Implementation of the Global Anti-Base Erosion (GloBE) Rules
New Zealand is expected to be implementing the GloBE Rules, a key component of the Organisation for Economic Co-operation and Development’s (OECD’s) Two-Pillar Solution to address the tax challenges of digitalisation of the economy, with an effective date for some measures as early as income years commencing on or after 1 January 2024. See the Taxes on corporate income section for more information.
Platforms - information reporting
The Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 introduces a new information reporting requirement for platform operators based in New Zealand. At a high level, the new rules will require platform operators to provide Inland Revenue with information about sellers who provide goods or services through digital platforms. These are based on model rules developed by the OECD, which are incorporated into New Zealand domestic law.
The proposed amendments would require platform operators based in New Zealand to collect and provide Inland Revenue with information about the income sellers receive from the following activities provided through digital platforms:
- Taxable property rentals (including commercial, short-stay, and visitor accommodation).
- Personal services (including any time- or task-based work, such as ride-sharing, food and beverage delivery, and graphic and web design services).
The sale of goods and vehicle rentals (if there are non-resident sellers on the platform) may also be brought into the rules at a later date.
Sellers on digital platforms are required to provide additional information to platform operators, including their tax file number, country of tax residence, and other identifying information. New Zealand-based platform operators would then be required to report information to Inland Revenue about the income earned by sellers on their platform.
New Zealand-based reporting platform operators would be required to collect information on sellers that receive consideration from activities on their platforms from 1 January 2024. Reporting platform operators would then need to report this information to Inland Revenue in early 2025, and Inland Revenue could exchange information with other tax authorities in early 2025.
Platforms - goods and services tax (GST)
From 1 April 2024, existing GST rules for electronic marketplaces (that currently apply to remote services and low value imported goods) will also apply to taxable accommodation, ride-sharing, and food and beverage delivery services (‘listed services‘) that are provided through electronic marketplaces.
This means that electronic marketplace operators facilitating these services via their platform will be required to collect and return GST at the standard rate of 15% when they are performed, provided, or received in New Zealand. So, for example, electronic platforms facilitating short-stay/holiday accommodation rentals would be required to collect and return GST at 15% on New Zealand accommodation booked through the platform. The platform will become responsible for the GST, rather than the underlying provider of the accommodation, and the GST will be payable even if the underlying provider is not GST-registered.
In summary, the proposed amendments would mean that, from 1 April 2024:
- Electronic marketplace operators would be considered the supplier of these services for the purposes of GST and be responsible for collection and return of GST to Inland Revenue.
- For the underlying supplier, the supply of listed services sold through electronic marketplaces would be considered as made to the electronic marketplace operator and zero-rated for GST.
- For the purposes of the GST recoverability of underlying suppliers:
- Where the underlying supplier is already registered for GST, they would be able to deduct input tax on their expenses in the usual way.
- Where the underlying supplier is not registered for GST, they would receive a flat rate credit of 8.5% of the value of the supply. This is intended to recognise the GST incurred by unregistered underlying suppliers on goods and services used to make supplies of listed services.
- There are some possible exceptions to the above for underlying suppliers to ‘opt out’ of these rules (such that underlying suppliers continue to be responsible for their own GST obligations). Underlying suppliers with an annual turnover of over 500,000 New Zealand dollars (NZD) in a 12-month period may unilaterally opt out of the rules by notifying the marketplace operator. Marketplace operators and underlying suppliers can also opt-out of the rules by agreement if the underlying supplier supplies taxable accommodation, provided that they list more than 2,000 nights of accommodation on a marketplace in a 12-month period. There will also be discretion for Inland Revenue to approve opt-out agreements in circumstances where the size, scale, and nature of the services and activities undertaken by the underlying supplier justifies opting out of the rules (having regard to compliance costs that would arise for underlying suppliers to comply with the rules).
Dual resident companies
Being a dual tax resident previously gave rise to a number of unfavourable tax consequences in New Zealand, including the inability to offset tax losses with other commonly owned companies, the loss of eligibility to be part of a New Zealand tax consolidated group, and the loss of all imputation credits upon becoming a dual resident (unless an election was made beforehand).
New rules will allow New Zealand companies that are a tax resident in another jurisdiction to continue to be eligible to offset tax losses with other group companies and continue to be a member of a New Zealand tax consolidated group. New Zealand companies that are deemed to be Australian tax residents can also automatically preserve their imputation credit account balance (without the need to make a specific election).
Two integrity measures have also been introduced with respect to New Zealand companies that are deemed to be tax resident of another country under a double tax agreement (DTA) (referred to as being ‘tie-broken’ to another country).
The changes are in response to integrity issues that give rise to situations where companies derive income or pay dividends without the anticipated New Zealand income tax due to the change in tax residence and obtaining tax relief under a DTA.
The first integrity measure removes the domestic dividend exemption (which generally applies such that dividends paid between members of a wholly owned group of New Zealand companies are treated as exempt income) for dividends paid to certain New Zealand companies that have been tie-broken to another country under a DTA. Previously, the DTA could have prevented the application of withholding because a dividend paid by a company tie-broken to a country outside of New Zealand was treated as being paid by a non-New Zealand resident under the DTA.
Dividends paid to companies that are dual resident in Australia and New Zealand are excluded. Given that the majority of potentially in-scope dual resident companies are resident in Australia, this exclusion significantly reduces the compliance and administration costs.
The second integrity measure is to apply the corporate migration rules when a New Zealand company tie-breaks to another country under a DTA. The corporate migration rules will, in effect, deem a liquidation, disposal of assets, and distribution to shareholders for New Zealand tax purposes.
The corporate migration rules would only have practical effect on the earlier of:
- a company claiming tax relief under a DTA on the basis it is DTA non-resident, or
- two years following the company receiving a competent authority determination that it is tax resident in another jurisdiction, but only if the company has not changed its residence back to New Zealand under the relevant DTA during that two-year period.
The tax liability will be triggered immediately before the DTA migration. However, any income arising from the rules would be allocated to the income year in which the triggering event occurs.
The scope of integrity measures is limited to include allowing the New Zealand company a two-year period to rectify its tax residency status before the application of the measures is affected.
Principal purpose test
Low value purchases that only have a small or incidental amount of non-taxable use are subject to the apportionment rules under current law, and the adjustment rules currently apply to assets of more than NZD 5,000 (excluding GST). From 1 April 2023, goods or services acquired for NZD 10,000 or less (excluding GST) will not be subject to the apportionment or adjustment rules.
Instead, if the use of those goods or services is mainly for taxable purposes, a full input tax deduction will be allowed. If they are mainly used for non-taxable purposes (i.e. 50% or more), then no input tax deduction will be allowed. This would cover revenue expenditure and smaller value assets, such as computers, phones, and tools.
Election to treat as exempt
Under Inland Revenue’s interpretation of the law, the disposal of an asset that has a small percentage of taxable use (e.g. a dwelling with a home office) is treated as a taxable supply and GST applies at 15%. This can result in large and unexpected GST liabilities when the asset is sold.
Changes to the GST rules (with retrospective effect from 1 April 2011) will now ensure that GST-registered persons will be able to elect to treat the supply of goods that were not acquired or used for the principal purpose of making taxable supplies as not subject to GST. This will apply only to tangible assets, such as land, dwellings, or vehicles (i.e. goods), which are likely to have a minor amount of use in making taxable supplies. Services are excluded, as it was not considered that they are likely to have part use in the same way that tangible assets are.
To qualify for the exemption, the following requirements must be met:
- no previous deductions claimed for the goods
- the goods were not used or acquired for the principal purpose of making taxable supplies, and
- the goods were not acquired as zero-rated supplies under the compulsory zero-rating of land rules.
Tax rules for build-to-rent developments
The government recently enacted tax rules to disallow interest deductions in relation to residential investment properties (with deductions for interest on existing loans to be phased out over time). These rules are intended to address New Zealand’s 'long-standing housing affordability problem' and bring about more owner-occupied housing, sustainable house prices, and a more competitive housing market.
Build-to-rent assets have now been added to the list of excepted residential land to ensure the rules do not negatively impact the supply of this type of large-scale rental property specifically. This means the interest limitation rules do not apply to deny deductions for interest incurred for property that falls within this exclusion.
The build-to-rent exemption will apply to all new developments completed after 1 July 2023, once the development meets the definition of 'build-to-rent land'. Existing dwellings must meet the definition of 'build-to-rent' by 1 July 2023 for this exclusion to apply.
Build-to-rent properties are larger-scale residential property developments of at least 20 dwellings that offer tenants long‑term accommodation with greater tenure than traditionally seen in rental accommodation. To qualify, tenants must be offered fixed term tenancies of up to 10 years at all times and these tenancies must have policies that allow the tenant to personalise the dwelling.
The build-to-rent exemption will only apply to the portion of the development that is 'build-to-rent land', and whether interest can be deducted for the remaining portion of the land will depend on whether the interest limitation rules apply, whether any exemptions to the interest limitations rules apply (such as the 'new build' exemption), and what purpose the land is used for.
The build-to-rent exemption will immediately cease to apply if the build-to-rent land or dwelling no longer meets the definition of 'build-to-rent'. For example, if an individual dwelling in a development no longer meets the requirements of a 'build-to-rent', that dwelling will no longer be excluded from the interest limitation rules.
Fringe benefit tax (FBT) exemptions (public transport; self-powered and low-powered vehicles)
Three new FBT exemptions have been introduced in relation to self-powered and low-powered vehicles, vehicle-share services for self-powered and low-powered vehicles, and public transport.
Self-powered and low-powered vehicles
A newly introduced FBT exemption provides that FBT will not be payable where an employer provides an employee with the use of a self-powered or low-powered vehicle for the main purpose of home to work travel.
For the purposes of this exemption, a self-powered or low-powered vehicle includes:
- A bicycle.
- An electric bicycle.
- A scooter.
