The Annual Tax Bill recently received its first reading in New Zealand Parliament and is now open for public consultation until 9 October 2024.

The Bill includes a tax relief toolbox for future emergency events and has significant tax remedials that focus on issues relating to GST, partnerships, international tax, and the recently amended trustee tax rate and land rules which were passed in March this year.

It is a tentative start towards reducing taxpayer compliance costs, but clearly more is needed.

A sample of the proposed changes

• Taxpayer favourable amendments which make it easier to transfer overseas pension and superannuation funds to a New Zealand KiwiSaver scheme.
• Allowance for retrospective registration for approved issue levy (AIL) from 1 April 2025 where the borrower failed to register the security due to an oversight. Currently the rules are rigid, and borrowers are stuck with deducting withholding tax at a higher rate from interest payments if AIL registration not made in time. The withholding tax cost is often passed on to the borrower under the lending arrangements.
• Making it easier for persons under 16 to be enrolled in KiwiSaver. Under the proposed changes only one guardian would be required to contract directly with a KiwiSaver provider in the name of their guardian. 
• GST platform economy –the proposed amendment would provide certainty for the timing of GST on the supply of taxable accommodation through an electronic marketplace. The marketplace or listing intermediary may at their option choose to account for GST in line with their existing (normal) time of supply rules or in the taxable period when the guest checked out of the accommodation. Under the latter option they can also chose to account for GST in an earlier taxable period.
• GST remedial to correct an anomaly in the permanent change of use rule for assets acquired before 1 April 2023. An earlier amendment was deficient and did not work as intended to enable a one-off GST adjustment where there was a permanent change in use of an asset.
• Legislative fixes to the recent trustee tax rate provisions – proposed amendment to clarify that income subject to the minor or corporate beneficiary rules is subject to a 39% tax rate regardless of whether the trust is eligible for an exclusion from the 39% trustee rate (this reflects what was always signaled and intended). A related amendment is also required to ensure that beneficiary income derived by a minor from a disabled beneficiary trust is not subject to the minor beneficiary rule (and the higher 39% tax rate).
• Inherited land and the bright-line test – the proposed amendment would correct a drafting error that unintentionally removed the exclusion from the recently revised bright-line test for disposals of land by an executor, administrator or beneficiary of an estate to a third party.
• Rollover relief for those in civil unions and de facto relations – correcting an oversight. The proposed amendment would ensure that rollover relief from the bright-line test applies equally to all in relationships. Rollover relief currently only applies in the context of marriage. The proposed change is retrospective.
• Taxation grinch – not all remedials taxpayer friendly or welcome – proposal to repeal income spreading rule where land disposed to the Crown. Currently compensation received from the Crown including for compulsory acquisitions can on application by the taxpayer be spread over four years. CA ANZ does not support the repeal of this spreading provision. While many property owners may not be subject to tax on the sale of their property this does not of itself justify removal of the provision. Individual taxpayers who are subject to tax shouldn't have to pay more simply because they receive income from a substantial asset in a single year, it’s not fair. The one-off receipt will likely result in a larger portion being taxed at a higher marginal tax rate when included on top of existing income. CA ANZ does not deem this an appropriate change – either in relation to a compulsory acquisition or an agreed buy out where the property is no longer viable/habitable following an adverse event or managed retreat.
• Practical and welcome remedials for limited partnerships – The proposed amendments would allow limited partnerships to apply for RWT exempt status in the name of the partnership and for non-resident partners to access the approved issuer levy (AIL) regime despite there being a NZ tax resident partner in the limited partnership. These measures will make a significant difference in terms of the attractiveness of these vehicles which are currently underutilised.
• Foreign investment fund (FIF) cost method eligibility – the proposed amendment would clarify that eligibility to use this method is not impacted by the valuation skills and experience of the investor. Focusing on the attributes of the investor is subjective at best and would lead to inconsistent outcomes. Eligibility to use the FIF income cost method is dependent only on whether a market value for the investment is readily available (not always easy in itself to establish). The amendment is not intended to change how this method is currently being used in practice.

The 2024 Tax Bill is primarily focused on “cleaning house” – ensuring that the relevant tax legislation works as intended with a mix of remedials and amendments to correct legislative errors and omissions or to clarify the law from IR’s perspective. It also introduces a key policy measure to cater for future (and likely more frequent) emergency events.

Intwined throughout the Bill are the first green shoots toward reducing taxpayer compliance costs. Ongoing and additional reforms will be necessary to significantly lower the tax compliance burden for businesses and individuals in New Zealand. While many remedials are taxpayer friendly, the proposal to repeal the income spreading rule where land is disposed of to the Crown, will not be viewed in this light. 

Public submissions are now open, offering taxpayers a chance to participate in and make sure their voice is heard on tax reforms that are important to them. CA ANZ will be making a comprehensive submission on the Bill.