EY Tax Monthly News Update – November 2023

EY Tax News Update: November 2023

Welcome to the final edition of EY’s tax news for 2023. Here you can stay on top of key tax developments for the month of November. You can also find details of upcoming events, along with links to EY insights.

We will be back next year to keep you updated on what has been happening in the tax world. In the meantime, we wish you a safe and happy holiday season.

November in brief

Inland Revenue updates

• Current draft consultation item:
  • When is a subdivision project a “taxable activity” for GST purposes
• New finalised guidance, including:
  • Deductibility of holding costs for land
  • Technical Decision Summaries on omitted income and shortfall penalties
• Insights from trust disclosures

Government and political updates

• New Government, new direction
• Tax Bills reinstated
• Economic update

International updates

• Double Tax Agreement developments
• Australia – corporate tax residency

EY Webcasts

• EY Global Webcast – Global economic outlook: Aiming for an economic soft landing
• EY Global Webcast – How can blockchain fast-track business growth in Asia-Pacific?

EY Insights

• Tax and Law Guides – various matters covering over 150 jurisdictions
• OECD and country officials discuss BEPS 2.0 Pillars One and Two and other OECD tax work
• How artificial intelligence can augment a people-centered workforce
• EY Future Consumer Index: when talk turns into action, be set for change
• The latest on BEPS and Beyond, November 2023 edition

Current draft consultation items

New finalised guidance

Inland Revenue guidance items finalised during November 2023 include:

Insights from trust disclosures

From the 2022 income tax year, trustees have been required to disclose additional information under new domestic trust disclosure rules. These rules were introduced to support Inland Revenue in assessing compliance with the 39% top personal tax rate and to assist them in understanding and monitoring the use of trusts.

Inland Revenue has analysed and summarised the data collected, and provided some key insights, in a recently released report. Based on the report, there are several areas which Inland Revenue wishes to consider further, including:

• Inappropriate use of the minor beneficiary rule
• Failure to include trust distributions when calculating entitlements to Working for Families and other social policy claims - see also recent comments made on Inland Revenue’s website here
• Non-active trusts deriving income above the relevant non-active thresholds
• Crediting beneficiary current accounts in cases where there may be no real allocation of funds
• Disproportionally high levels of untaxed capital gains

Inland Revenue has also highlighted some common errors when making trust disclosures and will use the insights they have gained in their compliance programme.

The report confirms that a full post-implementation review of the disclosure rules is likely to commence in 2024. This review is intended to determine whether changes can be made to improve and simplify future disclosures. In the meantime, Inland Revenue is considering whether certain improvements can be made to help ease compliance in time for 2024 trust tax returns.

Further information is available on Inland Revenue’s website here.

New Government, new direction

The ACT and New Zealand First Parties have signed their respective Coalition Agreements with the National Party, resulting in a full three-party coalition Government.

The Agreements mean that many of the proposals in National’s tax plan will proceed, albeit with some changes as a result of coalition negotiations. Broadly, key points to note include:

• Proposed Foreign Buyer Tax will not proceed – as a result of coalition negotiations with New Zealand First
• Rate at which interest deductibility for rental properties will be restored will increase – as a result of coalition negotiations with ACT
• Government will consider proposal to share a portion of GST collected on new residential builds with councils in a bid to assist councils to fund needed infrastructure
• The Parties will work to replace fuel excise taxes with electronic road user charging for all vehicles, starting with electric vehicles

The remaining proposals in National’s tax plan are expected to progress (although details are still to be confirmed), including:

• Personal income tax cuts
• Removal of commercial building depreciation
• Reducing the bright-line test period back to two years
• Closing a “gambling tax loophole” to ensure GST rules apply to offshore online gambling operators as intended

With a Foreign Buyer Tax off the cards, the obvious question is how the new Government plans to fund the promised tax cuts. Prime Minister Christopher Luxon has indicated that the tax cuts will be funded by relying on the “buffer” in National’s tax plan. The Government also expects to make additional savings, including by:

