New tax legislation

On 9 September 2021, the Government introduced the Taxation (Annual Rates for 2021-22, GST and Remedial Matters) Bill (“the Bill”) into Parliament, containing over 100 tax amendments. Changes of note are summarised as follows.

One significant amendment is in relation to purchases from associated persons. Under current law, if a GST registered person (‘the purchaser’) acquires second-hand goods from an associated person who has not used them to make taxable supplies, and that associate originally purchased the goods from a non-GST registered person, the purchaser’s second-hand goods deduction is zero. This has been a frustrating and illogical rule that has caught out numerous taxpayers over the years – they will know who they are. In what is an arguably overdue amendment, it is proposed that the purchaser (in the above situation) will be allowed to claim an input tax deduction equal to the tax fraction of the original purchase price of the associated person.

When the top marginal tax rate increased to 39%, there was a flow on increase to the default FBT rate from 49.25% to 63.93%, which has meant employers applying one of the default or short form options are arguably overpaying FBT in the first three quarters. Under the proposed new pooled alternate option, employers would only pay FBT at the increased rate for employees with all-inclusive pay of $129,681 or more, which generally equates to employees that are subject to the top marginal income tax rate (i.e. for employees that earn over $180,000). On the other hand, FBT would be payable at the 49.25% rate in relation to employees with all-inclusive pay of under $129,681 (i.e. employees that earn less than $180,000). Consequently, this should prevent employers from overpaying FBT during the year.

Reflecting how complex the residential bright-line provisions are becoming, the Bill also contains further refinements to these rules. For example, one amendment proposes that where a main home takes longer than 12 months to construct, the construction period will continue to be treated as “main home days” for bright-line purposes.

The average person may not realise that sales suppression software exists. However, this is a key point of contention for Inland Revenue, as this software alters point-of-sale data to manipulate revenue – facilitating tax evasion. While not necessarily commonly used, Inland Revenue considers the spread of such software to be a major risk to the integrity of the tax system. Thus, criminal and civil penalties of up to $250,000 are being introduced for the supply or possession of such software.

Finally, in what seems to be the end of an era for ‘baby boomers’ and late adopters of technology, fax as an approved method of communication with Inland Revenue is being removed.

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