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Taxation: Taxing times – what you need to know

Andrea Scatchard - Tax Partner, Deloitte

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As we gear up for the festive season, with well deserved work and social functions on the agenda, you can probably expect tax to feature in the chatter beside the BBQ or the bar.

This year it seems like there has hardly been a week go by without tax being fairly prominent in the media, and with an election coming up next year we should expect this to intensify.

There have been many polarising issues in our community over the last year, and tax, as the way we fund the Government’s priorities, touches in some way on many of these. If we want to train and employ more teachers and nurses, if we want to take action on climate issues, and deal with the cost of living and housing affordability crises as we recover from the economic effects of Covid-19, whether we like it or not tax has a role to play in providing funding or incentivising behaviour.

Deloitte played a big part in highlighting the tax issues around the bank of Mum and Dad which led to a more sensible application of the brightline rules.

We are starting to see the tax policies of the various political parties be announced in the lead up to next year’s election. Depending on who ends up holding the power next year we could see measures ranging from the reversal of the 39% tax rate, the full or partial removal of the brightline and interest limitation rules, and indexing of the personal tax thresholds period for residential property sales through an excess profits tax and capital gains tax.

Themes from the past year

There have been some key overriding themes that are apparent in the policy and operational developments in the past year.

At a micro level, there has been a lot of scrutiny by Inland Revenue on where to draw the line between private and business expenditure. Some of the decisions in this area have some possibly unexpected outcomes and may significantly affect self-employed business owners in particular, as well as employers looking to pay for travel, accommodation and meal costs for employees.

Inland Revenue is becoming increasingly sophisticated in analysing the large volume of data that it collects from third party sources and in using this to ensure we are all paying the taxes we should. While you can’t really argue with this approach from a tax integrity perspective, the collection of the data can impose a significant compliance cost on the third parties. The proposed digital platform reporting rules are an example of this, as are the new trust reporting requirements that we have to comply with this year.

The global recognition of the climate crisis has highlighted the need for all countries to act now to speed up emissions reductions. The New Zealand government has a number of existing or planned measures to help us reach these targets, but could tax settings be used to do more?

The clean car discount programme may not be the best tool to encourage corporates looking to speed up the change to non-ICE fleets. The Government has to date shied away from providing meaningful tax incentives to encourage this behaviour – but things like enhanced depreciation deductions, or the removal or reduction of FBT on non-ICE vehicles would go a long way to making real change happen. The Government has shown a willingness to use tax as a lever to make change in other areas so why not here?

What has Deloitte been doing?

We have been very busy behind the scenes, and sometimes front and centre, in reviewing tax changes (from legislative proposals to Inland Revenue operational statements, and anything in between) to make sure that taxpayers are getting the best possible outcome in the circumstances.

While we don’t always agree with the changes, we always go to bat for our clients and the business community to try and ensure changes are made in a fair and reasonable way with the least possible compliance costs.

Sometimes though we can help effect directional change with tax proposals. The recent plan to impose GST on Kiwisaver fund management fees was an example of this – the public outcry following this change being announced and the resulting media frenzy led to a fast reversal of the plan. Deloitte also played a big part in highlighting the tax issues around the bank of Mum and Dad which led to a more sensible application of the brightline rules.

We are always happy to chat about how current or proposed tax rules affect your business so feel free to get in touch.

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