Using foreign exchange rates | You can run but you can’t hide | Home office claims – watch out! | RSP eligibility criteria change

By September 16, 2021 No Comments

Using foreign exchange rates

I suspect that when most of you are wanting to convert a client’s foreign currency amounts into New Zealand dollars (NZD), you simply jump on IR’s website and look-up the appropriate rate here. Since April 1st, IR has commenced obtaining these rates from the Reserve Bank of New Zealand.

While it is certainly convenient in my view to use what has been published by the Revenue for the purpose of your calculations (and unlikely IR will dispute the same), you can (unless the Act or Commissioner prescribes a currency conversion method, rate or source for a particular transaction or arrangement) obtain your foreign currency exchange rates from other sources.

In this regard, IR has published an exposure draft titled ‘Foreign Exchanges Rates’ with the reference PUB00401, which is a determination to approve the sources of rates that can be used to convert a foreign currency into NZD to determine a tax liability if the rates needed are not published by IR, or the rates published by IR are not used; and the use of mid-month, end of the month and rolling average rates.

If you use appropriate rates from either the IR link posted above or the foreign exchange rates published by a country’s central bank, then these rates will be considered acceptable for converting your foreign currency amounts to NZD. Depart from the use of either, however, then the risk exists that IR will not accept the rate you selected as correctly reflecting the NZD amount for your tax position – for example, where the rate selected is not considered to be appropriate given the nature of your transaction.

The draft determination also explains how you should source mid-month, end of month and rolling average rates from your selected source, and how to calculate a mid-rate of a currency where one is not provided – for example, instead you are given two rates for the relevant currency – a bid/buy rate and a offer/sell rate. Also explained is what to do if the source does not provide an NZD base rate (often a USD rate will be given however, so naturally you’d convert into USD and then convert into NZD).

Note that if you choose your own rate source, then you must also apply your source consistently (from year to year). If you’d like to comment on PUB00401, please do so no later than October 11th. I think I’ll just stick with my trusty link.

You can run but you can’t hide

Well, that’s certainly the intention of The Convention on the International Recovery of Child Support and Other Forms of Family Maintenance (the 2007 Hague Convention) which was concluded at the Hague on 23 November 2007 and was ratified on 23 July 2021 and will be active in New Zealand from 1 November 2021.

So, if you do want to be able to hide, just make sure it’s not to one of the other 43 countries who have also signed the Convention, where commencing November 1st, IR will be able to lean on them to request collection and enforcement of child support and domestic maintenance.

Home office claims – watch out!

Clearly IR must have too much time on its hands if you’ve had a chance to read the latest issue of ‘Agents Answers’. The article in question discusses home office claims and suggests that if a company uses a home office, that is, the home of one of its shareholders, it will not be able to claim a deduction for the office unless it has incurred the actual cost.

In this regard, IR’s view is that a company can only claim a deduction where the following conditions are satisfied:

  • The company can prove a nexus between its business income and the home office expense that the company is claiming. Any private portion cannot be claimed.
  • The company has incurred the expenditure within the income year the deduction is being claimed. That is, it has a liability to pay the expense either direct to the provider or to the homeowner.
  • Appropriate accounting records must be kept showing that these conditions have been satisfied, along with any agreement allowing the company to use the home.

The commentary then goes on to discuss that payments to shareholders can only be exempt income to the shareholder (applying section CW 17) where an employment relationship exists i.e., the person is considered a shareholder employee. Since it’s a Monday and I’m feeling kind, here’s the Act’s definition so you don’t need to go looking for yourself:

Shareholder-employee means a person who receives or is entitled to receive—

(a) salary or wages to which section RD 3B or RD 3C (which relate to income other than PAYE) applies:
(b) income, other than from a PAYE income payment, to which section RD 3B or RD 3C applies,

Now I must admit that I am certainly not going to be losing a lot of sleep over the article, materiality being the primary reason for that, but because they’re made the effort to say something, you might just want to mention to any non-shareholder-employee client of yours with a home office, that the numbers they give you annually do have some sort of correlation to actual expenses incurred by them, just in case the Revenue comes knocking on their home office door.

RSP eligibility criteria change

Now refocusing on something that is actually important, hopefully by now, those of you entitled to make a resurgence support payment claim due to the present Alert Level changes, have already lodged your application and been paid out.

However, if you have a new business, you may have felt you lucked out due to not being able to satisfy the requisite six-months in business eligibility criteria. Well from 8am on the 9th of September, all this is about to change, the six-month qualifying criteria is being reduced to one-month, so as long as you commenced your business prior to 17th July 2021, you will now be entitled to make a claim (satisfying all the remaining criteria of course – 30% decline in revenue being the main element).

Now remember that the RSP is a single one-off claim to assist with rent and other fixed costs during the higher Alert Level period – calculated as $1,500 plus $400 per FTE employee up to 50 employees (max payment $21,500). I suggest no hurry in making your claim (purely from a cut-off perspective) however, as its going to remain open until we’ve all been back at Alert Level 1 for a month, and sadly I think that is a long way off yet.

This article from the ‘A Week in Review’ newsletter was originally published Monday 6th September 2021. 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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