• Deferring certain planned reforms – for example, cancelling National’s plan to repeal the “App Tax” leaving the GST rules that apply to certain services provided through digital platforms as they currently apply
• Increasing returns from the existing tax base through increased tax audits – per the Coalition Agreement with New Zealand First, the new Government will “…increase funding for IRD tax audits to urgently expand the IRD tax audit capacity, minimise taxation losses due to insufficient IRD oversight, and to ensure greater integrity and fairness in our tax system.”
• Additional savings from broader public sector reforms

While tax does not feature heavily in National’s 100-day plan, it is likely that the new Government will need to act quickly to deliver on the expected tax changes. Keep an eye out for further developments in the tax space now that Parliament is back in action. The mini budget is expected to be released on 20 December along with the Treasury’s Half Year Economic and Fiscal Update and may provide a further insight into the Government’s immediate priories.

Tax Bills reinstated

All unfinished business of the previous Parliament has been reinstated after lapsing ahead of the election, including the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill (“Multinational Tax Bill”) and the Digital Services Tax Bill (“DST Bill”).

As a reminder:

• The Multinational Tax Bill includes draft legislation for the implementation of Pillar Two of the OECD BEPS rules in New Zealand, as well as the proposed increase in the trustee tax rate from 33% to 39% for the 2024–25 and later income years (beginning 1 April 2024 for most trusts). You can read more on the reinstatement of the Pillar Two aspects in our EY Global Tax News Alert here.
• The DST Bill would implement a DST to tax certain gross revenues of large multinational entities with highly digitalised business models that earn income from New Zealand. Further details on the proposed DST can be found in a previous EY Tax Monthly News Update here, and you can find out more on the reinstatement of the DST Bill in our EY Global Tax News Alert here.

The Bills have been reinstated as is, with the Government choosing for now to pick up the unfinished to-do list of the previous Parliament in full. The opportunity will be given to new Ministers to then reconsider whether to progress the legislation or defer further work. We will keep you posted as the Bills progress further.

Economic update

The Treasury has published the Interim Financial Statements of the Government of New Zealand for the three months ended 30 September 2023. Key points include:

• Core Crown tax revenue was $28.5 billion, which was $0.3 billion (1.1%) above forecast. This was largely due to higher than forecast corporate tax revenue and resident withholding tax.
• Operating balance before gains and losses (OBEGAL) was a deficit of $2.5 billion, being $0.2 billion less than the forecast deficit.
• Gross debt was $149.8 billion (37.8% of GDP), which was $2.4 billion higher than forecast.

For more information, see the Treasury website here and accompanying media statement here.

Double Tax Agreement developments

Double Tax Agreement (DTA) news includes:

• New Zealand and Austria have signed the Second Protocol updating the existing DTA and First Protocol between the two countries. Further information can be found on Inland Revenue’s website here.
• New Zealand and the Slovak Republic have signed a DTA, which may help New Zealand maximise the benefits of its Free Trade Agreement with the European Union. Refer to Inland Revenue’s website here.

The above-mentioned items will enter into force after the relevant countries have completed the necessary domestic procedures, which in New Zealand’s case will require an Order in Council.

Australia – corporate tax residency

Following on from an earlier EY Tax News Update (see here), the Australian Taxation Office has now finalised its updated Practical Compliance Guideline on the central management and control test of corporate tax residency.

The Guideline confirms that the transitional compliance approach in this area ended on 30 June 2023. It also includes a Risk Assessment Framework to assist foreign-incorporated companies in managing their compliance risk rating for the central management and control test.

Companies with a presence in Australia may need to act - get in touch with your usual EY tax advisor to discuss any potential implications for your business.

EY Global Webcast – Global economic outlook: Aiming for an economic soft landing register here on ey.com

EY Global Webcast – How can blockchain fast-track business growth in Asia-Pacific? register here on ey.com to watch on-demand

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

• Tax and Law Guides – browse our in-depth guides covering corporate tax, indirect tax, personal taxes, transfer pricing and law matters in more than 150 jurisdictions
• OECD and country officials discuss BEPS 2.0 Pillars One and Two and other OECD tax work
• How artificial intelligence can augment a people-centered workforce
• EY Future Consumer Index: when talk turns into action, be set for change
• The Latest on BEPS and Beyond, November 2023 edition

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