Busy Bees

At the same time, we have discussion documents out considering FBT reforms which if enacted will have a big change in the way we deal with certain expenses. Particularly vehicles and entertainment.

Mentioned in the budget and released the day after is another discussion document considering reforms. This one is looking at how the Working for Families Scheme operates. In essence, this is looking to reduce the complexity of working out the family scheme income, currently quite a complex process with some subjective criteria around ‘drawings’ and making the system more real time rather than an annual wash-up.

Also mentioned in the budget is the dropping of the Digital Services Tax Bill. This Bill was to impose a tax on digital services provided from offshore. The reason given for the removal was the lack of international support.

Inland Revenue has also been busy issuing several interpretation statements. One that was released just before the budget is the Commissioners view on the relationship between the bright-line rules and LTC. With the Brightline rules now only two years, the issue is less pronounced. The statement is still however controversial in how it interprets the transparency of an LTC. The question is, is the property and activities owned and conducted by the company with the net impact transferred to the shareholders or are the shareholders treated as owning and conducting the activities. This has been an issue that has plagued the LTC regime since inception and unfortunately this statement does little to clarify this. The struggle seems to be how to apply a conceptual transparency type regime against a brightline regime designed to work on pure factual arrangements.

While there are questions as to whether all the conclusions drawn in the statement are correct, it does show how the Commissioner plans to interpret the rules and so taxpayers should be careful when dealing with residential property and LTC.