Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill
The annual tax rates and remedial matters Bill was re-introduced to Parliament on 8 September 2022.
It is the same as the annual tax rates and remedial matters Bill introduced last week, but without the proposal to standardise the application of GST to fees and services of managed fund providers.
The Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill (No2) will be referred to a select committee for consideration and submissions and will be passed by 31 March 2023.
This is an annual Bill that confirms the taxation rates for the coming year and tidies up tax legislation.
The Bill contains more than 190 provisions changing the tax law spread over 9 main measures and a range of remedial amendments.
The major changes which affect our clients are:
Non-active Trusts
The Bill clarifies and widens the qualifying criteria for non-active trusts. The changes, once enacted, will apply retroactively for the 2022 and later income years.
It is not necessary for a non-active trust without an IRD number to apply for one simply to be able to file the declaration that it is non-active. The thresholds, which income and expenditure must be under to qualify as non-active, will be increased as follows:
Reasonable administration fees (e.g., bank fees, etc.) are to be increased from NZD 200 to NZD 1,000; and
The level of income that can be earned by the trust will be extended from bank interest of NZD 200 to up to NZD 1,000 of “reportable income,” i.e., income from which tax has been withheld as if the trust were a natural person earning this income. For most trusts, this includes interest and dividends subject to resident withholding tax (RWT) as well as attributed portfolio investment entity (PIE) income.
If a trust owns a dwelling, insurance rates and other expenditure incidental to the occupation of the dwelling that is incurred by the beneficiaries are not taken into account in determining whether a trust is non-active. Interest incurred by the beneficiaries can be included as well.
Testamentary trusts with small amounts of income are not required to file a tax return. This rule applies to a testamentary trust where:
Total distributions during the income year do not exceed NZD 100,000;
Reportable income earned does not exceed NZD 5,000 for the income year, provided tax has been deducted at the correct rates; and
If the trust derives non-reportable income of NZD 1,000 or less, deductions against that income are at least NZD 800 for the income year.
Rollover Relief for bright-line tax and interest limitation rules
Under the current legislation (sections CB 6AB(2) and (3), and CB 6AC(2) and (3)) rollover relief is available under either section CB 6AB(2) or CB 6AC(2) for a transfer of residential land or DRP from a qualifying family trust back to the settlors of the trust, provided certain conditions are met. One such condition is that the settlor must have originally transferred the land to the trust – or, in other words, they were the original owner of the land. Consequently, rollover relief is not currently available for transfers of residential land or DRP from the trust to the settlor where the settlor instead made cash settlements on the trust or guaranteed its obligations to enable the trust to acquire the land. Also, because the settlor must be an “original settlor” (meaning they made the original settlement of property on the trust), rollover relief is not currently available if the land is transferred to a person who became a principal settlor of the trust after the original settlement of property on the trust. This applies even if the settlor was in fact the original owner of the land and had become a principal settlor at, or by, the time they transferred the land to the trustee. Whether rollover relief is available current requires you to obtain expert tax advice, as the legislation is not clear.
The Bill proposes to replace existing sections CB 6AB(2) and (3) and CB 6AC(2) and (3) with redrafted versions that would clarify that rollover relief would apply in these situations.
Once the Bill is passed rollover relief from the bright-line tax will include further transactions where there is no significant change in ownership. This relief involves deferring the taxing point until there is future disposal of the property that does not qualify for rollover relief.
The amendments will also allow for a person to transfer the same land to themselves in a different capacity where there is no intervening transfer to a third party and the bright-line acquisition date for the land when they dispose of it to a third party in that different capacity is the bright-line acquisition date they first had. This can now be between that person and themselves in their capacity as settlor, beneficiary or trustee.
These amendments are proposed to have retrospective effect to 27 March 2021. They therefore have the same effective date as the originally enacted provisions. This means that have effect for the interest limitation rules on October 2021, for loan drawdown for residential property on or after 27 March 2021 and for the bright-line test for disposals occurring on or after 1 April 2022.
The full Bill can be viewed here:
