EY Tax News Update: Edition 7, 2024

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8 minute read 06 Sep 2024

EY Tax News Update: Edition 7, 2024

Welcome to the latest edition of EY’s tax news. This edition covers key tax developments for July and August 2024. You can also find details of upcoming EY Global webcasts, along with links to EY insights.

In brief

Inland Revenue updates

Current draft consultation items:
- GST treatment of fees paid in relation to managed funds
- Income tax – short-stay accommodation
- Section 17B Notices
- The Commissioner of Inland Revenue’s search powers
- Forestry and the Emissions Trading Scheme
- Income tax – share investments
- Look-through companies and disposal of residential land under bright-line test
New finalised guidance, including:
- Commissioner’s Statement on withholding obligations for transfer pricing arrangements
- Requests to change a balance date
- Extension of time applications from customers without tax agents
- Various items relating to employee share schemes
- Whether supplies of standing timber and other unsevered crops wholly or partly consist of land for the GST compulsory zero-rating rules
- Determination relating to amount of tax for a payment of a main benefit
- Technical Decision Summaries on: GST - payment for participation in religious practice; look-through company election; deductibility of bonus payments
- Case Summary: High Court finds remediation work on rental property capital in nature
Other items recently consulted on:
- Identifying the relevant item of property for depreciation purposes
- Proposed modification to GST adjustment rules
Inland Revenue audit activity and compliance focus
Long-term insights briefing – consultation on scope
Double Tax Agreement update

Government and political updates

New Tax Bill proposes generic emergency response tax relief measures and many other changes
New Zealand – the place where talent does not want to live?
Decision on Uber drivers’ employment status may have wide ranging impacts
Economic update

International updates

Australia: BEPS Pillar Two; strengthening the foreign resident capital gains tax regime; public country-by-country reporting

EY Global Webcasts

BEPS 2.0: What to expect from ongoing Pillar One and Two developments
How digitalization reshapes supply chains and operating models
How to navigate cybersecurity in the AI world

EY Insights

Tax Guides – various matters covering over 150 jurisdictions
How can New Zealand get the best return on social investment?
UK General Election 2024 results in first Labour Government in 14 years
Canada sets entry-into-force date for Digital Services Tax Act
G20 Finance Ministers affirm commitment to BEPS 2.0 and enhanced global tax cooperation
OECD releases sixth edition of Corporate Tax Statistics publication
The Latest on BEPS and Beyond, July 2024 edition

Inland Revenue updates

Current draft consultation items


Consultation item type	Description	Public consultation closes
Draft Interpretation Statement PUB00486: GST treatment of fees paid in relation to managed funds	Considers the GST treatment of fees received by a manager of a managed fund and fees received by third-party suppliers (including investment managers) for supplies made to the manager of a managed fund.	25 October
Draft Questions We’ve Been Asked PUB00487: Income tax – short-stay accommodation	Five Draft Questions We’ve Been Asked update a series of current items on income tax and short-stay accommodation. An accompanying reading guide summarises the changes.	25 October
Draft Operational Statement ED0260: Section 17B Notices	Outlines procedures the Commissioner will generally follow when issuing notices under section 17B of the Tax Administration Act 1994. By way of background, under section 17B the Commissioner can require the provision of information or documents considered necessary or relevant to the administration or enforcement of the tax legislation or a function of the Commissioner. It is most often used in the context of an investigation of a taxpayer’s tax position.	18 October
Draft Operational Statement ED0258: The Commissioner of Inland Revenue’s search powers	Outlines how the Commissioner will exercise various search powers and aims to provide information on what to expect when the Commissioner uses these powers, and the Commissioner's expectations of taxpayers.	18 October
Draft Interpretation Statement PUB00452: Income tax and GST - forestry activities registered in the Emissions Trading Scheme	Considers tax consequences for forestry activities registered in the Emissions Trading Scheme, including in relation to receiving, selling and surrendering emissions units (NZUs). Also covers the tax treatment of specific transactions involving NZUs. Accompanied by a fact sheet.	3 October
Draft Interpretation Statement PUB00454: Income tax – share investments	Provides guidance for individuals who invest in shares. Includes information on when an investor will have a tax liability for dividends, share sales and attributing interests in foreign investment funds (FIFs). Accompanying fact sheets are intended to help investors determine whether the FIF rules apply, and whether they have a tax liability for dividends or taxable share sales.	24 September
Draft Interpretation Statement PUB00455: Look-through companies and disposal of residential land under the bright-line test	Outlines how the bright-line rules (including the main home exclusion and rollover relief) apply in various situations involving residential land and transfers involving a look-through company. Once finalised, it will apply only to transfers on or after 1 July 2024. Accompanied by a fact sheet.	23 September

New finalised guidance

Inland Revenue guidance items finalised since our last update include:

Finalised guidance name

Description

Commissioner’s Statement CS 24/02: Withholding obligations arising in relation to transfer pricing arrangements

Sets out the Commissioner’s position and operational approach with respect to the withholding obligations that may arise in relation to transfer pricing arrangements.

Also confirms how the transfer pricing rules interact with the dividend rules when determining the withholding obligations that arise for payments made under a transfer pricing arrangement.

Standard Practice Statement SPS 24/01: Requests to change a balance date

Explains how to apply for a change of balance date and how the Commissioner will use their discretion to approve a change of balance date.

Standard Practice Statement SPS 24/02: Extension of time applications from customers without tax agents

Sets out certain practices the Commissioner will apply when considering applications for an extension of time to file an income tax return from customers without a tax agent.

Various items relating to employee share schemes (ESS)

- Commissioner’s Statement CS 24/01: Determining the “market value” of shares that an employee receives under an ESS

- Interpretation Statement IS 24/05: Employer obligations for ESS benefits paid in cash

- Interpretation Statement IS 24/06: PAYE – How an employer funds the tax cost on an ESS benefit

- Interpretation Statement IS 24/07: Deductions for parties to ESS

Question We’ve Been Asked QB 24/05: Do supplies of standing timber and other unsevered crops wholly or partly consist of land for the compulsory zero-rating rules?

Considers whether supplies of standing timber and other unsevered crops wholly or partly consist of land for the purposes of the GST compulsory zero-rating rules. Provides further guidance on the meaning of “land” and supplements two earlier guidance items.

Determination DET 24/03 under section RD 11(3) of the Income Tax Act 2007 of the amount of tax for a payment of a main benefit

Sets the PAYE tax rates that apply to main benefits paid by the Ministry of Social Development.

Technical Decision Summary TDS 24/15: GST – payment for participation in religious practice

Summarises a decision of the Tax Counsel Office in relation to whether a taxpayer was liable for GST on payments received for participation in religious practices.

Technical Decision Summary TDS 24/16: Look-through company election

Summarises a decision of the Tax Counsel Office in relation to a private ruling regarding an arrangement involving a company electing to be a look-through company and the liquidation of a wholly owned subsidiary.

Technical Decision Summary TDS 24/17: Deductibility of bonus payments

Summarises a decision of the Tax Counsel Office in relation to a private ruling application regarding the deductibility of bonus payments and whether the issue of shares to fund bonuses are income.

Case Summary CSUM 24/05: High Court finds remediation work on rental property capital in nature

Summarises the decision of Lawrence v Commissioner [2024] NZHC 905, in which the High Court found in favour of the Commissioner by agreeing that remediation work on a rental property was capital in nature.

Other items recently consulted on

Other items recently consulted on by Inland Revenue include:


Consultation item type	Description
Draft Interpretation Statement PUB00274: Income tax – identifying the relevant item of property for depreciation purposes	Provides general guidance on how to identify the relevant item of property for tax depreciation purposes. It is important to identify the relevant item to ensure it is depreciable and to determine the applicable depreciation method and rate. In some cases, it may be unclear whether an item is a standalone item or part of another item of property. Accompanied by a fact sheet which aims to summarise the key points.
Draft Order in Council: Proposed modification to GST adjustment rules	Relates to fixing an unintended legislative error with respect to changes made to the GST adjustment rules in 2023. The error prevents some taxpayers who acquired an asset before 1 April 2023 from using the simplified one step adjustment calculation when there was a permanent change of use for that asset (e.g., from non-taxable to taxable) on or after 1 April 2023. Retrospective remedial amendments to address this issue are included in a current tax bill. However, to enable Inland Revenue to process GST returns for affected taxpayers in the interim, the Minister of Revenue is considering recommending an Order in Council (OIC) to modify the application of the law. This change would be made under section 6D of the Tax Administration Act 1994, which allows modifications to Inland Revenue Acts by way of OIC in certain circumstances. This is the first time the section has been used, and it is positive to see the section being invoked to address an unintended legislative error.

