Tax Talk | Pros and cons in proposed Taxation Bill

The Minister of Revenue recently introduced the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill (No 2) into Parliament.

Time to read: 8 mins

The Bill contains a range of proposed improvements and maintenance measures to ensure the smooth functioning of New Zealand’s tax system. There are a lot of tax areas covered and we discuss the key changes below.

Platform economy information reporting

If enacted, the Bill will require operators of digital platforms to collect and report information about active sellers on their platforms. Relevant activities would include the rental of immoveable property (think Airbnb), personal services (think Uber and UberEats), the sale of goods (think Trade Me) and vehicle rentals.

Information that would need to be collected would include the seller’s:

  • Name
  • Date of birth
  • Address
  • Tax file number (IRD), including the jurisdiction that issued the tax file number

This information, including transactional data, will need to be reported by 31 January each year in relation to the prior calendar year.

The legislation is part of OECD standards and so while many of the relevant platforms are based overseas, the overseas platform operators will be requesting the same information from New Zealand sellers. The information will be shared between jurisdictions. This means overseas tax authorities will give Inland Revenue full information of income received by Uber drivers, Airbnb operators and those who sell items on eBay. The information will be provided directly from New Zealand platforms such as Trade Me.

Inland Revenue doesn’t plan to use this information to pre-populate income tax returns in the short term, but it is likely that the relevant legislation will change in coming years to enable this.

The legislation would come into force on 1 January 2024. The year ended 31 December 2024 would be the first year relevant information would need to be disclosed, with information exchange occurring in early 2025.

Collecting GST on Uber, Ola, Airbnb and similar accommodation and transportation services

If enacted, the Bill would require operators of electronic marketplaces to collect GST on supplies of “listed services” from 1 April 2024, including the following:

  • Taxable accommodation including short-stays
  • Ride sharing and food and beverage delivery services
  • Other services closely connected with these services when provided through an electronic marketplace

Large commercial enterprises providing taxable accommodation services (defined as 2,000 or more nights of accommodation available through the electronic marketplace in a 12-month period) can opt out of these rules and handle their own GST obligations.

Unlike the remote services and low-value goods rules, these rules will also apply to supplies of accommodation and transportation services made to GST-registered persons.

An 8.5% credit would be available to marketplace operators and must be passed on to sellers. This is designed to approximate to the input tax credits the sellers would be entitled to if they were GST registered. Tight integrity measures are planned to ensure no double-dipping by GST-registered sellers, including a 150% shortfall penalty.

Build-to-rent exemption from interest limitation

If enacted, the Bill would exempt build-to-rent assets from the interest limitation rule on residential rentals, with application from 1 October 2021 when those rules were introduced. This would allow investors to continue to deduct interest on loans relating to build-to-rent assets.

For a dwelling to be considered build-to-rent, the following conditions would need to be met from 1 July 2023, or when the dwelling is built, in perpetuity:

  • There must be at least 20 dwellings on the site
  • Each dwelling must be used, available for use, or being prepared or restored for use as a dwelling occupied under a residential tenancy to which the Residential Tenancies Act applies
  • Tenants would need the option of a 10-year tenancy, with the tenant having the ability to give 56 days’ notice of termination (this condition is the reason owners have until 1 July 2023 to meet the requirements, as this is unlikely to be part of existing tenancies that meet the other requirements)
  • Every tenancy agreement must include a personalisation policy

If at any point the dwelling does not meet the above requirements, it will cease to be build-to-rent and can never regain that classification.

For new build land, the above criteria will need to apply from 1 July 2023 or when the dwelling is built. If the above criteria are not met, then only the 20-year new build exemption would apply.

Fringe benefit tax exemption for public transport

FBT is currently payable when an employer pays for an employee’s public transport costs, unless it relates to a temporary workplace meeting certain tight restrictions. If enacted, the Bill would exempt from FBT all public transport fares that are paid or subsidised by an employer mainly for the purpose of their employees travelling between their home and workplace. This includes train, bus, ferry, tram and cable car services.

Employees paying for taxis, shuttles and ride share services (including e-scooters and bike sharing) would still be subject to FBT, which could give rise to issues in some areas where shared access services are included as part of the public transport system (e.g. AT Local in Auckland or MyWay in Hastings).

