Some give and a lot more take: the tax twists emerging from the coalition government

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The ink has now dried on the coalition government agreements with some perhaps surprising adjustments to the National Party’s key tax policies. Given the length of time it took to form the coalition, the Government will need to move quickly to pass the necessary legislation and provide taxpayers with certainty as we head towards the start of the next financial year.

Below we look at the notable changes to tax policies included in the coalition agreements.

Interest deductibility

Residential landlords will be rejoicing in the government’s decision to expedite the reintroduction of mortgage interest deductibility. Previously set for a more gradual return, mortgage interest deductibility for residential rental properties is now to be restored with a 60 percent deduction in 2023/24, 80 percent in 2024/25 and 100 percent in 2025/26.

No foreign buyer’s tax

In the spirit of give and take inherent in any negotiation, the abandonment of the foreign buyer’s tax stands out as a concession to the New Zealand First party.

The National Party had proposed to lift the ban on the purchase of real estate by foreigners for properties worth more than $2 million. At the same time, they proposed to introduce a foreign buyer’s tax of 15% on the purchase price.

This change will no longer be going ahead, meaning foreigners (other than Australians or Singaporeans) will still not be able to buy New Zealand real estate at all.

Significantly, this has also put an end to what was touted to be a particularly lucrative source of additional tax revenue and could be a key reason why we have also seen the back-track on repealing the “App Tax”.

App tax

The National Party campaigned vocally on repealing the “App Tax” so it was unexpected the hear that the planned repeal of the “App tax” is now discarded. This so-called App Tax has already been legislated for and comes into force on 1 April 2024.

From this date, platforms operating in ride-sharing, food delivery, and short-term accommodation services will be required to charge GST on these services, even if the underlying owner/driver is not GST registered and makes under $60,000 per year so is not required to be GST registered.

Holiday home owners and ride-share/delivery drivers will now need to understand what these changes mean for them – while the platform can claim a notional GST input tax credit on behalf of the supplier, there will still be a net 6.5% GST to be returned to Inland Revenue. Unless the owners/drivers can increase their charges to customers this is likely to cut into their profits.

Increased Inland Revenue audits

We have seen a notable uptick in Inland Revenue’s compliance activities and this should be expected to increase further with the National-New Zealand First coalition agreement providing additional funding to Inland Revenue to undertake tax audits.

We are seeing activity right across the spectrum of taxpayers at the moment, from questioning the tax governance practices of a number of our large corporates to contacting taxpayers who appear to be diverting their personal service income to related individuals or entities that are taxed at a lower rate.

We have also seen the release of Inland Revenue’s report into the trust disclosure information that has been gathered from the 2022 trust income tax returns.

Inland Revenue analysed the data gathered from these returns to identify behavioural change after the top personal tax rate increased to 39%, and we should expect the same level of scrutiny to be applied to taxpayer behaviour ahead of the trust tax rate increase to 39% next year.

The underlying theme here is that, following a period of relatively low levels of Inland Revenue compliance activity, you should now expect that Inland Revenue may come knocking and to be prepared.

For advice on how you can navigate the changing tax landscape, consult a tax professional.

Andrea Scatchard
Andrea Scatchard
Andrea Scatchard is a Tax Partner at Deloitte, based in the Bay of Plenty. She can be contacted on ascatchard@deloitte.co.nz

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