Business and Tax Updates August 2022: IBBZ Accounting

The weather is getting warmer, and spring is not too far. In business updates: RBNZ lifted the OCR and more hikes are coming along, the use of 2 factor authentication is suggested, and having wellbeing policy at workplace is recommended. In tax updates: supply of portable units for residential use were held as taxable supplies for GST purposes. The IRD has published guidelines for cash basis of financial arrangement rules, Bright line guide, and depreciation on building.

We are working to ensure 2022 tax returns are filed on time.

Business updates

Business NZ introduced wellbeing policy builder. It is reminder to see why workplace welling is important.

1.The six main causes of stress leading to burnout:

1. Consistently high workloads and/or pace of work with little or no chance to rest and recover.
2. Unclear job requirements and constantly changing priorities.
3. Employees feeling like they’re not part of the team.
4. Low levels of trust, lack of support, and unresolved conflict.
5. Changes at work that haven’t been well managed.
6. Bullying, harassment, or threats of violence.

2.Your most important asset is your people and it’s good for businesses to ensure the health and wellbeing of your employees is a priority.

3.Businesses that create a work environment where employees’ physical and mental wellbeing is considered have lower absenteeism, fewer injuries, and experience higher productivity and customer satisfaction. A company culture of support is also good for attracting and retaining employees.

4.Employees who feel healthy and supported are more productive, engaged, resilient, creative, and generally perform better.

5.It is recommended that you have a welling being policy at workplace.

It is critical that Kiwi businesses recognise the importance of digital security. A use of Two Factor Authentication is simple and quite effective tool to enhance security to your accounts and private information online.

1. Two-factor authentication (2FA) is one way you can secure and protect your business and valuable information. It works by adding an additional layer of security to your online accounts, such as a uniquely-generated code sent to your phone when you login.
2. Almost all service providers offer this facility. Such as Google, Microsoft, dropbox etc.
3. New Zealand observes Privacy Week every year and CERT NZ (Computer Emergency Recovery Team NZ) is encouraging small-to-medium businesses to implement 2FA as part of its new 'Two Steps, Too Easy' campaign. 

The  RBNZ raised OCR to 3% on 17 Aug 2022. Key points of committee discussion were:

1. Members discussed the outlook for domestic demand. Residential construction activity has been strong, but the Committee discussed downside risks to future construction activity, with some construction firms reporting a fall in forward orders. Business surveys and direct reports from businesses suggest a more general slowing in business activity in the coming months. However, inbound international tourism is recovering from a low base and that is expected to provide some offset to weaker domestic spending.
2. House prices have steadily dropped from high levels since November last year and are expected to keep falling over the coming year towards more sustainable levels.
3. Production capacity pressures remain. Labour shortages are a major constraint on business activity. Wage growth has continued to pick up in line with tightness in the labour market.
4. Inflation is expected to return to the Committee’s 1-3 percent target range by the middle of 2024, but this will require a better balance between supply and demand.

Tax updates 

Bright line tax guide. The IRD has published the guide (IR1227). The bright line tax is changed multiple times over the years. The rules are quite complex depending on which date the property is purchased different rules apply. The bright-line property rule applies to residential property purchased or acquired on or after:

1. 1 October 2015 through to 28 March 2018 and sold within 2 years.
2. 29 March 2018 through to 26 March 2021 and sold within 5 years.
3. 27 March 2021 and sold within 5 years to the extent the property has a qualifying 'new build' on it when sold or 10 years for all other properties 

The application of the bright line tax started in 01 October 2015 during that time the rule was just two years, this was mainly to discourage speculation. However, subsequently the on 29 March 2018 change to 5 years to discourage investors. Now, we are seeing lot people and transactions are being caught under this. There is widespread confusion for complex issues. And I have seen many questions coming out now such as.

1. What happens if this was investment property but then you moved in the house. Or vice versa. At the time of sale would you have to pay tax on it.
2. If the land has two houses home and income. What rules apply.
3. How do you define the start and end date for application of BLT.
4. I subdivided the house, do I have to pay tax on it.
5. I subdivided the house, but title never came, it came after I sold the house.
6. I inherited a property do I need to pay tax on it.
7. The IRD has tried to answer many questions in their guide but some parts still remains unanswered.

TDS 22/13: Whether portable units are exempt supplies of accommodation in a dwelling. In this technical discuss summary a case of taxpayer was discussed to explain residential exempt supply. The Taxpayer rents portable self-contained units to its customers under a hire agreement. The portable units typically serve as an extension to the customer’s existing property. The portable units may be used as residential accommodation or commercial (office) premises. Where the purpose of the hire is not residential, GST is charged on the hire. The legal issue was whether there was an exempt supply of residential accommodation. It was held:

1. The supply of portable units under the hire agreement consists of multiple separate supplies. These supplies include a series of successive supplies of the hire of the portable units, deemed to occur under s 9(3)(a), and a separate supply of delivery and installation of the portable units
2. The series of successive supplies of the portable units are not exempt supplies of “accommodation in a dwelling” under s 14(1)(c). The Taxpayer is therefore liable for GST on the supplies.
3. In this case, the portable units are hired under a hire agreement that provides for the temporary use of the portable unit in exchange for weekly payments. Therefore, s 9(3)(a) deems the supply of the portable units to be a series of successive supplies. Each time a weekly payment is made (or becomes due), there is another supply. The GSTA determines that these are multiple successive supplies and must be considered separately in determining whether they are exempt supplies. No issue of whether they are a single supply arises as the GSTA treats them as separate supplies.
4. Application of s 14(1) (C) discussed. Supply of accommodation in a dwelling is important. The Taxpayer is not supplying the right to stay, rather is supplying a physical structure. This physical structure could conceivably be used to supply accommodation, but that is not what is being supplied in this dispute.

 The IRD issued interpretation statement. Explaining the depreciation on building. IS 22/04: Claiming depreciation on buildings

1. In 2020, depreciation deductions were reintroduced for non-residential buildings used, or available for use, for deriving income or carrying on a business for that purpose. For these buildings, depreciation can be claimed for the 2020-21 and later income years. The depreciation rate for residential buildings remains at 0%.
2. Whether a building is a non-residential building or a residential building is determined based on the building’s predominant use. A building owner cannot apportion a mixed-use building for depreciation purposes. Because the test is based on the building’s predominant use, it is effectively an all-or-nothing test.

The IRD also issued interpretation statement. Explaining cash basis person for financial arrangement rules. IS 22/05: Cash basis persons under the financial arrangements rules which explains when a person can account for income and expenditure from financial arrangements on a cash basis instead of an accrual basis.