The IRD appears to have been busy before the holidays, with a number of documents released in the lead up to, and after Christmas. A summary of the documents that have been released is provided below.
PUB0214 – Scholarships and Bursaries
Income tax law exempts certain scholarships and bursaries from income tax. The IRD has released a draft interpretation statement that sets out how this law should be interpreted and applied. In particular, the statement sets out the requirements that must be met in order for the payments to be exempt from tax.
Of relevance in a business context, the IRD sets out its view as to whether payments provided to staff to study, qualify as true bursary payments or as taxable employment remuneration. In determining the tax treatment of a payment its true character must be established by looking at the agreement that gives rise to the payment and the surrounding circumstances, including the relationship between the payer and payee, the basis for the payment and what the payee is required to provide in return for the payment.
Disposal of land that is part of an undertaking or scheme involving development or division
The IRD has released a draft ‘Questions We’ve Been Asked’ document (QWB0040) regarding whether or not land retained after a taxable subdivision is completed, is also ta
le when it is later sold. This topic is somewhat of an ‘old chestnut’, the issue being whether the area retained is taxable when it is later sold under the same provision as the land sold as part of the subdivision. The IRD conclude that it may be possible for the later sale of the retained land to be non-taxable.
The draft QWBA is an update to an earlier version, the ultimate outcome has not changed. However, the IRD has amended its view to provide that taxpayers need to be able to “provide satisfactory evidence” that the subdivision was not completed with a view to disposing of the retained land. Given land sales are a focus of the IRD’s Investigations Unit, this requirement needs to be taken into account when completing a subdivision that is partly taxable.
Changing to a different depreciation rate
After the change in depreciation rate for buildings to 0% from the 2011-2012 income year, many taxpayers asked whether they could review their fixed asset registers to split the value of a building into its component parts and depreciate those parts at their respective rates.
Due to the uncertainty around whether changes could be made to depreciation rates, the IRD has released a draft QWBA (QWB0131) document. The QWBA sets out the limited circumstances when the depreciation rate for an item of depreciable property can be changed. Generally, such changes may be permitted where:
- there is a change in legislation that affects the applicable depreciation rate,
- the Commissioner sets a new depreciation rate for an item,
- the taxpayer changes from using a special rate to using the economic or provisional rate that applies to their item,
- the taxpayer has been using an incorrect depreciation rate, or
- the depreciation rate is no longer applicable due to a change in circumstances.