Welcome to Staples Rodway Tax Talk
In this edition we discuss:
A new method is available for calculating deductions for home office expenses. From the 2017-2018 income year, taxpayers will now be able to use the “square metre rate method” as an alternative to calculating a portion of actual expenses in determining their claim for home office expenses. The square metre rate method uses the prescribed Inland Revenue rate of $41.10 per square metre.
Previously, taxpayers were only able to claim a portion of actual expenses where the family home was partly used for business purposes. While sounding simple, in practice, making an appropriate apportionment calculation was often difficult.
On a practical level, we consider that the square metre rate method is simple and easy to implement. In calculating the deduction, the square metre rate method still requires the taxpayer to determine the area of the building used separately for business purposes; this is then multiplied by the single rate set by Inland Revenue.
If you are interested in finding out more information concerning apportionment issues and quantification, please contact your Staples Rodway advisor.
The new non-resident withholding tax (NRWT) regime was enacted over a year ago on 30 March 2017. This reform addresses “holes” in the NRWT regime and has had a significant impact on companies with cross-border debt.
The key amendments were:
The changes apply to all new arrangements entered into after 30 March 2017. For existing arrangements these rules apply:
The mechanism used to ensure a matching of NRWT payments with interest deductions is called the deferral calculation.
Under the old rules, NRWT liability was imposed when interest was “paid”, and this may be significantly later than when the interest was accrued and deducted. A typical example of this is the interest paid on the maturity of a zero-coupon bond. Another example relates to the deduction of interest and the crediting of that interest to a general accrual account.
The new NRWT regime removes the timing benefits by introducing the concept of non-resident financial arrangement income (NRFAI) and a deferral calculation requirement. Under the new rule, the borrowers must complete the deferral calculation for each related party debt from the end of the second year following creation of a financial arraignment.
This deferral calculation will determine whether the offshore lender has derived NRFAI, and whether NRWT will be required to be withheld. The deferral calculation compares the accumulated interest payments and the accumulated accruals for each related party debt at the end of each income year. Where the level of deducted interest exceeds the level of interest paid by a specified threshold (broadly 90%), NRFAI is deemed to arise and NRWT is payable. In respect of all interest deducted.
The New Zealand borrower may be exempt from applying this deferral calculation if the New Zealand borrower’s expenditure on related party debt in the previous year is below the $40,000 de minimis threshold.
Please contact your usual Staples Rodway advisor if you would like to discuss any of the above.
Inland Revenue released the 2018-19 Tax Policy Work Programme as part of the 2018 budget. The Work Programme takes into consideration recent developments and progress on projects from the previous Work Programme. The areas covered include the following:
Government priorities, coalition, confidence and supply agreement items
Enhancing tax policy within broad-base and low-rate tax settings
International tax, base erosion and profit shifting
Business transformation and better public services
The full work programme can be found here.
As Inland Revenue releases discussion documents and other commentary, we will comment on the above issues in future editions of Tax Talk.
The work programme provides you with the opportunity to see where Inland Revenue is putting its focus in the next 12 to 18 months. If you are concerned about any of these areas or would like to be kept informed about any specific Inland Revenue work programme item, please contact your local Staples Rodway tax advisor.