• From the last week in January 2022 Inland Revenue will begin undertaking post-payment eligibility reviews of customers who received an RSP from August 2021
• Inland Revenue is referring to these as Post-Payment Verifications (PPVs) and will be asking customers to supply the supporting information, such as bank statements, used to support their revenue drop calculation when making their RSP claim, and/or the application of the RSP to business
  expenses
• For those customers where their tax agent submitted the RSP on their behalf, secure mail will be directed to the tax agent. Where the customer applied for the RSP directly (the vast majority) requests from Inland Revenue for information will be issued to the customer
• Inland Revenue is aware tax agents may have clients who applied for an RSP directly and become subject to a PPV and that these clients may then contact their tax agent for support and advice (often the agent will be unaware that an RSP claim was made). While the timeframe to respond to a PPV is reasonably short at 5 working days, Inland Revenue will work flexibly with tax agents by responding within a reasonable timeframe
• Where Inland Revenue review finds that the eligibility criteria or payment conditions have not been met, a repayment may be sought
• Inland Revenue will be issuing requests progressively from late January to the end of March 2022 and anticipate completing this work by the end of April
  

We know that many customers are coming under increasing financial pressure to pay their taxes in full and on time because they have been adversely affected by COVID-19. To keep your business going, you may need to make arrangements with the IRD to pay your tax over time. You can contact IRD directly, but if you need help, please contact your Jacal advisor.

Helping you manage new debt due to COVID-19

Depending on your situation, one of the following solutions may be right for you;

• An instalment arrangement
• An instalment arrangement with a later payment start date that is agreed with IRD
• IRD write off part of what you owe and you pay the rest as a lump sum or in an instalment arrangement
• You make a part payment and IRD may write off the rest
• IRD write off all the outstanding tax due to serious hardship

Debt you had before 14 February 2020

You may already have an instalment arrangement with IRD, but because of COVID-19 things have changed and the payments at the amount you had agreed to are hard to make. We can work together to arrive at a new plan that suits your new situation.
Any of the above options may be right for you and each case will be considered on its own facts. Get in touch with us as soon as you know you’ll have trouble paying your current plan.

If you’ve been putting off contacting us, please get in touch so we can talk about the options for your situation.

Earlier in the year the government announced that property investors will no longer be able to deduct interest from taxes on rental properties.

Deductions can no longer be claimed on existing properties bought after 27 March 2021, and deductions for existing properties purchased before this date are being phased out from 1 October 2021. The phasing out works like this:

Draft Legislation – (With effect from 1st October 2021) Supplementary Order Paper (SOP)

Following the announcements relating to housing tax matters earlier this year, draft legislation has been released this week. While earlier March 2021 announcements were somewhat generic. The updated draft legislation now cover some of the more complex matters, including the application of the interest limitation rules and defining the “new build” exemptions.

Housing Related Matters – When Effective

The Finance and Expenditure Select Committee will consider the proposals and is expected to call for a further round of public submissions. These proposals are expected to become applicable from 1 October 2021, subject to final changes recommended by Select Committee. Given the current economic climate and the six week public submission period, we expect the bill is unlikely to be enacted before the end of this calendar year.

Residential Investment & Housing Proposal Key Points – Interest Limitation

• 1 October 2021 will be the application date of the new interest limitation rules.
• Interest will be denied for borrowing related to property acquired on or after 27 March 2021.
• Interest deductions will be phased out over a period of five years, in respect of borrowings relating to property purchased prior to 27 March 2021, starting from 1 October 2021.
• Refinancing arrangement with regard to borrowings at 27 March 2021 will qualify for phased interest deductions, as above.
• Automatic interest deductibility that normally applies to close companies (5 or fewer shareholders holding more than 50%), will not apply to residential land rich companies, that are now subject to interest limitation rules.
• Where the gain on sale of property is taxable, a previously denied interest deduction may now be available (limited to the gain on sale of the property).

New Residential Builds

• These are defined as a residential property that receives a code of compliance on or after 27 March 2020 (not 27 March 2021).
• Interest limitation rules will not apply to a new build for a maximum period of 20 years, irrespective of who owns the property.
• The New Build definition is the same for the purposes of Brightline Test as well as the Interest limitation.
• A five year bright-line property rule (instead of 10 Year) will apply to new builds acquired after 27 March 2021, subjected to certain requirements.

Other Exclusions

• Excluded from these rules are borrowings for properties used as business premises, motels, hotels, houses on farmland, land outside of New Zealand, portions of a main home when used to earn income such as flat mate or boarder, retirement villages, rest homes, student accommodation, B&B, as well as for Maori collectively owned land & housing and for social housing (this means houses rented to Kainga Ora the Government agency)
• The main home exclusion from the bright line test ensures that a property used more 50% as a main home is not taxed. The exclusion does not apply if more than 50% of the property is used for residential rental purposes, in this case the gain on disposal will be taxable.
• Limited rollover relief where property legal ownership change without change in economic ownership for bright-line test purposes.

Property Developer Matters and Considerations

• Property developers are not affected by these proposals directly and remain able to claim interest expense deductions based on the existing tax rules.
• The Government has extended the scope of “exempt development activities” to developers not only for the actual development activities undertaken but also to cover land that is held as part of an ongoing developing, sub-dividing, construction, or land-dealing activity/business.
• The new build exemptions are expected to change residential property investors focus towards new builds and therefore increase the potential customer base available to developers.
• It is encouraging to note the Minister of Housing and Urban Development commented that further consideration will be provided to the “build-to-rent” market and developments under the proposed new rules, as this is seen as a significant and growing untapped sector in New Zealand.
• We note the application of the new interest limitation rules could have been set to coincide with the start of the new financial year, being 1 April 2022, rather than the confirmed date of 1 October 2021 (effectively retrospectively in the current 2022 tax year). This would have provided greater certainty as well as reduced compliance costs to tax payers. We will have to wait to see if there is an extension to this date, after the review and consideration of submissions.
  

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