Commercial accommodation expense apportionment
With last week’s AWIR solely focussed on residential accommodation (interest limitation proposals), let’s begin this week’s AWIR looking in the other direction – accommodation more of the commercial type – hotel, motel or boarding houses – and apportioning expenditure when the operator of the accommodation also lives on site.
The topic is addressed in the latest QWBA issued by the Revenue, titled ‘If I run a hotel, motel or boarding house and live on site, what expenditure can I claim?’ The item is referenced PUB00391, and post last week’s 143-page monster, its 13 pages to read are a walk in the park – more so because I must say the content is not overly technical, and arguably simply the logical approach you would use to determine your client’s claim, even without the QWBA guidance.
Akin to the mixed-use asset rules, the first step in the process is working out what components of the annual expenses are 100% business related or 100% private related, with the balance being your mixed expenses – subject then to an apportionment calculation.
There is no exact science to the apportionment calculations, the Revenue simply expecting that the result is ‘fair and reasonable’ and that you have retained sufficient records to support your claim. With the present scenario however, the most commonly used methodology will be apportioning the mixed expenses on a ‘space and time’ basis – work out the relevant areas of the premises that are mixed use areas, and then consider what portion of time the respective areas are used for business and private use.
The Revenue’s stated position in PUB00391, is to accept 50% as a baseline for the amount of time mixed-use areas are used for business purposes where it is considered there is about equal business and private use.
You can, however, depart from the space and time methodology, if you consider you have a more accurate way of calculating the claims for certain types of expenditure – electricity the example provided in the QWBA, where separate meters on the property could be utilised to identify the power used by the various areas instead.
There are a couple of examples contained in the QWBA to illustrate the commentary, but unless you are relatively new to the world of apportionment, I would suggest it’s fairly basic stuff and you are likely to have better things to do with your time.
If you wish to make a submission on the QWBA, closing date is 30th July 2021.
FIF deemed rate of return for 2021
The Income Tax (Deemed Rate of Return on Attributing Interests in Foreign Investment Funds, 2020–21 Income Year) Order 2021 (LI 2021/154) has been notified in the New Zealand Gazette.
The Order sets, for the 2020–21 income year, the deemed rate of return used to calculate FIF income under the deemed rate of return calculation method set out in section EX 55 ITA07. The Order comes into force on 18 June 2021.
The Order sets the deemed rate of return for the 2020–21 income year at 4.43%. The deemed rate of return set for the 2019–20 income year was 5.05%.
The deemed rate of return method is the backup method to the comparative value method which is applicable when there is insufficient market value information about the FIF – usually in relation to non-ordinary shares.
Tax Counsel Office work programme
Just in case you like to follow exactly what’s happening (or not) behind the scenes in tax policy at the Revenue, the latest progress guidance has been updated, which you can locate here.
15% global minimum corporate tax rate?
Well the G7 have agreed to it, in an attempt to ensure the largest multinational tech giants will pay their fair share of tax in the countries in which they operate. The proposal is to make companies pay more tax in the countries where they are selling their products or services, rather than wherever they end up declaring their profits – presently in countries with relatively lower corporate tax rates where the MNE just happens to have established a local branch.
Next step is a discussion at the G20 meeting in July, so watch this space.
