- International developments include the OECD’s ‘unified approach’
- We expect more policy and work in the small business and start-up space
- Inland Revenue’s business transformation – release 4 will also be rolled out in the first half of the year
International discussions focused on dividing tax revenue between countries, and a minimum tax rate, are progressing at the OECD.
The OECD Secretariat’s ‘unified approach’ proposal was reported back in January with the support of the Inclusive Framework. It looks like the key players on the international stage are now committed to a multilateral solution following the recent agreement to suspend US digital services tax payments to France until the end of 2020.
It will be mid-year before technical design details are released for political approval. At this stage, the proposals may apply only to large multinational entities in two categories – automated digital services, and consumer-facing businesses. In addition, several tests, thresholds and carve-outs are proposed.
The reforms grew from the OECD’s BEPS project and an initial desire to improve taxation on digital services, but the scope of the reform is now much wider. Whatever measure is adopted by the OECD will shape the international tax landscape for the foreseeable future and will replace the traditional ‘bricks and mortar’ model of permanent establishment and tax allocation.
Last year, New Zealand consulted on a digital services tax as an interim or alternative measure until the OECD reached an international solution. CA ANZ firmly opposes such a tax as the risks of breaching our international trade obligations or retaliatory tariffs outweigh any possible tax revenue. CA ANZ will closely monitor the OECD developments throughout the year.
Finally, ‘Brexit’ was confirmed by the European Parliament on 30 January, with the United Kingdom leaving the bloc the following day. Trade negotiations are expected to begin in earnest in March, so watch this space.
On the home front
Closer to home, we expect more policy and work in the small business and start-up space. A review of feasibility expenditure rules started late last year and could encourage innovation and growth if appropriately reformed. A review of the shareholder loss continuity rules is also expected this year which, again, could encourage businesses to seek investors. It’s likely that these proposals will be included in a tax bill.
We can also expect to see a tax bill in February or March. This is likely to include the feasibility expenditure and loss continuity proposals, based on the Minister’s announcements in September.
The next election will be held on 19 September, and the House will rise on 6 August. For those in the tax policy space, this may mean a tight timeframe for proposals within a tax bill to be passed, and policy proposals prioritised carefully before August.
Being an election year, there is bound to be plenty of debate in the tax space. Environmental Taxation was an area the Tax Working Group recommended the Government strengthened, as well as supporting the review of the Waste Disposal Levy and the Emissions Trading Scheme. The working group presented a model for taxing negative externalities, so there may be discussion around how environmental taxes could be used further.
It wouldn’t be an election year without a discussion on a change to tax brackets for individual income tax. This is another area the Tax Working Group commented on and its recommendations apply to all party proposals in this space – you must first clearly decide what challenge you are trying to address by shifting the tax rates or tax brackets. Individuals’ income tax makes up almost half of New Zealand’s tax revenue, so any proposals will have wide implications for our tax base.
While reforms in the small business space, and election promises, will be of interest to members and your clients this year, Inland Revenue’s business transformation – release 4 will also be rolled out in the first half of the year. Inland Revenue has made changes to the system based on member feedback in 2019. In particular, it has changed the direction of correspondence and automatic assessments for individuals with a tax agent for the 2020 year. More information on these changes can be found via the link below.
However, release 4 also includes changes to the administration of Kiwisaver and Student Loans, more frequent investment income reporting, and more. Inland Revenue will run webinars and workshops and we strongly encourage members to attend these to get an idea of what effect the changes will have.
We’d love to hear from you
It was great to hear from so many of our members in 2019 and we’d love to hear from you in 2020. The NZ Tax Team is an advocacy team. We comment on tax policy and its implementation free from self-interest and sectorial bias using a “what’s best for New Zealand” basis. If you are experiencing an issue where tax law or the tax system may not be working as intended, please let us know. You can email the tax team directly at TaxTeamNZ@charteredaccountantsanz.com or post your concern in the NZ Tax Group on MyCA.
Our team will be presenting our annual NZ Tax Roadshow at 21 locations around the country in April and May. We look forward to seeing you there and registrations are now open. This is a great opportunity to stay on top of current tax changes and policy developments affecting you, your business and your clients.
Inland Revenue presentation on changes to their START system
Business Transformation: Progress to date and what’s next 22 November 2019 Presented by: Tania Sellers and Corey SinclairRead more
Business Transformation – release 4 workshops
Inland Revenue is running free webinars to keep you informed of upcoming changes.Find out more
NZ Tax Roadshow 2020
In 3 hours, we cover the key tax changes and policy developments affecting you, your business and your clients.Register now