Revenue Minister Stuart Nash has introduced the Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill to Parliament.
The omnibus bill contains taxation amendments to five statutes. It confirms annual rates of income tax for the 2019/20 tax year, requires the collection of GST on low-value goods (at or below $1,000) supplied by non-resident suppliers to New Zealand consumers, makes changes to the ring-fencing of residential property rental losses, makes changes to the administration of student loans and a number of other matters.
The provisions relating to GST on imported goods will come into force on 1 October 2019. GST would not apply to supplies of low-value goods made to New Zealand GST-registered businesses. Overseas suppliers will be required to register and return GST if their taxable supplies to New Zealand exceed $60,000 in a 12-month period - which is the existing domestic registration threshold.
An operator of an electronic marketplace will be required to register and return GST on supplies of low-value goods made through the marketplace.
The bill also makes a number of other amendments to the Goods and Services Tax Act 1985.
Ring-fencing rental losses
Under current New Zealand tax settings, tax is applied on a person’s net income. Deductions that relate to particular activities or investments are not generally ring-fenced. This means there is generally no restriction on deductions in respect of a loss-making activity or investment reducing tax on income from other sources (although there are some exceptions to this general treatment).
The bill proposes to ring-fence deductions in respect of residential rental properties to the extent the deductions exceed income from the properties. This means the excess deductions cannot be used to reduce tax on other income. The proposed rules would apply from the start of the 2019–20 income year.
The amendments would apply to “residential land”, using the definition of “residential land” that already exists for the bright-line test. The definition includes bare land, but does not include farmland or land used predominantly as business premises.
The bill proposes four amendments to improve the administration of student loans, Working for Families and child support, along with a technical amendment to the day count tests for student loans to align the law with the policy intent.
Pre-1990 forest land emissions units
The Bill proposes an amendment to address an issue with the tax treatment of pre-1990 forest land emissions units. The issue arises when the units are securitised through a sale and compulsory buy back transaction. The proposed amendment will treat the transaction as a loan, including elements that are an excluded financial arrangement, thereby better reflecting the economic substance of the transaction.
Tax records in te reo Māori
The Bill proposes amendments to the Tax Administration Act 1994 and the Goods and Services Tax Act 1985 to allow tax records to be held in te reo Māori. The amendments codify existing Inland Revenue administrative practices regarding taxpayers holding tax records in te reo Māori.
PAYE and employee share schemes
The Bill proposes to remove a non-tax obstacle relating to financial reporting requirements for employers electing to account for PAYE on benefits provided to employees under an employee share scheme. This potential obstacle relates to the costs an employer would need to incur to comply with financial reporting requirements relating to the provision of benefits under an employee share scheme.
Cash distribution from co-operative companies
The Bill proposes a remedial amendment to the non-deductible cash distribution rule to clarify that a cash distribution of mutual profits in a co-operative company need not be made to all shareholders in order for imputation credits to be attached to the distribution, provided such a distribution is permitted by the company’s constitution.
An “anti-imputation streaming” rule in the Income Tax Act 2007 requires imputation credits to be attached to a dividend at the same ratio as those attached to the first dividend in a year. This rule prevents imputation credits from being attached at different ratios for multiple dividends over a year, as this could result in imputation credits being “streamed” to shareholders that are best able to use them.
Imputation credit streaming is a concern because it is counter to the objectives of ensuring that income derived through companies is taxed at the tax rates of the shareholders in the company.
To avoid such concerns, the Bill proposes that the non-deductible cash distribution rule be subject to the anti-imputation streaming rule.
Loss of earnings insurance
The Bill proposes an amendment to ensure that claims paid out under a loss of earnings insurance policy are taxable to the recipient in all circumstances, consistent with the policy intent. The proposed amendment ensures that if a policy holder assigns a loss of earnings insurance policy to another person, the income component of a claim received by the assignee will be taxable. A savings provision is also proposed to protect the historic tax positions of taxpayers that have relied on the existing law.
Trust beneficiaries as settlors
The Bill proposes an amendment to the definition of “settlor” in the Income Tax Act 2007 to ensure that beneficiaries of a trust do not become settlors when either—
the trust pays a market interest rate, measured by the prescribed fringe benefit tax rate of interest, to the beneficiary to compensate them for the fact they have been allocated money which they have not received yet; or
the amount retained in the current account with the trust at the end of the income year is no greater than $25,000.