There have been a number of tax changes ushered in recently with two relatively large tax bills passed into law. Below is a grab bag of some of the changes that may be relevant to you. If you are concerned that any of these changes impact on you, then please contact your client service manager at GRA. Withholding tax rates for contractors
Contractors who receive payments subject to withholding tax can now elect what rate the tax is withheld at. There is a minimum 10% rate, i.e. you can elect any rate from 10% upwards. You elect the relevant rate of withholding by completing an IR330C and giving it to the person paying you. Withholding tax rules for labour hire firms
If you contract to a labour hire firm or are a labour hire firm, then there are new withholding tax rules in place. Previously, payments by a labour hire firm to a contractor were not subject to withholding tax. Now they are subject to withholding tax with the proviso that the contractor can choose the rate as above. A labour hire firm is a firm whose main business is the provision of labour hire services. Foreign trust disclosure rules
There are new disclosure and annual filing rules for foreign trusts. Put simply, a foreign trust is a trust where there is no New Zealand tax resident settlor. Foreign trusts are not taxable in New Zealand on foreign sourced income. From now on, any new foreign trust needs to go through a more rigorous registration process with the IRD. This includes payment of a $270 registration fee and disclosure of the trust deed and certain details with regard to the trust. Existing foreign trusts need to complete this registration process by 30 June 2017. Further, all foreign trusts need to file annual disclosures with the IRD within six months of balance date, including copies of financial statements and details of settlements and distributions. LTC changes
There are a series of changes to the rules around LTCs. Perhaps most significantly is that the deduction limitation rules (i.e. loss limitation rules) have effectively been repealed – good news here. They still apply in limited circumstances where there is a partnership of several LTCs, but not beyond that. Any existing LTC that has had deductions denied due to the application of this rule can claim those deductions from the 2018 income year.
There are also more restrictive rules around the eligibility of companies to remain in the LTC regime if owned by a trust. In particular, if a trust that owns an LTC makes a distribution to a corporate beneficiary, then LTC status is lost.
Finally, the tax consequences of electing into the LTC regime are now more severe in that taxed retained earnings are subject to further tax if the relevant shareholder has a tax rate higher than the company tax rate of 28%.
Associated person rules
Associated person capital gains rules have been watered down. This is good news. Previously, if a company disposed of a capital asset for a gain to an associated party, there was a legacy issue in that the gain could eventually become taxable upon distribution to shareholders. These rules now apply on a far more restricted basis only where there are transactions between two companies with 85% commonality, both at the time of the transfer of the capital asset and also at the time of distribution of the capital gain. Another way to look at this is that there is now much more flexibility transferring capital assets within groups, particularly where a company is transferring to a non-company such as a trust or there is less than 85% commonality.
Motor vehicle expenses for close companies
A concession allowing motor vehicle expenses to be claimed based on business use percentages that was previously available only to sole traders and partnerships is now being extended to companies that are owned by five or fewer natural persons. In other words, a motor vehicle acquired or first applied for business use post 1 April 2017 by a so-called ‘close company’ is no longer subject to fringe benefit tax if the company keeps a log book, establishes a business use percentage and claims expenses based on that.
Provisional tax changes. There is a raft of adjustments to provisional tax rules, including the easing of use of money interest charges so that they only apply from your final provisional tax payment if you are using the standard uplift method, increasing the ‘safe harbour’ threshold from use of money interest from $50,000 to $60,000 residual income tax and extending that to non-individual taxpayers, and from 2018 allowing for provisional tax to be paid on an accounting income basis.
Given how many changes there are, we only offer the briefest of summaries above. If it sounds like any of these changes are applicable to you or if you have questions, please contact us at GRA.
Also, have a look at the Tax Changes and Property Update webinar I ran with Mark Honeybone and Kris Pedersen.