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NZ’s foreign trust regime: John Shewan’s report in a nutshell

The Government Inquiry into Foreign Trust Disclosure Rules was released yesterday (Monday 27 June). In a nutshell, John Shewan’s report concluded that the current disclosure requirements were “light handed” and reasonably likely to be facilitating the hiding of funds or evasion of tax in some instances. Against this backdrop, governments around the world have a legitimate expectation that the New Zealand government will step in and take action to change the rules.

The inquiry’s primary recommendation is for New Zealand to adopt a more robust disclosure regime for foreign trusts. The report’s recommendations include:
• Requiring information on foreign trusts to be maintained in a register (searchable by regulatory agencies).
• Requiring disclosure to Inland Revenue of the name, email address, foreign residential address, country of tax residence and tax identification number of each of the trust’s:
o settlor or settlors
o protector (if there is any)
o non-resident trustees
o any other natural person who has effective control of the trust (including through a chain of control or ownership)
o beneficiaries of fixed trusts, including the underlying beneficiary where a named beneficiary is a nominee; for discretionary trusts, each class of beneficiary should be described in sufficient detail to enable identity to be established at the time of a distribution or when vested rights are exercised.
• A requirement to file the trust deed when registering.
• A requirement to file an annual return (with accompanying financial statements) and the amount of any distributions paid/credited noted with names, foreign address, Tax Identification Number and tax residence country of the recipient beneficiaries.
• A revision of the Anti-Money Laundering legislation to require verification of the underlying source of funds or wealth settled on a foreign trust in all cases.
• Revising the legislation around reporting of suspicious financial transactions that do not go through a New Zealand bank.

Mr Shewan’s report briefly canvassed other options for reform of the foreign trust regime that he rejected as unsuitable:
Establishing a public register of foreign trusts – Rejected on privacy grounds.
Setting up a licensing regime for resident foreign trustees – Rejected on rationale that the framework which currently exists for all trustees, together with tightened disclosure rules for foreign trusts, is sufficient and cost/benefit analysis does not warrant any further regulation.
Extension of AEOI proposals to deem foreign trusts to be financial institutions – Rejected on the basis of inconsistency with the underlying design of the Automatic Exchange of Information (AEOI) regime and the implicit prohibition on country-by-country variations of the AEOI regime.
Repeal of the tax exemption on foreign source income – Rejected on policy grounds.
Finance Minister Bill English said that “The Government will look to implement the recommendations after officials have examined the inquiry in detail and reported back to Ministers. A formal response to the Inquiry will therefore be issued in the coming weeks.”

Read the report in full here.

Are you ready for RLWT?

Residential land withholding tax (RLWT) kicks in on 1 July 2016. “Offshore RLWT persons” who sell land subject to the bright-line test may have RLWT deducted from their sale proceeds. Primarily, the vendor’s conveyancer will be responsible for deducting the tax, however, accountants may need to assist with calculating the amount payable to Inland Revenue.

The tax was introduced as a means of ensuring that offshore taxpayers who are required to pay tax under the bright-line test meet their New Zealand tax obligations. Collection of income tax from these taxpayers is more challenging then from New Zealand based taxpayers, and so deducting at source can be seen as a way around the issue. Read more

IRD confirms: no appeal pending on Diamond residency case

The IRD has confirmed it will not be appealing the recent Court of Appeal decision in C of IR v Diamond [2015] NZCA 613.

This is good news for taxpayers (and their advisers) as it provides a degree of clarity and certainty to the law on residency.

The Court of Appeal decision – which was a win for the taxpayer – explicitly rejected the notion that having a rental property “available” to the overseas-based taxpayer was sufficient to amount to having a permanent place of abode in New Zealand.

The Court also concluded by saying that the fact that a taxpayer provides a home for his family in New Zealand while living overseas would not necessarily be sufficient to establish that the taxpayer had a permanent place of abode in New Zealand.

Refer to James Coleman’s blog to read the background facts to the Diamond case.