Inland Revenue audit activity and compliance focus

Budget 2024 allocated $116m over the next four years to support Inland Revenue in collecting debt and improving tax compliance. Inland Revenue has outlined how it will be using the $29m allocated for tax compliance in the 2024/25 year.

Expect to see increased audit activity and a focus on areas such as trust compliance, GST integrity, the retail and construction sectors, multinationals, corporate restructures and cryptocurrency. There will also be a focus on debt collection, including in relation to overseas based student loans and the Small Business Cashflow Loan Scheme. Projections from Inland Revenue indicate that the increased compliance activity is expected to see a return of $8 for every $1 spent. Details are available in Inland Revenue’s media releases here and here, along with a Beehive release here.

While not specifically mentioned in the recent media releases, we expect other likely review focus areas may include tax governance, employee share schemes, property speculators, transfer pricing, software development costs, payment service providers and the recently enacted sharing economy disclosures and GST changes. There may also be a focus on any sudden changes to trust or business distributions or structures, in response to the increases in the trustee and top personal income tax rates.

Further information on compliance focus areas for multinational enterprises will be included in Inland Revenue’s forthcoming Multinational Enterprises Compliance Focus Document, expected to be released in early October – watch this space.

We have already seen an increase in compliance activity across the past year, following a hiatus driven largely by the pandemic. If you would like to discuss what you can to do to prepare for increased compliance activity, please get in touch with your usual EY tax advisor.

Long-term insights briefing – consultation on scope

Inland Revenue is seeking feedback on the scope of its 2025 long-term insights briefing (LTIB), with submissions due by 4 October 2024.

Background

Inland Revenue, like other government departments, must produce a LTIB once every three years. LTIBs do not reflect current government policy, nor do they seek to identify immediate actions or make recommendations to current ministers. Instead, the aim is to promote public discussion on key policy choices with a longer-term focus.

Inland Revenue’s LTIBs are useful in that they highlight Officials’ thinking regarding tax system settings and may provide an indication of what policy advice may be given in the future. For example, do Officials think New Zealand needs a capital gains tax or an increased rate of GST? What are the benefits of more extensive taxation of wealth?

Current LTIB scoping document

The current scoping document sets the scene and topic for the broader discussion that Officials plan to canvass in the 2025 LTIB. It includes discussion on long-term fiscal pressures and current tensions in New Zealand’s tax system, including the potential impacts of:

New Zealand’s ageing population
Climate change and biodiversity loss
Technology – including AI

With the potential impacts of these and other factors in mind, the document notes there is a risk that revenue may need to be higher in the future to meet future expenditure. Inland Revenue is therefore proposing that its 2025 LTIB will consider how to maintain a stable tax system while ensuring the system also has flexibility to adapt to changing revenue needs over time, including discussion around pros and cons of alternative income tax regimes and new tax bases.

The scoping document can be found on Inland Revenue’s website here. Following consultation on the scope of the 2025 LTIB, the draft LTIB itself will also be released for public consultation.

Double Tax Agreement update

A new Double Tax Agreement (DTA) with the Slovak Republic has been ratified, in addition to an amendment to the current DTA with Austria. Refer to Inland Revenue’s Tax Policy website here for details. Information on when these developments will apply from in New Zealand can be found here for Austria and will be available here for the Slovak Republic.

Government and political updates

New Tax Bill proposes generic emergency response tax relief measures and many other changes

The Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Bill was introduced into Parliament on 26 August 2024.

The headline item is proposed standardised tax relief measures that can be “switched on” during future emergency events without the need to pass primary legislation under urgency. Given the increasing incidence of emergency events such as flooding, these amendments should provide faster tax relief and greater certainty for taxpayers in times of crisis.

A wide array of other changes are also proposed, including amendments:

Adopting the OECD'scrypto-asset reporting framework
Allowing retrospective registration of securities for the 2% approved issuer levy withholding rate, provided certain criteria are met
Limiting the Portfolio Investment Entity eligibility criteria from 1 April 2025
Making several GST remedial changes
Changing certain rules for limited partnerships
Extending the due date for taxpayers claiming the R&D tax incentive under the General Approval method
Addressing two issues affecting the transfer of overseas pension and superannuation funds to New Zealand
Increasing certain thresholds relating to exempt employee share schemes
Several other changes and remedial amendments

The Bill has passed its first reading in Parliament and has been referred to the Finance and Expenditure Select Committee, which has called for public submissions on the Bill by 9 October 2024. The Bill is expected to be enacted by 1 April 2025, although the proposals are subject to change during the Parliamentary process.

