EY Tax News Update: Edition 10, 2024

New finalised guidance

Inland Revenue guidance items finalised since our last update include:

Refreshed Tax and Social Policy Work Programme indicates what is on the horizon

The Government Tax and Social Policy Work Programme (Work Programme) has been updated and is the first Work Programme issued by the coalition Government. It aims to continue the Government’s focus on rebuilding the economy and improving fiscal sustainability.

The refreshed Work Programme contains few surprises, with some of the items already included in the current Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Bill. Some key items to note from the Work Programme include:

• Fringe Benefit Tax (FBT) review – following the conclusions reached in an earlier stewardship review, it is clear that improvements in FBT settings, to both improve overall compliance and reduce compliance and administrative costs, can be made.
  
  
• Reviewing the Foreign Investment Fund tax rules – in accordance with the Minister of Revenue’s previous indication that the Government is looking into aspects of these rules.
  
  
• Exploring compliance cost reductions, including improving tax compliance for small businesses – the Minister of Revenue has previously signalled an interest in reforms to ease compliance costs and improve productivity, and given the size of the SME sector it is unsurprising to see Officials focus their efforts here.
  
  
• Trust disclosures post-implementation review – which we are hopeful will result in simplifications to the disclosures and forms.
  
  
• Reviewing elements of the charities and not-for-profits sector – Officials have been considering options for reform for some time, including a stewardship review of the donations tax credit regime. The Government has also previously indicated that it is keen to review the rules applicable to businesses owned by charities.
  
  
• Simplifying tax compliance for Māori authorities – the scope of any review is uncertain but given the growth in the Māori economy and the extensive compliance costs imposed on the sector, it is not surprising to see the Government keen to seek improvements in the current settings.
  
  
• Clarifying the income tax treatment of software development expenditure – likely necessitated by the current tax rules in this area appearing outdated relative to the modern ways of using and acquiring software.

While it is great to see the release of the Work Programme, necessarily the descriptions given to the items are succinct and the programme is light on detail. We expect many of the projects may be subject to public consultation in the coming year. We would also not be surprised to see additional tax policy reforms included in the 2025 Budget. The downside of using the Budget process is that it does not allow for extensive consultation. The Work Programme itself notes that public consultation plays an important role in creating and sustaining a durable and widely accepted tax system.

The Government’s keen focus on prudent fiscal management is likely to require finely balanced policy reforms. While the Work Programme suggests areas where additional reform will be considered, it remains to be seen what can be delivered in this Parliamentary term.

We understand the Government intends to update the Work Programme periodically to reflect its current priorities. The current Work Programme (and future iterations) can be found on Inland Revenue’s Tax Policy website here. We will wait with anticipation to see what other items are added post-Budget 2025 as we head into the second half of the term.

Bill on FBT and zero emissions vehicles is not progressing

The Income Tax (Clean Transport FBT Exclusion) Amendment Bill failed to pass its First Reading in Parliament and is not progressing further.

As a reminder, this was a Private Member’s Bill (with the MP in charge being Hon Julie Anne Genter of the Green Party) that was drawn from ballot and introduced to Parliament earlier this year. It proposed to remove FBT for five years from zero emissions vehicles provided to staff as part of their salary package. It also suggested a change for double cab utes.

Initial Digital Platform Information reporting deadline approaching

As a reminder, New Zealand has adopted the OECD Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy. From 1 January 2024, platform operators based in New Zealand are required to collect information on sellers that receive consideration from relevant services through digital platforms and report annually to Inland Revenue.

Required information on sellers for the year ended 31 December 2024 must be reported to Inland Revenue by 7 February 2025. Refer to the EY Global Tax News Alert here for details.

Agriculture removed from New Zealand’s Emissions Trading Scheme

The Climate Change Response (Emissions Trading Scheme Agricultural Obligations) Amendment Bill, which amends the Climate Change Response Act 2002 to remove agriculture activities from New Zealand’s Emissions Trading Scheme, received Royal assent on 25 November. Instead, it is expected that a new Pastoral Sector Group will address biogenic methane.

Economic update

Treasury has published the Interim Financial Statements of the Government for the three months ended 30 September 2024. Key figures include:

• Tax revenue of $28.7 billion, which was close to forecast.
• Operating balance before gains and losses deficit of $4.2 billion ($0.7 billion more than forecast).

Finance Minister Nicola Willis noted the results are weaker than the Budget forecast, reinforcing the need to drive growth and maintain careful spending. Refer to the Treasury media release here and related Beehive release here for more information.

Keep an eye out for the next major fiscal announcement in the Half Year Update and Budget Policy Statement, expected to be published on 17 December.

EY talks tax | The future of AI in tax: insights and practical implications for the tax function – podcast available here.

Refer to the below guides, thought leadership articles and regular newsletters available on ey.com:

• Tax Guides – browse our in-depth guides covering corporate tax, indirect tax, personal taxes, transfer pricing and other tax matters in more than 150 jurisdictions
  
  
• Six actions for tax teams before year-end 2024
  
  
• How will GenAI shape tax and finance transformation?
  
  
• Six steps to prepare for the operational impact of Pillar Two
  
  
• Italy proposes significant changes to the Digital Services Tax
  
  
• G20 Leaders stress importance of progressive taxation and reiterate their commitment to BEPS 2.0
  
  
• UK Government responds to consultation on introducing UK CBAM
  
  
• The Latest on BEPS and Beyond | November 2024