business rate. metre square OS 19/03:Square Statement metre rate the for dualOperational use ofpremises information provides the of further the on use for the months twelve to 2.5%and March 1.5%respectively. of an increase 2020and 2021,which showed utility information costs from sourced StatisticsSurvey New Zealand and the annual movement the of Consumers Price Index Economic 2021 income year (1April 2020 to the June 2019Household 31March 2021)is at set $44.75.The amount reflects the accordance 18AAof In Tax Income DB with Section 2007,the Commissioner Act that advises the square metre rate for the the dual use ofpremises 2021 CPI adjustment to Operational Statement OS 19/03:Square metre rate for Date issue: of 10June 2021 National Advisor, Technical Standards Tony Munt 74. 73. Department Revenue Inland Electric Petrol hybrid Petrol diesel or Vehicle type This exclusion does not applytoThis not aminister exclusion does religion of receives who astipend (and is therefore for their paid) service. order or are and who for their paid not service. inasociety occupation is service sole and orders religiousof whose societies providedto CW25provides for order an members exemption referred and lodging for board CW25.Section to insection to or noteIt that is "minister of areligious excludes important of amember the society definition religion" of specifically forThe calculating rules the ordinary an allowance of accommodation reimbursement value or apply. This applyto not exemption an allowance accommodation reimbursement or does received by aminister religion. of OS 19/04B:Commissioner's statement onusing akilometre rate employee for reimbursement ofamotor vehicle 79 cents 79 cents 79 cents 79 Tier rate One 9 cents 9 cents 16 cents 27 Tier Two rate Tax Information Bulletin

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OPERATIONAL STATEMENT Inland Revenue Department Tax Information Bulletin Vol 33 No 6 July 2021

LEGISLATION AND DETERMINATIONS This section of the TIB covers items such as recent tax legislation and depreciation determinations, livestock values and changes in FBT and GST interest rates.

National Average Market Values of Specified Livestock Determination 2021

Note to this determination This note does not form part of the national average market values of specified livestock determination 2021 (the determination) but is produced to aid Inland Revenue staff, taxpayers and their agents in their understanding of how the values contained in this determination are arrived at and how they should be used. Section EC 15 of the Income Tax Act 2007 (the Act) requires the Commissioner of Inland Revenue (the Commissioner) to make a determination declaring the national average market values (NAMV) for an income year for each class of specified livestock set out in Schedule 17 of the Act. The determination is published in May each year. These NAMVs are used by taxpayers that are in the business of livestock farming to value their livestock on hand, where the taxpayer has elected to use the herd scheme to value livestock in the income year. As the name of this determination suggests, NAMVs provide the national average market value for the specified livestock classes. As such they may not always reflect the market value of the livestock of a particular taxpayer, or even of a particular region. This

being so, the values are not intended to be used for any other purpose than that for which they are produced; valuing livestock AND DETERMINATIONS LEGISLATION of taxpayers who have elected to value their livestock under the herd scheme in the income year for which the determination relates. To ascertain the market value of the various classes of livestock the Commissioner contracts with experienced livestock valuers situated throughout the country1. Each valuer is asked to provide the market value of the various specified livestock classes located in a specified region. There is generally more than one valuer contracted for each region. The market valuations required are for "good quality on-farm animals (capital stock)" as at 30 April. From these values the CIR then calculates the national average market value for each livestock class. In the case of sheep, beef, dairy cattle and deer (red, wapiti and elk) classes a weighted average is used (based on total livestock numbers for a type of livestock in that region compared to the national herd numbers for that type of livestock2). Because of their comparatively low numbers, a straight average is used for the remaining livestock types (except "other deer"). The value of "other deer" is taken as the mid-point of the trophy and meat markets.

