A Week in Review

Richard AshbyPartner, Gilligan Sheppard

OECD Philanthropy Report

The OECD has recently released a report which comments on the tax treatment of philanthropic entities and charitable donations in 40 countries across the globe.

Acknowledging that in some countries, the non-profit sector accounts for up to 5% of GDP, the report recognises the need for the right balance to be maintained by jurisdictions Governments, to ensure the integrity of the tax system is retained while at the same time supporting the philanthropic sector existing within their communities.

The report concludes with the following recommendations for Government policy makers:

  • Reassess the activities eligible for tax support and ensure that favourable treatment is limited to those areas consistent with underlying policy goals
  • Consider providing tax credits rather than deductions and fiscal caps to ensure that tax support does not disproportionately benefit higher income taxpayers
  • Reassess the extent of tax exemptions for commercial income of philanthropic entities to minimise the risk of putting for-profit businesses at a competitive disadvantage
  • Reduce the complexity of tax laws that disproportionately affect low-income donors and smaller philanthropic entities
  • Improve oversight and boost transparency to safeguard public trust in the sector and ensure that tax concessions used to boost philanthropy are not abused through tax avoidance and evasion schemes
  • Reassess restrictions currently imposed on cross-border philanthropic activity.

If you would like to read more, a full copy of the report can be obtained from the OECD’s website.

MoR speech to CAANZ conference

In case you did not attend this year’s CAANZ tax conference, the traditional Minister of Revenue’s keynote address to the audience included the following comments:

  • There is priority towards getting the flexi-wage scheme up and running by the end of 2020. This is essentially a wage subsidy programme that assists employers to hire and help people with training or mentoring to gain the skills for a job
  • The 39% top personal tax rate on income above $180k will kick in from April 1st – more on this below
  • Significant international concerns regarding the under-taxation of digital MNE’s will hopefully be lessened by an OECD-led multilateral solution to be announced mid-2021. The alternative, less preferred option presently for NZ, is to go it alone and address the issue with its own digital services tax (DST)
  • Two taxation Bills are presently in the pipeline, both likely to be passed pre-31 March 2021 – the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Bill, and the Child Support Amendment Bill

The final stage of IR’s business transformation program was nearing completion, to launch in March 2021 and deliver improvements to paid parental leave, child support, unclaimed monies, duties, and foreign trusts activity.

Bill to increase top personal tax rate introduced

Just in case your Santa stocking was looking a little empty, the recent release of the Taxation (Income Tax Rate and Other Amendments) Bill (2-1) is just the thing for you to print out, fill the gap in your sack, and provide you with some enthralling reading post the usual overeating that occurs every December 25th, regardless of how many times before you’ve told yourself you’ll never do it again.

So settling down for your much deserved afternoon nap post an industrial morning of helping the kids put together their new lego sets that Santa has kindly delivered, you can drift off reading that in 2021:

  • A new top personal tax rate of 39% will apply to incomes in excess of $180k from the commencement of the 2021-22 and later income years, which for the majority of us will be April 1st. A number of tax rules will be amended to accommodate the new rate, including those related to PAYE, FBT, RWT on interest, ESCT, RLWT, RSCT, and the taxable Māori authority distributions non-declaration rate, although note that the RWT rate changes will not come into effect until 1st October 2021 to ensure that interest payers are able to implement the required systems changes
  • To mitigate the game-players amongst us who may attempt to use trust structures to save 6%, increased information disclosures will be required for trustees’ annual returns for the 2021-22 and later income years. Trustees would be required to provide financial statements (primarily a P&L and balance sheet), details of distributions and identifying information for those receiving beneficiaries, details of settlements during the year and identifying information regarding the settlor, and details of other relevant persons, particularly those who have a power to appoint or dismiss a trustee, to add or remove a beneficiary, or to amend the trust deed
  • IR’s information gathering powers will be clarified to make it clear that you can be required to provide any information IR considers that it needs solely for the purpose of tax policy development
  • The minimum family tax credit (MFTC) threshold for 2020-21 would increase to $29,432 per annum ($566 per week) from $27,768 per annum ($534 per week). The purpose of the MFTC is to ensure that the incomes of families who work full-time (defined as 20 hours for sole parents and 30 hours for couples) and do not receive a benefit are always higher than what their income would be if they continued to receive a benefit.

The commentary to the Bill is only 11 pages, so you may need to couple it with the OECD’s philanthropic report to get you really snoring.

Employer provided accommodation

IR has released draft operational statement ED0227, ‘Income tax treatment of accommodation provided to employees’.

Discussed within the commentary is:

  • The definition of ‘accommodation’, exploring the types of accommodation that are specifically excluded from the definition such as a room, berth or other lodging provided on a mobile workplace such as a ship, a truck or an oil rig, or accommodation provided in a remote location outside New Zealand
  • The application of any of the available exclusions if the accommodation is not excluded (i.e. out-of-town secondments and projects, ongoing multiple workplaces, meetings, conferences, and training courses)
  • Valuing the accommodation benefit.

A good starting point for dealing with any employer provided accommodation questions from your clients, is to commence with the premise that PAYE should be withheld by the employer on the value of what their employee receives. Then proceed to examine the accommodation type and whether it is excluded from the definition, and if not, whether a specific exclusion from an otherwise taxable benefit may be applied.

The deadline for comment on ED0227 is 1st February 2021.