EY Tax Monthly News Update – December 2023 and January 2024

EY Tax News Update: December 2023 and January 2024

Welcome to the first edition of EY’s tax news for the year. Here you can stay on top of key tax developments for December 2023 – January 2024. You can also find details of upcoming events, along with links to EY insights.

December and January in brief

Inland Revenue updates

• Current draft consultation items:
  • Charities – business income exemption
  • Tax depreciation rate for horticulture LED grow light systems
  • Tax depreciation rate for metal (scrap) recovery plant
    
    
• New finalised guidance, including:
  • When gifts are assessable income
  • Foreign investment fund calculation methods in cases of non-compliance
  • Forfeited deposits from cancelled land sale agreements
  • Deductibility of expenditure – renting to flatmates
  • Binding Ruling relating to WorkRide Limited
  • Technical Decision Summaries on interest free loan and dividends; deductibility of retention payments
  • Participating jurisdictions for the CRS applied standard
    
    
• Website updates relating to:
  • Diverting personal services income
  • Employee Share Scheme reporting education and compliance programme
  • Income reporting rules for online marketplace operators

Government and political updates

• Mini-budget provides insights for year ahead
• Recently repealed tax legislation
• Economic update

International updates

• Australia: updated draft taxation ruling on software royalties may have wide-ranging impact; other updates
• BEPS 2.0

EY Global Webcasts

• BEPS 2.0 and Pillar Two implementation developments
• What to expect from global financial services in 2024 – Asia-Pacific

EY Insights

• Tax Guides – various matters covering over 150 jurisdictions
• How do you drive transfer pricing certainty in uncertain times?
• UK Government announces adoption of Carbon Border Adjustment Mechanism
• The latest on BEPS and Beyond, December 2023 edition
• The latest on BEPS and Beyond, January 2024 edition

Current draft consultation items

New finalised guidance

Key Inland Revenue guidance items finalised during December and January include:

Inland Revenue has published several updates on its website, including:

• A reminder to taxpayers of its Revenue Alert on diverting personal services income (RA 21/01) which was issued ahead of the introduction of the top 39% personal income tax rate. The website notes that Inland Revenue has started contacting taxpayers who appear to be diverting their income and benefiting from the different tax rate.
  
  
• Announcement of an education and compliance programme focused on Employee Share Scheme reporting. See here for details.
  
  
• Web guidance on new income reporting rules for online marketplace operators is available here.

Mini-budget provides insights for year ahead

The Government’s “Mini-budget” was released on 20 December 2023, providing some limited insights into the Government’s fiscal plans for the coming year and confirming many of the Government’s earlier announcements. Key points include:

• Legislation for personal income tax cuts is expected to be introduced at the same time as the 2024 Budget, with the exact details still to be confirmed. Finance Minister Nicola Willis noted that “[w]ork is continuing to uphold the commitment in the ACT-National Coalition Agreement to consider the concepts of ACT’s income tax policy as a pathway to delivering National’s promised tax relief, subject to no earner being worse off than they would have been under National’s plan”.
  
  
• Confirmation of the removal of commercial building depreciation, which is unsurprising given that the change is expected to raise an additional $2.311 billion over the forecast period. Necessary law changes are expected to be added into the current Multinational Tax Bill and are likely to apply from the 2024/25 income year.
  
  
• Confirmation that the bright-line test will be reduced to 2 years, effective from 1 July 2024. Again, the necessary law changes are expected to be added into the current Multinational Tax Bill.
  
  
• While the Government is committed to a full restoration of interest deductions for residential property with deductibility to be phased back in, we can expect the “details of the phasing of this commitment to be the subject of an announcement in the New Year.”
  
  
• Further work is still ongoing on the proposal to tax online casino gambling operations and to step up Inland Revenue’s audit activities.

We will keep you updated as these matters progress – keep an eye out for future EY Tax News Updates.

