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Tax Talk | November 2017

Welcome to Baker Tilly Staples Rodway Tax Talk November 2017

In this edition we discuss:

FBT and motor vehicles provided by small companies 
FBT - Vehicles taken home for security purposes 
More international tax change looming
New broom means tax change

FBT and motor vehicles provided by small companies 

A new simplified tax regime is now available for motor vehicles provided to employees of close companies. Instead of paying fringe benefit tax (FBT), these companies can manage their motor vehicle expenditure in a similar way to sole traders and partnerships.

This new voluntary election option applies when:

  • The company is a close company; that is the company has five or fewer natural person shareholders whose total voting interests in the company is greater than 50%; and
  • The company provides no fringe benefits other than motor vehicle fringe benefits which are provided to shareholder employees; and
  • The company does not provide more than two motor vehicles that are fringe benefits.

Instead of registering for and paying FBT, the company can elect that a deduction for motor vehicle expenditure is denied to the extent that it relates to a shareholder-employee’s private use. The private expenditure can be calculated using actual records, a logbook or in accordance with Inland Revenue’s mileage rates.

This new election option can be especially beneficial where motor vehicles are provided to shareholders employees and the percentage of business use is high. In these circumstances, the FBT rules can result in an “overtaxing” of the fringe benefit and it can be beneficial to elect out of the FBT regime.

The election can be made for motor vehicles acquired or first used for business purposes from the start of the 2017/18 income year.

The notice of election must be made to the Commissioner in the year in which the company acquires the motor vehicle or first starts using the motor vehicle for business use. This treatment will continue to apply until the close company ceases to use the motor vehicle for business use or disposes of it.

Talk to your local Baker Tilly Staples Rodway tax advisor if you require any assistance or additional information.

FBT personal use

FBT - Vehicles taken home for security purposes

Does FBT apply when an employee takes a company car home for security purposes?

As noted in the September issue of Tax Talk, Inland Revenue recently released Interpretation Statement IS 17/07 – Fringe Benefit Tax – Motor Vehicles. In that statement Inland Revenue confirm their view that, as a stand-alone factor, taking a vehicle home for storage or security purposes is not enough to stop the vehicle being subject to FBT.

Inland Revenue are of the view that the vehicle is available for private use when it is stored at the employee’s home. This applies even if the employer asks the employee to store or keep the vehicle at the employee’s home for security reasons.

Inland Revenue’s published view appears to be a response to a widely held misconception  concerning sign-written and other vehicles taken home by employees for storage or security related reasons. While ‘work related’ vehicles as defined could be exempt in these cases, vehicles that do not meet the ‘work related’ vehicle definition would not be. Please contact your Baker Tilly Staples Rodway advisor if you are interested in having an FBT Review to confirm the treatment of motor vehicles.

More international tax change looming

On 14 August the Government released a summary of its final decisions on measures to tackle base erosion and profit shifting (BEPS). While some further consultation is inevitable following the change in government, the 1 July 2018 start date for some of the initiatives is coming up.

international tax changes

The final measures announced (subject to possible consultation) include:

Restricted transfer pricing rule for interest 

The overall objective is that the cost of borrowing for a New Zealand subsidiary from a foreign parent will be expected to be in line with the foreign parent’s cost of borrowing.In short, the interest charged to the subsidiary will assume that the parent will support the borrower in case of a default and any unusual loan terms and features will be disregarded, including a higher interest rate on unsecured borrowing.

Permanent establishment avoidance rule

An anti-avoidance rule will apply when a non-resident who has an “in-substance” permanent establishment in New Zealand arranges their affairs to avoid having a PE as defined.

Where as part of an avoidance arrangement, a member of a group carries on in New Zealand the business of a non-resident, the non-resident will be deemed to be carrying on that business for the purposes of the New Zealand source rules.

If anything, the new government can be expected to implement these and other international tax initiatives sooner rather than later.

New Broom means tax change 

The cupboard door is barely open and there is speculation (no pun intended) that the following tax changes are on the way (mini-budget?):

  • The current two-year-bright-line test applying to sales of residential property is expected to become the new five-year-bright-line test.
  • The ability to offset rental losses against other income may be progressively phased out over a five year period.

These potential measures would have an immediate and further effect on the economics of residential investments. Other measures are likely – watch this space.

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.

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