- An electric scooter.
- A mobility device.
Additionally, FBT will not be payable where an employer pays an employee’s costs of using a vehicle-share service for the main purpose of home to work travel. This exemption applies to where the vehicle-share service is a self-powered or low-powered vehicle, such as those listed above.
For the purposes of this exemption, a vehicle-share service means a transport service that allows employees to hire a vehicle for a point-to-point trip through a mobile communication device.
Employer contributions to certain public transport fares for the main purpose of an employee’s home to work travel will be exempt from FBT.
The new exemption applies where the contribution is to a public transport fare for:
- a bus service
- rail service
- ferry, or
- cable car.
The transport must be publicly available and charged with set fees and excludes services that can be reserved for individuals or self-selected groups and shuttle services (a small motor vehicle carrying less than 12 people who begin or end their journey at an airport, bus or ferry terminal, or railway station).
A raft of tax changes in relation to ’cross-border workers‘ have been introduced. These attempt to find the balance between whether an ultimate tax liability exists in New Zealand, managing the risk of non-compliance, and using information to promote tax compliance.
Pay-As-You-Earn (PAYE), FBT, and employer superannuation contribution tax (ESCT)
These amendments seek to reduce the cost of compliance by establishing a more flexible framework for PAYE, FBT, and ESCT where these rules are applied to cross-border employees. The flexibility measures are supported by new rules to support the integrity of the sufficient presence test.
Definition of a ’cross-border employee‘
A new definition of ’cross-border employee‘ has been introduced. This is defined as:
- an employee of a non-resident employer who provides services in New Zealand, or
- a New Zealand resident employee who provides services outside New Zealand.
60-day grace period
A grace period has been introduced for an employer to meet or correct their PAYE, FBT, and ESCT obligations, for cross-border employees, within 60-days where they have taken reasonable measures to manage their employment-related tax obligations, and the employee is present in New Zealand for a period during which the employee has:
- breached a threshold for the short-term visits exemption (e.g. where the person is present in New Zealand for more than 92 days in a 12-month period).
- breached a threshold for exemption under a relevant double taxation agreement, or
- received an extra pay.
Bespoke PAYE arrangements
Where ‘special circumstances’ exist, an employer of a class of cross-border employees can apply to the Commissioner of Inland Revenue for an agreement that the tax due for a PAYE income payment may be made by 31 May following the end of the relevant tax year. That is, the tax could be paid on an annual basis rather than being paid regularly throughout the year as required under the ordinary rules.
Safe-harbour arrangements for non-resident employers
A safe harbour has been introduced for non-resident employers who have incorrectly determined that they do not have New Zealand PAYE, FBT, and ESCT obligations. A safe harbour would be available where the non-resident employer has:
- either two or fewer employees present in New Zealand at any point in the income year, or pays NZD 500,000 or less of gross employment related taxes in New Zealand for the income year, and
- arranged for their employment-related tax obligations to be met by another person or has communicated to the affected employee(s) that they must meet those obligations directly.
Where the conditions of the safe harbour are met, a non-resident employer who has incorrectly determined that they do not have a sufficient presence in New Zealand would be protected from penalties and interest on the unpaid tax.
Transfer of obligation to an employee
Clarification has been given confirming that where a non-resident employer does not have an obligation to pay PAYE, FBT, and ESCT, the obligation transfers to the employee. This change ensures that employees are taxed equally on cash payments, fringe benefits, and superannuation contributions, regardless of where their employer is based.
Clarifying the status of non-resident entertainers
The definition of ’non-resident contractor‘ has been updated to exclude a ’non-resident entertainer‘ and thereby clarify the provisions that apply to non-resident entertainers.
Non-resident contractors tax (NRCT)
Grace period for certain circumstances
A 60-day grace period will allow an NRCT payer to meet or correct their NRCT obligations where:
- the payer makes a schedular payment to a non-resident contractor
- at the time the payment was made it was not clear that withholding would be required
- some, or all, of the tax is underpaid at the tax due date, and
- the payer can demonstrate they have taken reasonable steps in relation to the tax obligations for the schedular payment.
The grace period would run from the earliest of the date of the breach and the date on which the employer could reasonably foresee a breach will occur.
A nominated taxpayer approach
New rules allow a non-resident contractor to nominate a taxpayer to meet the non-resident contractor’s New Zealand tax obligations on its behalf. Both parties would be jointly and severally liable for these tax obligations. This is intended to simplify NRCT obligations, particularly where delivery of a project involves multiple parties.
NRCT exemptions to have retroactive effect
An exemption from withholding NRCT will now have retroactive effect, meaning that if the exemption is issued after the date of the first contract payment, the exemption can cover payments made before its issue date. This retroactive period is limited to the 92 days before the person applied for the exemption.
Double tax agreements (DTAs)
New Zealand is currently negotiating new and updating DTAs with Austria, Belgium, Fiji, Korea, Luxembourg, the Netherlands, Norway, Portugal, Saudi Arabia, the Slovak Republic, and the United Kingdom.