Corporate Tax

The Week in Tax: the tax implications of the Clear Automotive Low cost Scheme, the nonetheless scrutinizing GST declarations from the tax workplace and the newest OECD report on corporate tax statistics

In the week when the report of the Intergovernmental Panel on Climate Change stated that climate change is “clearly caused by human activity”, it is pretty cheap for the tax office to do its Guidance on the tax implications of the state’s clean car rebate program.

In summary, the Clean Car Discount Scheme was introduced to make buying low-emission vehicles more affordable. Between July 1, 2021 and December 31, 2021, an eligible vehicle or vehicle will be registered for the first time.

From January 1, 2022, it is proposed that the clean car discount be based on the vehicle’s CO2 emissions, with low, zero or low emissions vehicles receiving a discount and high emission vehicles being charged a fee (subject to the adoption of the relevant legislation). ).

Of course, when doing business you need to be aware of the tax ramifications of receiving a discount or paying a fee under the Clean Car Discount Scheme or leasing a vehicle that is under the Clean Car Discount Scheme. And of course the result will vary depending on what you use a vehicle for.

If you receive a discount under the scheme, you will not have to pay income tax on the discount. It will either be treated as foreclosed income under government grant rules when you claim a depreciation of the vehicle or a capital receipt. Conversely, a fee paid under the Clean Car Discount Scheme is treated as a capital expense and is therefore not deductible. And that is obviously going to be something that should be carefully watched.

If you now use the vehicle in your company and want to claim a depreciation, the base costs for these purposes will either be reduced by a discount received or increased by the amount of a fee. This is again to be taken into account.

When it comes to FBT, and that is going to be pretty critical I would say, since we suspect there is some compliance going on in this area, FBT comes due when the car is made available for personal use. FBT is calculated on the cost of the car when purchased or its value when leased. The costs are either reduced by the amount of any discount or increased by the amount of any fee.

For GST purposes, if you receive a discount under the Clean Car Discount Scheme on a vehicle that you use for your taxable activity, the discount will be treated as consideration for a service claimed as delivery under government grant rules. This means that you will have to return the GST on your next GST return. If, on the other hand, a fee is to be paid, its GST share can be claimed as input tax if you carry out a taxable activity.

Overall, this guide is helpful. The tax office has also included some examples. As I said earlier, it is quite appropriate that this time has come when the issue of environmental taxes and the role that they can play in achieving our goals under the Paris Accords is becoming ever more central.

Tracking IRD audit activity

As I just mentioned, there is a suspicion that a FBT non-compliance may be underway at the moment. And so it’s pretty interesting to see the latest statistics about the auditing activities of the auditing company.

This is the company that offers Insurance against financial controls and reviews.

For the period ending March 31, 2021, the total number of applications increased by 31% compared to the year ending March 31, 2020. So despite a pandemic, the tax office is still active in reviewing taxpayers. What is interesting here is that in the 12 months ended March 31, 2021, GST verification request activity increased 48% and income tax return related activity increased 67%.

This now apparently includes two projects that Inland Revenue began last year, the Bright Line Property Rules and also the program for the automatic exchange of financial account information related to the Common Reporting Standards.

GST verification activities actually accounted for 90% or more of all claim values ​​in New Zealand, when in fact only 55% of all claims were related to GST verification. This is a timely reminder that the tax office is still keeping a close eye on matters.

It’s actually a little encouraging to hear that Inland Revenue is still actively reviewing GST returns. I’ve seen a case or two wondering how claims got through, including a warranty case that’s going on right now where I’m really surprised why the tax office doesn’t get into what happened much, much sooner .

However, the fact is that despite the pandemic and the impact it had on the general operations of the tax office over the past year, GST activity has still been sustained. You have been warned

International trademark

The OECD recently launched its third edition of its Corporate tax statistics. It is a treasure trove of information about corporate tax worldwide and the topics and statistics covered are constantly being expanded. And the report, based on the 2018 numbers, has some very interesting insights.

This year the share of the average corporate tax receipts in the total tax receipts was 15.3%. New Zealand was just above it at around 15.5%.

Interestingly, the share of corporate tax revenue has increased from an average of 12.3% in 2000 to 15.3% in 2018. You will also see an increase in average corporate tax revenue as a percentage of GDP from 2.7% in 2000 to an average of 3.2% in 2018. New Zealand up 5.2%. is well above the 2018 average.

This is an interesting statistic because the average statutory tax rate has decreased 8.3 percentage points over the same period since 2000, from 28.3% in 2000 to 20% in 2021. remained the same in another 13 but increased in only four jurisdictions. And that supports the argument that lowering the statutory tax rate and broadening the tax base would lead to higher revenues.

I do think that with the tax cuts we have now probably reached a plateau. I don’t see corporate tax rates drop any further. Over in the United States, they signaled that they were going to move up.

The report goes deeper into the statistics by also taking into account marginal effective tax rates. And this is where it becomes interesting again from a New Zealand point of view, because we have accepted ourselves more thoroughly than most others and have abolished the broadly based low tax approach in corporate taxation by abolishing many preferential regulations; our effective marginal tax rate is just over 20% and is one of the highest in the OECD. Apparently that’s because we have less general tax depreciation rules than most other jurisdictions, although the report notes that we are more generous now, having raised interest rates in 2020 as the pandemic arrived.

The report also provides details on the impact of the implementation of BEPS and statistics in relation to anonymized and aggregated country reports, although New Zealand is not mentioned in this part of the report.

But it also has something that politicians might want to think hard about here, and that is the question of tax incentives for research and development.

The report finds that R&D tax incentives are increasingly being used to boost business, with 33 of the 37 OECD areas offering tax breaks and R&D spending in 2020, compared with just 20 in 2000. New Zealand is one of those countries that do currently do.

And maybe we need to think about it very carefully, because in the statistics showing how much direct government funding and tax support for corporate research and development is in 2018 as a percentage of GDP, New Zealand is a little over 0.1 % of GDP far down the list. You see countries like France and Russia at 0.4% and the United Kingdom, Korea and Israel at just under 0.3%.

So we’re far from the pace here. And it has been recognized for some time that we are not investing enough in research and development. This was one of the reasons for introducing the R&D tax incentive program. As I said earlier, there is a lot to consider in this report, with many detailed annexes for you to sift through.

Robin Oliver Fellowships in Tax Policy

And when we talk about tax policy, this week the Tax Policy Charitable Trust announced its annual Robin Oliver Tax Policy Scholarships, valued at $ 5,000 for undergraduates majoring in Tax at Victoria University of Wellington or the University of Auckland.

And this year the Tax Policy Charitable Trust will start its competition for 2021 grants for tax policy. You may remember that we had the 2019 winner Nigel Jemson, as well as one of the runner-up John Lohrentz in the podcast. I am excited to see what will emerge from these guideline templates in due course.

Well, that’s it for this week. But before I go, it’s been 17 years since Baucher Consulting started the week. And as some of you may know, we recently undertook a minor reorganization to move some of our compliance functions to Agentro Limited. A big step, it’s been a great journey over the past 17 years. And I’m looking forward to the future.

I would like to take this opportunity to thank my colleagues Eric, Darryn, and Judith for helping me get together with all of our customers and many well-wishers who responded to our latest newsletter with this news. Many Thanks. Without you, we really wouldn’t have made it.

Well, that’s it for this week. I’m Terry Baucher and you can find this podcast on mine www.baucher.tax or wherever you can get your podcasts. Thanks for listening. And please send me your feedback and tell your friends and customers. See you next week, ka kite āno.

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