1 Thirty-eight valuations were obtained for the 2021 determination. 2 Numbers are based on data collated by Statistics New Zealand. 176 NATIONAL AVERAGE VALUES MARKET SPECIFIED OF LIVESTOCK 2020-2021 income year, are out inthe table. set following as EC the 15of Tax Income section of For the purposes 2007the national for the Act livestock, average market specified of values at the end the of 2020-2021income year. This determination EC the is 15of Tax interms Income made section of livestock hand on 2007and shall Act apply to specified This determination may cited "The as National be Average Market Livestock Determination, Values 2021". Specified of 2021 Determination Livestock National Average Values Market Specified of Department Revenue Inland Deer Cattle Dairy CattleBeef Type livestock of Sheep Breeding stags (non-breeding) stags and older two-year Rising stags one-year Rising Mixed-age hinds hinds two-year Rising hinds one-year Rising Breeding bulls three-yearRising steers and older and bulls steers two-year and bullsRising steers one-year Rising and bulls Mixed-age cows heifers two-year Rising heifers one-year Rising Breeding bulls three-yearRising steers and older and bulls steers two-year and bullsRising steers one-year Rising and bulls Mixed-age cows heifers two-year Rising heifers one-year Rising Breeding rams Mixed-age wethers ewes and older five-year Rising (risingMixed-age ewes three-year and four-year ewes) old Two-tooth ewes hoggets wether and Ram hoggets Ewe Red deer, wapiti, and elk, related crossbreeds: Friesian and related breeds, Jersey and other breeds: dairy breeds crosses:Beef and beef livestock of Class Tax Information Bulletin

Vol 6July 33No 2021 Value Head per Average Market 1873.00 1592.00 1077.00 1528.00 1291.00 2894.00 1391.00 1088.00 1138.00 420.00 212.00 349.00 327.00 174.00 762.00 413.00 707.00 716.00 911.00 563.00 323.00 129.00 153.00 174.00 191.00 119.00 123.00 $ 177

LEGISLATION AND DETERMINATIONS Inland RevenueInland Technical Services Legal Standards, Advisor National FalkRob Inland Revenue Department Revenue Inland Income Tax Act 15 2007:sEC References Legislative References This determination the by on me 26 signed was Pigs Goats Type livestock of Deer (continued) Deer

Growing pigs over 17 weeks of age of (baconers) overGrowing 17weeks pigs age of (porkers and 10to baconers) Growing 17weeks pigs Weaners age of (excluding than less sucklings) 10 weeks Breeding boars over year one Breeding sows than less age year of one Breeding sows (culls) goats Other dairy Breeding bucks over one yearDoes does one-year Rising Milking goats: (dairy) Breeding bucks (non-breeding)/wethersBucks over year one (non-breeding)/wethers bucks one-year Rising Mixed-age does does one-year Rising Other and fibre (Cashmere meatproducing goats orCashgora producing): Breeding bucks (non-breeding)/wethersBucks over year one (non-breeding)/wethers bucks one-year Rising Mixed-age does does one-year Rising Breeding stags (non-breeding) stags and older two-year Rising stags one-year Rising Mixed-age hinds hinds two-year Rising hinds one-year Rising Angora and angora crosses (mohair producing): livestock of Class Other breeds:

th day May of 2021. Tax Information Bulletin

Vol 6July 33No 2021 Value Head per Average Market 215.00 152.00 390.00 337.00 256.00 597.00 403.00 295.00 383.00 435.00 116.00 416.00 202.00 110.00 196.00 159.00 91.00 95.00 86.00 69.00 59.00 97.00 71.00 72.00 61.00 95.00 $ 178

