July was an eventful month on several counts. I fractured my foot skateboarding (surprise, surprise, I know), then shortly after contracted RSV and was rather unwell for a while.
However, a big positive for the month was having Adam Forwood join us, officially doubling the size of the Greenhawk specialist tax team.
Adam started out in insolvency before switching to specialise in tax five years ago when he moved to NZ from Australia. He is also a keen trail runner and foster parent.
In the world of tax, we saw an update to the personal income tax brackets, and Inland Revenue has been busy producing many publications. These include guidance on GST change-in-use adjustments, employee share schemes, changes to tax balance dates, early processing of 2025 income tax returns, and GST as it applies to subdivisions. For more on these, please read on.
– Alex
A GST change-in-use can occur when a person owns an asset and begins using it to derive sales with GST charged, when previous it was only used privately or to derive GST-exempt income.
A common example of this is when a long-term residential rental property (exempt use) begins being used for short-stay accommodation (taxable use) and the GST registration threshold is exceeded.
Before 1 April 2023, a person would need to make a GST change-in-use claim for the cost of an asset across two tax years. As of 1 April 2023, a person can now make a one-off GST claim at the end of the tax year in which the use changes (usually March).
However, due to an error in the drafting of the GST legislation, a black letter interpretation does not allow a person to claim GST on assets acquired before 1 April 2023 which have a change-in-use after 1 April 2023, despite Parliament’s intention being that they could. Unfortunately, Inland Revenue has taken a strict interpretation and have not been refunding claims from the March 2024 return period.
To correct this, a draft Order in Council has been prepared to correct the legislation to match Parliament’s intent, but in the meantime, there are several people waiting on a GST claim.
It is common for tax returns to be processed for a tax year before it has ended. This is often the case for returns filed by executors on behalf of the deceased, or if non-resident taxpayers sell their NZ assets and no longer have income with a NZ source.
In these circumstances, you may still file a tax return for the 2025 tax year, however Inland Revenue has paused processing early returns, and will not begin processing these until potentially December. We understand that this delay is due to the change in tax rates which took effect in July.
It is not uncommon for taxpayers to change the balance date they report their taxable income to. This could be because their earnings come from a business in another country where they prepare tax accounts to a different date, they have a seasonal business which makes March impractical (e.g. agriculture and viticulture), or they are an estate that wishes to adopt a balance date coinciding with the deceased’s date of death.
Inland Revenue issued SPS 24/01 during July which sets out the circumstances in which a non-standard balance date will be approved. In summary, there are a range of scenarios in which a non-standard balance date will be granted and evidence of why a person is eligible will be key to a successful application.
However, Inland Revenue will not agree to change a non-standard balance date if the reason is to defer tax payments or if the request is made after the due date for the return to be filed. The SPS also clarifies that income derived from employment must still be returned to a 31 March date, regardless of a new balance date being issued.
Inland Revenue released two interpretation statements (IS 24/05 and IS 24/06) containing guidance for employers providing employee share scheme (ESS) benefits to employees.
An ESS is an arrangement with a purpose or effect of issuing or transferring shares in a company to an employee. The issue of shares to an employee will result in taxable income equal to the difference in the market value of those shares and what the employee pays. When the employee receives the shares, the employer may not be required to deduct tax like it would from ordinary pay, but they may choose to.
If the employer chooses to fund the PAYE and student loan repayments on the value of the ESS benefit, the usual deduction of ACC levies, Child Support and KiwiSaver are not required. However, if an employee is provided with cash to fund the tax themselves, or if shares are cancelled and cash compensation is paid, these forms of withholding may still apply.
A landowner may be required to register for GST in relation to a subdivision if it qualifies as a ‘taxable activity’. Once registered, the landowner must return GST on lot sales and may claim GST on some costs.
However, as the term ‘taxable activity’ is not clearly defined in relation to subdivisions, there has been uncertainty of what size of subdivision requires a GST registration.
To address this, Inland Revenue has issued QB 24/04 When is a subdivision project a taxable activity for GST purposes? This publication has some general guidance providing that in a simple ‘paper’ subdivision to sell the resulting bare lots, a landowner should only need to register for GST when subdividing into a piece of land into four or more lots. However, at the low end of the scale, a landowner may be required to register for GST if performing only a two-lot subdivision if substantial work to the land is required to subdivide, or if they are also constructing a dwelling on the resulting lots.
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.
