TRA case confirms IR’s ‘one project’ approach | Covid-19 resurgence support payments scheme now in force | Reportable jurisdictions list updated

By February 28, 2021 No Comments

TRA case confirms IR’s ‘one project’ approach

A recent decision of the TRA confirmed IR’s ‘one project’ approach when considering work undertaken by the taxpayer on a property that they owned.

For those of you lucky enough to have read IR’s 2012 R&M interpretation statement IS 12/03, you will be well aware of IR’s view on this particular issue. How many of you have experienced a client coming to you in respect of work they are undertaking on an asset, questioning whether they can break the expenditure incurred down into separate categories of R&M (revenue) and improvements (capital).

While the question from your client may appear to be quite reasonable, paragraph 22 of the aforementioned IS and further from paragraph 185, along with this latest TRA decision, confirms that repairs and maintenance work that forms part of one overall project to reconstruct, replace or renew an asset, or substantially the whole of an asset, or to change that asset’s character will likely take its nature from that project. This is regardless of whether that project concerns work done on a single asset or a group of assets. Consequently where the overall project is considered to be of a capital nature, then the entirety of the expenditure involved will be tainted with the capital flavour brush and therefore be non-deductible.

Taxation Review Authority, [2020] NZTRA 2, 3 December 2020 is the case reference, and not only did the Court confirm the ‘one project’ approach, but the judge also felt that this was not a case where reasonable minds could have differed in the interpretation of the expenditure and consequently upheld IR’s shortfall penalty imposition for an unacceptable tax position as well.

Covid-19 resurgence support payments scheme now in force

Very topical at the moment considering most of us in Auckland are probably hunkered down in the home office again this morning, the Covid-19 Resurgence Support Payments Scheme (February 2021) Order 2021 (LI 2021/12) (the Order) came into force on 23 February 2021 and activates the Covid-19 resurgence support payments scheme (the CRSP scheme).

With the increase in alert levels announced on Saturday night being for a seven-day period from the outset, eligible businesses (nationwide) can make a CRSP application. To ascertain an entitlement to claim, businesses will of course need to wait the full seven days, to determine whether as a result in the alert level change, they experience at least a 30% reduction in their revenues over that seven day period, compared to their typical weekly revenues in a six week period pre the alert level shift.

It should be noted in this regard, that the size of the revenue decrease declared on the CRSP application will also determine the level of the grant, as the payment entitlement will be calculated based on the lower of four times the revenue decline, or $1,500 plus $400 per FTE.

Following announcement of the CRSP package, IR on the 23rd February released a Special Report, which you can locate here – https://taxpolicy.ird.govt.nz/-/media/project/ir/tp/publications/2021/2021-sr-crspom-bill/2021-sr-crspom-bill-pdf.pdf

Finally, the wage subsidy scheme will also be available to affected businesses due to the seven-day period of the latest alert level change. Further details regarding this are proposed to be on Work & Income’s website which had not yet been updated at the time of writing this article.

Reportable jurisdictions list updated

For those of you who are not aware, as part of implementing the Common Reporting Standard (CRS) for Automatic Exchange of Financial Account Information in Tax Matters (commonly referred to as AEOI), NZ is required to publish a list of territories (reportable jurisdictions) to which IR may provide certain information about non-residents it has obtained from NZ financial institutions.

Our list of reportable jurisdictions was updated on 22 February 2021, adding New Caledonia to the existing list of 96 reportable jurisdictions. New Caledonia is now a reportable jurisdiction for reporting periods beginning on or after 1 April 2020.

If you have any questions or would like a second opinion on any national or international tax issues, please contact me richard@gilshep.co.nz

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