Newsletter Aug - Oct 2021
INSIDE THIS EDITION
'New builds' discussion document 1
The ‘ute’ – Kiwi icon or tax dodge 2
Paid parental leave for who? 2
Cryptocurrencies – Are they
on your radar? 3
Olympic pandemic 4
Self-employed meals 4
‘New builds’ discussion document
Since the Government’s announcement in March, regarding the tax deductibility of interest on residential investment properties and the extension of the bright-line period to 10 years, investors have been waiting for more detail on the new rules.
On 10 June 2021, Inland Revenue released a 143 page discussion document titled “Design of the interest limitation rule and additional bright-line rules”, which provides further clarification on the proposed rules and seeks feedback on certain elements.
In March it was signalled that ‘new builds’ would be exempt from the changes, i.e. interest would remain tax deductible and the brightline period would remain at 5 years. Hence, the detail surrounding what comprises a ‘new build’ has been eagerly anticipated.
Based on the content of the discussion document, to comprise a new build, a code of compliance certificate (CCC) must have been issued on or after 27 March 2021.
The discussion document reveals three categories that new builds can fall under. The first is a simple new build, where one or more self-contained dwellings are added to bare residential land. This also applies to relocated and modular homes, or where an existing dwelling is replaced. The second is a complex new build. This is where one or more self-contained dwellings are added to residential land that already has an existing dwelling on it, without separate title being issued for the new build portion of the land. This includes adding standalone dwellings, attaching new dwellings into existing dwellings and splitting existing dwellings into multiple dwellings. Finally, commercial to residential conversions are also considered new builds.
However, before you can take advantage of the new build exemption, you must also be an ‘early owner’. This is someone who acquires a new build either before the CCC is issued or no later than 12 months after it is
issued. The Government is also considering whether subsequent purchasers of a new build can continue to deduct interest and for how long. There are three options:
In perpetuity for early owners.
In perpetuity for early owners and a fixed period for subsequent purchasers.
For a fixed period for both early owners and subsequent purchasers.
There are a number of questions yet to be resolved. For example, if the sale of a residential house is taxable under the brightline test, can past non-deductible interest be deducted against the profit?
Consultation closed on 12 July 2021; therefore, we expect to see a bill introduced to Parliament soon. Given the content of the discussion document, we expect the legislation will be complex. This is a concern, given the wide reach of who the new rules will apply to.
The ‘ute’ – Kiwi icon or tax dodge
Recently, there has been a large volume of media attention being directed to the ‘ute’ and it has become a focal point of protest action against the Government.
The Government announced the “Clean Car Discount” scheme in June, which from 1 July until 31 December 2021 will see purchasers of imported electric vehicles receive a rebate of $8,625 for new vehicles, and $3,450 for used vehicles. Purchases of new and used hybrid vehicles will also be eligible for a rebate of $5,750 and $2,300, respectively.
There are various additional requirements – for example, the vehicle must have a purchase price of less than $80,000, a safety rating of at least three stars and must be registered for the first time in New Zealand between 1 July 2021 and 31 December 2021.
From 2022, subject to legislation being passed, it is proposed that the amount of the rebate will be based on the CO2 emissions of the vehicle. The rebate will be funded by the introduction of a fee imposed on high emission vehicles (such as some utes) from 2022. It is proposed that a maximum fee of $5,175 and $2,875 will be imposed on new and used imported vehicles, respectively. The exact fee will be based on the CO2 emissions of the vehicle. The policy will only apply to new and used cars arriving in New Zealand from 1 January 2022 – hence the second-hand market of existing high emission vehicles will not be impacted.
The Government has also confirmed that the value for FBT purposes for employers purchasing vehicles that are available for private use by employees, will be either net of the rebate (if an electric or hybrid vehicle), or gross of the fee (if a high-emission vehicle).
Speaking of FBT, the ute has received another blow…
If a ‘company vehicle’ is provided for home to work travel, FBT is likely to apply unless it is a “work-related vehicle”. In order to qualify as a “work-related vehicle”:
the employer’s name or logo must be permanently and predominantly displayed; and
the vehicle must not be principally designed to exclusively or mainly carry passengers.
If a vehicle does qualify as a work-related vehicle, FBT will not apply to a particular day if it cannot be used privately, except for home to work travel that is necessary in and a condition of employment; or other travel that is incidental to business use.
Because sedans and hatchbacks are designed to carry people they don’t qualify as work-related vehicles unless they are specifically modified to qualify. Anecdotally, this might explain the high number of sign-written utes on NZ’s roads…
It now appears Inland Revenue may be directed to crack down on the application of FBT to utes and enforce the view that they may not qualify as a work-related vehicle.
It does appear the Government is saying ‘it’s not me, it’s you’ to the ute.
Paid parental leave for who?
Earlier this month, the Government released Budget 2021. Included in the budget was a boost to all main benefits, including an increase to paid-parental leave.
From 1 July 2021, eligible parents will be entitled to a maximum of $621.76 a week (before tax), an increase of 2.5% on the prior rate of $606.46. While the monetary increase is no doubt welcomed, a recently released UNICEF report suggests that New Zealand’s child-care policies remain inferior among OECD countries. The report ranks New Zealand in the bottom third of “rich countries” after accounting for the duration of paid leave available, access, quality and affordability of childcare.