EY Tax Monthly News Update - March 2024

Significant tax changes enacted

The Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill has now been enacted.

The new Act contains several key tax reforms, including changes to:

• Adopt the OECD's Global Anti-Base Erosion Pillar Two Rules in New Zealand as part of a global initiative to subject multinational groups to at least a 15% tax rate, applicable in New Zealand broadly from 1 January 2025. For more information, see the EY Global Tax News Alert here.
  
   
• Increase the trust tax rate for many New Zealand trusts to 39% (previously 33%) from 1 April 2024. Trusts with $10,000 or less of trustee income will continue to be taxed at 33%. Other carve-outs include trusts established for disabled beneficiaries and Energy Consumer Trusts.
  
   
• Remove depreciation for commercial and industrial buildings, effective for the 2024–25 and later income years. Schedule 39 special purpose buildings such as portable houses, glasshouses and milking sheds, will continue to be depreciable. Previous concessions for fit-out for pre-2010-11 buildings are back, but at a reduced 1.5% rate. The removal of building depreciation may result in significant tax accounting implications.
  
   
• Reinstate interest deductions for residential investment properties. From 1 April 2024, taxpayers can claim 80% of their interest deductions for residential investment properties. Interest will become fully deductible from 1 April 2025 onwards.
  
   
• Rollback the bright-line test to 2 years. A reformed 2-year bright-line test now applies to tax residential investment land disposals on or after 1 July 2024. The main home exclusion is also significantly simplified, and rollover relief is generally extended to all associated party transfers.
  
   
• Limit the scope of the rule which applies when trading stock is disposed of below market value. This rule now applies only to disposals to associates, private use/consumption, and/or stock that is not disposed of “in the course of carrying on a business for the purpose of deriving assessable income or excluded income, or a combination of both”. To not disincentivise “charitable giving,” the rule will not apply to trading stock disposed of to a donee organisation.
  
   
• Introduce various concessions, including rollover relief, applicable to properties and taxpayers affected by the North Island weather events of 2023.
  
   
• Introduce a transitional rule into the GST platform economy rules and a new 12% offshore gaming duty applicable to offshore based online gambling providers. Refer to the EY Global Tax News Alert here for details.

The Act also contains a number of other remedial amendments. For more information or to receive a summary of the key changes in the Act, please contact your usual EY tax advisor.

New Bill on FBT and zero emissions vehicles

The Income Tax (Clean Transport FBT Exclusion) Amendment Bill is a Private Member’s Bill that has been drawn from ballot and introduced to Parliament. It proposes to remove FBT for five years from zero emissions vehicles that are provided to staff as part of their salary package. The MP in charge of the Bill is Hon Julie Anne Genter of the Green Party. The Government has not yet clearly signaled how it will approach the Bill – we will keep an eye on its progress through Parliament and keep you updated.

Budget Policy Statement 2024

The Government has released its Budget Policy Statement (BPS) 2024, indicating that one of the key priorities for Budget 2024 includes delivering personal income tax reductions, funded within the operating allowance through a mixture of savings, reprioritisation and additional revenue sources - meaning no extra borrowing required to fund the tax relief.

A Treasury forecast produced to assist with preparation of the BPS suggests the economic outlook has deteriorated since the December Half Year Update. Finance Minister Nicola Willis signaled that the operating allowance (money allocated to fund new spending and revenue initiatives) will be set at less than $3.5 billion for the coming Budget. For more information, see the Beehive release here.

Economic update

Recent indicators

Treasury has published the Interim Financial Statements of the Government for the seven months ended 31 January 2024. Key figures include:

• Tax revenue of $69 billion (1.1% below forecast, largely due to corporate tax and net other individual’s tax being below forecast due to deteriorating macroeconomic factors)
  
   
• Operating balance before gains and losses deficit of $3.7 billion ($0.1 billion smaller than forecast)

Refer to the Treasury media release here for more information.

Recent figures published by Stats NZ also show that GDP declined in the December 2023 quarter – refer to the Stats NZ website here and related Beehive release here.

International Monetary Fund comments on state of New Zealand’s economy

The International Monetary Fund recently published a report where it commented on the state of New Zealand’s economy. Key points include:

• New Zealand would benefit from “a more efficient, equitable, and sustainable tax system”. The report suggested that reforms to address these issues should combine comprehensive capital gains tax, land value tax and changes to corporate income tax.
  
   
• Inflation still needs attention – and the Government’s planned personal income tax cuts will need to be carefully balanced to ensure they are fiscally neutral.
  
   
• Further action is needed on climate change resilience and to meet climate goals.

Updating tax treaty with New Zealand

The Australian Government is considering the expansion of Australia’s tax treaty network, including updating its treaty with New Zealand to ensure, among other things, that it remains competitive and relevant to the changing global economy. Refer to the Australian Treasury website here.

This provides a great opportunity to collate ideas on how New Zealand’s tax treaty with Australia could be improved. If you are impacted by the tax treaty and would like to discuss, please get in touch with your usual EY tax advisor.

Draft legislation to implement OECD Pillar Two rules

The Australian Treasury has released draft legislation to implement global and domestic minimum taxes as an adoption of the OECD Two Pillar solution. The proposals include an Income Inclusion Rule, an Undertaxed Profits Rule, and a Domestic Minimum Tax with safe harbour rules.

A number of the changes are proposed to apply to fiscal years commencing on or after 1 January 2024. See the EY Global Tax News Alert here for details.  

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