Recently repealed tax legislation

Recent tax-related legislative repeals include:

• Taxation Principles Reporting Act 2023 – this Act included a set of “generally accepted tax principles” and required the Commissioner of Inland Revenue to prepare an annual report on how the tax system was tracking against those principles. The National Party opposed this legislation when it was introduced so it is perhaps unsurprising that it has been repealed by the new Government. For more information, see Inland Revenue’s website here.
  
  
• “Ute tax” (Clean Car Discount Scheme) – repealed for all vehicles registered after 31 December 2023. Refer to the Beehive release here.

Economic update

Treasury released the Half Year Economic and Fiscal Update (HYEFU) at the same time as the Government’s “Mini-budget” on 20 December 2023 – see the Treasury website here. Broadly, the HYEFU shows:

• Economic activity remains slow - as high interest rates are expected to persist and drive a sustained period of slow economic growth.
  
  
• Persistence in domestic inflation - meaning interest rates can be expected to remain high for some time.
  
  
• Strong net migration and the ongoing tourism recovery - are expected to provide some offsetting stimulus to parts of the economy.
  
  
• Business conditions expected to “remain challenging” - due to “increasing business costs, subdued consumer demand, and soft export prices” which are expected to weigh on profitability and business investment.

Treasury has also recently published the Interim Financial Statements of the Government for the five months ended 30 November 2023. Key figures include tax revenue of $49.1 billion (1.1% above forecast) and the operating balance before gains and losses deficit of $2.8 billion ($1.1 billion smaller than forecast). For more information, see the Treasury media release here.

Australia

Updated draft taxation ruling on software royalties may have wide-ranging impact

The Australian Taxation Office (ATO) is consulting on an updated draft view on when payments under a software arrangement constitute royalties for the purpose of non-resident royalty withholding tax in Australia. The Draft Ruling takes the view that the use of, or the right to use, intellectual property rights will give rise to a royalty.

The ATO takes a broad view of what constitutes a royalty, potentially significantly increasing the number and types of arrangements that will constitute a royalty if the ruling is finalised in its current form (as we expect to be largely the case). There are likely to be implications for New Zealand headquartered entities with Australian subsidiaries where payments are being made into New Zealand in relation to intellectual property rights. It also naturally calls into question whether we might see Inland Revenue consider a similar approach to software royalties in New Zealand.

Further details are available in an EY Global Tax News Alert here. If you think you may be impacted or would like to know more, please get in touch with your usual EY tax advisor.

Other updates

Other tax news from Australia includes:

• Thin capitalisation changes and new subsidiary disclosure rules - December 2023 update: refer to the EY Global Tax News Alert here.
  
  
• Australian Federal Court finds embedded royalty in arm's-length contract: see the EY Global Tax News Alert here.
  
  
• Australian Tax Office finalises compliance guidelines on intangibles arrangements: see the EY Global Tax News Alert here.

BEPS 2.0

In late December, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) released:

• A third tranche of Administrative Guidance on the Pillar Two Global Anti-Base Erosion Rules – addressing various technical issues and providing new rules regarding the application of the Transitional Country-by-Country Reporting Safe Harbour.
  
  
• An updated timeline for Pillar One – reflecting a commitment to finalising the Multilateral Convention for Amount A by the end of March 2024 with the aim of having a signing ceremony by the end of June 2024. Read more in the EY Global Tax News Alert here.

BEPS 2.0 and Pillar Two implementation developments register here on ey.com to watch on-demand

What to expect from global financial services in 2024 – 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 Guides – browse our in-depth guides covering corporate tax, indirect tax, personal taxes, transfer pricing and other tax matters in more than 150 jurisdictions
  
• How do you drive transfer pricing certainty in uncertain times?
• UK Government announces adoption of Carbon Border Adjustment Mechanism
• The Latest on BEPS and Beyond, December 2023 edition
• The Latest on BEPS and Beyond, January 2024 edition

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