Tax Bill gives greater clarity to tax rules

An omnibus tax bill introduced today by Revenue Minister Todd McClay proposes changes to bring greater clarity to the tax rules and make them easier for businesses and other taxpayers to understand and comply with.

Mr McClay said the principal measures proposed in the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill are the result of earlier consultation with businesses and other taxpayers, and are aimed at fine-tuning the tax system so that it remains fit for purpose.

“A well-targeted, responsive and efficient tax system is an essential part of the Government’s broader economic aspirations for New Zealand.  The measures in this Bill support that goal,” says Mr McClay.

As I announced last week, the Bill introduces proposed changes to clarify the tax treatment of allowances and other reimbursement payments paid by employers to their employees, and employer-provided accommodation.

The Bill also contains measures to deal with distortions arising from the current ‘black hole’ tax treatment of certain items of expenditure. Under the proposed rules, businesses will no longer have to lodge a patent or resource consent application before they can receive a deduction for expenditure incurred on an aborted or unsuccessful application.

“There are also new rules to clarify the tax treatment of agreements for the sale and purchase of property and services and the GST treatment of immigration and other services. Rules that are relatively easy for people to understand and apply will help to minimise compliance and administration costs for everyone,” says Mr McClay.

In addition, the Bill makes changes to New Zealand’s international tax rules. The first of these provides that when the inter-governmental agreement with the United States in relation to its Foreign Account Tax Compliance Act is finalised, New Zealand financial institutions will have an appropriate domestic law framework to follow. 

The second group of changes are intended to strengthen the thin capitalisation rules which limit how much debt foreign investors are able to place in New Zealand, and the interest deductions that can be taken. 

“The bill proposes to extend the inbound thin capitalisation rules to cover non-residents acting together when investing in New Zealand.  The rules currently apply only when a single non-resident controls the investment. These changes are an important part of continued efforts to maintain the integrity of New Zealand’s domestic tax rules governing the activities of i nternational businesses here”, says Mr McClay

The Bill contains proposals reforming the income tax treatment of land-related lease payments to protect the tax base and provide certainty and consistency.  Following consultation, the Bill proposes to tax lease transfer payments that are substitutable for taxable lease surrender and lease premium payments.  This is a more targeted approach than that suggested in an officials’ issues paper released in April which involved making all lease transfer payments taxable. 

Following consultation earlier this year, the Bill also sets out new tax rules for charities which are removed from the register of charitable entities.

“The proposals are intended to clarify the law so that deregistered charities have a greater level of certainty about the tax consequences of deregistration. The new rules also ensure that donors who have claimed tax relief on donations made to charities which were later deregistered would not generally see this tax relief reversed. Donors who have made bona fide donations in good faith can have a greater level of certainty about the tax treatment of their donation,” says Mr McClay.

Other changes in the Bill, such as clarifications to the GST rules, and introducing a tax exemption for some community housing providers, will make it easier for businesses and taxpayers more generally to understand their obligations. 

Finally, the Bill sets the annual rates for income tax for the 2014–15 tax year, and makes minor changes to the child support and Working for Families rules to ensure they work as intended.

“I expect the proposals in this Bill to make a real difference for businesses and taxpayers, as they contribute to an efficient tax administration, one that delivers the services to people that they need to enable them to manage their tax affairs.  That’s something the Government will be increasingly focusing on as Inland Revenue’s programme of business transformation gathers momentum,” says Mr McClay. 

More information on the bill is available on Inland Revenue’s tax policy website, www.taxpolicy.ird.govt.nz