Business and Tax Updates April 2023: IBBZ Accounting

Summary:

The financial year 2024 has started. The Official Cash Rate (OCR) now is 5.25% demand still surpass the supply in many sectors thus inflation is still out of control. It seems the tightening of credit would continue, and there would be further increases to OCR.

 Business Updates 

1. The Reserve Bank of New Zealand (RBNZ) monetary policy committee lifted official cash rate to 5.25 points on 5 April 2023. During the meeting they discussed:
   
2. The inflation is not at acceptable levels, demand continues to significantly outpace the economy’s supply capacity. This is also evident at many sectors, as the businesses still struggling with the supply chain issues.
   
3. Over the medium term, the Committee anticipates economic activity to be supported by rebuilding efforts in the aftermath of the weather events. The demand on resources is expected to add to inflation pressure.
   
4. Global growth is expected to be below average, contributing to lower demand for New Zealand’s key commodity exports. Continued growth in New Zealand’s service exports, in particular tourism, is assumed to provide some offset to this drop in export revenue.
   
5. Committee agreed, New Zealand’s economic growth is expected to slow through 2023, given the slowing global economy, reduced residential building activity, and the ongoing effects of the monetary policy tightening to date. This slowdown in spending growth is necessary to return inflation to target over the medium-term.
   
    

Tax Updates

Roll over relief: Bright Line Test

When a property is transferred between the related parties, example individual to LTC, or to Trust, or Back to Individual. Since the transactions is not providing real economic benefits, the Rollover relief may be provided from a Bright Line Tax, the rules are being simplified:

Bright Line Test

The extent of rollover relief available under the bright-line test for these new categories generally depends on the amount of consideration paid for the transfer.

• If the transfer occurs at or below the original owner’s acquisition price and the transfer occurs within the relevant bright-line period, no tax consequences arise. The recipient will take on the original owner’s bright line start date and cost base.
• If the transfer occurs at above the original owner’s acquisition price and occurred within the relevant bright-line period, the gain will be taxed. The recipient will take on the original owner’s bright line start date but with an updated cost base of the amount of the transfer.

There are a number of technical issues with the current rules, and clarification is required so they operate as intended.

Proposed Amendments to Roll Over Relief

The amendments aim to clarify the rollover relief rules. They include:

• Propose amendments to sections CB6A of the ITA to ensure that rollover relief applies to a transfer of residential land or DRP out of a family trust either back to a principal settlor or the group of settlors that originally transferred the land to the trust.
• Allowing rollover relief to apply to transfer of residential land or DRP out of a family trust to the principal settlor even if the original settlor did not originally transfer the residential property in question to the trust.
• Proposed new sections CB 6AB(1)(b) and CB 6AC(1)(b) would provide that that rollover relief would be available when residential land or DRP held in a qualifying family trust is resettled into another family trust.
  
  
  

Potential FBT from a Benefit provided to an employee from an Employer is being Exempt.

Currently, any contribution an employer makes towards employee public transport costs generally classify as a fringe benefit. On the other hand, employer provided car parks are largely exempt from FBT under the exemption of on-premises benefits.

Proposed Amendments

The amendments propose to make public transport fares between an employee’s home and place of work that have been subsidised by an employer, exempt from FBT. The forms of transport which are excluded from FBT include bus, train, ferry tram or cable car.

Some employer subsidised use of public transport may fall under the employment income rules in S CE 1 rather than under the FBT rules. This is if an employer were to directly reimburse an employee in cash for their e.g., bus fare, the reimbursement is employment income. The amendment does not extend to cash reimbursement. If a public transport pass is provided, then this will constitute as a fringe benefit and qualify for the exemption. The proposed amendments will be in effect for transportation benefits provided by employers after 1 April 2023.

Clarification of Bright Line Test for Inherited Property

There has been confusion around the application of the Bright Line Test and when it is triggered, particularly when concerned with inherited property. IRD has released an amendment to clarify the tax treatment around this murky area.

Tax Treatment

Inherited residential land is exempt from the Bright Line Test. Under S FC 9(2), the bright line test does not apply to the transfer of land to the executor or administrator following the death of a person. It will also not apply in the event where the administrator/executor/beneficiary decides to sell the land.

Section FC 9 explains that if the recipient disposes of the land and derives an income, then they take on the deceased persons acquisition date and cost.


IBBZ Updates

1. Sandy is Expected to join us from this week, she has a wealth of experience in dealing with the IRD on range of issues including tax payment plans. Her expertise would be a great addition to the team.
2. Saurav has been working with the CPA Australia in assisting them to implement Best Practices Program. He is also providing advisory services to newly qualified Practitioners.
3. We are also looking to approach the University of Auckland to work on a research project related to New Zealand Taxation.