The Approved Issuer Levy (AIL) rules were introduced in the early 1990s. The rules were designed to reduce the cost suffered by borrowers as a consequence of New Zealand’s non-resident withholding tax (NRWT) regime.
Absent the AIL regime, a New Zealand borrower is generally required to withhold NRWT from New Zealand sourced interest payments made to a non-resident lender unless that lender has a fixed establishment in New Zealand. NRWT must be deducted by the borrower from the interest payment and generally represents the lender’s final New Zealand tax liability in respect of that interest. Read more
New Zealand tax system has been ranked the 27th most efficient out of the 183 countries surveyed in a report compiled by PricewaterhouseCoopers, the World Bank and the International Finance Corporation.
New Zealand’s average tax rate of 34.4 compares favourably with the average global rate of 44.8 per cent, and Australia’s rate of 47.7 per cent.
New Zealand also rates well on the 8 taxes business must pay when compared with Australia’s 11 and the world average of 28.5. Read more
An EY global survey, highlighted in a recent article in the Sydney Morning Herald indicates that increases in audit activity are part of a broader global trend. The paper writes:
An annual survey by the global accounting firm Ernst & Young found tax authorities are becoming more aggressive and forcing companies and governments into more clashes over tax laws, The survey, based on interviews with 541 senior tax and finance executives, concludes that the world has entered a period of elevated risk for tax controversy. Findings were that audits are more frequent and aggressive, making them more costly to defend or litigate. Tax assessments and penalties have now entered the realm of billions of dollars. Companies [also] face unprecedented scrutiny and reporting of their tax affairs by advocacy groups and the media. Read more
A recent HC decision has interesting implications for the payment of GST in property settlements that involve nominees. In this case:
(a) Fletcher agreed to sell land to the Hulls, who nominated Falls Road to complete the transaction.
(b) The GST ($650k) was payable before settlement and so a GST invoice was issued by Fletcher and Falls Road paid the GST to Fletcher.
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Last weekend’s NZ Herald has an article on the IRD’s approach to the taxation of UK pension schemes.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10764091
The way NZ taxes foreign pension schemes is complex and (as a consequence) poorly understood. The IRD have had an overhaul of the regime on their (very long) to do list for quite some time. The IRD have apparently indicated that audit and enforcement action against NZ tax residents with UK pensions will be suspended pending the outcome of a more general policy review of this area.
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An Inland Revenue report on the abolition of gift duty is set to cost professionals such as accountants and lawyers around $70 million in lost compliance fees. It is estimated that the government will save around $430,000 in administration fees but forego the $1 million a year in duty they were receiving from the scheme. Read more
Although the Newmarket Trustees case appeal has yet to be heard, the Law Society has come out in support for the single corporate trustee model.
See http://www.adls.org.nz/about-adls/committees/public-issues-committee/public-issue-papers
Another advantage of the single or dedicated corporate trustee model is the ease (and cost effectiveness) at which the effective control of the corporate trustee can be changed. However, on a cautionary note, a point not made by the Law Society is that where a single corporate trustee is appointed there is a risk, albeit largely theoretical at present, whereby in certain circumstances beneficiaries can claim against the director of a corporate trustee pursuant to a dog-leg claim. Read more
The recent decision in Spicer v Boulcott Development Group Limited HC Wellington CIV-2011-485-714, 24 August 2011 highlights the dangers inherent in GST-offset agreements. Although these agreements will be less common with the amendment to the GST Act allowing zero-rating of land there are still occasions where GST-offset agreements may be contemplated.
The facts of Spicer v Boulcott Development Group Limited are simply that following a taxable supply of land the vendor’s GST liability was to be met through an off-set agreement with the purchaser that was conditionally approved by the Commissioner of Inland Revenue.
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The Supreme court has today released its long-awaited decision about a landmark tax case – Penny & Hooper. The case was decided in favour of Inland Revenue and this decision has widespread implications for the many small businesses using trust structures.
The case is a classic example of taxpayers complying with the ‘black-letter’ of the law, yet not acting within the ‘scheme and purpose’ of the Income Tax Act.
This case involved the restructuring of the business of two surgeons (Penny & Hooper) from sole practitioners earning an income of approximately $500,000 per year, into a company owned by a family trust for the benefit of the surgeons and their respective families. The surgeons became employees of their companies, on salaries of approximately $120,000 per year, while the remainder of the profit from their services was retained by the companies and allocated to the trusts.
Legitimate tax planning or avoidance – what is your view?
The High Court decision in Junior Farms Limited v CIR (CIV-2009-404-2870, Brewer J, 22 July 2011), while perhaps a “fair” result in the circumstances of the case, is difficult to sustain by reference to the Income Tax Act 2007. That said the decision may prove useful for any advisor or trustee where a tax event has arisen following an unintended resettlement.
The case is simple on its face. Junior Farms Limited owned a large block of un-subdivided land that had been rezoned light industrial and flood plain. The entire block of land together with all plant and livestock was sold for $2.681m pursuant to an agreement dated 9 November 1994. In a subsequent agreement between the same parties, dated the following day, the purchaser was to sell the flood plain portion of the land back to the Junior Farms for $100 following a planned sub-division. At the time of the transaction the flood plain land was worth approximately $1.9m.
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