FBT on car parks

In the past, the Commissioner’s view has been that car parks provided to employees under a license agreement did not qualify for the on-premises exemption and were therefore subject to FBT. However, the question of whether or not FBT applies to a car park now focuses on whether the employer has a right over the car park which is substantially exclusive. So if the employer has a right which is in fact, or effect, substantially exclusive, then the car park will not be subject to FBT.

In a nutshell, the higher the degree of control the employer has over the car park, the more likely it is that the right is substantially exclusive.

Going back a step, there is an FBT liability when an employer provides a free car park to an employee. However, there is an exemption for fringe benefits which are provided on the employer’s premises. This is sometimes referred to as the “on premises exemption”. The “premises” of an employer includes land which owned and leased by the employer.

A recent Inland Revenue ruling (BR Pub 15/11) states that when deciding on the question of FBT, employers will have to look closely at the nature of the car parking arrangement and whether it gives the employer a right to use the car park which is in fact, or effect, substantially exclusive. So a car park which is subject to a license can now be exempt from FBT if the employer has a substantially exclusive right to use it.

Read more

Strike two! Taxpayer wins in Court of Appeal tax residency case

Just before Christmas, the Court of Appeal released its decision in the Diamond case:  Commissioner of Inland Revenue v Diamond [2015] NZCA 613. The result – which was a win for the taxpayer – once again strikes down the Inland Revenue’s interpretation of what is meant by a “permanent place of abode”. (Refer to James Coleman’s blog for a quick précis of the background facts to Diamond).

The Court of Appeal explicitly rejected the Commissioner’s argument that having a rental property “available” to the taxpayer was sufficient to amount to having a permanent place of abode in New Zealand. The Commissioner’s argument in court aligns with the position taken by Inland Revenue in Interpretation Statement IS 14/01.

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Tax residency: Diamond case going to Court of Appeal

Most tax professionals will be aware of the Diamond case (Diamond v Commissioner of Inland Revenue (2014) 26 NZTC 21,093). It is the first High Court judgment on personal tax residency in New Zealand after the 1980 law change. It therefore affects all New Zealanders who move abroad.

The High Court had to rule on the question of whether a rental property owned and rented out by Mr Diamond (the taxpayer) could be considered his permanent place of abode in New Zealand. Clifford J stated that to have a permanent place of abode in New Zealand means to have a home in New Zealand with a sufficient degree of permanence. Read more

Government acts to target property speculators

The Government announced tax measures yesterday which will target taxpayers who purchase and sell properties within a short period of time in the hopes of making a quick dollar. Although the law already taxes property acquired with the intention or purpose of disposal, the legislation is currently seen to be difficult to apply. Furthermore, even if it is clear that a person should be paying tax, it’s not always easy for the Revenue to track down foreign property speculators. To this end, the Government has also announced measures which will specifically target non-residents.

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Tax Simplification project

A new Government public consultation project on options for simplifying and modernising New Zealand’s tax administration has been launched.

The first two in a series of public consultation documents designed to modernise and simplify the tax system have been released.
The first paper, Making Tax Simpler — a Government green paper on tax administration aims to introduce New Zealand to the overall direction of the tax administration modernisation programme and seeks feedback on that direction.  Consultation on this paper closes on 29 May 2015.
The paper, Better Digital Services outlines proposals for greater use of electronic and online processes allowing faster, more accurate, more convenient interactions with Inland Revenue. Consultation on this paper closes on 15 May 2015.
To make a submission or to read the full details of proposals refer to the documents below and go to
Also see:

February tax bill – what’s in store for you?

On 26th February, the Government introduced the long-awaited Taxation (Annual Rates for 2015-16, Research and Development and Remedial Matters) Bill. This post provides a brief overview of what tax changes are in the pipeline. Read more

Employee allowances – how should these be treated?

Salary and wages are not the only payments that an employer might make to an employee. An employer might also pay an allowance or reimbursement to their employee. Examples include allowances/reimbursements for business use of a private motor vehicle and reimbursement for meals and accommodation. How should an employer treat these types of payments? Should PAYE be deducted?

Read more

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