For further information, refer to our EY Tax Update here and EY Global Tax News Alert here.

New Zealand – the place where talent does not want to live?

A recent New Zealand Institute of Economic Research (NZIER) paper[i] looks at New Zealand’s immigration and tax policies and considers why few entrepreneurial migrants arrive and stay in New Zealand.

There is a focus on New Zealand’s international tax regime and, in particular, the FIF rules which are seen as imposing “a tax burden that does not compensate for the many other advantages that New Zealand offers”. The paper considers the FIF rules in need of urgent reform.

You can find the paper on the NZIER website here.

Decision on Uber drivers’ employment status may have wide ranging impacts

In the recent decision of Rasier Operations BV v E Tū Inc [2024] NZCA 403, the Court of Appeal found four New Zealand Uber drivers to be employees – potentially having much broader implications for the other 6,000 drivers who may bring similar claims.

While Uber may be granted leave to appeal and despite the Government’s current plans to prevent independent contractors from challenging their employment law status through the courts, the decision may have wider implications for many organisations using independent contractors. Areas impacted may include employment taxes, reward, and organisation design/structure issues.

If you would like to discuss how the decision may potentially impact your business, please reach out to your usual EY tax advisor.

Economic update

Treasury has published the Interim Financial Statements of the Government for the eleven months ended 31 May 2024. Key figures include:

Tax revenue of $111.1 billion, which was 1.4% above forecast – reflecting higher than expected tax revenue from portfolio investment entities and resident withholding tax on dividends due to an uplift in dividend payments
Operating balance before gains and losses deficit of $7.7 billion ($1 billion smaller than forecast)

Refer to the Treasury media release here for more information.

International updates

Australia

BEPS Pillar Two

In July, the Australian Government introduced legislation into Parliament proposing to implement Australia's adoption of the OECD/G20 Pillar Two solution, including:

A 15% global minimum tax by imposing top-up tax under an Income Inclusion Rule, applying to fiscal years starting from 1 January 2024
An Undertaxed Profits Rule, applying to fiscal years starting from 1 January 2025
A Domestic Minimum Tax, applying to fiscal years starting from 1 January 2024
Consequential amendments facilitating administration of the top-up tax, including the preparation of three new returns for filing in Australia for in-scope multinational groups

The introduction of the Bills represents a significant step forward in Australia's implementation of Pillar Two. Australian-based and global groups with a presence in Australia should continue to progress their Pillar Two impact assessments, modelling and BEPS software implementation projects. Further information is available in an EY Global Tax News Alert here.

Strengthening the foreign resident capital gains tax regime

The Australian Treasury released a consultation paper concerning strengthening the foreign resident capital gains tax regime, reflecting proposals announced in the 2024-25 Australian Federal Budget.

The measure comprises three complementary elements intended to ensure that Australia can tax foreign residents on direct and indirect disposals of assets with a close economic connection to Australian land and natural resources. The amendments are proposed to apply to capital gains tax events commencing on or after 1 July 2025. Refer to the Australian Treasury web page here.

Public country-by-country reporting update

The Senate Economics Legislation Committee (SELC) recommended that Parliament pass a Bill that includes public country-by-country reporting (PCbCR) measures. The SELC recommended that the Bill should be passed as introduced. The Bill is currently before the Senate and subject to debate.

Australia's PCbCR regime will be the most comprehensive PCbCR regime globally and additional work will be required by covered groups to comply compared to disclosures for confidential CbCR and under the European Union PCbCR directive. Significant administrative penalties may apply for late lodgement and criminal penalties may apply for non-compliance in some circumstances.

For more information, refer to the EY Global Tax News Alert here.

EY Global Webcasts

BEPS 2.0: What to expect from ongoing Pillar One and Two developments – register here

How digitalization reshapes supply chains and operating models – register here

How to navigate cybersecurity in the AI world – register here to watch on demand

EY Insights

Refer to the below guides, thought leadership articles and regular newsletters available on ey.com:

¹NZIER. 2024. The place where talent does not want to live. A report for the American Chamber of Commerce in New Zealand, the Auckland Business Chamber, the Edmund Hillary Fellowship and the NZUS Council.