LEGISLATION AND DETERMINATIONS 1. toapplies an attributing interest held by inaFIF New Zealand resident investors inanon-resident issuer where: This determination is information the of on issued basis providedto the Commissioner the before date this of determination and determination of Scope appropriate for the investor that holding investment the from excluded method. using to FDR be where thisOn aNew Zealand resident basis, Z-Share invests inthe NZDHedged the of Fund, Class Iconsider that it is the New Zealand-resident investor with areturn akin to denominated aNew Zealand dollar debtinvestment. the Commissioner to take into account whether the of arrangement the an investment whole inascertaining provides inaFIF New Zealand resident investor with areturn similarto denominated aNew Zealand dollar debtinvestment. It is appropriate for intention toThe is investments policy that applied be calculating the of not method income that should FIF FDR provide a Z-Share the applyif NZDHedged would the of Fund Class the shares of only was class issue. on the 46(10)(c)of Tax Income EX apply toSection not prevent dividend rate the of 2007does fair but method the ("FDR") Act use investors inthis with denominated class aNew Zealand dollar return the arrangements on financial held by the Fund. Foreign arrangements currency are hedging Z-Share within inplace the NZDHedged the of Fund Class provide which effectively Z-ShareThe NZDHedged the of Fund Class is ashare denominated class . inNew Zealand dollars share of thatnumber that of provide classes holders shares of class with an interest investments of held by the inthe Fund. pool interest fixed global of and The otherThe securities arrangements. Fund financial Fund issue on has a invests ina portfolio shares inthe Fund each year. New Zealand resident investors are required their of to investment apply the to rules inrespect FIF determine liability their in tax for New Zealand ("FIF") residentfund investors. The Fund is structured Investment amulti-class Managed as Scheme. Enhanced Currency Fund ("the Fund"), an Irish Investment Managed are Scheme, an attributing interest inaforeign investment Investments Accumulation inthe -Z-Shares NZDHedged Class Z-Share ("NZDHedged the of Colchester Class") Bond Global the of determination) part form not does (which Discussion 1994. Act the Commissioner Revenue Inland of to Technical of the position the 7of Tax undersection Specialist -Network, Administration This determination 91AAO(1)(b) the of Tax is undersection made Administration by delegated 1994.This been Act has power Reference to calculate foreign investment income from the fund interest. Enhanced Currency attributingBond of Fund is atype interest for which the investor dividend rate the may fair method use not Any investment by aNew Zealand resident investor Accumulation inthe Z-Shares NZDHedged Class the of Colchester Global Accumulation –ZShares) Class Fund NZDHedged Currency Enhanced Bond (The rate dividend method Colchester the Global fair use may interest attributing not of investment aperson inaforeign which for fund A type 2021/02 FDR Department Revenue Inland 3. 2. The non-resident issuer: on a highly effective basis. ahighlyon effective arrangements eliminating of by the undertaken resident non- exchange for the purpose rate risk for New Zealand investors The investment attributable to denominated the shares of assets New Zealand dollar class to are currency hedging subject arrangements financial international suchincome year) holds as interest fixed and securities; to Enhanced the Currency Colchester Bond Fund Global that predominantly more 80%or (i.e. by at value atime inthe Enhanced CurrencyBond Accumulation Fund shares of –ZShares, NZDHedged aclass Class that provides exposure solely The attributing interest consists denominated the of shares of New Zealand dollar class in the issued Colchester Global • • • Is operated with separate classes of shares. of Is with operated separate classes Is known at the date this of determination Enhanced the Currency Colchester as Bond Fund; Global and Is an Irish Investment Managed Scheme; Tax Information Bulletin

Vol 6July 33No 2021 179

LEGISLATION AND DETERMINATIONS Technical Specialist- Network Adamson Greg Dated this on 12th day May of 2021 income year. the before that date the of theincome determination year beginning determination chooses the for the person unless applies However, 91AAO(3B) the of Tax under section Administration and an 1994,this Act determination applyfor aperson not does This determination for the 2022income income year years. applies and subsequent Application Date the to method FDR calculateuse income from FIF the interest. An attributing interest to inaFIF which this attributing of determination is atype interest applies may not for which aperson Determination that"Non-resident" the means of Tax is Income aperson resident not inNew Zealand for the purposes 2007. Act "Foreign investment means fund" foreign investment YA under section fund the 1of Tax Income 2007;and Act "Financial arrangement" the EW 3of means Tax Income arrangement financial undersection 2007; Act "Fair dividend rate YA means method" dividend rate the fair under section method the 1of Tax Income 2007; Act thisIn determination the context unless requires: otherwise Interpretation Department Revenue Inland

Tax Information Bulletin

Vol 6July 33No 2021 180

LEGISLATION AND DETERMINATIONS Inland Revenue Department Tax Information Bulletin Vol 33 No 6 July 2021

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