Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill (the Multinational Tax Bill)

Ministerial statement

“Taken together, the underlying theme of the measure in this bill is adjusting the tax system to achieve fairer results for taxpayers”.

Editorial comment

On the night of Budget 2023, the Multinational Tax Bill was released.

In addition to the headline tax changes including the increase in the trustee tax rate to 39% and the BEPS changes, the Multinational Tax Bill proposes to introduce the following:

1. Rollover relief for certain business assets destroyed by the North Island floods.

„ Profits and depreciation recovery income arising when insurance or compensation proceeds are received for business assets destroyed (irreparably damaged / useless for income earning purposes) by the North Island flooding events may be deferred provided the assets are replaced. Normally such insurance or compensation proceeds would give rise to depreciation recovery income on a depreciable asset or income on an asset held on revenue account.

„ This rollover relief is similar to that provided for assets destroyed by the Canterbury and Hurunui-Kaikoura earthquakes. However, unlike the Canterbury and Hurunui-Kaikoura tax relief, this rollover relief for the North Island floods does not include a requirement that the replacement land and buildings be located in the same region in New Zealand.

„ The taxpayer will need to elect to apply the rollover relief provisions and notify the Commissioner of their election. This must be done by the date their tax return is required to be filed for each income year that they elect to use the rollover relief.

„ The rollover relief is effective for the 2022/23 and later income years, ceasing in the 2027/28 income year.

2. Double tax agreement (DTA) source rule.

„ Amendments to the DTA source rule would ensure that this rule does not apply to: technical services fees provided by a non-resident and performed outside New Zealand (which arise in relation to New Zealand’s DTA’s with India, Fiji and Malaysia because of a special “fees for technical services” provision in those DTA’s); and certain payments made to another contracting state but connected to a permanent establishment in a third state.

„ The amendment is effective for income years commencing on or after 1 July 2018.

3. Transitional residents holding New Zealand financial arrangements.

„ Amendments would create a deemed acquisition of New Zealand sourced financial arrangements held by a non-resident when they become New Zealand transitional resident. Currently, any base price adjustment at the end of that financial arrangement will incorrectly include gains and losses in the period before the person became a New Zealand resident.

„ This particularly impacts immigrants who are required to hold New Zealand sourced financial arrangements (such as New Zealand Government bonds) to meet their visa requirements and acquire these prior to moving to New Zealand.

4. Backdated ACC and MSD entitlements.

„ Alternative tax treatment for backdated ACC and MSD entitlements paid on or after 1 April 2024. The alternative treatment is designed to reflect the current unfairness where a person is artificially pushed into a higher tax bracket for a single year on the payment of those backdated amounts.

5. RWT-exempt status of charitable entities.

„ A remedial provision provides that all entities registered under the Charities Act 2005 automatically have RWT-exempt status for the duration of their registration. Currently, the legislation only specifically provides RWT-exempt status for charitable trusts registered under the Charities Act 2005.