Payment would need to be made directly by the employer to the public transport provider, with direct reimbursement of costs to the employee continuing to be subject to PAYE. This seems needlessly restrictive, so we will wait to see if the Bill retains this distinction.

GST apportionment and adjustment rules

GST apportionment and adjustment rules have been the subject of considerable frustration over the years and, following consultation earlier this year, the Bill proposes several adjustments intended to make the rules more sensible.

The changes are:

  • Allowing GST-registered businesses to elect to treat mainly private or exempt use assets, such as dwellings, as if they only had private or exempt use
  • Introduce a simple principal purpose test where the following must be met:
  • Acquired for $10,000 or less, and
  • Acquired principally for business purposes

The GST-registered business can claim a full GST input tax deduction where this test is met and does not need to apply the apportionment rules.

The amendments have several effective dates, primarily 1 April 2023.

Cross-border workers reform

If enacted, the Bill will affect cross-border operations in four ways:

  • More flexibility regarding PAYE, FBT and ESCT. Currently, if an employee inadvertently breaches PAYE thresholds (e.g., the 183-day threshold), this requires reopening several months of historic PAYE and FBT returns with a cost in penalties and interest. This new framework would provide a 60-day safe harbour period so that if a cross-border employee inadvertently breaches these thresholds, the employer can rectify within 60 days without incurring penalties and interest.
  • Tighter integrity measures will be introduced for employees of non-resident employers. Legislative amendments will make it clear that the employee will be subject to PAYE, FBT and ESCT in this situation. Until now, the legislation has vaguely indicated an employee of a non-resident employer is subject to PAYE, but there has been no obligation for FBT or ESCT, providing a loophole.
  • Non-resident contractors’ tax (NRCT) rules are being tidied up. NRCT is notorious for having a low level of compliance, and much of this is due to ignorance on the part of both the payer as well as the recipient. New rules would require specific reporting by payers to non-resident contractors, similar to reporting rules for payers of interest and dividends. In addition, NRCT exemption certificates would be able to have retroactive effect in some circumstances, the NRCT bond provision would be repealed, and an associated New Zealand entity could be used to establish good compliance history for a non-resident contractor.
  • Employer contributions to foreign superannuation schemes will no longer be subject to FBT and will instead be subject to PAYE.

Dual resident companies

As the result of an Australian High Court judgement in 2017, New Zealand subsidiaries of Australian companies, especially where those subsidiaries had Australian resident directors, were at risk of being considered dual tax residents and subject to some harsh consequences. While the previous Australian government announced in October 2020 that it would enact retrospective legislation to limit the effects of the 2017 court judgement, the legislation has not yet been introduced in Australia, let alone enacted.

As a result of this delay, the New Zealand government is proposing through the Bill to remove some of the harsh consequences of dual residency. If enacted, the Bill would enable dual resident companies to:

  • Be a part of a tax consolidated group
  • Offset losses with other companies in the same group
  • Have an imputation account if the dual resident company is tax resident in both New Zealand and Australia

These rules would apply from 15 March 2017, which was the date of the Australian High Court judgement.

The full taxation Bill can be found here.

Comment

While this Bill had a false start, when it originally included sweeping changes to GST on financial services (including KiwiSaver fees), its contents are not surprising and were signalled earlier this year in myriad discussion documents. The expanded disclosure requirements of the platform economy were expected, as revenue authorities globally grapple with one of the few areas where it is still relatively easy to hide income.

The GST changes go some way to levelling the playing field (in relation to GST on Ubers, Airbnbs and others), and removing a source of frustration (in relation to the apportionment and adjustment rules). The dual resident company changes are a sign that Inland Revenue has lost patience with the Australian government for dragging the chain, and are removing some punitive rules that have been superseded by Base Erosion and Profit Shifting (BEPS) changes.

The “cross-border workers” changes are a combination of integrity measures and accounting for our more globalised world. It is just a pity NRCT will not be abolished in total as it will still be an invisible tax, even after these changes, waiting to trip up the unwary

Please contact your local Baker Tilly Staples Rodway advisor if you have any queries on the Bill or wish to lodge a submission to Select Committee. A due date for submissions has not been provided yet.

DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.

Contact a taxation expert

Sign up to our newsletter

Thanks for signing up!

Our website uses cookies to help understand and improve your experience. Please let us know if that’s okay by you.

Cookies help us understand how you use our website, so we can serve up the right information here and in our other marketing.