Increased support for lower-income families

Within present income tax legislation, is a trigger that requires an inflation-indexed increase to the family tax credit and Best Start tax credit, once the cumulative value of quarterly increases in the New Zealand Consumers Price Index (CPI), measured from that applying is 5% or more, on 1 October 2021.

Recent CPI data has indicated the passing of the trigger threshold by the end of the September 2022 quarter, and consequently, effective 1st April 2023, the Income Tax (Tax Credit) Order 2022 (SL 2022/296):

  • adjusts the family tax credit, increasing the eldest child rate from $6,642 to $7,121 and the subsequent child rate from $5,412 to $5,802; and,
  • increases the Best Start tax credit from $3,388 to $3,632.

The minimum family tax credit threshold will also increase from $32,864 to $34,216 from 1 April 2023 to reflect the main benefit increases applying from that date.

Latest technical decision summary

Some of you were aware that I was involved in a lengthy dispute with Inland Revenue (IR), in relation to one of our clients who had subdivided their land into two lots, selling one lot while retaining the other as their family home.

The dispute all started post receiving a letter from the Revenue, which stated that they had identified that our client had sold a lot of land but had not returned any land sales income in the relevant income year’s income tax return.

Now somewhat fortunate for my client, was that they had acquired the residential land pre the introduction of the bright-line rules, as otherwise, it would have been a straightforward case for the Revenue.

My initial response to the Revenue was that while section CB 12 had been triggered (a subdivision scheme had commenced within the requisite 10-year period, and because the original dwelling had been demolished, clearly the work involved was more than minor), my client was entitled to claim the residential exclusion, because they had lived on the land as their family home pre subdivision, and the original land lot was less than 4,500sqm.

I thought that would be the end of the enquiry, however, I then received a response from the Revenue saying that my client could not claim the residential exclusion because they had never lived in the new dwelling before it was sold. Now clearly this was an incorrect interpretation of the law, so I pushed back accordingly, but it frustratingly took several months before Legal finally agreed with my response – although not completely, as they then attempted to impute the more than 50% bright-line test time requirement for my client to have actually lived on the land before the exclusion was available. Yet another incorrect interpretation of the law, so again I pushed back.

Now by this time, having invested so much resource in the case, the Revenue went all out to obtain a return for their investment. They then asserted section CB 6 (intention of resale) applied, simply because the advertising material had suggested the land could be subdivided (what land in Auckland now doesn’t include such marketing statements??), and this was also post us providing a written statement from the architect, that his initial scope of engagement was simply to extend the original family home.

Also raised was the potential application of section CB 3 (profit-making scheme) – not one of the specific land taxing legislative provisions, but one that court decisions have agreed can still apply in relation to a gain made upon the disposal of land. And finally, just to round everything off, suddenly the question of GST was raised, on the basis that my client’s one-off subdivision was a taxable activity.

Now interestingly IR offered to drop the GST claim, if we were to agree to their income tax assertions, which immediately suggested to me that they did not believe that their GST case was strong.

However, I recommended to my client that we just dug into the trenches and at least took the case as far as the Tax Counsel Office. TDS 22/21 has now been published, reflecting a fantastic result for my client: we won the case on all counts.

The TCO decision is also reflective of the need to not be afraid to push back at the Revenue if you do think that their assertions lack merit/are incorrect interpretations of the law, and that is also due to the way that tax disputes are presently managed by the Revenue (you usually have the same people involved throughout the process), often you will need to take the case as far as the TCO to get the desired result.

If you have a client in a similar situation and find you are getting nowhere with the Revenue and would like some assistance, please contact me.