August improved on July. My fractured foot has almost healed, and I managed to take a day off work to enjoy some of the snow that came in the later part of the month.
At home, we had Rupert’s 2nd birthday party and have been doing some spring jobs including pruning some of the trees on our hill. Isaac is proving to be more helpful around the property but still attempts to cut our fences with the loppers when unsupervised.
In the world of tax, there was a new bill released with some key changes applying to crypto asset reporting, foreign pension withdrawals and transfers, land partitioning, Approved Issuer Levy registrations, and the GST zero-rating of business-to-business (B2B) financial services. Inland Revenue has also been busy producing guidance on how the bright-line test applies to transfers of property to and from look-through companies (LTCs) and is seeking consultation on a briefing to Government around the structure of NZ’s tax system and whether alternative taxes are needed.
For more on these, please read on.
– Alex
For many, an attraction to crypto assets has been its secrecy. While Inland Revenue can obtain information about account holders from NZ-based wallet providers, it has struggled to get the same from overseas wallet providers.
The new tax bill includes provisions requiring crypto wallet providers to report information about account holders and their transactions to Inland Revenue from 1 April 2026. This information which includes transaction details and identifying information, will be shared with other participating countries’ tax authorities.
As this is part of an initiative by OECD under the Crypto Asset Reporting Framework, we can expect information about overseas crypto accounts held by New Zealanders to be reported to Inland Revenue.
When a NZ tax resident transfers a foreign pension or retirement fund to NZ, they may need to pay NZ income tax on the transfer. They may also have a tax liability in the country where the fund was established.
This commonly applies to UK migrants with private pensions. While they have the option to transfer their UK fund to a QROPS-compliant fund in NZ and not have UK tax, they may still have NZ tax. If they cannot pay the NZ tax, they will often leave the fund in the UK until they reach eligibility (usually age 55). This is because if they withdraw from the fund to pay the NZ tax before eligibility, they may face UK tax on the withdrawal of up to 55%. A tax on money to pay a tax.
To assist NZ tax residents in this situation, the new tax bill includes provisions requiring the receiving fund in NZ to pay NZ tax on behalf of the holder for transfers from 1 April 2026. Instead of the fund holder paying tax at their marginal rate (up to 39%) the fund deducts a flat rate of tax at 28% on the taxable portion of the transfer.
While the new legislation is aimed at UK fund holders, it also applies to pension and retirement funds established in other countries. Further there are updates allowing holders of locked-in KiwiSaver schemes (if this applies to you, then you will know what I’m talking about) to transfer to a NZ QROPS-compliant scheme such that the funds can be accessed without the current KiwiSaver restrictions (withdrawal only after age 65 or upon financial hardship).
Land partitioning refers to when two co-owners of land choose to subdivide their land, and each receive separate titles. They go from having a part interest in the whole area to a whole interest in a part. For tax purposes, this previously resulted in a deemed disposal and reacquisition at market value often with tax on any gain payable through operation of the bright-line test.
As the economic interest of the land usually remains unchanged, the tax legislation was updated to provide that income arising on partitioning will be exempt when there isn’t a material change in the economic ownership. However, the legislation did not address the issue of a reacquisition which could mean a person has longer to wait-out the bright-line test period. To correct this, there is a retrospective amendment to the legislation to provide that a reacquisition will not occur.
When a NZ resident pays interest on a loan they borrow from an overseas lender, the base position is that they must pay Non-Resident Withholding Tax (NRWT) at a rate of 10% or 15% of the interest payment. However, if the lender is not associated with the borrower, the borrower may elect to deduct AIL at a rate of 2% instead of NRWT. This applies to NZ tax residents with overseas rental properties purchased with loans from an overseas bank.
A common issue with this is that the borrower may not know of their obligation to make deductions from the interest. However, when they are advised of the obligation, they cannot retrospectively choose to deduct AIL at 2% and must pay NRWT at 10% or 15%.
To address this, the recent tax bill allows a borrower to retrospectively register for AIL from 1 April 2025 to avoid the higher NRWT rate.
Generally, the provision of financial services is exempt from GST. However, business-to-business supplies of financial services can be zero-rated, meaning that GST applies at 0% and the financial service provider can then claim GST on GST-inclusive costs. An example of this includes when a mortgage broker facilitates a loan for a business.
Before zero-rating the services, the provider must notify Inland Revenue of their election to zero-rate. However, from 1 April 2025, this election is no longer required.
Public consultation has been sought on a new interpretation statement from Inland Revenue providing guidance on how the bright-line test may apply to transfers of residential land between look-through companies (LTCs) and shareholders, and when a company elects in/out of the LTC regime.
LTCs are companies that are taxed like a partnership – the shareholders are treated as holding assets and deriving the company’s income in proportion to their shareholding. Due to this look-through treatment, the shareholders often consider a transfer of property from their individual ownership to or from the LTC will not result in tax under the bright-line test.
However, the interpretation statement from Inland Revenue clarifies the situations in which a transfer will have bright-line implications. This is generally whenever residential land is transferred between an LTC and shareholder for more than it cost to the vendor, or when an LTC exits the LTC regime to become a standard company.
The LTIB is a briefing given to the Ministers of Finance and Revenue every three years on long-term issues within the current tax system including medium- and long-term trends, risks and opportunities.
For the current LTIB, Inland Revenue is seeking feedback on the scope which will broadly look at the current structure of the NZ tax system and whether alternative taxes are needed in the future to meet the fiscal pressures of our aging population, climate change, and an increased dependency on the health system.
I am expecting that this will include commentary on a potential capital gains tax, among other suggestions.
As always, don’t hesitate to reach out if you’d like help to work through the implications of any of these changes.
Alex Cull, Tax Partner
[email protected]
Tax law is always changing.
If you’re reading this long after the published date, please get in touch to see if it’s still relevant.
